We downgraded our recommendation on Guess? (GES) from Neutral to Underperform as its third-quarter 2012 core earnings of $0.71 per share missed both Zacks Consensus Estimate as well as year ago earnings by 28% and 5%, respectively. The current global economic headwinds and the diminishing disposable income of the consumers were responsible for the earnings miss.
Same store sales also declined in the quarter. In the wholesale segment, reorders for the fall collections as well as spring/summer orders were weak. Channel mix was more than offset by accelerating operating expenses to maintain more stores and planned infrastructure expenses.
The potential slowdown in Europe, which has actually been one of the company’s few bright spots, also creates a major risk for shares of GES. Our six-month target price is $27.
