Options Trade – Guess?, Inc. (NYSE:GES) Puts
Sunday, March 16, 2014

**OPTIONS TRADE: Buy the GES Jun 2014 28.000 put (GES140621P00028000) at or under $2.00, good for the day. Place a protective stop limit at $0.80 and a pre-determined sell at $4.00.

by Ian Harvey

March 16, 2014

Introduction

Guess?, Inc. (NYSE: GES), an apparel and accessory retailer, reports fourth quarter results after the market close March 19. The consensus estimate calls for earnings of 80 cents per share, down from 95 cents during the same period last year. GES stock has underperformed in 2014, losing 7.1% year to date.

The consensus estimate calls for earnings of 80 cents per share, however the street's rumored number is calling for slightly higher earnings of 83 cents. Guess is looking to extend its streak of four quarters posting better than expected results. However, revenues have declined each quarter in 2013, which is a primary reason why the stock has underperformed. Guess is not alone in finding it difficult to drive traffic to its U.S. stores, especially among teen consumers. Competitor American Eagle (AEO) recently reported its fourth quarter results, which were disappointing and led to a steep selloff in that stock, which is not a great sign for other companies in the industry. It is not expected that good news will come in this current earnings report.

Company Details

Guess?, Inc. designs, markets, distributes and licenses a lifestyle collection of contemporary apparel, denim, handbags, watches, footwear and other related consumer products. Guess? products are distributed through branded Guess? stores as well as better department and specialty stores around the world.

As of February 1, 2014, the Company directly operated 494 retail stores in the United States and Canada and 346 retail stores in Europe, Asia and Latin America. The Company's licensees and distributors operated an additional 868 retail stores outside of the United States and Canada.

Key Statistics for GES

Current P/E Ratio (ttm) 14.5969
Estimated P/E(01/2014) 15.1917
Relative P/E vs. SPX 0.8611
Earnings Per Share (USD) (ttm) 1.9545
Est. EPS (USD) (01/2014) 1.8780
Est. PEG Ratio 2.0774
Market Cap (M USD) 2,421.69
Shares Outstanding (M) 84.88
30 Day Average Volume 678,176
Price/Book (mrq) 2.1881
Price/Sale (ttm) 0.9199
Dividend Indicated Gross Yield 2.81%
Cash Dividend (USD) 0.2000
Dividend Ex-Date 12/16/2013
5 Year Dividend Growth 17.32%
Next Earnings Announcement 03/19/2014

Technical Analysis

GES was recently trading at $28.86, down $6.08 from its 12-month high and $4.55 above its 12-month low. Technical indicators for GES are bearish and the stock is in a strong downward trend.

The stock has support above $26.75 and resistance below $31.25.

Analysts Opinions

Guess? had its neutral rating reiterated by analysts at Zacks. They currently have a $31.00 target price on the stock.

Zacks’ analyst wrote, “Guess Inc.’s third-quarter fiscal 2014 sales slipped 2.4% from the prior-year level and missed the Zacks Consensus Estimate due to lower sales in most of the segments. Lower comps and lower orders in the wholesale business prompted Guess to lower its fiscal 2014 guidance. However earnings of $0.42 per share beat the Zacks Consensus Estimate as well as management’s expectations in spite of declining year over year. We believe that lower taxes and advertising expenses made up for weaker revenues and margins to result in better-than-expected earnings in the quarter. We are encouraged by the company’s long-term expansion plans in the emerging markets, which will enable it to withstand the economic crisis that it faces in the developed nations. Guess’ growing e-Commerce business and increasing presence on social networking sites are also encouraging. However, the consistent low traffic in the North American stores and currency headwinds remain concerns. Hence, we maintain a Neutral stance on the stock. “

Guess? (NYSE:GES) was also downgraded by analysts at TheStreet from a buy rating to a hold rating on the 10th January, 2014.

The analysts wrote, “Guess (GES) has been downgraded by TheStreet Ratings from buy to hold. The company’s strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and increase in stock price during the past year. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company’s earnings per share, deteriorating net income and weak operating cash flow.”

Conclusion

Should the company post strong results and the stock does get a bounce, it is viewed that this will be seen as more of a selling opportunity than a reason to turn bullish on the stock. Until it can prove an ability to boost revenues there is little reason to take a bullish view on the stock.

Therefore, based on the facts above the following options trade is recommended…..


**OPTIONS TRADE: Buy the GES Jun 2014 28.000 put (GES140621P00028000) at or under $2.00, good for the day. Place a protective stop limit at $0.80 and a pre-determined sell at $4.00.



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