Guess dresses for success with denim
A good pair of jeans lasts a long time — sometimes longer than the companies that make them.
That’s what makes the longevity of Guess Inc. a bit of an anomaly.
Founded in 1981, the Los Angeles fashion company is in its fourth decade, largely because it moved beyond the jeans that were fashionable in the 1980s and 1990s.
The company sells skirts, dresses, shorts, shirts, jackets, knitwear and intimate apparel. It also licenses eyewear, watches, handbags, footwear, jewelry and other fashion accessories.
Today, Guess boasts that it is “one of the world’s leading lifestyle collections of contemporary apparel and accessories.”
With more than 1,600 stores worldwide and $2.7 billion in annual revenue, it would be hard to disagree.
“We’ve had ups and downs for many years, but one thing we never lost is a belief in what we wanted to do: build a brand that will be a lifestyle, will be global and will last decade after decade,” Paul Marciano, the company’s chief executive, said in an interview.
The latest
Guess, headquartered near downtown’s fashion district, is looking to its past to try to improve its future.
After the company posted disappointing results in the fiscal year that ended Feb. 28 — worldwide revenue was down 1% from the year before — Marciano said it would put renewed emphasis on denim.
“Everything starts and ends with the product we deliver,” Marciano said at the time. “I strongly believe that the heritage of Guess is rooted in denim and the Guess girl looks to us for iconic and sexy styles.
“Expect to see more on-trend fashion presented in the sexy, iconic Guess style, coupled with timeless pieces that deliver the quality and value that our customers expect from Guess.”
Marciano, who founded Guess with brothers Georges, Maurice and Armand, said the company may have lost focus as it diversified.
“Accessories became so big since 2000 that the accessories — handbags, watches and shoes — became the focus of the company for a while and we forgot a little bit to take care of the denim,” Marciano said.
“Denim is our world. Denim is global. Our roots are denim,” he said. “It’s not watches, it’s not handbags, it’s not shoes.”
Accomplishments
Guess’ longevity can be traced in large part to its award-winning advertising campaigns, chiefly its black-and-white photography of beautiful people making Guess clothing look so desirable.
One of the company’s most famous models was Anna Nicole Smith, whom Marciano said he discovered in the 1980s. They formed a hugely successful partnership.
By fall 1992, the blonde bombshell had become so popular that thousands of people showed up when Marciano brought her along to Guess store openings in Hong Kong, Tokyo and Jakarta, Indonesia.
“It was simply overwhelming to see such a large crowd for a model who had just launched her career in the Guess campaign a few months earlier,” Marciano said in the company’s book, “A Third Decade of Guess Images.”
Challenges
Once a stronghold, Europe has been a trouble spot for Guess. European sales fell 7% in its last fiscal year as the region’s consumers, worried about the troubled economy there, remained tightfisted.
“In 2008, we thought it would take decades to come back. Americans have adapted way faster than anybody could have thought,” Marciano said in an interview. “Europe is different.... We see a turnaround coming in Spain and Portugal. But Italy and France are still having problems.”
Still, business in North America has been somewhat disappointing, with flat revenue and concerns about future growth.
Marciano said the company plans to increase revenue by expanding. It recently opened its first company-owned store in Brazil and has plans for hundreds of stores worldwide.
“The key to our future growth, we still have plenty of territories where we could expand,” he said, citing Eastern Europe and China, “where we have 100 stores and we could have 300, maybe more.”
The company operates more than 500 stores in the U.S. and Canada.
“We still have room to grow, even here in the U.S. We believe we can expand here,” he said.
Analyst views
One analyst recommends buying the stock, 10 suggest holding it and four rate it a sell. On average, they expect the stock to be selling for $31.40 in 12 months, which would represent an 8% drop from Friday’s close of $34.26.
“We believe there are very few new trends in apparel, and while we applaud Guess for going back to their denim roots, we believe it will take time for these initiatives to unfold,” analyst Erinn E. Murch of Piper Jaffray & Co. said in an October research note.
“We would like to see evidence of improved trends in North America and broader recovery in Italy, which we believe starts with a stabilizing distribution network,” said Murch, who is neutral on the stock.
Jeff Van Sinderen, an analyst with B. Riley & Co., also is neutral on the stock.
“When combined with a still challenging retail environment in southern Europe and an emerging slowdown in China, upside to quality of business/margins could be limited in the near term,” he said.
