Why Guess?, Inc. Stock Fell 12.1% in September

By Markets Fool.com


Continue Reading Below

What happened

Shares ofGuess? Inc.(NYSE: GES) fell 12.1% in September,according to data from S&P Global Market Intelligence, as investors' excitement for the clothing retailer's mixed fiscal second-quarter 2017 report began to wane.

So what

Recall that shares of Guess? skyrocketed nearly 24% the day after that report on Aug. 25. In it, Guess? conceded that quarterly revenue had fallen slightly from the same year-ago period, to $545 million -- below expectations for revenue to grow between 0.5% and 2.5% -- as 7% revenue growth in its European segment (to $213.5 million) more than offset declines in every other region including 3% at Americas Retail, to $226.6 million, 8% in Americas Wholesale, to $29.7 million, and a 6% drop in Asia, to $53.2 million. Licensing revenue also fell 13% year over year, to $22 million.

But that also resulted in adjusted net income of $12 million, or $0.14 per share, which was well above Guess?'s guidance for earnings per share of $0.04 to $0.08. In addition, Guess? increased its full-year earnings outlook.

Continue Reading Below

Even so, I noted at the time that I wasn't eager to buy Guess? stock in the wake of its pop. I also admitted it was "tempting to be disappointed by Guess?'s relative underperformance on the top line" -- a stance that was reinforced when management revealed during the subsequent conference call that revenue growth in China was below expectations, albeit primarily as the company continued to transition the market to a more direct operating model.

Now what

To his credit, Guess? CEO Victor Herrero also insisted that the company has made "very good progress" on its strategic initiatives as part of a three-year plan unveiled earlier this year. As a reminder, those initiatives include elevating the quality of Guess?'s sales and merchandising organization, building out infrastructure as part of a major push into Asia, reinforcing a "strong culture of purpose and accountability," improving the company's cost structure through global cost reductions, and revitalizing its wholesale business.

In the end, however, I was still unconvinced that the gravity of Guess?'s initial earnings pop was merited, given its technically mixed results. So it's not particularly surprising that the stock has virtually given up those gains in the weeks following that quarterly report. For now, until Guess? can show it truly is firing on all cylinders, I'm content continuing to watch its progress from the sidelines.

A secret billion-dollar stock opportunity
The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Guess?. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.