Why Guess? Shares Plunged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of fashion retailer Guess? (NYS: GES) were getting marked down today, falling as much as 23% in intraday trading after the company announced second-quarter earnings.

So what: For deciphering the reason for the big drop, all you really need to know is this: Guess?'s new forecast is well below what Wall Street had expected. On the bottom line, the company now expects that it will earn between $2.15 and $2.30 per share for the year. That's a significant adjustment from its previous forecast range of $2.50 to $2.65 and easily short of analysts' average estimate of $2.56. Revenue is now also expected to be softer than previously thought, as management's $2.62 billion to $2.65 billion range is beneath the $2.7 billion that Wall Street had projected.

Now what: It shouldn't be too shocking to hear that sluggish shopping in North America along with tough times in southern Europe (think Italy and France) are driving the disappointing outlook. However, this shouldn't be a surprise to management, either, and so they obviously dropped the ball on evaluating the environment or executing in the business -- or a bit of both.

Higher-end retail is a tough business when economies around the world are slow, but if Guess? is able to get the wheels back on straight, the stock's valuation following this big fall, along with the 2.6% dividend yield, could prove a pretty attractive proposition.

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The article Why Guess? Shares Plunged originally appeared on Fool.com.

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