Q4 Fiscal 2018
Revenues Increased 18% to $792 Million; Increased 10% in Constant
Currency
Q4 Fiscal 2018 GAAP
EPS of $0.01, Compared to $0.08 in Q4 Fiscal 2017; Q4 Fiscal 2018
Adjusted EPS of $0.62, Compared to $0.43 in Q4 Fiscal
2017
Fiscal Year 2018
Revenues Increased 8% to $2.4 Billion; Increased 5% in Constant
Currency
Fiscal Year 2018 GAAP
Loss Per Share of $0.11, Compared to EPS of $0.27 in Fiscal Year
2017; Fiscal Year 2018 Adjusted EPS of $0.70, Compared to $0.46 in
Fiscal Year 2017
Guess?, Inc. (NYSE: GES) today reported unaudited financial
results for its fourth quarter and fiscal year ended
February 3, 2018.
Victor Herrero, Chief Executive Officer, commented, “I am
pleased to report that the overall results of the fourth quarter
finished above the high-end of our expectations, with higher sales,
higher adjusted operating profit and higher adjusted earnings per
share. This quarter concludes a year where we saw revenue increase,
operating profit growth, adjusted operating margin expansion and
adjusted EPS growth of 52%. I believe that this year marks the
beginning of a turnaround for the Company.”
Mr. Herrero concluded, “I am convinced that maintaining the
focus on the strategic initiatives I outlined on my arrival at the
Company in August 2015 is now clearly showing in our financial
results. And looking forward to fiscal 2019, we expect to make
continued progress on this front. I still see a lot of
opportunities left in Europe and Asia, where we will continue to
allocate capital for superior returns and where we plan to continue
growing sales in double digits while also expanding margins. We
will keep working on improving the profitability of the Americas by
executing on our cost reduction and margin improvement initiatives.
This is truly a very exciting time for our Company as a lot of
opportunities are in front of us.”
This press release contains certain non-GAAP, or adjusted,
financial measures. References to “adjusted” results exclude the
impact of (i) net (gains) losses on lease terminations, (ii) asset
impairment charges, (iii) restructuring charges, (iv) a
restructuring related exit tax charge, (v) a gain from the sale of
a minority interest investment, (vi) the related tax effects of
these adjustments, (vii) tax impacts resulting from the enactment
of the 2017 Tax Cuts and Jobs Act (the “Tax Reform”) and (viii) a
non-cash valuation allowance established on certain deferred tax
assets, where applicable. A reconciliation of reported GAAP results
to comparable non-GAAP results is provided in the accompanying
tables and discussed under the heading “Presentation of Non-GAAP
Information” below.
As further discussed below, during the fourth quarter of fiscal
2018, the Company reclassified certain royalties received from net
revenue to cost of product sales. Accordingly, amounts presented
related to net royalties, net revenue and cost of product sales for
the twelve months ended February 3, 2018 as well as the three and
twelve months ended January 28, 2017 have been adjusted to conform
to the current period presentation. This reclassification had no
impact on previously reported earnings from operations, net
earnings, net earnings per share or cash flows.
Fourth Quarter Fiscal 2018
Results
For the fourth quarter of fiscal 2018, the Company recorded GAAP
net earnings of $1.0 million, an 84.2% decrease from $6.6 million
for the fourth quarter of fiscal 2017. GAAP diluted earnings per
share decreased 87.5% to $0.01 for the fourth quarter of fiscal
2018, from $0.08 in the prior-year quarter. The Company estimates
the positive impact of currency on diluted earnings per share in
the fourth quarter of fiscal 2018 was approximately $0.04 per
share. The Company’s fourth quarter of fiscal 2018 results included
14 weeks, while the fourth quarter of fiscal 2017 results included
13 weeks.
For the fourth quarter of fiscal 2018, the Company recorded
adjusted net earnings of $51.3 million, a 40.2% increase compared
to $36.6 million for the fourth quarter of fiscal 2017. Adjusted
diluted earnings per share increased 44.2% to $0.62, compared to
$0.43 for the prior-year quarter.
Net Revenue. Total net revenue for the fourth quarter of
fiscal 2018 increased 17.5% to $792.2 million, compared to $674.0
million in the prior-year quarter. In constant currency, net
revenue increased by 10.2%.
- Americas Retail revenues decreased 6.1%
in U.S. dollars and 7.2% in constant currency. Retail comp sales
including e-commerce decreased 4% in U.S. dollars and 5% in
constant currency.
- Americas Wholesale revenues increased
3.8% in U.S. dollars and 0.9% in constant currency.
- Europe revenues increased 39.7% in U.S.
dollars and 24.1% in constant currency. Retail comp sales including
e-commerce increased 18% in U.S. dollars and 6% in constant
currency.
- Asia revenues increased 40.2% in U.S.
dollars and 33.1% in constant currency. Retail comp sales including
e-commerce increased 14% in U.S. dollars and 8% in constant
currency.
- Licensing revenues increased 11.4% in
U.S. dollars and constant currency.
Operating Earnings. GAAP operating earnings for the
fourth quarter of fiscal 2018 increased 225.9% to $68.4 million
(including a $7.1 million favorable currency translation impact),
compared to $21.0 million in the prior-year quarter. GAAP operating
margin in the fourth quarter increased 550 basis points to 8.6%,
compared to 3.1% in the prior-year quarter, driven primarily by
lower asset impairment charges. The positive impact of currency on
operating margin for the quarter was roughly 80 basis points.
For the fourth quarter of fiscal 2018, adjusted operating
earnings increased 31.2% to $70.7 million, compared to $53.9
million in the prior-year quarter. Adjusted operating margin was
8.9%, an increase of 90 basis points compared to the same
prior-year quarter, driven primarily by overall leveraging of
expenses, partially offset by higher performance-based compensation
costs.
- Operating margin for the Company’s
Americas Retail segment increased 620 basis points to 6.0% in the
fourth quarter of fiscal 2018, compared to negative 0.2% in the
prior-year quarter. This increase was driven primarily by cost
reductions due primarily to store closures and negotiated rent
reductions, higher initial markups and lower markdowns, partially
offset by the negative impact on the fixed cost structure resulting
from negative comparable sales.
- Operating margin for the Company’s
Americas Wholesale segment decreased 290 basis points to 14.2% in
the fourth quarter of fiscal 2018, from 17.1% in the prior-year
quarter, driven primarily by lower gross margins and overall
deleveraging of expenses.
- Operating margin for the Company’s
Europe segment decreased 10 basis points to 15.9% in the fourth
quarter of fiscal 2018, from 16.0% in the prior-year quarter, due
primarily to higher distribution costs resulting from the
relocation of the Company’s European distribution center, partially
offset by overall leveraging of expenses and higher initial
markups.
- Operating margin for the Company’s Asia
segment increased 470 basis points to 8.4% in the fourth quarter of
fiscal 2018, compared to 3.7% in the same prior-year quarter,
driven primarily by overall leveraging of expenses.
- Operating margin for the Company’s
Licensing segment decreased 26.9% to 87.7% in the fourth quarter of
fiscal 2018, from 114.6% in the prior-year quarter.
Other Income (Expense), Net. Other net expense was
$0.1 million in the fourth quarter of fiscal 2018, which primarily
includes net unrealized and realized mark-to-market revaluation
losses on foreign exchange currency contracts, partially offset by
unrealized gains on non-operating assets and net unrealized
mark-to-market revaluation gains on foreign currency balances,
compared to other net income of $4.5 million in the prior-year
quarter.
Income Taxes. On December 22, 2017, the Tax Reform was
enacted into law and contains several key tax provisions that
affected the Company, including a one-time mandatory transition tax
on accumulated foreign earnings and a reduction of the U.S.
corporate income tax rate from 35% to 21%. Our GAAP results for the
fourth quarter of fiscal 2018 include the impact of a $47.9 million
charge related to the Tax Reform, or an unfavorable $0.58 per share
impact. This is comprised of a $24.9 million charge for the
provisional re-measurement of certain deferred taxes and related
amounts and a provisional charge of $23.0 million to income tax
expense for the estimated effects of the transitional tax on the
deemed repatriation of foreign earnings. These provisional amounts
will be finalized in fiscal 2019 as the Company completes its
analysis of the impact of the Tax Reform. Our GAAP results for the
fourth quarter of fiscal 2017 included the impact of a valuation
allowance established on certain deferred tax assets of $6.8
million, a portion of which was generated from asset impairment
charges recorded during the fourth quarter of fiscal 2017.
The Company’s GAAP effective tax rate increased to 95.5% for the
fourth quarter of fiscal 2018, compared to 65.6% in the prior-year
quarter. The Company’s adjusted effective tax rate decreased to
24.7% for the fourth quarter of fiscal 2018, from 33.4% in the
prior-year quarter.
Fiscal Year 2018 Results
For the fiscal year ended February 3, 2018, the Company
recorded GAAP net loss of $7.9 million, compared to GAAP net
earnings of $22.8 million for the fiscal year ended
January 28, 2017. GAAP diluted loss per share was $0.11
in fiscal 2018, compared to GAAP diluted earnings per share of
$0.27 in the prior year. The Company estimates the positive impact
of currency on diluted loss per share for the fiscal year ended
February 3, 2018 was approximately $0.02 per share. The
Company’s fiscal 2018 results included 53 weeks, while fiscal 2017
results included 52 weeks.
For the fiscal year ended February 3, 2018, the Company
recorded adjusted net earnings of $58.4 million, a 50.6% increase
compared to $38.8 million for the fiscal year ended
January 28, 2017. Adjusted diluted earnings per share
increased 52.2% to $0.70 in fiscal 2018, compared to $0.46 for the
prior year.
Net Revenue. Total net revenue for fiscal 2018 increased
7.9% to $2.36 billion, compared to $2.19 billion in the prior year.
In constant currency, net revenue increased by 5.3%.
- Americas Retail revenues decreased
10.9% in U.S. dollars and 11.4% in constant currency. Retail comp
sales including e-commerce decreased 9% in U.S. dollars and 10% in
constant currency.
- Americas Wholesale revenues increased
2.8% in U.S. dollars and 2.0% in constant currency.
- Europe revenues increased 26.7% in U.S.
dollars and 20.6% in constant currency. Retail comp sales including
e-commerce increased 11% in U.S. dollars and 6% in constant
currency.
- Asia revenues increased 24.3% in U.S.
dollars and 22.1% in constant currency. Retail comp sales including
e-commerce increased 8% in U.S. dollars and 5% in constant
currency.
- Licensing revenues increased 1.2% in
U.S. dollars and constant currency.
Operating Earnings. GAAP operating earnings for fiscal
2018 increased 187.0% to $65.2 million (including an $8.1 million
favorable currency translation impact), compared to $22.7 million
in the prior year. GAAP operating margin for fiscal 2018 increased
180 basis points to 2.8%, compared to 1.0% in the prior year,
driven primarily by overall leveraging of expenses, higher initial
mark-ups and lower asset impairment charges, partially offset by
the negative impact on the fixed cost structure resulting from
negative comparable sales in Americas Retail and higher
performance-based compensation costs. The positive impact of
currency on operating margin for fiscal 2018 was roughly 30 basis
points.
For fiscal 2018, adjusted operating earnings increased 36.1% to
$85.0 million, compared to $62.5 million in the prior year.
Adjusted operating margin was 3.6%, an increase of 70 basis points
compared to the prior year, driven primarily by overall leveraging
of expenses and higher initial mark-ups in Europe, partially offset
by the negative impact on the fixed cost structure resulting from
negative comparable sales in Americas Retail and higher
performance-based compensation costs.
- Operating margin for the Company’s
Americas Retail segment improved 30 basis points to negative 2.1%
in fiscal 2018, compared to negative 2.4% in the prior year. This
improvement was driven primarily by cost reductions due primarily
to store closures and negotiated rent reductions and higher initial
markups, partially offset by the negative impact on the fixed cost
structure resulting from negative comparable store sales.
- Operating margin for the Company’s
Americas Wholesale segment increased 20 basis points to 16.7% in
fiscal 2018, compared to 16.5% in the prior year. The increase in
operating margin was due to higher gross margins, partially offset
by overall deleveraging of expenses.
- Operating margin for the Company’s
Europe segment increased 150 basis points to 8.7% in fiscal 2018,
compared to 7.2% in the prior year, due to higher initial mark-ups
and the favorable impact on the fixed cost structure resulting from
overall leveraging of expenses, partially offset by higher
distribution costs resulting from the relocation of the Company’s
European distribution center.
- Operating margin for the Company’s Asia
segment increased 560 basis points to 4.6% in fiscal 2018, compared
to negative 1.0% in the prior year. The increase in operating
margin was driven primarily by overall leveraging of expenses.
- Operating margin for the Company’s
Licensing segment decreased 450 basis points to 107.3% in fiscal
2018, from 111.8% in the prior year.
Other Income, Net. Other net income was $3.4 million for
fiscal 2018, which primarily includes unrealized gains on
non-operating assets and net unrealized mark-to-market revaluation
gains on foreign currency balances, partially offset by net
realized and unrealized mark-to-market revaluation losses on
foreign exchange currency contracts, compared to $30.9 million for
the prior year. For the fiscal year ended January 28, 2017,
other net income included a realized gain of $22.3 million from the
sale of a minority interest investment. The gain from the sale of
the minority interest investment has been excluded for purposes of
calculating adjusted financial measures for fiscal 2017. A
reconciliation of reported GAAP results to comparable non-GAAP
results is provided in the accompanying tables and discussed under
the heading “Presentation of Non-GAAP Information” below.
Income Taxes. On December 22, 2017, the Tax Reform was
enacted into law and contains several key tax provisions that
affected the Company, including a one-time mandatory transition tax
on accumulated foreign earnings and a reduction of the U.S.
corporate income tax rate from 35% to 21%. Our GAAP results for
fiscal 2018 include the impact of a $47.9 million charge related to
the Tax Reform, or an unfavorable $0.58 per share impact. This is
comprised of a $24.9 million charge for the provisional
re-measurement of certain deferred taxes and related amounts and a
provisional charge of $23.0 million to income tax expense for the
estimated effects of the transitional tax on the deemed
repatriation of foreign earnings. These provisional amounts will be
finalized in fiscal 2019 as the Company completes its analysis of
the impact of the Tax Reform. Our GAAP results for fiscal 2017
included the impact of a valuation allowance established on certain
deferred tax assets of $6.8 million, a portion of which was
generated from asset impairment charges recorded during fiscal
2017.
The Company’s GAAP effective tax rate increased to 105.6% for
fiscal 2018, compared to 52.6% in the prior year. The Company’s
adjusted effective tax rate decreased to 30.7% for fiscal 2018,
compared to 41.7% in the prior year.
Dividends
The Company’s Board of Directors has approved a quarterly cash
dividend of $0.225 per share on the Company’s common stock. The
dividend will be payable on April 20, 2018 to shareholders of
record at the close of business on April 4, 2018.
Reclassification of Prior Period
Financial Statements
In connection with our implementation of the new revenue
standard for fiscal 2019, we determined that conclusions reached
under existing revenue standards as to the appropriate
classification of payments received by us related to the Company’s
purchases of licensed inventory products was not correct. While the
Company has concluded that the impact of these reclassification
errors on the Company’s previously-issued consolidated financial
statement is not material, the Company has determined to revise its
comparable periods when presented herein and in future filings.
During the fourth quarter of fiscal 2018, the Company reclassified
certain royalties received from net revenue to cost of product
sales.
For fiscal 2018, the historical quarterly periods ended April
29, 2017, July 29, 2017, October 28, 2017, which are not presented
herein as comparisons, the reclassification would have reduced net
revenue and cost of product sales by $4.2 million, $5.4 million,
and $5.2 million, respectively, impacting the cumulative twelve
months ended February 3, 2018 presented by $14.8 million. The
comparative periods for the three and twelve months ended January
28, 2017 have been reduced by $5.3 million and $18.9 million,
respectively, to conform to the current period presentation. This
reclassification had no impact on previously reported earnings from
operations, net earnings, net earnings per share or cash flows.
Outlook
The Company’s expectations and outlook for the first quarter and
fiscal year ending February 2, 2019 are as follows:
Outlook for Total Company1
First Quarter of Fiscal 2019 Fiscal Year 20192
Consolidated net revenue in U.S. dollars3 increase between
11.0% and 12.5% increase between 7.0% and 8.0% Consolidated
net revenue in constant currency3, 4 increase between 5.5% and 7.0%
increase between 5.0% and 6.0% Operating margin5 (4.5)% to
(4.0)% 4.0% to 4.5% Currency impact included in operating
margin6 40 basis points 50 basis points
Estimated effective tax rate
10% 25% Earnings (loss) per share $(0.27) to $(0.24) $0.86
to $0.98 Currency impact included in earnings (loss) per
share6 $0.00 $0.15 Notes: 1 The Company’s outlook for
the first quarter ending May 5, 2018 and the fiscal year ending
February 2, 2019 assumes that foreign currency exchange rates
remain at prevailing rates. 2 The Company’s fiscal year 2019
will include 52 weeks, while fiscal year 2018 included 53 weeks.
3 The Company adopted the new accounting standard ASC 606,
Revenue From Contracts With Customers (“ASC 606”), during the first
quarter of fiscal 2019. As such the Company’s outlook for the first
quarter ending May 5, 2018 and the fiscal year ending February 2,
2019 reflects the accounting treatment of revenue transactions
under this new standard. If the outlook was presented under the
current accounting standard, the outlook for net revenue would have
been reduced by 0.4% and 0.2% for the first quarter and full year
2019, respectively. 4 Eliminates the impact of expected
foreign currency translation to give investors a better
understanding of the underlying trends within the business.
5
The Company adopted new authoritative
guidance during the first quarter of fiscal 2019 related to the
presentation of net periodic pension cost in the income statement.
This guidance requires that the non-service components of net
periodic pension cost be presented outside of earnings from
operations, and all prior periods will be comparably restated when
presented in the future. As a result, our outlook includes the
presentation of approximately $2 million of net periodic pension
cost within other income (expense) that was presented within
SG&A expenses in fiscal 2018.
6 Represents the estimated translational and transactional
gains (losses) of foreign currency rate fluctuations within
operating margin and EPS measures presented.
On a segment basis, the Company expects the following ranges for
percentage changes for comparable store sales including e-commerce
(“comps”) and net revenue in U.S. dollars and constant currency
compared to the same prior-year period:
Outlook by Segment1
First Quarter of Fiscal 2019 Fiscal Year 2019
U.S. Dollars Constant Currency2 U.S. Dollars Constant
Currency2 Americas Retail: Comps
__
up LSD __ down LSD Net Revenue down LSD to up LSD down LSD to flat
down MSD down MSD Americas Wholesale: Net Revenue up MSD up
LSD up LSD up LSD Europe: Comps __ flat __ up LSD to MSD Net
Revenue up high-teens up MSD up mid-teens up LDD Asia: Comps
up low to high-teens up low to mid-teens Net Revenue up mid to high
twenties up mid to high twenties up high-teens up low twenties
Licensing: Net Revenue3 up low twenties __ up LSD __
Notes: 1 As used in the table above, “LSD” is
used to refer to the range of Low-Single-Digits, “MSD” is used to
refer to the range of Mid-Single-Digits, “HSD” is used to refer to
the range of High-Single-Digits, and “LDD” is used to refer to the
range of Low-Double-Digits. 2 Eliminates the impact of
expected foreign currency translation to give investors a better
understanding of the underlying trends within the business.
3 Our outlook includes the impacts of changes resulting from the
prospective adoption of the revenue accounting standard in the
first quarter of fiscal 2019. Excluding this impact, our guidance
for Licensing net revenue would have been up in the high-single
digits in the first quarter of fiscal 2019 and down in the
mid-single digits for fiscal year 2019.
Presentation of Non-GAAP
Information
The financial information presented in this release includes
non-GAAP financial measures such as adjusted results, constant
currency financial information and free cash flow measures. For the
three and twelve months ended February 3, 2018, the adjusted
results exclude the impact of net losses on lease terminations,
asset impairment charges and the tax impacts of these adjustments,
as well as the tax impacts resulting from the enactment of the Tax
Reform, where applicable. For the three and twelve months ended
January 28, 2017, the adjusted results exclude the impact of
asset impairment charges, a gain from the sale of a minority
interest investment, restructuring charges, a restructuring related
exit tax charge, net gains on lease terminations and the tax
effects of these adjustments, as well as the impact of a non-cash
valuation allowance established on certain deferred tax assets,
where applicable. These non-GAAP measures are provided in addition
to, and not as alternatives for, the Company’s reported GAAP
results.
The Company has excluded these items from its adjusted financial
measures primarily because it believes that the adjusted financial
information provided is useful for investors to evaluate the
comparability of the Company’s operating results and its future
outlook (when reviewed in conjunction with the Company’s GAAP
financial statements). A reconciliation of reported GAAP results to
comparable non-GAAP results is provided in the accompanying
tables.
This release also includes certain constant currency financial
information. Foreign currency exchange rate fluctuations affect the
amount reported from translating the Company’s foreign revenue,
expenses and balance sheet amounts into U.S. dollars. These rate
fluctuations can have a significant effect on reported operating
results under GAAP. The Company provides constant currency
information to enhance the visibility of underlying business
trends, excluding the effects of changes in foreign currency
translation rates. To calculate net revenue, comparable store sales
and earnings (loss) from operations on a constant currency basis,
actual or forecasted results for the current-year period are
translated into U.S. dollars at the average exchange rates in
effect during the comparable period of the prior year. The constant
currency calculations do not adjust for the impact of revaluing
specific transactions denominated in a currency that is different
to the functional currency of that entity when exchange rates
fluctuate. However, in calculating the estimated impact of currency
on our earnings (loss) per share for our actual and forecasted
results, the Company estimates gross margin (including the impact
of merchandise-related hedges) and expenses using the appropriate
prior-year rates, translates the estimated foreign earnings at the
comparable prior-year rates, and excludes the year-over-year
earnings impact of gains or losses arising from balance sheet
remeasurement and foreign currency contracts not designated as
merchandise hedges. The constant currency information presented may
not be comparable to similarly titled measures reported by other
companies.
The Company also includes information regarding its free cash
flows in this release. The Company calculates free cash flows as
cash flows from operating activities less purchases of property and
equipment. Free cash flow measure is not intended to be an
alternative to cash flows from operating activities as a measure of
liquidity, but rather provides additional visibility to investors
regarding how much cash is generated for discretionary and
non-discretionary items after deducting purchases of property and
equipment. Free cash flow information presented may not be
comparable to similarly titled measures reported by other
companies. A reconciliation of reported GAAP cash flows from
operating activities to the comparable non-GAAP free cash flow
measure is provided in the accompanying tables.
Investor Conference Call
The Company will hold a conference call at 4:45 pm (ET) on
March 21, 2018 to discuss the news announced in this press
release. A live webcast of the conference call will be accessible
at www.guess.com via the “Investor
Relations” link. The webcast will be archived on the website for 30
days.
About Guess?
Guess?, Inc. designs, markets, distributes and licenses a
lifestyle collection of contemporary apparel, denim, handbags,
watches, footwear and other related consumer products. Guess?
products are distributed through branded Guess? stores as well as
better department and specialty stores around the world. As of
February 3, 2018, the Company directly operated 1,011 retail
stores in the Americas, Europe and Asia. The Company’s licensees
and distributors operated 652 additional retail stores worldwide.
As of February 3, 2018, the Company and its licensees and
distributors operated in approximately 100 countries worldwide. For
more information about the Company, please visit www.guess.com.
Forward-Looking
Statements
Except for historical information contained herein, certain
matters discussed in this press release or the related conference
call and webcast, including statements concerning the Company’s
expectations, future prospects, business strategies and strategic
initiatives; statements expressing optimism or pessimism about
future operating results or events and projected sales (including
comparable sales), earnings, capital expenditures, operating
margins, cost savings and cash needs; and guidance for the first
quarter and full year of fiscal 2019, including the impact of the
new revenue recognition standard, are forward-looking statements
that are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements, which are frequently indicated by terms such as
“expect,” “will,” “should,” “goal,” “strategy,” “believe,”
“estimate,” “continue,” “outlook,” “plan” and similar terms, are
only expectations, and involve known and unknown risks and
uncertainties, which may cause actual results in future periods to
differ materially from what is currently anticipated. Factors which
may cause actual results in future periods to differ materially
from current expectations include, among others: our ability to
maintain our brand image and reputation; domestic and international
economic conditions, including economic and other events that could
negatively impact consumer confidence and discretionary consumer
spending; changes in the competitive marketplace and in our
commercial relationships; our ability to anticipate and adapt to
changing consumer preferences and trends; our ability to manage our
inventory commensurate with customer demand; risks related to the
timing and costs of delivering merchandise to our stores and our
wholesale customers; unexpected or unseasonable weather conditions;
our ability to effectively operate our various retail concepts,
including securing, renewing, modifying or terminating leases for
store locations; our ability to successfully and/or timely
implement our growth strategies and other strategic initiatives;
our ability to expand internationally and operate in regions where
we have less experience, including through joint ventures; our
ability to successfully or timely implement plans for cost
reductions; our ability to complete the transfer of our European
distribution center without incurring additional shipment delays
and/or increased costs; our ability to attract and retain key
personnel; changes to our short or long-term strategic initiatives;
obligations arising from new or existing litigation, tax and other
regulatory proceedings (including the European Commission
proceeding initiated during the second quarter of fiscal 2018 to
investigate whether the Company breached certain European Union
competition rules); risks related to the complexity of the Tax
Reform and our ability to accurately interpret and predict its
impact on our cash flows and financial condition; significant
changes in our provisional estimates of the Tax Reform; changes in
U.S. or foreign tax or tariff policy including with respect to
apparel and other accessory merchandise; accounting adjustments to
our unaudited financial statements identified during the completion
of our annual independent audit of financial statements and
financial controls or from subsequent events arising after issuance
of this release; risk of future store asset and/or goodwill
impairments or restructuring charges; our ability to adapt to new
regulatory compliance and disclosure obligations; risks associated
with our foreign operations, such as violations of laws prohibiting
improper payments and the burdens of complying with a variety of
foreign laws and regulations (including global data privacy
regulations); risks associated with the acts or omissions of our
third party vendors, including a failure to comply with our vendor
code of conduct or other policies; risks associated with cyber
attacks and other cyber security risks; and changes in economic,
political, social and other conditions affecting our foreign
operations and sourcing, including the impact of currency
fluctuations, global tax rates and economic and market conditions
in the various countries in which we operate. In addition to these
factors, the economic, technological, managerial, and other risks
identified in the Company’s most recent annual report on Form 10-K
and other filings with the Securities and Exchange Commission,
including but not limited to the risk factors discussed therein,
could cause actual results to differ materially from current
expectations. The current global economic climate and uncertainty
surrounding potential changes in U.S. policies and regulations
under the new administration may amplify many of these risks.
Additional information with respect to known and unknown risks will
also be set forth in the Company’s annual report on Form 10-K for
the year ended February 3, 2018, which will be filed with the
Securities and Exchange Commission in the first quarter of fiscal
2019. The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Guess?, Inc. and Subsidiaries Condensed
Consolidated Statements of Income (Loss) (amounts in thousands,
except per share data)
Three Months Ended1 Twelve Months
Ended1 February 3, 2018 January 28, 2017
February 3, 2018 January 28, 2017 $ %
$ %2 $ %2 $
%2 Product sales $ 772,676 97.5 % $ 656,505
97.4 % $ 2,290,999 96.9 % $ 2,118,534 96.7 % Net royalties2 19,488
2.5 % 17,499 2.6 % 72,755 3.1 % 71,919
3.3 % Net revenue2 792,164 100.0 % 674,004 100.0 % 2,363,754 100.0
% 2,190,453 100.0 % Cost of product sales2 497,094 62.8 %
437,597 64.9 % 1,534,906 64.9 % 1,445,413 66.0
% Gross profit 295,070 37.2 % 236,407 35.1 % 828,848 35.1 %
745,040 34.0 % Selling, general and administrative expenses
224,326
28.3
%
182,493 27.1 % 743,823 31.5 % 682,559 31.1 % Net (gains) losses on
lease terminations (121 ) (0.0 %) — 0.0 % 11,373 0.5 % (695 ) (0.0
%) Asset impairment charges 2,466 0.3 % 32,928 4.9 % 8,479 0.3 %
34,385 1.6 % Restructuring charges — 0.0 % — 0.0 % —
0.0 % 6,083 0.3 % Earnings from operations
68,399 8.6 % 20,986 3.1 % 65,173 2.8 % 22,708 1.0 % Other
income (expense): Interest expense (789 ) (0.1 %) (419 ) (0.1 %)
(2,431 ) (0.1 %) (1,897 ) (0.1 %) Interest income 1,084 0.2 % 127
0.0 % 4,106 0.2 % 1,890 0.1 % Other income (expense), net (138 )
(0.0 %) 4,492 0.7 % 3,423 0.1 % 30,909 1.4 %
Earnings before income tax expense 68,556 8.7 % 25,186 3.7 %
70,271 3.0 % 53,610 2.4 % Income tax expense 65,449 8.3 %
16,530 2.4 % 74,172 3.2 % 28,212 1.2 %
Net earnings (loss) 3,107 0.4 % 8,656 1.3 % (3,901 ) (0.2 %) 25,398
1.2 % Net earnings attributable to noncontrolling interests 2,067
0.3 % 2,089 0.3 % 3,993 0.1 % 2,637 0.2
% Net earnings (loss) attributable to Guess?, Inc. $ 1,040
0.1 % $ 6,567 1.0 % $ (7,894 ) (0.3 %) $ 22,761
1.0 % Net earnings (loss) per common share
attributable to common stockholders: Basic $ 0.01 $ 0.08 $ (0.11 )
$ 0.27 Diluted $ 0.01 $ 0.08 $ (0.11 ) $ 0.27 Weighted
average common shares outstanding attributable to common
stockholders: Basic 81,046 83,769 82,189 83,666 Diluted 82,377
83,970 82,189 83,829 Effective tax rate 95.5 % 65.6 % 105.6
% 52.6 % Adjusted earnings from operations 3: $ 70,744 8.9 %
$ 53,914 8.0 % $ 85,025 3.6 % $ 62,481 2.9 % Adjusted net
earnings attributable to Guess?, Inc.3: $ 51,336 6.5 % $ 36,607 5.4
% $ 58,426 2.5 % $ 38,800 1.8 % Adjusted diluted earnings
per common share attributable to common stockholders3: $ 0.62 $
0.43 $ 0.70 $ 0.46 Adjusted effective tax rate3: 24.7 % 33.4
% 30.7 % 41.7 % Notes: 1
The three and twelve months ended February 3, 2018 contain 14 and
53 weeks, respectively. The three and twelve months ended January
28, 2017 contain 13 and 52 weeks, respectively. 2 During the
fourth quarter of fiscal 2018, the Company reclassified net
royalties received on the Company’s inventory purchases of licensed
product from net revenue to cost of product sales to reflect its
treatment as a reduction of the cost of such licensed product.
Accordingly, amounts related to net royalties, net revenue and cost
of product sales for the twelve months ended February 3, 2018 as
well as the three and twelve months ended January 28, 2017 have
been adjusted to conform to the current period presentation. This
reclassification had no impact on previously reported earnings from
operations, net earnings or net earnings per share. 3
The adjusted results for the three and
twelve months ended February 3, 2018 reflect the exclusion of net
(gains) losses on lease terminations, asset impairment charges and
the tax impacts of these adjustments, as well as the tax impacts
resulting from the enactment of the 2017 Tax Cuts and Jobs Act
(“Tax Reform”), where applicable. The adjusted results for the
three and twelve months ended January 28, 2017 reflect the
exclusion of asset impairment charges, a gain from the sale of a
minority interest investment, restructuring charges, a
restructuring related exit tax charge, net gains on lease
terminations and the tax impacts of these adjustments, as well as
the impact of a non-cash valuation allowance established on certain
deferred tax assets, where applicable. A complete reconciliation of
actual results to adjusted results is presented in the table
entitled “Reconciliation of GAAP Results to Adjusted Results.”
Guess?, Inc. and Subsidiaries
Reconciliation of GAAP Results to Adjusted Results (dollars
in thousands) The
following table provides reconciliations of reported GAAP earnings
from operations to adjusted earnings from operations, reported GAAP
net earnings (loss) attributable to Guess?, Inc. to adjusted net
earnings attributable to Guess?, Inc. and reported GAAP income tax
expense to adjusted income tax expense for the three and twelve
months ended February 3, 2018 and January 28, 2017.
Three
Months Ended1 Twelve Months Ended1
February 3, January 28, February 3, January
28, 2018 2017 2018 2017
Reported GAAP earnings from operations $ 68,399 $ 20,986 $ 65,173 $
22,708 Net (gains) losses on lease terminations2 (121 ) — 11,373
(695 ) Asset impairment charges3 2,466 32,928 8,479 34,385
Restructuring charges4 — — — 6,083
Adjusted earnings from operations $
70,744 $ 53,914 $
85,025 $ 62,481 Reported
GAAP net earnings (loss) attributable to Guess?, Inc. $ 1,040 $
6,567 $ (7,894 ) $ 22,761 Net (gains) losses on lease terminations2
(121 ) — 11,373 (695 ) Asset impairment charges3 2,466 32,928 8,479
34,385 Restructuring charges4 — — — 6,083 Gain on sale of a
minority interest investment5 — — — (22,279 ) Income tax
adjustments6 61 (9,718 ) (1,422 ) (10,196 ) Tax Reform -
repatriation tax adjustment7 23,034 — 23,034 — Tax Reform -
deferred tax adjustment7 24,856 — 24,856 — Valuation allowance on
certain deferred tax assets8 — 6,830 — 6,830 Exit tax charge9 —
— — 1,911 Total adjustments
affecting net earnings (loss) attributable to Guess?, Inc. 50,296
30,040 66,320 16,039
Adjusted
net earnings attributable to Guess?, Inc. $
51,336 $ 36,607 $
58,426 $ 38,800 Reported
GAAP income tax expense $ 65,449 $ 16,530 $ 74,172 $ 28,212 Income
tax adjustments6 (61 ) 9,718 1,422 10,196 Tax Reform - repatriation
tax adjustment7 (23,034 ) — (23,034 ) — Tax Reform - deferred tax
adjustment7 (24,856 ) — (24,856 ) — Valuation allowance on certain
deferred tax assets8 — (6,830 ) — (6,830 ) Exit tax charge9 —
— — (1,911 ) Total income tax effect
(47,951 ) 2,888 (46,468 ) 1,455
Adjusted
income tax expense $ 17,498 $
19,418 $ 27,704 $
29,667 Adjusted effective tax rate
24.7 % 33.4 % 30.7 %
41.7 % Notes: 1 The three
and twelve months ended February 3, 2018 contain 14 and 53 weeks,
respectively. The three and twelve months ended January 28, 2017
contain 13 and 52 weeks, respectively. 2 During the three
and twelve months ended February 3, 2018, the Company recorded net
(gains) losses on lease terminations related primarily to the
modification of certain lease agreements held with a common
landlord in North America. During the twelve months ended January
28, 2017, the Company recorded net gains on lease terminations
related primarily to the early termination of certain lease
agreements. The net gains on lease terminations were recorded
during the first and second quarters of fiscal 2017. The results
for the twelve months ended January 28, 2017 have been adjusted to
show the impact of the net gains on lease terminations for
comparative purposes to same current-year period results. 3
During the three and twelve months ended February 3, 2018 and
January 28, 2017, the Company recognized asset impairment charges
for certain retail locations resulting from under-performance and
expected store closures. 4 During the first quarter of
fiscal 2017, the Company implemented a global cost reduction and
restructuring plan to better align its global cost and
organizational structure with its current strategic initiatives
which resulted in restructuring charges, mainly related to
cash-based severance costs, incurred during the twelve months ended
January 28, 2017. The restructuring charges were recorded during
the three months ended April 30, 2016. 5 The Company
recognized a gain related to the sale of its minority interest
equity holding in a privately-held boutique apparel company during
the twelve months ended January 28, 2017. The gain related to the
sale was recorded during the three months ended July 30, 2016.
6 The income tax effect of the net (gains) losses on lease
terminations, asset impairment charges and restructuring charges
was based on the Company’s assessment of deductibility using the
statutory tax rate (inclusive of the impact of valuation
allowances) of the tax jurisdiction in which the charges were
incurred. The income tax effect on the gain on sale of the minority
interest investment was based on the impact of the transaction on
the effective tax rate. 7 During the fourth quarter of
fiscal 2018, the Company recognized additional tax expense
resulting from the enactment of the 2017 Tax Reform to account for
deemed repatriation of foreign earnings and reduced deferred tax
assets due to lower future U.S. corporate tax rates. 8
During the fourth quarter of fiscal 2017,
the Company recorded a non-cash valuation allowance on certain of
its deferred tax assets, a portion of which was generated from the
impairments discussed above.
9 As a result of the global cost reduction and restructuring
plan, the Company incurred an estimated exit tax charge related to
its reorganization in Europe during the twelve months ended January
28, 2017. The estimated exit tax charge was recorded during the
three months ended April 30, 2016.
Guess?, Inc.
and Subsidiaries Consolidated Segment Data (dollars in
thousands)
Three Months Ended1 Twelve
Months Ended1 February 3, January 28,
% February 3, January 28, % 2018
2017 change 2018 2017 change
Net revenue: Americas Retail $ 271,174 $ 288,906 (6%) $
833,077 $ 935,479 (11%) Americas Wholesale2 36,215 34,906 4%
150,366 146,260 3% Europe2 356,824 255,347 40% 998,657 788,194 27%
Asia2 108,463 77,346 40% 308,899 248,601 24% Licensing3 19,488
17,499 11% 72,755 71,919 1% Total net
revenue3 $ 792,164 $ 674,004 18% $ 2,363,754 $
2,190,453 8% Earnings (loss) from operations:
Americas Retail2 $ 16,353 $ (537 ) 3,145% $ (17,301 ) $ (22,816 )
24% Americas Wholesale2 5,150 5,979 (14%) 25,161 24,190 4% Europe2
56,627 40,740 39% 87,376 56,961 53% Asia2 9,061 2,870 216% 14,116
(2,381 ) 693% Licensing2 17,083 20,061 (15%) 78,102
80,386 (3%) Total segment earnings from operations
104,274 69,113 51% 187,454 136,340 37% Corporate overhead2
(33,530 ) (15,199 ) 121% (102,429 ) (73,859 ) 39% Net gains
(losses) on lease terminations2 121 — (11,373 ) 695 Asset
impairment charges2 (2,466 ) (32,928 ) (8,479 ) (34,385 )
Restructuring charges — — — (6,083 ) Total
earnings from operations $ 68,399 $ 20,986 226% $
65,173 $ 22,708 187% Operating margins:
Americas Retail2 6.0 % (0.2 %) (2.1 %) (2.4 %) Americas Wholesale2
14.2 % 17.1 % 16.7 % 16.5 % Europe2 15.9 % 16.0 % 8.7 % 7.2 % Asia2
8.4 % 3.7 % 4.6 % (1.0 %) Licensing2, 3 87.7 % 114.6 % 107.3 %
111.8 % GAAP operating margin for total Company3 8.6 % 3.1 %
2.8 % 1.0 % Net gains (losses) on lease terminations2 (0.0 %) 0.0 %
0.5 % (0.0 %) Asset impairment charges2 0.3 % 4.9 % 0.3 % 1.6 %
Restructuring charges 0.0 % 0.0 % 0.0 % 0.3 % Adjusted operating
margin for total Company 8.9 % 8.0 % 3.6 % 2.9 %
Notes: 1 The three and twelve months
ended February 3, 2018 contain 14 and 53 weeks, respectively. The
three and twelve months ended January 28, 2017 contain 13 and 52
weeks, respectively. 2 During the first quarter of fiscal
2018, net revenue and related costs and expenses for certain
globally serviced customers were reclassified into the segment
primarily responsible for the relationship. During the third
quarter of fiscal 2018, segment results were also adjusted to
exclude corporate performance-based compensation costs, net gains
(losses) on lease terminations and asset impairment charges due to
the fact that these items are no longer included in the segment
results provided to the Company’s chief operating decision maker in
order to allocate resources and assess performance. Accordingly,
segment results have been adjusted for the three and twelve months
ended January 28, 2017 to conform to the current period
presentation. 3 During the fourth quarter of fiscal 2018,
the Company reclassified net royalties received on the Company’s
inventory purchases of licensed product from net revenue to cost of
product sales to reflect its treatment as a reduction of the cost
of such licensed product. Accordingly, net revenue for the twelve
months ended February 3, 2018 as well as the three and twelve
months ended January 28, 2017 have been adjusted to conform to the
current period presentation. This reclassification had no impact on
previously reported earnings from operations.
Guess?, Inc. and Subsidiaries Constant Currency Financial
Measures (dollars in thousands)
Three Months
Ended1 February 3, 2018 January 28, 2017
% change As Reported Foreign Currency Impact
Constant Currency As Reported As Reported
Constant Currency Net revenue: Americas Retail $ 271,174 $
(3,105 ) $ 268,069 $ 288,906 (6%) (7%) Americas Wholesale2 36,215
(982 ) 35,233 34,906 4% 1% Europe2 356,824 (40,017 ) 316,807
255,347 40% 24% Asia2 108,463 (5,536 ) 102,927 77,346 40% 33%
Licensing3 19,488 — 19,488 17,499 11%
11% Total net revenue3 $ 792,164 $ (49,640 ) $ 742,524
$ 674,004 18% 10%
Twelve Months
Ended1 February 3, 2018 January 28, 2017
% change As Reported Foreign Currency Impact
Constant Currency As Reported As Reported
Constant Currency Net revenue: Americas Retail $ 833,077 $
(3,931 ) $ 829,146 $ 935,479 (11%) (11%) Americas Wholesale2
150,366 (1,168 ) 149,198 146,260 3% 2% Europe2 998,657 (47,743 )
950,914 788,194 27% 21% Asia2 308,899 (5,417 ) 303,482 248,601 24%
22% Licensing3 72,755 — 72,755 71,919
1% 1% Total net revenue3 $ 2,363,754 $ (58,259 ) $ 2,305,495
$ 2,190,453 8% 5%
Notes 1 The three and twelve months ended February 3, 2018
contain 14 and 53 weeks, respectively. The three and twelve months
ended January 28, 2017 contain 13 and 52 weeks, respectively.
2 During the first quarter of fiscal 2018, net revenue for
certain globally serviced customers was reclassified into the
segment primarily responsible for the relationship. Accordingly,
segment results for Americas Wholesale, Europe and Asia have been
adjusted for the three and twelve months ended January 28, 2017 to
conform to the current year presentation. 3 During the
fourth quarter of fiscal 2018, the Company reclassified net
royalties received on the Company’s inventory purchases of licensed
product from net revenue to cost of product sales to reflect its
treatment as a reduction of the cost of such licensed product.
Accordingly, net revenue for the twelve months ended February 3,
2018 as well as the three and twelve months ended January 28, 2017
have been adjusted to conform to the current period presentation.
Guess?, Inc. and Subsidiaries Selected
Condensed Consolidated Balance Sheet Data (in thousands)
February 3, January 28, 2018
2017 ASSETS Cash and cash equivalents $
367,441 $ 396,129 Receivables, net 259,996 225,537
Inventories 428,304 367,381 Other current assets 52,964
54,965 Property and equipment, net 294,254 243,005
Restricted cash 241 1,521 Other assets 252,434 245,947
Total Assets $ 1,655,634 $ 1,534,485
LIABILITIES AND STOCKHOLDERS’ EQUITY Current
portion of capital lease obligations and borrowings $ 2,845 $ 566
Other current liabilities 465,000 344,887 Long-term
debt and capital lease obligations 39,196 23,482 Other
long-term liabilities 209,528 180,104 Redeemable and
nonredeemable noncontrolling interests 22,246 16,224 Guess?,
Inc. stockholders’ equity 916,819 969,222 Total
Liabilities and Stockholders’ Equity $ 1,655,634 $ 1,534,485
Guess?, Inc. and Subsidiaries Condensed
Consolidated Cash Flow Data (in thousands)
Twelve Months Ended February
3, January 28, 2018 2017 Net cash
provided by operating activities1, 2 $ 148,370 $ 71,740 Net
cash used in investing activities1 (90,347 ) (48,984 ) Net
cash used in financing activities1 (128,737 ) (69,034 )
Effect of exchange rates on cash, cash equivalents and restricted
cash1 40,746 (2,071 ) Net change in cash, cash
equivalents and restricted cash1 (29,968 ) (48,349 ) Cash,
cash equivalents and restricted cash at the beginning of the year1
397,650 445,999 Cash, cash equivalents and restricted
cash at the end of the year1 $ 367,682 $ 397,650
Supplemental information: Depreciation and
amortization $ 63,588 $ 69,319 Rent $ 272,332 $ 263,126
Non-cash investing and financing activity:
Assets acquired under capital lease obligations3 $ 18,502 $ —
Notes: 1 As a result of
the adoption of new authoritative guidance during the first quarter
of fiscal 2018 which impacted the classification of certain cash
receipts and cash payments in the statement of cash flows, the
amounts related to cash flows from operating, investing and
financing activities as well as the effect of exchange rates on
cash, cash equivalents and restricted cash have been updated for
the twelve months ended January 28, 2017 to conform to the current
year presentation. 2 During fiscal 2018, the Company
recorded net losses on lease terminations related primarily to the
modification of certain lease agreements held with a common
landlord in North America. In connection with this modification,
the Company made up-front payments of approximately $22 million, of
which $12 million was recognized as net losses on lease
terminations and $10 million was recorded as advance rent payments.
3 During fiscal 2018, the Company began the relocation of
its European distribution center to the Netherlands. As a result,
the Company entered into a capital lease of $17.0 million for
equipment used in the new facility. During fiscal 2018, the Company
also entered into a capital lease for $1.5 million related
primarily to computer hardware and software.
Guess?, Inc. and Subsidiaries Reconciliation of Net Cash
Provided by Operating Activities to Free Cash Flow (in
thousands)
Twelve Months Ended February 3, January 28,
2018 2017 Net cash provided by operating
activities1,2 $ 148,370 $ 71,740 Less: Purchases of property
and equipment (84,655 ) (90,581 ) Free cash flow1,2 $ 63,715
$ (18,841 ) Notes:
1 As a result of the adoption of new authoritative guidance during
the first quarter of fiscal 2018 which impacted the classification
of certain cash receipts and cash payments in the statement of cash
flows, net cash provided by operating activities and free cash flow
have been updated for the twelve months ended January 28, 2017 to
conform to the current year presentation. 2 During fiscal
2018, the Company recorded net losses on lease terminations related
primarily to the modification of certain lease agreements held with
a common landlord in North America. In connection with this
modification, the Company made up-front payments of approximately
$22 million, of which $12 million was recognized as net losses on
lease terminations and $10 million was recorded as advance rent
payments.
Guess?, Inc. and Subsidiaries
Retail Store Data International Store Count
As of February 3,
2018 As of January 28, 2017 Total Directly
Operated Total Directly Operated Region
Stores Stores Stores Stores
United States 308 306 341 339 Canada 89 89 111 111
Central and South America 103 59 95 51
Total Americas
500 454 547 501 Europe and the
Middle East 669 400 629 336 Asia 494 157 504 108
1,663 1,011 1,680
945 Guess?, Inc. and Subsidiaries
Directly Operated Retail Store Data U.S. and Canada
Twelve Months Ended February 3, January 28,
2018 2017 Number of stores at the beginning of
the year 450 455 Store openings 7 19 Store closures
(62) (24) Number of stores at the end of the year 395
450 Total store square footage at the end of the year
1,980,000 2,198,000
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180321006005/en/
Guess?, Inc.Fabrice BenaroucheVP, Finance and Investor
Relations(213) 765-5578
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