CFRA: 3 Reasons To Remain Cautious On Guess Following 20% Earnings Pop

Guess?, Inc. (NYSE: GES) shares soared more than 20% Thursday following a big second-quarter earnings beat.

A CFRA analyst said Thursday that investors have three reasons to remain cautious. 

The Analyst

Camilla Yanushevsky reiterated a Hold rating on Guess and raised the price target from $14 to $16.

The Thesis

Guess reported second-quarter non-GAAP EPS of 38 cents on revenue of $683.2 million. Both numbers topped consensus analyst estimates of 29 cents and $673.8 million, respectively.

Revenue was up 9% from a year ago on a constant-currency basis.

Looking ahead, Guess guided for fiscal 2020 revenue growth of between 3% and 3.5% on EPS of between $1.28 and $1.36.

The EPS guidance also came in ahead of a consensus estimate of $1.26.

The second-quarter numbers were impressive enough for CFRA to raise its price target, but Yanushevsky said Guess still has several obstacles ahead.

“GES raised guidance (reflective of $0.13/share benefit from accelerated repurchase program, representing about 20% outstanding shares) and announced that co. expects to cut tariff risk from China production into U.S. to 12%, which is lower than peers and we see as a positive,” the analyst said in a Thursday note. 

The following three headwinds create risk for Guess looking forward, she said: 

• The rise of the “athleisure” trend.
• Growing competition from American Eagle Outfitters (NYSE: AEO), Abercrombie & Fitch Co. (NYSE: ANF) and Levi Strauss & Co. (NYSE: LEVI).
• Falling denim price points due to lackluster demand.

The stock closed Thursday’s session higher by 20.48% at $18.12. 

Benzinga’s Take

Guess investors had reason to celebrate on Thursday given the big earnings beat, but pricing pressures and lack of demand are difficult trends to overcome in the long-term. Guess shares are still down more than 20% overall in the past five years, which is indicative of the secular headwinds the business is facing.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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