Guess?, Inc. GES is navigating a turbulent operating environment, marked by troubles in North America and Asia regions, cost pressures and evolving consumer preferences. While the company boasts a renowned brand and global footprint, recent performance metrics and guidance paint a concerning picture. The company’s shares have tumbled 25.8% in the past three months against the industry’s growth of 15.1%.

Key Concerns Surrounding GES Stock

While announcing its third-quarter fiscal 2025 results, Guess? reported significant challenges in North America and Asia. In North America, comparable sales, including e-commerce, plunged 15%, reflecting softer consumer demand and declining store traffic. Asia fared no better, with constant currency comparable sales dropping 16%, caused by weak performances in pivotal markets like China and South Korea. Heightened price sensitivity among consumers, spurred by inflation and economic uncertainty, has weakened Guess?’s premium pricing strategy, prompting the company to rethink its promotional activities.

Guess?’s extensive international presence exposes it to significant currency risks. The weakening of foreign currencies against the U.S. dollar may force the company to raise prices, potentially deter consumers or absorb the impact through reduced margins. Management expects currency headwinds to pose a challenge to its fiscal 2025 performance.

Freight costs have emerged as a major hurdle for Guess?. In the third quarter, the company reported incremental freight costs as a direct consequence of the Red Sea crisis. To safeguard its European operations and ensure timely product availability, the company resorted to costlier shipping methods, including air freight. This decision, while strategically necessary to maintain inventory levels and fulfill customer demand, increased operating expenses significantly. For the fourth quarter, the company anticipates an additional $5 million in freight-related expenses, further pressuring margins.

Margins are also under pressure. Gross margin contracted 110 basis points to 43.6% in the third quarter, while SG&A expenses surged 180 basis points to 37.8% of sales. The company’s adjusted operating margin shrank to 5.8%, down from 8.9% a year ago, further squeezed by rising marketing expenditures, occupancy costs and an unfavorable channel mix. These trends point to operational inefficiencies that could hinder Guess?’s ability to compete effectively.

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Guess? Sluggish Outlook Raises Concerns

Guess? tempered its fiscal 2025 revenue and earnings projections at its third-quarter earnings call, signaling continued struggles in the near term. Revenue growth is now expected between 7.1% and 8.1%, down from the previous forecast of 9.5% to 11%. Meanwhile, adjusted earnings per share are forecasted to range between $1.85 and $2, lower than the previously anticipated band of $2.42-$2.70. This lowered outlook highlights persistent macroeconomic headwinds, weak consumer sentiment and sluggish traffic across key markets.

Strategic Drivers Offer Long-Term Hope for GES

Guess?’s strategic initiatives provide a glimmer of optimism. The acquisition of rag & bone and its successful integration have bolstered Guess?’s multi-brand portfolio, with plans to expand the brand into high-potential markets like Europe, the Middle East and Canada. Additionally, the company’s wholesale business, particularly in Europe and the Americas, has demonstrated robust growth. Revenues in the Americas wholesale segment surged 79% year over year in the third quarter, driven by internalizing the outerwear business and increased shipments to off-price accounts.

Guess? is also investing in its digital and multichannel strategy. The company has been prioritizing digital growth, reflected in a 16% year-over-year increase in European e-commerce sales in the third quarter of fiscal 2025. A new loyalty program in Europe aims to boost customer retention by integrating cross-border point redemption and enhancing personalization efforts. These initiatives underscore GES’ commitment to adapting to shifting consumer behaviors while positioning itself for long-term growth.

Final Thoughts on GES Stock

While Guess? has laid the groundwork for strategic growth, the road ahead looks bumpy. The company faces mounting pressure from value-conscious consumers, particularly in North America and Asia. Persistent cost inflation, currency headwinds and declining retail traffic compound the hurdles.

Although initiatives like the rag & bone expansion, wholesale growth and enhanced digital channels show promise, they may take time to offset the immediate pressures on margins and sales. Investors may want to tread cautiously, keeping an eye on how Guess? navigates these hurdles in the near term. The company currently carries a Zacks Rank #4 (Sell).

Stocks to Consider

Under Armour UAA is one of the leading designers, marketers and distributors of authentic athletic footwear, apparel and accessories for a wide variety of sports and fitness activities in the United States and internationally. It flaunts a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Under Armour’s fiscal 2025 sales and earnings per share (EPS) indicates a decline of 10.6% and 50%, respectively, from the year-ago reported figures. UAA has a trailing four-quarter earnings surprise of 75.1%, on average.

Ralph Lauren Corporation RL, which designs, markets and distributes lifestyle products, currently carries a Zacks Rank #2 (Buy). RL has a trailing four-quarter earnings surprise of 9.1%, on average.

The Zacks Consensus Estimate for Ralph Lauren’s current fiscal-year sales and earnings indicates growth of 3.6% and 13.6%, respectively, from the prior-year reported levels.

Hanesbrands Inc. HBI designs, manufactures, sources and sells a range of innerwear apparel and currently carries a Zacks Rank #2. HBI has a trailing four-quarter earnings surprise of 21.6%, on average.

The Zacks Consensus Estimate for Hanesbrands’ current financial-year earnings implies substantial growth from the prior-year reported level.

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