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Don't Question Guess

Guess stock is tumbling on disappointing outlook, potentially presenting a good buying opportunity.

(Guess article updated with analyst commentary on potential buying opportunity.)



) -- Shares of


(GES) - Get Guess? Inc. Report

are tanking after its full-year outlook fell short of Wall Street's forecast. But lackluster guidance may be overshadowing a potential buying opportunity.

Guess reaffirmed its 2010 outlook in the range of $2.80 to $2.85 a share, while analysts are calling for a profit of $2.92 a share. But Brean Murray analyst Eric Beder said this guidance could just be Guess playing it safe; a tactic being played by most retailers these days.

The outlook is taking away from what was a solid second quarter. During the quarter, Guess earned $66.8 million, or 72 cents per share, a 12% jump from $59.6 million, or 64 cents a share, in the year-ago period. This was higher than the 68-cents a share analysts predicted. However, investors reacted poorly to the conservative guidance, sending shares down 10.5% to $34.26 in morning trading.

Revenue rose 10.5% to $577.1 million, while same-store sales increased 3.5%. Investors are focusing on this comparable sales slowdown, as Guess had to join the pricing wars with its competitors, and denim sales were weak.

That being said, Guess' Asia and domestic wholesale business outperformed, up 43% and 33%, respectively.

"While naysayers have focused on weaker-than-expected domestic results and inventory increases, we are more impressed with the company's worldwide business model's ability to drive strong results even when one economy is relatively weak," Brean Murray analyst Eric Beder, wrote in a note.

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The demand for denim, which makes up about 30% of Guess' merchandise mix, is waning across the retail sector. While this may scare some investors, Beder said it could actually be a positive for Guess, which was once a major player in non-denim pants.

"We continue to view Guess as one of the few key players with material worldwide growth opportunities and the fashion sense to drive strong sales in a changing environment," he wrote.

-- Written by Jeanine Poggi in New York.

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