Event: Upscale clothing company Guess? (NYSE: GES) reported earnings of 43 cents a share for the quarter ending Oct. 31 on Wednesday after the market closed. Analysts expected a profit of 44 cents per share. Revenue was higher than expected for the quarter at $628.8 million, versus an estimate of $624.8 million. For the full year, Guess expects a profit range of $2.05 to $2.15 per share. The current estimate is for a profit of $2.17 per share. Revenue guidance for the year met analyst expectations. Like other companies recently, Guess said it will pay a special dividend; the payout will be $1.20 per share. Shares of Guess jumped more than 5% in the after-hours market and the stock is holding steady at plus 3%.
Analysis: Absent the special dividend, the Guess report is fairly nondescript. In fact, one could argue in this toxic market environment where one bad piece of news sends shares tumbling, Guess is fortunate to be trading higher after its report. The opening gains in the stock provide an opportunity to short the stock with puts, in my opinion. Other stocks reporting similarly mixed results are trading substantially lower, by 5% to 10% on average. Don’t be fooled by the dividend. It is a one-time fairly nonsensical event that should be ignored by investors and traders. Analysts expect Guess to grow profits by 13% in fiscal year 2013 that ends Jan. 31, 2014. At current prices, Guess shares trade for 12 times current fiscal year estimated earnings. The stock is not cheap, nor is it expensive. The play here is to key on what I would define as an earnings miss. If future results are depressed, shares could move significantly lower.
Action: Buy GES puts for a 3-4 month trade on strength in share price on Thursday.
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