In prep for the Guess? quarter, here’s a margin walk and our SIGMA analysis. This company has one of the worst top line trajectories and biggest 2-year margin risk in retail, in my opinion.
Yeah, the stock looks cheap at 2-3x EBITDA. But short interest is down to only 6% of the float, and I think margins are going from 17.7% to the low teens over 2 years as the extent to which the company has overearned in a favorable FX and sourcing environment puts the margin structure back in check (simply put, GES printed too much profit at the expense of reinvesting). There are other names that are nearly as cheap with margins and returns heading in the right direction (i.e., Ralph Lauren, and smaller cap names like Payless, Hibbett Sporting Goods and Finish Line).
Yeah, the stock looks cheap at 2-3x EBITDA. But short interest is down to only 6% of the float, and I think margins are going from 17.7% to the low teens over 2 years as the extent to which the company has overearned in a favorable FX and sourcing environment puts the margin structure back in check (simply put, GES printed too much profit at the expense of reinvesting). There are other names that are nearly as cheap with margins and returns heading in the right direction (i.e., Ralph Lauren, and smaller cap names like Payless, Hibbett Sporting Goods and Finish Line).
