Guess (GES)

Contemporary clothing brand Guess (NYSE:GES) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 9.4% year on year to $647.8 million. The company expects next quarter’s revenue to be around $760.4 million, close to analysts’ estimates. Its non-GAAP loss of $0.44 per share was 36.2% above analysts’ consensus estimates.

Company Overview

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.

Thanks to social media and the internet, not only are styles changing more frequently today than in decades past but also consumers are shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel and accessories companies have made concerted efforts to adapt while those who are slower to move may fall behind.

Guess’s main competitors are Zara (owned by Inditex, OTCMKTS:IDEXF), H&M (OTCMKTS:HNNMY), ASOS (OTCMKTS:ASOMY), and private company Forever 21.

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Guess’s 4.9% annualized revenue growth over the last five years was sluggish. This was below our standard for the consumer discretionary sector and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Guess’s annualized revenue growth of 7% over the last two years is above its five-year trend, but we were still disappointed by the results.

This quarter, Guess reported year-on-year revenue growth of 9.4%, and its $647.8 million of revenue exceeded Wall Street’s estimates by 2.4%. Company management is currently guiding for a 3.8% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 3% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and suggests its products and services will face some demand challenges.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Guess’s operating margin has been trending down over the last 12 months and averaged 6.9% over the last two years. The company’s profitability was mediocre for a consumer discretionary business and shows it couldn’t pass its higher operating expenses onto its customers.

This quarter, Guess generated an operating margin profit margin of negative 5.1%, down 1.8 percentage points year on year. This reduction is quite minuscule and indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Guess’s EPS grew at an astounding 183% compounded annual growth rate over the last five years, higher than its 4.9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

In Q1, Guess reported EPS at negative $0.44, down from negative $0.27 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Guess’s full-year EPS of $1.80 to shrink by 9.1%.

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.

Guess has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 3.9%, lousy for a consumer discretionary business.

Guess burned through $96.42 million of cash in Q1, equivalent to a negative 14.9% margin. The company’s cash burn increased from $44.02 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Guess historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 11.8%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Guess’s ROIC averaged 2.4 percentage point decreases each year. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Guess burned through $15.71 million of cash over the last year, and its $1.59 billion of debt exceeds the $151.2 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the Guess’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of Guess until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

We were impressed by how significantly Guess blew past analysts’ EPS expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. On the other hand, its EPS guidance for next quarter missed. Zooming out, we think this was a mixed quarter. The stock traded up 1.1% to $11.17 immediately after reporting.

Updated: June 16, 2025 at 11:11 PM EDT

When considering an investment in Guess, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Guess doesn’t pass our quality test. For starters, its revenue growth was weak over the last five years, and analysts don’t see anything changing over the next 12 months. And while its astounding EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its projected EPS for the next year is lacking. On top of that, its low free cash flow margins give it little breathing room.

Guess’s P/E ratio based on the next 12 months is 7.4x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $16 on the company (compared to the current share price of $12.13).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.