Here’s why guess? Stock crashed today

What happened

Clothing retailer shares Guess? (NYSE: GES) were in freefall on Wednesday due to its report for the first quarter of fiscal 2021. As of 11:15 a.m. EDT today, the stock was down a painful 21%.

First-quarter revenue fell 52% year-over-year. This result is not so surprising since the stores have been closed. But where have the stores reopened, guess? sales are still down.

Image source: Getty Images.

So what

In response to the COVID-19 pandemic, Guess? followed the model of many others consumer discretionary retail businesses. It has closed stores, laid off workers, cut corporate wages and cut spending, including postponing its quarterly dividend. Even with all of these cost-cutting decisions, it’s hard to excel when revenues are cut in half.

It posted a loss of $2.40 per share under generally accepted accounting principles (GAAP). Its loss last year was just $0.27 per share. Even factoring in things like its $53 million non-cash asset impairment charge, adjusted EPS was abysmal at a loss of $1.81 per share.

To move inventory, guess? resorted to substantial discounts on merchandise. In many cases, the business sold clothes at a loss. Only two of its five operating segments had a positive operating margin: Wholesale and Licensing in Americas.

GHG chart

EMS given by Y charts.

Now what

In the last month, guess? the stock rebounded strongly as investors likely anticipated the company’s stores reopening and business as usual. But it’s time to pause on those joyful hopes. The company said sales at reopened stores in the United States are only 75% of what they were before the coronavirus, and only about 70% of pre-virus sales in Europe.

As such, guess? is still a company that still has a long way to go to recover. In recognition of this, the company is still withholding its guidance for the remainder of the year. It is also still suspending dividend payments.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

About Gertrude H. Kerr

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