Guess? Turnaround in Full Swing

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While the vast majority of retailers have dragged through the recent earnings season, one clothier found success amid a multiyear turnaround. Guess?  delivered quarterly results that delighted investors and analysts -- sending the stock up more than 12% in tow. The previously beleaguered retailer has been slowly but surely putting the pieces back together, and the stock shows it with a 12-month return of 17% -- though much of that happened just this week. The question now is: Did Guess?' gains stem from early turnaround efforts, or does this denim-slinger have more room to run in the future?

Earnings recap 
For the second quarter of 2013, Guess brought in marginally higher sales figures -- a 0.6% gain to $639 million -- but still managed to come more than $15 million ahead of analyst expectations. On the bottom end of the income statement, things looked even prettier. The company earned $0.52 per share, far ahead of Wall Street's consensus of $0.36 per share.

Normally a retail stock sinker, same-store sales continued to fall, 2% this quarter, after a major drop in the first quarter. Investors and analysts were clearly satisfied with a sales stabilization and further evidence of the company's turnaround efforts.

As the company endured a few missteps in merchandising tactics and rising competition from fast-fashion low-priced retailers, sales in North America and Europe dropped off. Since then, though, management has thoughtfully executed the time-tested turnaround strategy -- cutting costs, creating efficiencies, and building out an international business. Throughout last year, 50% of sales came from outside the United States.

Similar to nearly every other retailer this past quarter, Guess? lowered its guidance for the current quarter, with EPS in the range of $0.34 to $0.38, and $610 million to $620 million in revenue. The Street had been expecting around $0.40 per share and $615 million in revenue. More important, and favorably, full-year guidance for EPS (not sales) is actually on the up. The company is now expecting full-year EPS in the range of $1.78 to $1.92.

As evidenced by the double-digit stock rise this week, weak near-term guidance and still-falling comparables weren't a deterrent in management's presentation of a company in mid-turnaround.

Pivot and prosper 
Instead of chasing fast trends -- one of the problems the company had in recent years, Guess? is moving back to iconic denim products and sexy advertising. As the company rebuilds its brand here and abroad, top-line sales can improve along with margins (which are below historical averages in Europe), and continue to send the stock upward.

Guess? still trades at less than 15 times forward earnings, and around 16 times this year's earnings. The company has the ability to keep growing, both in its operations and in stock price, if the U.S. market can be reestablished and the stronger European and Asian markets improved.

For a retail-oriented investor, it looks like there's still time to bank off Guess?' latest efforts.

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The article Guess? Turnaround in Full Swing originally appeared on

Fool contributor Michael Lewis has no position in any stocks mentioned. The Motley Fool recommends Guess?. The Motley Fool owns shares of 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.

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