Guess (NYSE:GES) Posts Q2 Sales In Line With Estimates But Stock Drops
Contemporary clothing brand Guess (NYSE:GES) reported results in line with analysts’ expectations in Q2 CY2024, with revenue up 10.2% year on year to $732.6 million. It made a non-GAAP profit of $0.42 per share, down from its profit of $0.74 per share in the same quarter last year.
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Guess (GES) Q2 CY2024 Highlights:
- Revenue: $732.6 million vs analyst estimates of $729.9 million (small beat)
- EPS (non-GAAP): $0.42 vs analyst expectations of $0.43 (2.5% miss)
- EPS (non-GAAP) guidance for the full year is $2.56 at the midpoint, missing analyst estimates by 8.2%
- Gross Margin (GAAP): 43.7%, in line with the same quarter last year
- Free Cash Flow Margin: 2.9%, down from 6.4% in the same quarter last year
- Market Capitalization: $1.13 billion
Carlos Alberini, Chief Executive Officer, commented, “During the second quarter we delivered revenue growth of 10%, in line with our expectations. This performance was fueled by the rag & bone acquisition and strong wholesale performance in our Europe and Americas businesses. All our segments, except for Asia, delivered top-line growth. Our bottom-line results reflect our decision to significantly increase our marketing investments compared to last year’s spend to support the international expansion of our brands, including our core Guess brand as well as the new additions to our portfolio – Guess Jeans and rag & bone.”
Flexing the iconic upside-down triangle logo with a question mark, Guess (NYSE:GES) is a global fashion brand known for its trendy clothing, accessories, and denim wear.
Apparel, Accessories and Luxury Goods
Within apparel and accessories, not only do styles change more frequently today than decades past as fads travel through social media and the internet but consumers are also shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel, accessories, and luxury goods companies have made concerted efforts to adapt while those who are slower to move may fall behind.
Sales Growth
A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Unfortunately, Guess’s 1.5% annualized revenue growth over the last five years was weak. This shows it failed to expand in any major way and is a rough starting point for our analysis. 
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. Guess’s annualized revenue growth of 3.4% over the last two years is above its five-year trend, but we were still disappointed by the results.
This quarter, Guess’s year-on-year revenue growth clocked in at 10.2%, and its $732.6 million of revenue was line with Wall Street’s estimates. Looking ahead, Wall Street expects sales to grow 10.2% over the next 12 months.
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Cash Is King
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Guess has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 6.5%, subpar for a consumer discretionary business.
Guess’s free cash flow clocked in at $21.06 million in Q2, equivalent to a 2.9% margin. The company’s cash profitability regressed as it was 3.5 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.
Key Takeaways from Guess’s Q2 Results
We struggled to find many strong positives in these results. Its EPS and full-year earnings guidance fell short of Wall Street’s estimates. Overall, this was a mediocre quarter. The stock traded down 9.3% to $18.31 immediately after reporting.
Guess may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.
