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Guess?, Inc. (GES), Abercrombie & Fitch Co. (ANF): This Fashion Retailer Is Ahead of the Pack

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Things haven’t been easy on US fashion retailers lately. Consumers have been less willing to spend money on discretionary items. Youth retailers have especially felt the pinch, on the whole reporting slowing sales. A bright spot in the industry was Guess?, Inc. (NYSE:GES)’s most recent earnings report, which showed some resilience despite tough market conditions. Despite a surge in its share price following the report, the company still trades at a discount to the industry.

Guess?, Inc. (NYSE:GES)

Guess? at a glance
Guess?, Inc. (NYSE:GES), headquartered in Los Angeles, is a fairly large apparel retailer. The company operates 507 stores in the US and 328 locations abroad. Its main products include apparel items such as jeans, shirts, jackets and dresses, but the company also licenses and distributes a range of accessories including handbags, jewelry and eyewear. The stock is up about 16% in the last year and offers a dividend yield of 2.6%.

Solid performance in a tough market
Whereas other US fashion retailers, such as American Eagle Outfitters (NYSE:AEO) and Abercrombie & Fitch Co. (NYSE:ANF), have come out with some disappointing numbers recently, Guess? posted a fairly upbeat quarterly report . Guess?, Inc. (NYSE:GES)‘s second-quarter EPS of $0.52 smashed the $0.36 consensus and was up $0.03 from the year-earlier period. Revenue of $639 million also beat the $622.9 million consensus, despite a 2% drop in same-store sales which was still not as bad as analysts had anticipated.

The company’s efforts to streamline operations and cut costs seem to be paying off, as it managed to grow its bottom line despite weak sales growth. While there was clearly some improvement in the US market, Southern Europe remained challenging and China was seen slowing down according to management. Nevertheless, the company raised its full-year EPS guidance to $1.78-$1.92, well above the $1.79 consensus .

In any case, the report is a marked improvement over last quarter, when Guess?, Inc. (NYSE:GES) reported a 10% decline in North American sales. Yet, things are still looking fairly gloomy for the American consumer. Strapped for discretionary income, partly as a result of increased taxes and higher gas prices, many shoppers are reluctant to spend money on non-essential items . Guess?, Inc. (NYSE:GES) does appear to be performing better than most of its peers in this environment, though.

Peer results
Abercrombie & Fitch Co. (NYSE:ANF) has fared badly as a result of the tough retail environment. Recently downgraded by Zacks, the company has been struggling with its comp store sales for the last six quarters, and it is expected that this will continue through fiscal 2013 . The company’s latest report was a fairly dramatic miss. Additionally, Abercrombie & Fitch Co. (NYSE:ANF)’s third-quarter guidance came in well below the consensus. Much of this poor performance was blamed on the company’s failure to recognize teens’ fashion needs, specifically .

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