Guess?, Inc. - Growth & Income

GUESS?, Inc. (GES) is increasingly becoming a globally recognized brand. Ten years ago, only 6% of revenue came from outside of North America - now it's almost 50%.

Guess recently reported another positive earnings surprise driven by solid top-line growth in Europe and Asia. Management also raised its guidance for 2011, prompting analysts to revise their estimates significantly higher. This propelled the stock to a Zacks #1 Rank (Strong Buy).

Third Quarter Results

On November 23, Guess reported earnings per share of 75 cents for the third quarter of 2011. This crushed the Zacks Consensus Estimate by 27%, and it was a 9% increase over the same quarter in 2010. Over the last 4 quarter, Guess has had an average upside surprise of 16%.

Total revenue increased 17% year-over-year, driven primarily by overseas growth. Asia saw revenue jump 35%, while Europe gained 28%. Although not as impressive, revenues in North America increased a respectable 6%.

The gross margin, however, contracted from 45.3% of sales to 43.4%. As a result, operating income fell 6% year-over-year.

Positive Outlook

Management raised its guidance for the remainer of 2011 following the strong third quarter. The company now expects to earn between $3.02 and $3.06 per share, up from previous guidance of $2.80 and $2.85.

Given the revised guidance, analysts raised their estimates significantly higher. The Zacks Consensus Estimate for 2011 is $3.12, above management's guidance, and an 18% increase over 2010 EPS. The 2012 estimate is currently $3.46, representing 11% EPS growth.

Special Dividend

Guess recently rewarded its shareholders by declaring a special dividend of $2.00 per share and also increasing its regular quarterly dividend by 25%.

Since 2007, the company has raised its dividend at an average annual rate of 36%. It has a dividend yield of 1.6%.

Solid Fundamentals

Shares trade at 16.4x forward earnings, a slight premium to the industry average of 15.3x. Its PEG ratio is an attractive 1.0.

Return on equity is an impressive 25.3%, well above the industry average of 15.4%. This helps justify the company's relatively higher price to book ratio (4.0 vs. 2.3).

GUESS?, Inc. is headquartered in Los Angeles, California and has a market cap of $4.5 billion.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

 
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