Guess (GES) Up 5.8% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Guess (GES). Shares have added about 5.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Guess due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Guess?'s Q1 Loss Wider Than Estimates, Sales Down Y/Y

Guess? posted first-quarter fiscal 2021 results with the top and the bottom line missing the Zacks Consensus estimates and declining year over year. During the quarter, the company bore the brunt of store closures and lower customer demand amid coronavirus outbreak.

Due to uncertainties related to the pandemic, management refrained from giving detailed outlook for the fiscal second quarter as well as fiscal 2021. However, the company anticipates sales in the fiscal second quarter to witness a similar decline.

Quarter in Detail

Guess? posted adjusted loss of $1.81 per share, which was wider than Zacks Consensus Estimate of a loss of 99 cents. Also, the metric was wider than a loss of 25 cents reported in the year-ago quarter. The downside can be attributed to lower revenues and gross margin during fiscal first-quarter.

Net revenues amounted to $260.3 million, which missed the consensus mark of $318 million. Further, the top line was down 51.5% year over year. On a constant-currency (cc) basis, revenues plunged 50.1%. Sales in the quarter were affected by store closures as well as reduced productivity in stores that remained operational amid COVID-19.

The company’s gross margin contracted significantly to 13.2%, due to inventory markdowns amid COVID-19. Also, occupancy deleverage acted as a deterrent.

For the first quarter of fiscal 2021, adjusted operating loss was $108.6 million compared with a loss of $22.4 million in the prior-year quarter. The deterioration was caused by coronavirus-led store closures.

Segment Performance

Revenues in the Americas Retail segment declined 57.7% year over year and 57.4% at cc.

Net revenues in the Americas Wholesale segment dropped 44% year over year. Also, the metric was down 41.8% at cc.

The Europe segment's revenues fell 49.3% year over year. The metric declined 47.4% at cc.

Asia revenues plunged 52.6% on a year-over-year basis. Additionally, the metric dropped 50.6% at cc.

Licensing revenues declined 31.3% year over year.

Other Updates

The company exited the quarter with cash and cash equivalents of $419.4 million as well as long-term debt and finance lease obligations of $94.8 million. Further, stockholders’ equity was $471.7 million. Net cash used in operating activities during three months ended May 2 amounted to $61.6 million.

COVID-19 Related Update

The company is on track with reopening stores as restrictions to check the spread of the coronavirus are being lifted gradually. As of May 2, all of Guess?’s stores have reopened in Asia along with more than 400 stores operational in Europe. In Canada and the United States more than 180 stores have reopened. In fact, management stated that these reopened stores have been performing above expectations. Further, Guess? plans to reopen all its stores by the end of June.Also, the companyhas been bringing back a number of store associates as well as its support staff as stores are opening again.

Apart from this, Guess? has been undertaking a number of measures to enhance its financial position amid COVID-19 outbreak. Among other moves, the company is undertaking tiered salary curtailments temporarily for all its U.S. corporate workers at the management level. Further, it is delaying annual merit raises and considerably reducing store occupancy costs, capital expenditures, inventory purchases and overall expenses. Also, the company has drawn about $212 million under some of its credit facilities and has postponed its dividend payment.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -325.58% due to these changes.

VGM Scores

At this time, Guess has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Guess has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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