Can This Prestigious Fashion Brand Pivot Beyond a Decade of Stagnant Growth? 

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Written By Kris Enyinnaya

Established in 1981, Guess?, Inc. operates as a renowned fashion brand, offering a diverse range of women’s and men’s apparel, footwear, eyewear, watches, and accessories under the Guess brand.

With a global presence, the company manages over 1,015 directly operated stores, primarily concentrated in the EU and Middle East regions. 

Despite its longstanding presence, Guess has witnessed stagnant growth in the past decade, reflected in its stock performance, which has remained relatively stable over the same period.

Revenue Stability and Profitability Trends

Guess has maintained stable revenues throughout its history, with modest growth observed from FY2008 to FY2020.

Credits: DepositPhotos

However, intermittent declines in revenue between FY2012 and FY2016 have tempered overall growth, resulting in a compound annual growth rate (CAGR) of 3.6% over the past twelve years. 

Historically, Guess struggled with profitability, with EBIT margins declining from the high teens to 5.6% by FY2020.

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Transformation and Profitability Enhancements

In response to profitability challenges, Guess initiated significant store closures, shuttering 280 stores globally from FY2021 to FY2023.

Despite a slight reduction in revenue growth, this strategic restructuring led to a notable improvement in earnings, elevating the trailing EBIT margin to 8.5%.

Management anticipates further profitability enhancements through technological innovation, fostering optimism for future earnings growth.

Growth Potential and Strategic Initiatives

Although recent growth has been modest due to store closures, Guess aims to accelerate its growth trajectory by capitalizing on various initiatives outlined in its recent investor presentations. 

These initiatives include expanding e-commerce capabilities, enhancing wholesale distribution, entering new markets, and optimizing brand licensing agreements.

Additionally, the company seeks to leverage its global footprint to drive growth for recently acquired brands, such as rag & bone.

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Acquisition of rag & bone

Guess recently announced its first foray into mergers and acquisitions with the acquisition of rag & bone’s assets, in collaboration with WHP Global.

With rag & bone boasting approximately $250 million in sales and an EBITDA of $18 million in 2023, the acquisition presents an attractive opportunity for Guess to expand its product portfolio and tap into new markets.

Valuation and Investment Thesis

Despite its historical performance, Guess trades at a relatively low forward P/E multiple of 9.3, suggesting market expectations for minimal earnings improvements.

However, the acquisition of rag & bone, coupled with potential organic growth avenues, may fuel earnings growth in the future. 

Credits: DepositPhotos

Based on a discounted cash flow (DCF) analysis, Guess’s fair value is estimated at $33.52, representing a substantial upside potential of approximately 34% from the current stock price.

In its history, Guess has navigated through stagnant growth phases. However, recent strategic initiatives, including store closures and the acquisition of rag & bone, present promising opportunities for earnings expansion. 

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