For the past few years, Guess management has been busy weaving a new growth pattern.

Judging from Guess' GES recent winning streak, it hasn't run into many snags.

The apparel and accessories retailer and designer has morphed into a powerful global lifestyle brand. Guess boasts a booming retail and wholesale business in Europe and is expanding operations in Asia and other parts of the world.

In the U.S., it's building muscle with a new concept called G by Guess. It also is gaining momentum here and abroad with an expanded lineup of accessories such as handbags and jewelry, developed through licensing pacts.

For eight straight quarters, earnings and sales have grown by at least 67% and 16%, respectively.

Guess is poised to keep up the pace when it reports fiscal 2008 second-quarter earnings on Sept. 4. Analysts polled by Thomson Financial expect the quarter's earnings to grow 50% from a year ago to 33 cents a share.

Retail Stores

The company has 347 retail stores in the U.S. and Canada. It also distributes its products via department and specialty stores around the world.

As of the end of the last quarter, it had 461 stores outside of the U.S. -- Europe, the Middle East and Asia.

Executives would not comment. But followers of the company say a big growth driver has been its European business, which includes wholesale and retail operations.

In the fiscal 2008 first quarter, Europe's sales jumped 77.2% from a year ago.

Acquisition

Guess is reaping the benefits of a strategy that has given more control over the Guess brand in Europe. In January 2005, Guess acquired the remaining 90% stake in Maco Apparel. Prior to the buy, Maco served as the licensee of Guess jeanswear for men and women in Europe.

The acquisition of its European jeanswear licensee gave Guess direct control over the business.

It gave it a "solid platform" to build Guess' retail and wholesale businesses in Europe, Guess Chief Executive Paul Marciano said at the time of the buy.

Almost two years later, in December 2006, Guess bought a 75% equity interest in Focus Europe. Focus had served as the licensee, manufacturer and distributor of the Guess by Marciano contemporary clothing line for men and women in Europe, the Middle East and Asia.

The buy included leases and assets of four Guess by Marciano stores in Italy. Under the deal's terms, Guess has the option to buy the remaining 25% of the Guess interest in Focus by 2011. Through the Focus purchase, combined with the acquisition of its jeanswear licensee, Guess now owns all of its adult apparel business in Europe, the Middle East and Asia.

Bringing the European apparel business in-house has been a real plus, says analyst John Rouleau of Wachovia (NYSE:WB) Capital Markets.

"They now control it and manage it," he said. "And they're able to grow it more aggressively than the licensees. It's catapulted that business to a whole new level."

Guess licenses its brand name to third parties.

Licensing lets Guess electively expand its offerings and global markets with minimal capital investments and ongoing expenses. At the end of 2006, it had 21 U.S. and international licenses in accessories such as handbags and watches.

"Licensing has been a major contributor to European growth," said analyst Jeffrey Klinefelter of Piper Jaffray. (NYSE:PJC) "They've used these accessory categories to enter new markets more cost effectively."

Licensing has been a fast-growing business for Guess, adds analyst Rouleau.

Licensed product categories such as watches, handbags and footwear are doing well and have helped Guess penetrate new areas in the U.S. and Europe, he says.

Net revenue from licensing in the first quarter was up 41.5% from a year ago.

Handbag revenue was up 91%, and revenue from watches rose 70%. Rouleau figures footwear sales increased more than 50%.

Overall, Guess turned out a strong first quarter. Earning rose 65% to 38 cents a share.

Sales grew 42% to $378 million. In North America, same-store sales rose 13.6% from a year earlier.

Analysts polled by Thomson Financial expect full-year fiscal 2008 earnings to rise 29% to $1.83 a share, then 20% in fiscal 2009.

Klinefelter sees a lot of potential for Guess in Asia, where it's expanding.

"I think a biggest story at retail these days is the globalization of brands," Rouleau said.

Guess falls into a small group of select brands with the global brand recognition and the infrastructure to boost its business around the world, Rouleau says.

"It's a positive catalyst for the business," he said. "There's a lot of opportunity for continued growth."

Klinefelter likes Guess' approach to global expansion.

"It has a well-diversified global brand with a flexible business model that can adapt to the nuances of each additional global market," he said.

Franchise Approach

In Europe, Guess approaches the market with a franchise structure, he says.

It franchises the rights to third parties to open stores.

"As such, they avoid the capital investment requirements and accelerate expansion to new European markets," Klinefelter said.

Guess also is building muscle in the U.S.

In April, it debuted its new G by Guess clothing store concept. G by Guess was developed to take advantage of the segment of the company's customer base that's potentially younger and more value conscious, says Klinefelter.

It also has clothes that are less trendy than Guess stores, watchers say.

At the end of the first quarter, 17 G by Guess stores existed. Klinefelter expects Guess to end the year with 33 such stores.

"I think it will be well-received by the youth market," he said.

News source: CNN.com