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Guess? (GES +26%) is surging today after announcing it received a non-binding proposal from WHP Global to acquire the company for $13 per share in cash for all shares other than shares held by certain existing shareholders, including co-founders Paul and Maurice Marciano and CEO Carlos Alberini, who would then be considered rollover shareholders. GES has formed a Special Committee to evaluate the proposal.

• There is a successful history between the two parties. In April 2024, GES partnered with WHP Global to acquire fashion brand rag & bone. GES says the brand was already on a solid growth trajectory when GES acquired it, but it's now working to leverage its platform to really supercharge rag & bone's growth by using existing relationships to quickly bring the brand to market in new markets like Europe and beyond.
• Guess? is a significant luxury brand with about $6 bln in revenues measured at full retail value, when you include licensing deals. Roughly $3 bln of that revenue flows through the its own P&L. GES has a large US presence, but about 75% of its sales come from outside the US. Its largest market is Europe followed by the Americas and then Asia.
• Shares for this fashion retailer of contemporary apparel, denim, handbags, watches, eyewear has had a rough go of it over the past year. The stock has been in a steady decline from $33.50 in April 2024 to Friday's close of $9.70. GES has posted lackluster growth for its core Guess business in recent quarters. Also, FX has been a headwind given its higher international exposure. Top line growth has picked up recently, but that was mostly fueled by the addition of rag & bone.

Our sense is that this offer looks like a decent off-ramp for investors. The 34% premium to Friday's close looks pretty attractive. Also, it's a tough time right now for luxury fashion companies as people seek to focus more on value purchases. Also, apparel companies are facing rising costs and online competition. Just this weekend, Forever 21's US operator filed for bankruptcy. Abercrombie & Fitch (ANF) is also struggling.

Clearly the co-founders and CEO believe the stock is being undervalued. The stock is trading at a P/E of 6x, even after today's jump, so there is a good argument to be made. Also, its rag & bone acquisition is performing well. However, investors appear to be focusing on the core Guess brand's lackluster top line growth, which has been pressuring the stock.