Guess (NYSE:GES) Beats Q4 Sales Targets, Stock Soars

Contemporary clothing brand Guess (NYSE:GES) reported Q4 CY2023 results beating Wall Street analysts' expectations, with revenue up 9% year on year to $891.1 million. It made a non-GAAP profit of $2.01 per share, improving from its profit of $1.74 per share in the same quarter last year.

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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 give signals about its business quality. Any business can put up a good quarter or two, but many enduring ones muster years of growth. Guess's annualized revenue growth rate of 1.2% over the last five years was weak for a consumer discretionary business. Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Guess's annualized revenue growth of 3.5% over the last two years is above its five-year trend, suggesting some bright spots.

This quarter, Guess reported solid year-on-year revenue growth of 9%, and its $891.1 million of revenue outperformed Wall Street's estimates by 4.3%. Looking ahead, Wall Street expects sales to grow 1.7% over the next 12 months, a deceleration from this quarter.

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Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.

Over the last two years, Guess has shown mediocre cash profitability, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin has averaged 6.1%, subpar for a consumer discretionary business.

Guess's free cash flow came in at $264.9 million in Q4, equivalent to a 29.7% margin and up 53.3% year on year.

Key Takeaways from Guess's Q4 Results

We were impressed by how significantly Guess blew past analysts' EPS expectations this quarter. We were also excited its revenue and operating margin outperformed Wall Street's estimates. On the other hand, its full-year earnings guidance fell short of Wall Street's estimates, but we note its revenue outlook was strong.

During the earnings release, the company declared a special dividend of $2.25 per share and a quarterly dividend of $0.30 per share.

Zooming out, we think this was still a good quarter, showing that the company is staying on track. The stock is up 8.3% after reporting and currently trades at $28.09 per share.

So should you invest in Guess 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.