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Guess ?
Matt's Fundamental Stock Analysis
Content Disclaimer: I am only a retail investor and I only intend these reports to be used as a guidance. I recommend you do your own research as this will better help you to understand how companies work and operate and what drives their growth. What stocks you decide to purchase, should be chosen by you and this report is made only to display companies which I think are worthwhile to look at and discuss. Just because it is a good company or I like the company does not mean that it will do good in the future. If you want to copy or replace my report, please do so with a link connecting to my blog.

Guess ? (GES) Company Business Guess is a specialty apparel and accessories retailer which sells its merchandise directly through their retail stores, through department stores such as Macy's and Bloomingdale's, and through their ecommerce business. They use to be the leading denim brand in the 1980s, however they struggled to keep in the 90s due to pricing pressures and a trend towards baggie clothing. Guess struggled to adapt to market conditions and competitors such as Polo Ralph Lauren, Tommy Hilfiger, and Calvin Klein exploited Guess's mistake. In order to turn around, Guess has made a heavy presence in Europe. They continue to actively pursue growth opportunities around the World and believe Europe, Asia, and the Middle East to continue to offer a significant amount of growth opportunities. Financial Target (Goal): Expect to achieve $1 billion in revenue in Europe in Fiscal 2012 (One year ahead of originally planned) Current Growth Strategy: Plan to continue to increase their retail presence, expand internationally, and build a global infrastructure platform Europe was significant for their sales and earnings growth in Fiscal 2011 o Revenues increased over 30% and earnings increased over o They are involved in France, Spain and the U.K, and their core base in Italy o Expanding into Belgium and Holland o Plan to open between 125 and 130 stores of which 25% will be owned by the company Continue to see major growth opportunities in Europe and the Middle East o Europe, especially Italy and Spain, are going through rough times right now with the Europe crisis and if it falls through they may struggle even more o Could mean in the future more sales form this market as it recovers and grows In Fiscal 2011, revenues increased 36% along with the opening of 40 new stores and 80 concessions throughout China o Have already opened up over 100 stores and concessions in the last 3 years in China, 40 of them are company owned o Plan to open up another 70 stores with their partners in Asia Currently in the process of building a "world-class" organization and infrastructure in Hong Kong and Shanghai to support their network o This is critical for them to achieve their long-term growth they want in Asia In North America they continue to grow and opened 59 new stores during fiscal 2011 as well as launched various new store designs o Plan to open between 40 to 45 new stores during Fiscal 2012

Segment Reporting - Sales:

Overall the business looks strong and very well diversified globally

Additional Information: Chairman of the Board and CEO together own about 30% of the common stock o May make the stock over-valued, but on the optimistic side make the chances of a buyout slim Share Repurchase Program o Extended on March 2011 to $250 million shares available to be repurchased Credit Facility provides up to $208.1 million if needed Financial Statement Notes: Capex for fiscal 2012 expected to be $150 million Dividends o Paid a special cash dividend of $2.00 per share in Q4 2011 o In Q4 2011, raised their quarterly dividend from $0.16 to $0.20 per share

Threats: Success is dependent on the overall health of the economy Failure to learn from their prior mistakes, history repeating itself o Failed to adapt to changing market conditions before They currently hedge their foreign currency risk It should be noted that since they are very involved internationally, any change in foreign rates can change the net income by quite a bit o This does not mean that things are going poorly They also participate in currency contracts for non hedging purposes? Raises a slight concern o This is possibly an added risk that has nothing to do with the underlying business They are one of the few companies in their industry whose revenue did not decrease from the 08 recession and who did not do any goodwill impairment charges after the recession.

Historical Ratio Analysis **If the value is green than the number is believed to be better than the previous number, vice versa if the value is
red

Profitability Ratios
ROE ROA ROIC CROIC

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

4.0% 2.0% 5.8% 24.9%

13.4% 7.0% 1.6% 34.2%

20.4% 9.3% 7.7% 34.2%

28.6% 14.7% 14.5% 39.5%

28.4% 15.7% 23.3% 0.0%

28.4% 15.7% 23.3% 44.7%

27.5% 17.1% 27.1% 46.5%

23.8% 15.9% 20.9% 35.6%

27.4% 17.2% 23.0% 41.1%

22.6% 14.4% 20.3% 37.3%

Profitability ratios are currently high and have historically been very high CROIC has been extremely high over time, making GES extremely attractive
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Solvency Ratios
Quick Ratio Current Ratio Total Debt/Equity Ratio Long Term Debt/Equity Ratio Short Term Debt/Equity Ratio

1.15 1.90 0.98 0.30 0.08

1.42 2.04 0.92 0.19 0.06

1.33 1.89 1.20 0.14 0.12

1.39 1.97 0.94 0.04 0.08

0.00 0.00 0.21 0.03 0.05

1.50 2.10 0.81 0.03 0.05

1.95 2.66 0.61 0.00 0.03

2.57 3.29 0.50 0.00 0.00

2.02 2.70 0.60 0.00 0.00

2.22 3.00 0.57 0.00 0.00

Looks positive with Current and Quick Ratios increasing while debt has been decreasing
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Efficiency Ratios
Asset Turnover Cash % of Revenue Receivables % of Revenue SG&A % of Revenue R&D % of Revenue
Liquidity Ratios
Receivables Turnover Days Sales Outstanding Days Payable Outstanding Inventory Turnover Average Age of Inventory (Days) Intangibles % of Book Value Inventory % of Revenue

1.75 10.6% 5.1% 31.0% 0.0%

2003

1.72 14.5% 7.4% 30.0% 0.0%

2004

1.48 18.3% 8.7% 29.8% 0.0%

2005

1.42 18.6% 11.3% 27.5% 0.0%

2006

1.48 15.7% 14.5% 27.6% 0.0%

2007

1.48 15.7% 14.5% 27.6% 0.0%

2008

1.68 14.0% 12.6% 27.2% 0.0%

2009

1.39 23.6% 13.6% 27.2% 0.0%

2010

1.48 17.2% 14.4% 27.4% 0.0%

2011

1.46 18.3% 12.7% 27.8% 0.0%

2012

0.22 18.7 39.4 4.99 73.19 11.8% 13.1%

0.68 27.0 46.7 5.49 66.46 5.3% 11.3%

0.87 31.9 57.7 5.44 67.16 7.1% 13.0%

1.14 41.1 64.3 4.64 78.72 4.3% 13.9%

0.96 53.1 0.0 4.82 75.78 0.0% 13.3%

0.73 53.1 80.2 4.12 88.55 3.6% 13.3%

0.82 46.1 59.9 4.96 73.56 2.1% 11.5%

0.88 49.7 60.0 4.89 74.71 1.6% 11.6%

0.89 52.6 61.1 5.17 70.66 0.9% 11.8%

0.76 46.2 53.9 4.89 74.65 0.9% 12.2%

2003 P/E P/S P/Tang BV P/CF P/FCF

2004

2005

2006

2007

2008

2009

2010

2011

2012

78.22 0.96 3.80 12.27 9.76

19.82 0.80 2.79 7.95 5.84

26.92 1.71 5.98 14.36 11.26

27.61 2.88 8.26 19.26 15.61

16.65 1.77 4.72 16.69 0.00

18.85 2.01 5.55 12.71 9.85

8.76 0.89 2.46 4.84 4.42

16.62 1.87 3.96 11.17 9.38

11.77 1.36 3.23 7.86 6.55

11.34 1.11 2.56 6.52 5.60

From a relative price multiples basis, GES is strongly undervalued

Relative Ratio Comparison GES does not classify its competitors in their latest's annual statement. However, I believe there direct competitors to consist of Abercrombie & Finch (ANF), Gap (GPS), and Ralph Lauren (RL).
Stock Price Mkt Cap ($M) EV 52 Wk High 52 Wk Low % off 52Wk Low $ $ $ $ $ RL 175.59 16,210.00 15,010.00 182.48 105.11 67.1% 25.5 2.4 7.5 18.4 28.4 12.0 0.5% 0.4% 20.1% 11.3% 16.6% 2.4% 8.6% 3.7% 12.0% 14.9% 2.0 2.9 0.1 0.1 58.3% 56.1% 15.3% 13.9% 9.9% 9.2% 12.8% 10.8% 19.0% 17.2% 17.1 3.5 1.3 $ $ $ $ $ ANF 51.16 4,330.00 3,760.00 78.25 40.25 27.1% 36.5 1.1 2.4 12.2 0.0 7.0 1.4% 1.5% 0.0% 48.1% 15.6% 1.1% 4.6% -78.2% -15.1% -20.9% 1.3 2.1 0.0 0.0 60.6% 64.5% 4.6% 10.2% 3.1% 6.6% 4.2% 8.4% 6.8% 13.2% 50.7 3.4 1.4 $ $ $ $ $ GPS 26.05 12,710.00 12,680.00 27.00 15.08 72.7% 16.9 0.9 5.0 9.6 22.3 6.2 1.9% 2.1% 7.1% 28.0% -1.9% 0.9% -1.8% -25.7% -16.9% 10.1% 1.3 2.0 0.6 0.6 36.3% 38.0% 9.9% 11.0% 5.7% 6.8% 11.5% 12.9% 24.4% 23.0% 0.0 5.7 2.0 GES $ $ $ $ $ 31.69 2,840.00 2,350.00 45.73 25.99 21.9% 11.0 1.1 2.5 8.1 17.0 4.7 2.5% 0.0% 0.0% 28.2% 2.5% 1.1% 17.8% -6.1% -7.7% 16.5% 2.2 3.0 0.0 0.0 43.3% 0.0% 14.8% 0.0% 10.1% 0.0% 15.3% 0.0% 23.6% 0.0% 7.7 4.9 1.5

Multiples
P/E(TTM) P/S(TTM) P/Tang BV(MRQ) P/CF P/FCF(TTM) EV/EBITDA(TTM)

Dividends
Div Yld Div Yld - 5yr avg Div 5yr Grth Payout Ratio(TTM)

Growth Rates
Sales(MRQ) v 1yr ago Sales(TTM) v 1yr ago Sales 5yr Grth EPS(MRQ) v 1yr ago EPS(TTM) v 1yr ago EPS 5yr Grth

Balance Sheet
Quick Ratio(MRQ) Current Ratio(MRQ) LTD/Eq(MRQ) Tot D/Eq(MRQ)

Margins
Gross %(TTM) Gross % 5yr Op %(TTM) Op % 5yr avg Net %(TTM) Net % 5yr avg

Returns
ROA(TTM) ROA 5yr avg ROE(TTM) ROE 5yr avg

Efficiency
Rec Turnover(TTM) Inv Turnover(TTM) Asset Turnover(TTM)

On a relative multiples basis, GES clearly looks under-valued Currently pays out a higher dividend yield Take on less debt than their competitors Recent growth rates are on the lower end while the 5 year averages are well above the average Margins and Returns 5 yr data is actually not 0, but is unavailable with my excel file (please look up or ignore)

Investment Valuations Reverse DCF Starting with a reverse DCF valuation, I will assume a discount rate of 12% and a terminal growth rate of 2.5%. (The terminal growth rate of any company should never be higher than the growth rate of the economy.) A reverse DCF valuation should be used just to see a rough picture of where the market has currently priced GES based on fundamentals. Based on my assumptions the market has currently priced GES to have a FCF growth rate of around a -7% to -8% year after year for the next 10 years with it gradually decreasing over the years, where then it will grow at its terminal growth rate. The range of the FCF growth is given due to the difference between TTM, annual, and average owners earning FCF input. This is a rough estimate number, however this is significantly below its 5 year and 10 year historical averages. FCF growth is best to be looked at over multi-year periods as it is very volatile on a year to year basis. Actual Owners Earnings DCF This is the heart of my valuation of a company. I believe that a more reasonable estimate of around 7% - 9% for the next 10 years with it slowing down in the later years. Under my assumptions, I believe the intrinsic value to be around $60.25 on the safe side and on the more optimistic side $66.36. In fact at a bare minimum if I change the growth rate to 5%, I get a intrinsic value of $54.78! making it largely undervalued!

60 50 40

5 Yr Price vs Intrinsic Value

30 20
10 0 25/07/2005 25/07/2007
Historical Price

25/07/2009
Intrinsic Value

25/07/2011
Buy Price

Graham Valuation The graham valuation is based upon EPS growth over time and includes analysts estimates of future EPS. I require a huge amount of margin of safety for this model as it is not as accurate as FCF, so around a 6080% discount. Based on this model with a long-term EPS growth rate of 7% and an expected EPS fiscal 2012 of $3.07, the intrinsic value comes out to $60.15 making it fairly valued. Being extremely conservative a 5% growth would yield an intrinsic value of $49.84 again making the stock under-valued. FCFE Valuation The growth rate for this model is built around fundamentals, where it is equal to the non-cash return on equity multiplied by the equity reinvestment rate which gives us a net income growth rate of 23.32%. Reason being that we do not want to just guess a growth rate and it is better to get one from fundamentals, obviously the option to adjust these ratios can occur if needed. I believe this growth rate in net income is overstated and a growth rate of 10% to 15% is more reasonable or even conservative. I choose a higher 15% due to how much this model decreases its growth rate over time. According to this model, the intrinsic value is roughly around $40.43 - $51.71 making it under-valued. Technical Analysis Looking at the chart below, we see how bad GES really got prior to the 2000s. In my opinion, technical analysis provides only a little help on this stock and it is largely moved by news and fundamentals. It has pulled back since the start of 2011 and it seems to struggles at about the $48 level. The main point of this chart is to show the poor performance of what happened to GES in the 90s and how their stock price reflected that.

Overview From a fundamental perspective, I believe that GES is largely undervalued and I have a buy rating on this stock. It is undervalued from both a relative price multiples basis and a discounted cash flow basis. I believe the real reason for GES to be undervalued is because shareholders fear that GES may not have learned from their mistake in the 90s and may have trouble to adapt to new fashion trends if they do change. Although, they should be less affected even if this were to occur because they have since been much more diversified internationally then they were in the 90s. In fact, international sales now make up for more than half of GES's total sales. Also, another reason for the discount can be due to the uncertainty that currently revolves around Europe. From a technical perspective, I do not feel that technical analysis holds much weight on this stock. Take Note: Before I purchase this stock, I will perform due diligence on what happened during the 90s and quarterly information. Stock Rating: Buys Price Target: $50 range Best Regards, Matthew

Matt's Fundamental Stock Analysis

Content Disclaimer: I am only a retail investor and I only intend these reports to be used as a guidance. I recommend you do your own research as this will better help you to understand how companies work and operate and what drives their growth. What stocks you decide to purchase, should be chosen by you and this report is made only to display companies which I think are worthwhile to look at and discuss. Just because it is a good company or I like the company does not mean that it will do good in the future. If you want to copy or replace my report, please do so with a link connecting to my blog.