Guess? Takes 1 Step Forward, 2 Back
Just last week, Guess? won a long legal battle with high-end designer Gucci, over the use of the letter G in Italy. The court ruled that Gucci could not stop Guess? from using the letter to brand its merchandise in Italy, and that the letter was not an intrusion on Gucci's double-G logo. While Guess? executives are surely happy to have the four-year-old case done with -- although other cases continue in France and China -- the victory isn't going to stop Guess? from struggling.
Over the last 12 months, the designer's stock has been flat, but there are new products and locations in the pipeline that it's hoping will turn the boat around. So far, efforts have had limited success, with the company reporting lower revenue, operating income, and comparable sales last year.
The fall of Guess?
A 6.6% drop in comparable-store sales over the company's last year, topped off by a 6.3% decline in the fourth quarter, set Guess? up for failure. The company was unable to entice customers into its stores, and as a result of the ensuing promotional environment, sales and margins fell. That's all behind us now, though, so what is Guess? going to do to fix it?
The answer isn't immediately clear. Whereas investors can look at the Asian expansion planned by Gap or the new Kate Spade Saturday line from Fifth and Pacific , Guess? has less to draw on. The company is forecasting fiscal 2014 revenue to be in line with fiscal 2013, and it's anticipating a decline in operating margin.
Those numbers are driven by the expectation of lowered comparable sales over the coming year. That's already been seen in the company's first quarter, as it reported operating margins were down. To support margins, the company is hoping to manage its pricing through the rest of the year, so that promotions are not as prevalent as they have been recently.
Guess? has made a change at the top that may help the company over the long run. Just last week, it announced that it had a new chief design officer, Sharleen Ernster Lazear. Lazear comes to Guess? from Victoria's Secret, where she spent the last 13 years. The company must hope that her experience in the intimates retail world will translate to success with its own intimates line, which has played a large role in the company's South Korea operation.
The change might be too little, too late, as Fifth and Pacific is also pressing for an intimates line attached to its sluggish Juicy Couture line in early 2014. Outside of that market, Guess? is trying to make a play on fashion by jumping on board with cultural trends -- it has a Fast & Furious 6 line coming out -- but it still hasn't figured out a way to make its core competency more competitive.
In terms of that core, Gap has made a comeback with its denim line, and has been able to use that strength to draw new customers in. Comparable sales rose at Gap, as Guess? watched its comparable sales fall. If Guess? is going to be anything other than a cycle of flashes in the pan followed by burnouts, it needs to focus more on its core lineup, and use that to grow its business. For now, things don't look good.
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The article Guess? Takes 1 Step Forward, 2 Back originally appeared on Fool.com.Fool contributor Andrew Marder 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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