Guess (GES)

Contemporary clothing brand Guess (NYSE:GES) reported Q2 CY2025 results exceeding the market’s revenue expectations, with sales up 5.5% year on year to $772.9 million. Its non-GAAP profit of $0.26 per share was 63.4% 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 can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Guess’s sales grew at a sluggish 7.9% compounded annual growth rate over the last five years. This fell short of our benchmark for the consumer discretionary sector and is a tough starting point 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 7.3% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.

This quarter, Guess reported year-on-year revenue growth of 5.5%, and its $772.9 million of revenue exceeded Wall Street’s estimates by 1%.

Looking ahead, sell-side analysts expect revenue to grow 5% over the next 12 months, a slight deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will see some demand headwinds.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Guess’s operating margin has shrunk over the last 12 months and averaged 6% 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.

In Q2, Guess generated an operating margin profit margin of 2.3%, down 4.2 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

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 full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

In Q2, Guess reported adjusted EPS of $0.26, down from $0.42 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 $1.64 to shrink by 11.8%.

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’s free cash flow clocked in at $50.72 million in Q2, equivalent to a 6.6% margin. This result was good as its margin was 3.2 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative 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 12.2%, 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 has unfortunately decreased. 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’s $1.61 billion of debt exceeds the $189.6 million of cash on its balance sheet. Furthermore, its 6× net-debt-to-EBITDA ratio (based on its EBITDA of $222.4 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Guess could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Guess can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

It was good to see Guess beat analysts’ EPS expectations this quarter. We were also happy its revenue narrowly outperformed Wall Street’s estimates. Zooming out, we think this was a good print with some key areas of upside. The stock remained flat at $16.78 immediately following the results.

Updated: November 13, 2025 at 10:02 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

We see the value of companies helping consumers, but in the case of Guess, we’re out. To begin with, its revenue growth was uninspiring over the last five years, and analysts expect its demand to deteriorate 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 11.6x. This valuation multiple is fair, but we don’t have much confidence in the company. There are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $16.75 on the company (compared to the current share price of $16.97).