Strong International Results Propel Guess

No-moat

While the landscape in the Americas remains more challenging, we view positive retail comps and improving profitability as evidence that the firm is making further progress in its efforts to turn around this business. Comps in the Americas Retail segment (31% of sales) were up 3%, though we note this came on top of a 10% decline in the prior year period. Moreover, operating margin in this segment expanded 460 basis points to 2.8%, thanks to lower markdowns, rent renegotiations, and closures of less profitable stores.

We plan to increase our top-line outlook for the year to reflect further strength in Europe and Asia, but don't foresee a material change in our longer-term outlook, which incorporates low-single-digit sales growth and around 6% adjusted operating margin on average over the next decade. We expect these revisions to lift our $19.50 fair value estimate by a mid-single-digit percentage. However, even at this level, we view shares to be expensive, and suggest investors wait for a more favorable entry point.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.