Guess?, Inc. (GES), Aeropostale, Inc. (ARO), Urban Outfitters, Inc. (URBN): 3 Apparel Retailers to Watch

Further, its previous quarterly results were not promising as it posted a loss of $0.16 per share, compared to the $0.13 it earned in the comparable year-ago quarter. Net sales and comps also dropped, portraying an outlook that does not seem so bright for the near future. Even after plummeting following this announcement, its stock price is still high, not concurrent with the outcome and below average growth prospects.

Despite the discouraging signs, the firm has been working hard to amend its mistakes. Its inventory turns of 11 times are considerably higher than those of its closest competitors. This allows the firm to rapidly respond to fashion and trend changes, placing it in an advantaged position to benefit from an increase in demand. While the turnaround seems likely, I remain on the sidelines for now.

A worldwide name

Guess?, Inc. (NYSE:GES) is one of the leading casual apparel designers, manufacturers, and distributors in the world. It holds a strong and varied brand portfolio and strong international presence. However, its target demographic is young and concerned about fashion, thus, not faithful to one brand but rather attracted by trends. With fierce competition to face, Guess?, Inc. (NYSE:GES) relies on its ability to maintain innovation and trendiness.

Although its lack of a moat concerns me and I would, therefore, recommend holding on this stock for now, I advocate on taking a closer look at it, getting to know it, and being attentive to its performance as it might deliver bigger growth than the 9% expected average annual rate. Nevertheless, its strong focus on the slowly recouping European market is still a major concern — although it also provides plenty of store expansion opportunities.

One of the main reasons to believe this is the broad franchise model that the firm has developed, which counts about 20 licenses. Having contributed with over one-fourth of the total operating income (while representing only 5% of the total revenue) in FY 2012, this strategy provides plenty of growth opportunities as the economy recuperates and the brand continues to strategically acquire new licenses (Morningstar).

Other markets, apart from Europe, like Asia, provide plenty of space for store base expansion and results have been encouraging over the past few quarters. Furthermore, the company targets new, fast developing markets such as China, Brazil, Germany, Russia, Japan, and India. Its e-commerce segment also provides various avenues for growth; already strong, it is still a priority for management.

Some analysts are more optimistic and project a 12% annual growth rate going forward (Zacks). If this comes true, Guess?, Inc. (NYSE:GES) would be a pretty good investment, trading at 14.4 times its earnings, a 33% discount to the industry average. Although some risks keep me on the fence about this firm, its history and prospects make it worthy of attention, especially as the firm’s focus on revamping its brand image in order to attract new customers exhibits plenty of upside potential and a takeover is not to be discarded.