At any other time, Guess Inc.’s expansion into fashion-forward Italy and other parts of the European continent could be seen as a good thing. But last week, the transatlantic connection cost the jeans company some shareholder confidence.
Helena Tse, an analyst at Bank of America Merrill Lynch in New York, downgraded Guess stock Nov. 17 from “neutral” to “underperform,” citing the company’s exposure to unstable markets in Italy. Separately, analysts from Piper Jaffray in Minneapolis lowered their target price on shares of Guess stock. As a result, the company’s stock slid from $30.43 on Nov. 16 to $26.60 on Nov. 23, a decline of about 13 percent.
“We believe that Italian retail trends and consumer confidence levels are continuing to deteriorate, and that will likely be reflected in bookings and also sales going forward,” said Jeff Klinefelter, a senior analyst at Piper Jaffray.
The European debt crisis has become a global concern. Italy became the center of turmoil in recent weeks as interest rates rose drastically.
Guess was founded in 1981 by the Marciano brothers, who introduced America to stone-washed denim jeans. It made a big push into Europe in 2005 when it acquired Maco Apparel SPA, an Italian licensee of Guess jeans wear. Now, sales of Guess-branded apparel in Europe make up about 40 percent of the company’s revenue, and Italy – the company’s largest European market by far – makes up about 17 percent. And those Italians may not be in a buying mood for a while.
Nevertheless, analysts said that they don’t see Italy posing long-term problems for the downtown L.A. company.
“It puts them temporarily at a disadvantage,” said Klinefelter.
Guess is scheduled to release earnings this week. The company reported increased revenue for each of the last three quarters. On average, analysts predict Guess will report more than $655 million in revenue for this quarter, 6 percent higher than the previous year.
Tse said she believes the company is poised for a rebound in North America that could help offset poor performance in Europe.
“Opportunity remains for long-term global expansion,” her report states.
Klinefelter’s report said that Asia, which makes up only 8 percent of the company’s total revenue, is a great opportunity for company growth.
“They have a strong market share in the United States, they have great market share in Europe and they have growing presence in Asia,” he said. “The Guess brand has, in my opinion, a lot of potential to continue expanding around the globe in terms of directly operated businesses and licenses.”
A spokeswoman for Guess declined to comment.
