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Sonia Vora
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Morningstar | Carlos Alberini Appointed as CEO of Guess; Shares Plummet but Still Aren’t a Bargain

We aren't anticipating significant changes to our outlook for no-moat Guess following the announcement that current CEO Victor Herrero will be leaving the company effective Feb. 2. Carlos Alberini, who has been chairman and CEO of Lucky Brand since 2014, will take the helm at this time. We think Alberini’s extensive knowledge of Guess’ operations will be a valuable asset to the firm, as he had served as its president and COO from 2000 to 2010 and played a significant role in building out the firm’s presence in Europe and Asia. From our vantage point, these regions (contributing nearly half of sales in aggregate) will play an important role in Guess’ efforts to turn around its performance and revitalize its brands. As evidence, constant currency retail comp sales were up 12% in Europe and 9% in Asia in the third quarter. Further, we appreciate Alberini’s experience at other retailers; in addition to his current role at Lucky Brand, Alberini was co-CEO of RH until 2014.

We aren’t expecting this change in leadership to have a material impact on our $20.50 fair value estimate or longer-term outlook, which incorporates mid-single-digit sales growth and adjusted operating margin just below 6% on average over the next five years. We also plan to maintain our poor stewardship rating. In our view, consolidated ownership by Paul and Maurice Marciano (who have combined holdings of roughly 30% of shares) could have a negative impact on the stock, and we expect the Marciano’s significant influence on the firm will continue even with Alberini at the helm. In this context, we note Maurice Marciano (currently chairman of the board) will be the interim CEO during the transition, and that Paul Marciano will remain chief creative officer (though his employment will remain “at will”). While shares have fallen more than 17% on the announcement, we had previously viewed the name to be overvalued and would still suggest investors wait for a wider margin of safety.
Underlying
Guess? Inc.

GUESS? designs, markets, distributes and licenses collections of apparel and accessories for men, women and children. The lines include collections of clothing, including jeans, pants, skirts, dresses, shorts, blouses, shirts, jackets, knitwear and intimate apparel. In addition, the company selectively grants licenses to design, manufacture and distribute a range of products that complement its apparel lines, including eyewear, watches, handbags, footwear, kids' and infants' apparel, outerwear, fragrance, jewelry and other fashion accessories. The company's businesses are grouped into five reportable segments: Americas Retail, Americas Wholesale, Europe, Asia and Licensing.

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

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Sonia Vora

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