Guess? Post Q3: Risk Remains To High Yield

Guess? Inc. (NYSE: GES) after announcing its third quarter beat is once again being sized up as a possible income investment due to the current size of the firm's dividend yield. The 7% drop in the share price on the 22nd of this month spiked the yield to almost 6% which is well above-average. The top line grew to $554+ million in the third quarter. This was encouraging as sales have been steadily on the decline at Guess? since 2012. What's driving this top line growth is sustained growth in Europe and Asia where the retailer feels there is ample runway for growth. Europe made up 40% of turnover whereas Asia made up 13%. Growth in international markets will need to continue as there seems to be no catalyst on the horizon for growth to resume in North America. Both wholesale and retail numbers fell in Q3 in the Americas by 2.5% and 13% respectively.
These numbers are not on par with what competitors are reporting which means Guess? is more than likely losing market share in these markets. The size though of America's market for Guess? (40% when both retail and wholesale are included) means that the transition the company is trying to steer may take a while. In saying this, pure dividend investors (with the spike in the dividend yield) want to know if this stock is a safe income investment at this point. Here is how I see Guess? at present as a mere income play.

Despite the yield spiking to almost 6%, the first red flag is the dividend growth rate. For... Read more

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