By  on April 18, 2007

NEW YORK — Guess wasn't always Wall Street's golden child.

Less than a decade ago, Guess was arguably better known for deep discounts and sexy ads than fashion-forward merchandise. Investors had little confidence in the company's future, and its share price took the hit.

"In the past, they were dependant on department stores and didn't really rely on their own stores for sales,&" said Eric Beder, vice president at Brean Murray, Carret & Co. investment bank. "They were driven by discounting rather than fashion.&"

During its darkest days, Guess shares dropped below $4. Beder attributes this nosedive to the retailer's focus on urban trends.

"At the time, many of these urban customers were moving away from labels, and the company didn't have answers for that,&" he said.

It wasn't until 2004 that the stock returned to trading in the midteens, when management made key improvements in inventory that were driven by fashion.

"They increased their focus in their own stores and decreased their inventory exposure,&" Beder said. "Now they go for the premium dollar instead of the discounted dollar and are always looking for new ways to create a level of excitement and buzz surrounding their fashion.&"

Sales in 2006 reached $1.19 billion, a 26.6 percent jump from the previous year's $936.1 million. Full-year earnings soared to $123.2 million, or $2.68 a diluted share, from $58.8 million, or $1.31 per share in 2005. Shares reached a 52-week high of $43.37.

Although Guess operates about 775 stores worldwide, it still has plenty of room for growth. Beder said there was potential for further domestic development of the Marciano and Guess divisions, and if G by Guess is a success, that brand alone could reach 300 to 400 stores.

But the company's biggest vehicle for growth is international expansion.

"There is significant expansion potential in Europe and in Asia,&" Beder said. "Currently, there are no stores in Japan and only a limited amount in China and India. I think Asia will become a bigger part of the puzzle moving into 2008 and 2009.&"

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