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Guess Has Plans to Improve its Supply Chain Efficiencies

Carlos Alberini, chief executive officer of Guess Inc., expects to see efficiencies gained from investments in infrastructure, supply chain, logistics and distribution.

Alberini rejoined the company in February, and speaking at Cowen & Company’s recent “The Future of the Consumer Conference,” he outlined efforts ahead for the company.

He was joined by chief financial officer Sandeep Reddy.

Guess’ management is forecasting a long-term double-digit operating margin goal compared with just 4.4 percent for fiscal year 2019. Investments in areas like infrastructure and supply chain are expected to boost efficiencies and provide some leverage on costs, Alberini said, adding that he expects the company’s Asia business to show leverage on costs over time.

As part of his strategic vision for the company, Alberini has goals to grow the topline through a focus on customer centricity; product category expansion—particularly in denim—and a bigger play on the digital side. Regarding digital, investments in data analytics are expected to help with personalization, segmentation and engagement with millennial and Gen Z consumers.

Guess has grown outside of North America, with a double-digit margin opportunity helped by the expansion in China through its presence on Tmall, according to the CEO.

Cowen analyst John Kernan has a “Market Perform” on shares of Guess, essentially the equivalent of neutral or hold.

In a research note, Kernan said despite the excitement to see Alberini back at Guess, the reason for staying on the sidelines is because cash flow needs to be improved.

What’s more, according to Kernan, “Inventory turn is at decade lows which is contributing to lower [return on investment capital], and free cash flow-using more inventory to produce sales growth in not a winning formula.”

Another concern is the dividend, currently representing $75 million outflow, which won’t be covered by the $66 million in free cash flow. The cash balance at Guess has been reduced to $210 million in fiscal year 2019, compared with the $396 million on the books in fiscal year 2017.

While Guess might have to tap a credit line to cover the dividend payouts, Kernan said at least the brand is “moving in the right direction from a relevancy perspective.”