Guess?, Inc. GES, a renowned apparel and accessories company, appears to be struggling, with its shares down 17.4% in the past three months. Owing to a tough consumer landscape and elevated cost concerns, the company has trailed the industry’s growth of 32.6%. GES has also lagged the Zacks Consumer Discretionary sector and the S&P 500’s respective gains of 22.2% and 32.6% during the same period.

GES 3-Month Price Performance vs. Industry, Sector & S&P 500

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Technical indicators are also not supportive of GES’ performance. The company is trading below its 50 and 200-day moving averages, indicating potential weakness in the stock's momentum.

Guess? Grapples With Challenges in Asia & North America

Guess? is navigating a complex consumer environment characterized by evolving purchasing behaviors, economic pressures and regional disparities. The company’s third-quarter fiscal 2025 results and guidance highlight several headwinds in this area. Guess? has observed heightened price sensitivity among its customers, particularly in North America and Asia. Macroeconomic factors like inflation and economic uncertainty are compelling consumers to prioritize value-driven purchases. 

This trend has created challenges for Guess?'s premium pricing strategy, with the company acknowledging the need to reassess pricing and promotional activities to remain competitive in key markets. In the third quarter, the North American retail segment experienced a 15% decline in comparable sales, including e-commerce, due to softer consumer demand and weaker store traffic. Similarly, Asia saw a 16% constant currency comp decline, with softness in major markets like South Korea and China.

Higher Costs a Worry for GES

Freight costs have emerged as a significant headwind for Guess? affecting its operational efficiency and profitability. In the third quarter, Guess? reported incremental freight costs as a direct consequence of the Red Sea crisis. To safeguard its European operations and ensure timely product availability, the company resorted to costlier shipping methods, including air freight. This decision, while strategically necessary to maintain inventory levels and fulfill customer demand, increased operating expenses significantly.

For the fourth quarter, the company anticipates an additional $5 million in freight-related expenses, pressuring margins. This includes higher ocean shipping charges and increased air freight utilization. These elevated costs are expected to disproportionately impact the European business, which has been a critical revenue driver. Guess?'s channel mix, which has seen softness in retail — a higher-margin segment — has compounded the adverse effects of freight inflation. 

A look at the third-quarter metrics reveals that the gross margin contracted 110 basis points to 43.6%, SG&A expenses (as a percentage of sales) increased 180 bps to 37.8%, and the adjusted operating margin shrank from 8.9% to 5.8%. While SG&A expenses rose due to higher marketing investments and infrastructure costs, the operating margin contraction stemmed from higher SG&A expenses, rising occupancy costs and channel mix headwinds. The adjusted operating margin is now expected between 6.2% and 6.5% in fiscal 2025, revised from the earlier forecast of 7.3% to 7.8%.