Can Guess? Fuel an Abercrombie-Like Short Squeeze?

Key Points

• Guess? is an accessible and affordable luxury fashion brand operating in over 80 countries.
• The company reported a blowout fiscal Q4 2024 EPS beat by 45 cents and authorized a $200 million stock buyback and a one-time special dividend payment of $2.25 per share in addition to the normal 30 cents distribution.
• The stock's structure of a tiny 27 million share float with a 26% short interest trading at 10.45x forward earnings parallels the spark that led to the 354% run-up in Abercrombie & Fitch stock.

Fashion apparel brand Guess? Inc. NYSE: GES stock recently surged on its fourth-quarter fiscal 2024 results. The consumer discretionary sector company saw its shares spike 20% on strong results accompanied by a $200 million stock buyback authorization and a special dividend of $2.25 per share. Guess? is a worldwide fashion retailer operating in over 80 countries. Its recent price gap carries some similarities to another turnaround stock, Abercrombie & Fitch Co. NYSE: 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 aren't considered cheap by any means, they are often discounted online, making them accessible -- very much like its models, family and photographers through interviews and videos on its website. Its products can be found in department stores like Macy's Inc. and Nordstrom Inc.

Similarities with Abercrombie & Fitch

Shares of Abercrombie & Fitch have seen a meteoric rise from $22 in May 2023 to a peak of $140.28 in March 2024, rising 354% in the past year. Fundamental improvements certainly paved the way, but the added 10% short interest on a tiny 49 million share float trading at 16.15x forward earnings helped accelerate it to triple-digit levels.

By comparison, Guess? has an even higher short interest of 26% on a smaller float of 27 million shares trading at an even cheaper 10.45x forward earnings. The company announced it is about to exceed $3 billion in revenues for the first time after integrating recently acquired rag & bone. In addition, Guess? just authorized a $200 million stock buyback program and a special $2.25 one-time dividend payout.

Strong Earnings Beat

Guess? reported fiscal Q4 2024 EPS of $2.01 per share, beating the $1.56 consensus analyst estimate by 45 cents. Revenues gained 9% YOY to $891.05 million versus $855.54 million consensus estimates. The company delivered $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 cash position, the Board 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 Guidance

Guess? provided somewhat mixed guidance missing on EPS but beating on revenue guidance. For fiscal Q1 2025, it sees EPS losses of 41 cents to 37 cents, falling short of the loss of 2 cents consensus analyst estimates. Q1 2025 revenues are expected to rise 1% to 2% YOY or $576 million to $581 million versus $573.03 million consensus estimates.

Fiscal full-year 2025 EPS is expected to be between $2.56 and $3.00 versus $2.97 consensus estimates. Full-year 2025 revenues are expected to grow 11.5% to 13.5% or $3.096 billion to $3.151 billion, crushing the $2.84 billion consensus analyst estimates. 

Margin Improvement

The fiscal full-year 2024 operating margin was 9.5%, with an adjusted operating margin of 9.2%. GAAP EPS was $3.09, and adjusted full-year Adjusted EPS was $3.14.

Management Insights

Guess? CEO Carlos Alberini noted the rag & bone acquisition and the Guess Jean launch are meant to capture demand from Gen-Z consumers. rag & bone operates 34 stores in the United States and two in the United Kingdom. Its products are also distributed in high-end boutiques and select department stores, generating $252 million and an adjusted EBITDA of $18 million in 2023. Alberini noted that a strong EPS of $3.14 was last achieved 12 years ago in 2012.

“We have built a powerful global platform that will enable us to drive the development and expansion of our Guess and Marciano businesses, as well as rag & bone, which we are thrilled to be adding to our portfolio through our first acquisition since Guess was created 43 years ago," said Guess? Co-Founder Paul Marciano. 

Daily Pennant Pattern

The daily GES candlestick chart illustrates a pennant pattern. The pennant is a symmetrical triangle with a preceding flagpole indicating a parabolic spike or gap. The descending upper trendline formed at the $33.50 swing high on April 1, 2024, and the ascending lower trendline formed off the $29.42 low on March 26, 2024. The flagpole formed on the Q4 2023 earnings report gap on March 21, 2024, as shares jumped 20.69% following the upbeat earnings and guidance. The daily relative strength index (RSI) has since peaked at the 80-band and has been falling to the 59-band. Pullback support levels are at $ 29.42, $27.55, $26.26, $24.58.