Intrinsic value of Guess? - GES

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of GES stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

 Revenue (in 2017), \$M Initial revenue growth rate, % Terminal revenue growth rate, % Revenue decline factor Initial discount rate, % Discount rate multiplier Variable cost ratio, % Fixed operating expenses, \$M Interest rate on debt, % Effective corporate tax rate, %
 Production assets / Revenue, % Life of production assets, yrs Working capital / Revenue, % Revenue / Adjusted assets Adjusted equity ratio Cash flow adjustment, % of Revenue Book value of equity, \$M Shares outstanding, mln Market capitalization, \$bln 1.0

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047

INCOME STATEMENT

Revenue growth rate, %
0.23
2.90
3.11
3.30
3.47
3.62
3.76
3.88
4.00
4.10
4.19
4.27
4.34
4.41
4.47
4.52
4.57
4.61
4.65
4.68
4.72
4.74
4.77
4.79
4.81
4.83
4.85
4.86
4.88
4.89
4.90
Revenue, \$m
2,209
2,268
2,338
2,416
2,499
2,590
2,687
2,792
2,903
3,022
3,149
3,283
3,426
3,577
3,736
3,905
4,083
4,272
4,470
4,680
4,901
5,133
5,378
5,636
5,907
6,192
6,493
6,809
7,141
7,490
7,857
Variable operating expenses, \$m

2,150
2,217
2,290
2,369
2,455
2,547
2,646
2,751
2,864
2,984
3,107
3,242
3,385
3,536
3,696
3,865
4,043
4,231
4,429
4,638
4,858
5,090
5,334
5,591
5,861
6,145
6,444
6,759
7,089
7,437
Fixed operating expenses, \$m

0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Total operating expenses, \$m
2,187
2,150
2,217
2,290
2,369
2,455
2,547
2,646
2,751
2,864
2,984
3,107
3,242
3,385
3,536
3,696
3,865
4,043
4,231
4,429
4,638
4,858
5,090
5,334
5,591
5,861
6,145
6,444
6,759
7,089
7,437
Operating income, \$m
23
118
122
126
130
135
140
146
152
158
165
176
183
191
200
209
218
229
239
250
262
275
288
301
316
331
347
364
382
401
420
EBITDA, \$m
92
176
181
187
194
201
208
216
225
234
244
254
265
277
290
303
316
331
346
363
380
398
417
437
458
480
503
528
553
580
609
Interest expense (income), \$m
1
0
2
5
7
10
13
17
20
24
28
32
37
41
46
52
57
63
70
76
83
91
99
107
116
125
134
144
155
166
178
Earnings before tax, \$m
54
118
119
121
123
125
127
129
132
135
137
144
147
150
153
157
161
165
169
174
179
184
189
195
200
207
213
220
227
235
243
Tax expense, \$m
29
32
32
33
33
34
34
35
36
36
37
39
40
40
41
42
43
45
46
47
48
50
51
53
54
56
58
59
61
63
65
Net income, \$m
23
86
87
88
90
91
93
95
96
98
100
105
107
109
112
115
118
121
124
127
130
134
138
142
146
151
156
161
166
171
177

BALANCE SHEET

Cash and short-term investments, \$m
396
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Total assets, \$m
1,534
1,126
1,161
1,199
1,240
1,285
1,334
1,385
1,441
1,500
1,563
1,629
1,700
1,775
1,854
1,938
2,027
2,120
2,219
2,322
2,432
2,547
2,669
2,797
2,932
3,073
3,222
3,379
3,544
3,717
3,899
1,138
1,126
1,161
1,199
1,240
1,285
1,334
1,385
1,441
1,500
1,563
1,629
1,700
1,775
1,854
1,938
2,027
2,120
2,219
2,322
2,432
2,547
2,669
2,797
2,932
3,073
3,222
3,379
3,544
3,717
3,899
1.941
2.014
2.014
2.015
2.015
2.016
2.014
2.016
2.015
2.015
2.015
2.015
2.015
2.015
2.015
2.015
2.014
2.015
2.014
2.016
2.015
2.015
2.015
2.015
2.015
2.015
2.015
2.015
2.015
2.015
2.015
Average production assets, \$m
256
272
281
290
300
311
322
335
348
363
378
394
411
429
448
469
490
513
536
562
588
616
645
676
709
743
779
817
857
899
943
Working capital, \$m
699
277
285
295
305
316
328
341
354
369
384
401
418
436
456
476
498
521
545
571
598
626
656
688
721
755
792
831
871
914
959
Total debt, \$m
24
17
34
52
72
93
116
140
167
194
224
256
289
325
362
402
444
488
534
584
635
690
747
808
872
939
1,009
1,083
1,161
1,243
1,329
Total liabilities, \$m
565
532
549
567
587
608
631
655
682
709
739
771
804
840
877
917
959
1,003
1,049
1,099
1,150
1,205
1,262
1,323
1,387
1,454
1,524
1,598
1,676
1,758
1,844
Total equity, \$m
969
593
612
632
654
677
703
730
759
790
823
859
896
935
977
1,021
1,068
1,117
1,169
1,224
1,282
1,342
1,407
1,474
1,545
1,620
1,698
1,781
1,868
1,959
2,055
Total liabilities and equity, \$m
1,534
1,125
1,161
1,199
1,241
1,285
1,334
1,385
1,441
1,499
1,562
1,630
1,700
1,775
1,854
1,938
2,027
2,120
2,218
2,323
2,432
2,547
2,669
2,797
2,932
3,074
3,222
3,379
3,544
3,717
3,899
Debt-to-equity ratio
0.025
0.030
0.060
0.080
0.110
0.140
0.160
0.190
0.220
0.250
0.270
0.300
0.320
0.350
0.370
0.390
0.420
0.440
0.460
0.480
0.500
0.510
0.530
0.550
0.560
0.580
0.590
0.610
0.620
0.630
0.650
0.504
0.527
0.527
0.527
0.527
0.527
0.527
0.527
0.527
0.527
0.527
0.527
0.527
0.527
0.527
0.527
0.527
0.527
0.527
0.527
0.527
0.527
0.527
0.527
0.527
0.527
0.527
0.527
0.527
0.527
0.527

CASH FLOW

Net income, \$m
23
86
87
88
90
91
93
95
96
98
100
105
107
109
112
115
118
121
124
127
130
134
138
142
146
151
156
161
166
171
177
Depreciation, amort., depletion, \$m
69
58
59
61
63
65
68
70
73
76
79
79
82
86
90
94
98
103
107
112
118
123
129
135
142
149
156
163
171
180
189
Funds from operations, \$m
18
144
147
150
153
157
161
165
169
174
179
184
189
195
202
208
216
223
231
239
248
257
267
277
288
299
311
324
337
351
366
Change in working capital, \$m
-53
8
9
9
10
11
12
13
14
15
15
16
17
18
19
21
22
23
24
26
27
28
30
31
33
35
37
39
41
43
45
Cash from operations, \$m
71
132
138
140
143
146
149
152
156
160
164
167
172
177
182
188
194
200
207
214
221
229
237
246
255
265
275
285
297
308
321
Maintenance CAPEX, \$m
0
-53
-54
-56
-58
-60
-62
-64
-67
-70
-73
-76
-79
-82
-86
-90
-94
-98
-103
-107
-112
-118
-123
-129
-135
-142
-149
-156
-163
-171
-180
New CAPEX, \$m
-91
-7
-8
-9
-10
-11
-12
-13
-13
-14
-15
-16
-17
-18
-19
-20
-21
-23
-24
-25
-26
-28
-29
-31
-33
-34
-36
-38
-40
-42
-44
Cash from investing activities, \$m
-50
-60
-62
-65
-68
-71
-74
-77
-80
-84
-88
-92
-96
-100
-105
-110
-115
-121
-127
-132
-138
-146
-152
-160
-168
-176
-185
-194
-203
-213
-224
Free cash flow, \$m
21
73
75
75
75
75
75
75
75
76
76
76
76
77
77
78
79
79
80
81
82
83
85
86
87
89
90
92
93
95
97
Issuance/(repayment) of debt, \$m
17
15
17
18
20
21
23
25
26
28
30
32
33
35
37
40
42
44
47
49
52
55
57
61
64
67
70
74
78
82
86
Issuance/(repurchase) of shares, \$m
-4
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Cash from financing (excl. dividends), \$m
8
15
17
18
20
21
23
25
26
28
30
32
33
35
37
40
42
44
47
49
52
55
57
61
64
67
70
74
78
82
86
Total cash flow (excl. dividends), \$m
28
88
92
93
94
96
98
100
101
104
106
107
109
112
115
118
121
124
127
130
134
138
142
146
151
156
161
166
171
177
183
Retained Cash Flow (-), \$m
49
-16
-18
-20
-22
-24
-25
-27
-29
-31
-33
-35
-37
-39
-42
-44
-47
-49
-52
-55
-58
-61
-64
-67
-71
-75
-79
-83
-87
-91
-96
Prev. year cash balance distribution, \$m

441
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Cash available for distribution, \$m

513
73
73
73
72
72
72
72
72
73
72
72
73
73
73
74
74
75
76
76
77
78
79
80
81
82
83
84
86
87
Discount rate, %

4.30
4.52
4.74
4.98
5.23
5.49
5.76
6.05
6.35
6.67
7.00
7.35
7.72
8.11
8.51
8.94
9.39
9.86
10.35
10.87
11.41
11.98
12.58
13.21
13.87
14.56
15.29
16.05
16.86
17.70
PV of cash for distribution, \$m

492
67
63
60
56
52
49
45
42
38
34
31
28
24
22
19
16
14
12
10
8
6
5
4
3
2
2
1
1
1
Current shareholders' claim on cash, %
100
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0

Guess?, Inc. designs, markets, distributes, and licenses lifestyle collections of contemporary apparel and accessories for men, women, and children that reflect the American lifestyle and European fashion sensibilities. It operates through Americas Retail, Europe, Asia, Americas Wholesale, and Licensing segments. The companyÂ’s clothing collection includes jeans, pants, skirts, dresses, shorts, blouses, shirts, jackets, knitwear, and intimate apparel. It also grants licenses to manufacture and distribute various products that complement its apparel lines, such as eyewear, watches, handbags, footwear, kidsÂ’ and infantsÂ’ apparel, outerwear, swimwear, fragrance, jewelry, and other fashion accessories. The company markets its products under the brands of GUESS, GUESS?, GUESS U.S.A., GUESS Jeans, GUESS? and Triangle Design, MARCIANO, Question Mark and Triangle Design, a stylized G and a stylized M, GUESS Kids, Baby GUESS, YES, G by GUESS, GUESS by MARCIANO, and Gc. It sells its products through direct-to-consumer, wholesale, and licensing distribution channels. As of October 29, 2016, the company directly operated 915 retail stores in the Americas, Europe, and Asia. The company's licensees and distributors operated an additional 740 retail stores worldwide. Guess?, Inc. was founded in 1981 and is headquartered in Los Angeles, California.

FINANCIAL RATIOS  of  Guess? (GES)

Valuation Ratios
P/E Ratio 44.2
Price to Sales 0.5
Price to Book 1
Price to Tangible Book
Price to Cash Flow 14.3
Price to Free Cash Flow -50.9
Growth Rates
Sales Growth Rate 0.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 8.3%
Cap. Spend. - 3 Yr. Gr. Rate 3.9%
Financial Strength
Quick Ratio 396
Current Ratio 0.2
LT Debt to Equity 2.4%
Total Debt to Equity 2.5%
Interest Coverage 55
Management Effectiveness
Return On Assets 1.5%
Ret/ On Assets - 3 Yr. Avg. 4.2%
Return On Total Capital 2.3%
Ret/ On T. Cap. - 3 Yr. Avg. 6.2%
Return On Equity 2.3%
Return On Equity - 3 Yr. Avg. 6.2%
Asset Turnover 1.4
Profitability Ratios
Gross Margin 33.7%
Gross Margin - 3 Yr. Avg. 35.1%
EBITDA Margin 5.6%
EBITDA Margin - 3 Yr. Avg. 8.1%
Operating Margin 1%
Oper. Margin - 3 Yr. Avg. 3.9%
Pre-Tax Margin 2.4%
Pre-Tax Margin - 3 Yr. Avg. 4.7%
Net Profit Margin 1%
Net Profit Margin - 3 Yr. Avg. 2.9%
Effective Tax Rate 53.7%
Eff/ Tax Rate - 3 Yr. Avg. 39.6%
Payout Ratio 334.8%

GES stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GES stock intrinsic value calculation we used \$2204 million for the last fiscal year's total revenue generated by Guess?. The default revenue input number comes from 2017 income statement of Guess?. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
We use three input parameters to forecast the revenue growth rate in our GES stock valuation model: a) initial revenue growth rate of 2.9% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
The initial discount rate of 4.3%, whose default value for GES is calculated based on our internal credit rating of Guess?, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Guess?.
By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of GES stock the variable cost ratio is equal to 94.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to \$0 million in the base year in the intrinsic value calculation for GES stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 14.3% for Guess?.

Corporate tax rate of 27% is the nominal tax rate for Guess?. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the GES stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for GES are equal to 12%.

Life of production assets of 4.2 years is the average useful life of capital assets used in Guess? operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for GES is equal to 12.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - \$1018 million for Guess? - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 83.065 million for Guess? is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Guess? at the current share price and the inputted number of shares is \$1.0 billion.

RELATED COMPANIES Price Int.Val. Rating
PVH PVH Corp. 112.48 prem.  prem.
URBN Urban Outfitte 18.18 prem.  prem.
GPS Gap 22.52 prem.  prem.
RL Ralph Lauren C 72.88 prem.  prem.
ANF Abercrombie&Fi 12.42 prem.  prem.
AEO American Eagle 11.71 prem.  prem.
JWN Nordstrom 47.67 prem.  prem.
TJX TJX 69.96 prem.  prem.
ROST Ross Stores 56.53 prem.  prem.

COMPANY NEWS

▶ 5 High-Yield Dividend Stocks to Avoid   [Jun-23-17 12:42PM  GuruFocus.com]
▶ ETFs with exposure to Guess?, Inc. : June 8, 2017   [Jun-08-17 01:37PM  Capital Cube]
▶ Why Guess?, Inc. Stock Popped Today   [02:36PM  Motley Fool]
▶ Story Stocks from Briefing.com   [12:09PM  Briefing.com]
▶ Guess? Sees Signs of a Retail Recovery   [10:36AM  Motley Fool]
▶ After-hours buzz: SNAP, HPQ, PVH & more   [May-24-17 04:53PM  CNBC]
▶ Guess beats on top line   [04:24PM  CNBC Videos]
▶ ETFs with exposure to Guess?, Inc. : May 18, 2017   [May-18-17 01:44PM  Capital Cube]
▶ Guess?, Inc. Value Analysis (NYSE:GES) : May 11, 2017   [May-11-17 06:47PM  Capital Cube]
▶ 3 Dividend Stocks I'd Never Buy   [12:00PM  Motley Fool]
▶ ETFs with exposure to Guess?, Inc. : April 27, 2017   [Apr-27-17 04:01PM  Capital Cube]
▶ ETFs with exposure to Guess?, Inc. : April 17, 2017   [Apr-17-17 12:54PM  Capital Cube]
▶ ETFs with exposure to Guess?, Inc. : April 5, 2017   [Apr-05-17 04:48PM  Capital Cube]
▶ 3 Dividend Stocks I'd Never Buy   [Apr-02-17 02:13PM  Motley Fool]
▶ Why Shares of Guess?, Inc. Got Cut Today   [Mar-16-17 05:36PM  Motley Fool]
▶ What Happened in the Stock Market Today   [05:07PM  Motley Fool]
▶ Zara Combats Retail Slump with Mega-Stores   [02:08PM  Investopedia]
▶ Guess Drops to a Multi-Year Low on Downgrade   [Mar-10-17 01:47PM  at Investopedia]
Stock chart of GES Financial statements of GES Annual reports of GES

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.