ANF Abercrombie and Fitch Co

Guess? Inc. (GES) is scheduled to report its second-quarter 2012 financial results on Wednesday, August 24, 2011 after market. The current Zacks Consensus Estimate for the quarter is pegged at 81 cents a share. The Zacks Consensus Estimate projects revenues for the quarter to be $657 million.

First Quarter 2012 Recap

Guess? Inc., which faces stiff competition from Abercrombie & Fitch Co. (ANF) and Gap Inc. (GAP), posted strong earnings for the first quarter of fiscal 2012, driven by significant expansion in Europe and Asia.

Adjusted earnings for the quarter were 55 cents a share well ahead of the Zacks Consensus Estimate of 44 cents per share.

Higher sales across the globe helped revenues increase by 10% year on year to $592.2 million. North America, which accounted for 42% of total revenue, saw a 5% increase in sales year-over-year despite a 3.1% decline in same-store sales.

The European market continued its strength as revenues rose 12%. Europe accounted for 36% of total revenue. The company's Asia segment was also strong, with sales rising an impressive 24% year-over-year. The Asian market made up 10% of the overall revenue in 1Q12.

Management Guidance

Following the solid first quarter results, management reiterated its EPS guidance for fiscal 2012. The company expects to earn between $3.30 and $3.50 per share, with an operating margin between 16.5% and 17.0%.

Zacks Consensus Estimate

Although management held its EPS projections steady, analysts revised their estimates higher. The 2012 Zacks Consensus Estimate is within guidance at $3.46, which represents an 11% growth over 2011 EPS. The 2013 consensus estimate also moved higher and currently stands at $3.97. This corresponds to a 15% EPS growth.

Second-Quarter 2012 Zacks Consensus

Earnings estimates for the second quarter of 2012, as provided by the analysts, range from a low of 75 cents to a high of 84 cents. Thus, the current Zacks Consensus Estimate for the quarter is pegged at 81 cents per share.

Agreement of Analysts

Over the past 30 days, one of the 10 analysts revised  his earnings estimate for the second quarter and hence the current Zacks Consensus Estimate inched up by a penny to the current level of 81 cents. The fiscal 2012 earnings estimate also inched up by a penny over the same period.

Analysts feel that in the second quarter, Europe will be a major concern for the company, owing to limited pricing increases and economic recession in Italy, which is a major market for Guess? in Europe. However, they are also of the opinion that with lower domestic competition and reduced promotion costs, the company can fight the challenges in Europe. 

Earnings History Outpaces Zacks

With respect to earnings surprises, Guess? has topped the Zacks Consensus Estimate in the preceding four quarters. Over the last four quarters, the earnings surprise ranged from a 4.35% to a positive of 27.12%, with the average earnings surprise being a positive 15.3%, suggesting that Guess? has topped the Zacks Consensus Estimate by that measure.

Recommendation

We are encouraged by Guess?' focus on cost-control efforts, balance sheet management, and growth opportunities and global expansion.

However, commodity-price inflation, global recession and competition in the highly fragmented apparel industry along with presence of stiff competition are matters of concern.

Currently Guess? holds a Zacks #3 Rank. On a long-term basis, we maintain a Neutral rating on the stock with a short-term Hold rating.

 
ABERCROMBIE (ANF): Free Stock Analysis Report
 
GUESS INC (GES): Free Stock Analysis Report
 
Zacks Investment Research