Can you guess? Does it unleash a short squeeze similar to Abercrombie’s Surge?

Fashionable clothing brand Guess? Inc. NYSE: GES shares have recently seen a surge following its fiscal fourth quarter 2024 results. The consumer discretionary company saw its shares rise 20% on the back of strong results, accompanied by a buyback authorization for $200 million shares and a special dividend of $2.25 per share. Guess? is a global fashion retailer operating in over 80 countries. Its recent price gap bears some similarities to another turnaround stock, Abercrombie & Fitch Co. New York Stock Exchange: ANF.

The company has found its niche in accessible and affordable luxury, which is much higher quality than fast fashion but cheaper than premium luxury brands. While the clothes are by no means considered cheap, they are often discounted online, making them accessible, just like her models, family and photographers through interviews and videos on her website. Its products can be found in department stores such as Macy’s Inc. and Nordstrom Inc.

Similarities to Abercrombie & Fitch

Abercrombie & Fitch shares have skyrocketed from $22 in May 2023 to a peak of $140.28 in March 2024, an increase of 354% over the past year. Fundamental improvements certainly led the way, but the added short interest of 10% on a small float of 49 million shares trading at 16.15x forward earnings helped accelerate it to triple-digit levels.

In comparison, guess what? it has an even higher short interest of 26% on a smaller float of 27 million shares trading at an even cheaper forward earnings of 10.45 times. The company announced it is on pace to surpass $3 billion in revenue for the first time after integrating recently acquired Rag & Bone. Plus, guess what? just authorized a $200 million stock buyback program and a special one-time dividend payment of $2.25.

Strong earnings

Guess? reported fiscal fourth-quarter 2024 earnings per share of $2.01 per share, beating analysts’ consensus estimate of $1.56 by 45 cents. Revenue increased 9% year-over-year to $891.05 million versus consensus estimates of $855.54 million. The company generated $330 million in operating cash flow and $248 million in free cash flow, ending the year with $360 million in cash. Due to the strong liquidity position, the Board has declared a special dividend of $2.25 per share to be paid in May 2024, in addition to the regular dividend of 30 cents per share.

Mixed driving

Guess? provided somewhat mixed guidance, missing on EPS but beating on revenue guidance. For the fiscal first quarter of 2025, it expects EPS losses of 41 cents to 37 cents, lower than the 2-cent loss estimated by consensus analysts. First quarter 2025 revenues are expected to increase 1% to 2% year-over-year, or $576 million to $581 million versus consensus estimates of $573.03 million.

Full-year fiscal 2025 EPS is expected to be between $2.56 and $3.00 versus consensus estimates of $2.97. Full-year 2025 revenue is forecast to grow 11.5% to 13.5%, or $3.096 billion to $3.151 billion, beating analysts’ consensus estimates of $2.84 billion of dollars.

Margin improvement

Operating margin for full fiscal year 2024 was 9.5%, with an adjusted operating margin of 9.2%. GAAP EPS was $3.09, while full-year adjusted EPS was $3.14.

Management insights

Guess? CEO Carlos Alberini emphasized that the acquisition of Rag & Bone and the launch of Guess Jean are aimed at capturing demand from Generation Z consumers. Rag & Bone operates 34 stores in the US and two in the UK. Its products are also distributed in high-end boutiques and select department stores, generating $252 million and adjusted EBITDA of $18 million in 2023. Alberini noted that a strong EPS of $3.14 was achieved on last time 12 years ago, in 2012.

“We have built a powerful global platform that will allow us to drive the development and expansion of our Guess and Marciano businesses, as well as Rag & Bone, which we are excited to add to our portfolio through our first acquisition since the creation of Guess. 43 years ago,” said Guess? co-founder Paul Marciano.

Daily banner template

The daily GES candlestick chart illustrates a pennant pattern. The pennant is a symmetrical triangle with a preceding flagpole indicating a point or parabolic space. The descending upper trend line formed at the high of $33.50 on April 1, 2024, and the ascending lower trend line formed from the low of $29.42 on March 26, 2024. The flagpole has formed on the gap of the Q4 2023 earnings report on March 21, 2024, while the stock jumped 20.69% following the earnings and upbeat guidance. The daily relative strength index (RSI) has since peaked at the 80 band and dropped to the 59 band. The pullback support levels are at $29.42, $27.55, $26.26, $ 24.58.

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