We are reiterating our Buy rating, $32.50 price target and raising our projections to reflect the announced acquisition of leading premium ($195+) denim player rag & bone by Guess? and a joint venture with leading brand licensor WHP Global. We view this acquisition, Guess?' first, as an accretive winner, offering multiple (and material) expansion opportunities which leverage Guess?' strong international presence, infrastructure, category expansion and licensing ability and position as a leading global lifestyle brand retailer. Further, at an acquisition price of less than 3.2X 2023 EBITDA (or less than 25% of 2023 revenue), we believe the relative risk/reward is highly compelling. As such, we are raising our FY25 (January) revenue by $200 million (to $3.0 billion), EPS by $0.14 (to $3.13) and EBITDA by $13.3 million (to $335.4 million) to reflect an expected end of 1QFY25 rag & bone acquisition closure; our projections conservatively assume limited initial synergies and rag and bone EBITDA margins below 2023 to reflect the incremental cost of licensing payments to the Guess?/WHP joint venture. We believe rag & bone has the potential to be a material top and bottom line growth vehicle for Guess? going forward, and we reiterate our Buy rating and $32.50 price target.
