Guess Shined In Europe, But Hardly Anywhere Else

Mizuho’s Betty Chen believes that the Q1 miss reported by Guess?, Inc. GES and the lowered FY16 guidance “reflects ongoing weakness domestically and slower growth in Asia.”

Chen maintained a Neutral rating on the company, while lowering the price target from $19 to $17.

Some Positives

“While we were encouraged by improvements in the European segment and proactive global cost reductions, we would like to see more balanced improvements across multiple territories and increased visibility on the gross margin opportunity,” the analyst mentioned.

Chen believes that despite near-term macro challenges, Guess’ cash per share of $5 and dividend yield of 5.5 percent could be attractive for long-term investors.

All But Europe

Although management reiterated its three-year goal to grow the company’s top line and EBIT by 2019, they also noted that the pace of the APAC business was more challenging and likely to skew growth and profitability.

In addition, Chen noted that trends in the Americas continued to be tough, with weakness in Guess’ domestic business.

“Challenging weather negatively impacted April and resulted in underperformance of Spring product including key categories such as dresses, denim, and watches,” the analyst said.

On the other hand, trends have been improving in Europe, with the Q1 comps in the high mid-teens and positive across all regions.

“We believe improved product assortment, visual merchandising and outfitting, and a more traditional promotional cadence has helped sales trends and may bode well for improvement in the Americas over time,” Chen added.