Resumed its Quarterly
Cash Dividend Program, Declaring a Cash Dividend of $0.1125 per
Share on the Company’s Common Stock
Continued to Tightly
Manage Costs and Inventory Position to Mitigate the Impact of the
COVID-19 Crisis
Q2 Fiscal 2021
Revenues Decreased 42% to $399 Million; Decreased 41% in Constant
Currency Driven by COVID-19 Related Store Closures and Lower
Demand
Q2 Fiscal 2021 GAAP
Loss per Share of $0.31, Compared to GAAP EPS of $0.35 in Q2 Fiscal
2020; Q2 Fiscal 2021 Adjusted Loss per Share of $0.01, Compared to
Adjusted EPS of $0.38 in Q2 Fiscal 2020
Guess?, Inc. (NYSE: GES) today reported financial results for
its second quarter ended August 1, 2020.
Carlos Alberini, Chief Executive Officer, commented, “The
COVID-19 crisis continued to impact our business in the second
quarter. We remained focused on managing what was in our control
including reducing costs and optimizing inventory management and
the use of capital. I believe that our efforts paid off, as we
minimized our losses in spite of a 42% decrease in our revenues. We
increased product margins, ended the period with inventories down
13% compared to last year and finished the quarter with a strong
balance sheet and ample liquidity. I am proud to say that our teams
around the world rose to the challenges imposed by the crisis in an
extraordinary way and the results we achieved demonstrate their
strong leadership, relentless hard work and amazing dedication to
our customers and our Company.”
Mr. Alberini continued, “We are well positioned for the second
half of the year. I am very excited about our product offering and
our marketing plan for the Holiday season. I strongly believe our
customers will see a significant elevation of the Guess brand this
season and into the future.”
Mr. Alberini concluded, “Overall, the crisis inspired our team
to think differently, to challenge every aspect of the business and
to architect a simpler, more efficient, capital-light and flexible
model. We are building a business that will be better positioned to
compete in the future and gain market share globally. We have an
incredible brand with a true global reach and presence in more than
100 countries. I believe that companies that adapt their business
models to actively embrace new consumer preferences placing the
customer at the center of everything they do will gain share and
overcome the crisis faster. We fully expect to be one of those
companies. We have a strong team which is even more excited about
our future today than I have seen it since I came back to
Guess.”
Adjusted Amounts
This press release contains certain non-GAAP, or adjusted,
financial measures. References to “adjusted” results exclude the
impact of (i) asset impairment charges, (ii) net gains on lease
terminations, (iii) certain professional service and legal fees and
related (credits) costs, (iv) certain separation charges, (v)
non-cash debt discount amortization on our convertible senior
notes, (vi) the related tax effects of the foregoing items as well
as adjustments to uncertain tax positions excluded from results in
prior years and (vii) certain discrete tax adjustments, in each
case 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.
COVID-19 Second Quarter Business
Update
The coronavirus (or “COVID-19”) pandemic has had and is
continuing to have a material impact on the Company’s financial
performance. During the second quarter of fiscal 2021, the Company
continued to experience lower net revenue compared to the same
prior-year period as it remained challenged by store closures
within the quarter and lower demand. The Company partially offset
these revenue declines by reducing its SG&A expenses for the
quarter through expense savings, both one-time, such as furloughs
and temporary salary reductions, and permanent, such as headcount
reductions and lower discretionary spending. The Company also paid
back a significant portion of its previously drawn down credit
facilities and reinstated salaries that had been temporarily
reduced. During the second quarter of fiscal 2021, the Company
gradually reopened most of its global fleet of brick-and-mortar
stores resulting in stores being closed for approximately 30% of
the days in the quarter. As of August 1, 2020 approximately 95% of
our stores were open, with the majority of closed stores located
primarily within interior malls in California.
Second Quarter Fiscal 2021
Results
For the second quarter of fiscal 2021, the Company recorded GAAP
net loss of $20.4 million, compared to GAAP net earnings of $25.3
million for the second quarter of fiscal 2020. GAAP diluted loss
per share was $0.31 for the second quarter of fiscal 2021, compared
to GAAP diluted earnings per share of $0.35 for the same prior-year
quarter. The Company estimates that its share buybacks had a
negative impact of $0.03 on GAAP diluted loss per share and
currency had a positive impact of $0.03 on diluted loss per share
in the second quarter of fiscal 2021.
For the second quarter of fiscal 2021, the Company’s adjusted
net loss was $0.6 million, compared to adjusted net earnings of
$27.4 million for the second quarter of fiscal 2020. Adjusted
diluted loss per share was $0.01, compared to adjusted diluted
earnings per share of $0.38 for the same prior-year quarter. The
Company estimates that its share buybacks had a minimal impact on
adjusted diluted loss per share in the second quarter of fiscal
2021.
Net Revenue. Total net revenue for the second quarter of
fiscal 2021 decreased 41.7% to $398.5 million, compared to $683.2
million in the same prior-year quarter. In constant currency, net
revenue decreased by 41.2%.
- Americas Retail revenues decreased 44.7% in U.S. dollars and
44.1% in constant currency.
- Americas Wholesale revenues decreased 51.6% in U.S. dollars and
48.7% in constant currency.
- Europe revenues decreased 39.5% in U.S. dollars and 39.6% in
constant currency.
- Asia revenues decreased 39.7% in U.S. dollars and 38.7% in
constant currency.
- Licensing revenues decreased 34.5% in U.S. dollars.
Earnings (Loss) from Operations. GAAP loss from
operations for the second quarter of fiscal 2021 was $14.3 million
(including $12.0 million in non-cash impairment charges taken on
certain long-lived store related assets and a $0.5 million
favorable currency translation impact), compared to GAAP earnings
from operations of $46.0 million in the same prior-year quarter.
GAAP operating margin in the second quarter decreased 10.3% to
negative 3.6%, from 6.7% in the same prior-year quarter, driven
primarily by overall deleveraging of expenses due to the negative
impact from the COVID-19 pandemic on our global operations. The
negative impact of currency on operating margin for the quarter was
approximately 40 basis points.
For the second quarter of fiscal 2021, adjusted operating loss
was $0.9 million, compared to adjusted earnings from operations of
$47.9 million in the same prior-year quarter. Adjusted operating
margin decreased 720 basis points to negative 0.2%, from 7.0% in
the same prior-year quarter, driven primarily by overall
deleveraging of expenses due to the negative impact from the
COVID-19 pandemic on our global operations.
- Operating margin for the Company’s Americas Retail segment
decreased 730 basis points to negative 4.3% in the second quarter
of fiscal 2021, from 3.0% in the same prior-year quarter, driven
primarily by the deleverage impact of temporary store closures and
lower traffic as a result of the COVID-19 pandemic.
- Operating margin for the Company’s Americas Wholesale segment
decreased 11.8% to 8.3% in the second quarter of fiscal 2021, from
20.1% in the same prior-year quarter, due mainly to the negative
impact from the COVID-19 pandemic which resulted in overall
deleveraging of expenses.
- Operating margin for the Company’s Europe segment decreased 510
basis points to 10.1% in the second quarter of fiscal 2021, from
15.2% in the same prior-year quarter, driven primarily by overall
deleveraging of expenses due to lower revenue as a result of the
COVID-19 pandemic.
- Operating margin for the Company’s Asia segment decreased 90
basis points to negative 6.7% in the second quarter of fiscal 2021,
from negative 5.8% in the same prior-year quarter, due mainly to
the negative impact from the COVID-19 pandemic which resulted in
overall deleveraging of expenses, partially offset by the favorable
impact from business mix.
- Operating margin for the Company’s Licensing segment increased
11.0% to 94.8% in the second quarter of fiscal 2021, compared to
83.8% in the same prior-year quarter.
Other income, net, was $5.5 million for the second quarter of
fiscal 2021, compared to other expense, net, of $6.4 million in the
same prior-year quarter. The change was driven primarily by market
volatility which resulted in net unrealized gains on the
translation of foreign currency balances and net unrealized gains
on our SERP-related assets, compared to net unrealized losses in
the same prior-year quarter. This was partially offset by net
mark-to-market losses on the revaluation of foreign exchange
currency contracts, compared to gains in the same prior-year
quarter.
Six-Month Period Results
For the six months ended August 1, 2020, the Company recorded
GAAP net loss of $178.0 million, compared to GAAP net earnings of
$3.9 million for the six months ended August 3, 2019. GAAP diluted
loss per share was $2.72 for the six months ended August 1, 2020,
compared to GAAP earnings per share of $0.05 during the same
prior-year period. The Company estimates that its share buybacks
and its prior year convertible notes transaction had a net negative
impact of $0.45 on GAAP diluted loss per share and currency had a
negative impact of $0.06 on diluted loss per share for the six
months ended August 1, 2020.
For the six months ended August 1, 2020, the Company recorded
adjusted net loss of $119.6 million, compared to adjusted net
earnings of $7.8 million for the six months ended August 3, 2019.
Adjusted diluted loss per share was $1.83, compared to adjusted
earnings per share of $0.10 during the same prior-year period. The
Company estimates that its share buybacks and its prior year
convertible notes transaction had a net negative impact of $0.29 on
adjusted diluted loss per share during the six months ended August
1, 2020.
Net Revenue. Total net revenue for the first six months
of fiscal 2021 decreased 46.0% to $658.8 million, compared to $1.22
billion in the same prior-year period. In constant currency, net
revenue decreased by 45.1%.
- Americas Retail revenues decreased 50.8% in U.S. dollars and
50.3% in constant currency.
- Americas Wholesale revenues decreased 47.6% in U.S. dollars and
45.1% in constant currency.
- Europe revenues decreased 43.3% in U.S. dollars and 42.5% in
constant currency.
- Asia revenues decreased 46.2% in U.S. dollars and 44.7% in
constant currency.
- Licensing revenues decreased 32.9% in U.S. dollars.
Earnings (Loss) from Operations. GAAP loss from
operations for the first six months of fiscal 2021 was $176.8
million (including $64.9 million in non-cash impairment charges
taken on certain long-lived store related assets and a $5.1 million
favorable currency translation impact), compared to GAAP earnings
from operations of $21.5 million in the same prior-year period.
GAAP operating margin in the first six months of fiscal 2021
decreased 28.6% to negative 26.8%, compared to 1.8% in the same
prior-year period, driven primarily by overall deleveraging of
expenses due to the negative impact from the COVID-19 pandemic on
our global operations and higher asset impairment charges. The
negative impact of currency on operating margin for the first six
months of fiscal 2021 was approximately 10 basis points.
For the six months ended August 1, 2020, adjusted operating loss
was $109.5 million, compared to adjusted earnings from operations
of $25.5 million for the six months ended August 3, 2019. Adjusted
operating margin decreased 18.7% to negative 16.6% for the six
months ended August 1, 2020, from 2.1% in the same prior-year
period, driven primarily by overall deleveraging of expenses due to
the negative impact from the COVID-19 pandemic on our global
operations.
- Operating margin for the Company’s Americas Retail segment
decreased 23.5% to negative 22.4% in the first six months of fiscal
2021, from 1.1% in the same prior-year period, driven primarily by
the deleverage impact of temporary store closures and lower traffic
as a result of the COVID-19 pandemic.
- Operating margin for the Company’s Americas Wholesale segment
decreased 11.2% to 7.2% in the first six months of fiscal 2021,
from 18.4% in the same prior-year period, due mainly to the
negative impact from the COVID-19 pandemic which resulted in
overall deleveraging of expenses.
- Operating margin for the Company’s Europe segment decreased
14.0% to negative 7.6% in the first six months of fiscal 2021, from
6.4% in the same prior-year period, driven primarily by overall
deleveraging of expenses due to lower revenue as a result of the
COVID-19 pandemic.
- Operating margin for the Company’s Asia segment decreased 24.2%
to negative 28.9% in the first six months of fiscal 2021, from
negative 4.7% in the same prior-year period, due mainly to the
negative impact from the COVID-19 pandemic which resulted in
significantly higher inventory reserves and overall deleveraging of
expenses.
- Operating margin for the Company’s Licensing segment decreased
10 basis points to 86.1% in the first six months of fiscal 2021,
from 86.2% in the same prior-year period.
Other expense, net, was $14.0 million for the first six months
of fiscal 2021, compared to $4.3 million in the same prior-year
period. The change was due primarily to net mark-to-market losses
on revaluation of foreign exchange currency contracts, compared to
gains in the same prior-year period. During the first six months of
fiscal 2021, market volatility also resulted in higher unrealized
losses on the translation of foreign currency balances and lower
net unrealized gains on our SERP-related assets, compared to the
same prior-year period.
Outlook
Given the current circumstances regarding the COVID-19 crisis
and its uncertain impact on our operations, we are not providing
detailed guidance for the third quarter ending October 31, 2020 or
the full fiscal year ending January 30, 2021. Based on current
trends, we expect revenues for the third and fourth quarters of
fiscal 2021 to decrease in the mid-teens range.
Dividend and Share
Repurchases
The Company’s Board of Directors has approved the resumption of
its quarterly cash dividend program, declaring a cash dividend of
$0.1125 per share on the Company’s common stock. The Board also
decided not to declare any cash dividends for the prior two
quarters. The dividend will be payable on October 2, 2020 to
shareholders of record as of the close of business on September 16,
2020. In addition, during the second quarter of fiscal 2021, the
Company invested approximately $39 million to repurchase four
million shares of its common stock to return value to its
shareholders.
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 six months ended August 1, 2020, the adjusted results
exclude the impact of certain professional service and legal fees
and related (credits) costs, certain separation charges, asset
impairment charges, net gains on lease terminations, non-cash
amortization of debt discount on the Company’s convertible senior
notes, the related tax impacts of these adjustments as well as
certain discrete tax adjustments, where applicable. For the three
and six months ended August 3, 2019, the adjusted results exclude
the impact of certain professional service and legal fees and
related costs, asset impairment charges, non-cash amortization of
debt discount on the Company’s convertible senior notes, the
related tax impacts of these adjustments as well as adjustments to
uncertain tax positions excluded from results in prior years, 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 these items are not
indicative of the underlying performance of its business and 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 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 or 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 (i) purchases of property
and equipment and (ii) payments for property and equipment under
finance leases. Free cash flows are 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 and payments for property and equipment under finance
leases. 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 8:00 am (ET) on
September 2, 2020 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, eyewear, 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 August 1, 2020, the Company directly operated 1,084 retail
stores in the Americas, Europe and Asia. The Company’s partners and
distributors operated 538 additional retail stores worldwide. As of
August 1, 2020, the Company and its partners 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 potential
actions and impacts related to the COVID-19 pandemic; statements
concerning the Company’s expectations, goals, future prospects,
global cost reduction opportunities and profitability efforts,
capital allocation plans, cash needs and current business
strategies and strategic initiatives; and statements expressing
optimism or pessimism about future operating results, growth
opportunities, earnings, and operating margins 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,” “could,” “will,” “should,” “goal,” “strategy,”
“believe,” “estimate,” “continue,” “outlook,” “plan,” “create,”
“see,” 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 or political
conditions, including economic and other events that could
negatively impact consumer confidence and discretionary consumer
spending; the continuation or worsening of impacts related to the
COVID-19 pandemic, including business, financial, human capital,
litigation and other impacts to the Company and its partners; our
ability to successfully negotiate rent relief or other
lease-related terms with our landlords; our ability to successfully
negotiate or defer our vendor obligations; our ability to maintain
adequate levels of liquidity; changes to estimates related to
impairments, inventory and other reserves, including the impact of
the CARES Act, which were made using the best information available
at the time; 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; risks
related to our convertible senior notes issued in April 2019,
including our ability to settle the liability in cash; our ability
to successfully or timely implement plans for cost reductions; our
ability to effectively and efficiently manage the volume and costs
associated with our European distribution centers without incurring
shipment delays; our ability to attract and retain key personnel;
obligations or changes in estimates arising from new or existing
litigation, tax and other regulatory proceedings; risks related to
the complexity of the Tax Reform, future clarifications and
legislative amendments thereto, as well as our ability to
accurately interpret and predict its impact on our cash flows and
financial condition; the risk of economic uncertainty associated
with the transition period of the United Kingdom’s departure from
the European Union (“Brexit”) or any other similar referendums that
may be held; the occurrence of unforeseen epidemics, such as the
COVID-19 pandemic; other catastrophic events; changes in U.S. or
foreign tax or tariff policy, including changes to tariffs on
imports into the U.S.; accounting adjustments identified after
issuance of this release; risk of future non-cash asset
impairments, including goodwill, right of-use lease assets and/or
other store asset impairments; 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; risks associated
with our ability to properly collect, use, manage and secure
consumer and employee data; risks associated with our vendors’
ability to maintain the strength and security of information
technology systems; 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, length and severity of the COVID-19 pandemic, and
uncertainty surrounding potential changes in U.S. policies and
regulations, including the upcoming U.S. election, may amplify many
of these risks. 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 Ended
Six Months Ended
August 1, 2020
August 3, 2019
August 1, 2020
August 3, 2019
$
%
$
%
$
%
$
%
Product sales
$
386,392
97.0
%
$
664,678
97.3
%
$
633,709
96.2
%
$
1,182,551
96.9
%
Net royalties
12,147
3.0
%
18,542
2.7
%
25,081
3.8
%
37,360
3.1
%
Net revenue
398,539
100.0
%
683,220
100.0
%
658,790
100.0
%
1,219,911
100.0
%
Cost of product sales
251,511
63.1
%
417,554
61.1
%
477,533
72.5
%
772,296
63.3
%
Gross profit
147,028
36.9
%
265,666
38.9
%
181,257
27.5
%
447,615
36.7
%
Selling, general and administrative
expenses
150,293
37.7
%
218,175
32.0
%
293,581
44.5
%
422,820
34.6
%
Asset impairment charges
11,969
3.0
%
1,504
0.2
%
64,941
9.9
%
3,279
0.3
%
Net gains on lease terminations
(885
)
(0.2
%)
—
—
%
(429
)
(0.1
%)
—
—
%
Earnings (loss) from operations
(14,349
)
(3.6
%)
45,987
6.7
%
(176,836
)
(26.8
%)
21,516
1.8
%
Other income (expense):
Interest expense
(5,941
)
(1.5
%)
(4,951
)
(0.7
%)
(11,403
)
(1.7
%)
(6,210
)
(0.5
%)
Interest income
436
0.1
%
313
0.0
%
1,046
0.2
%
674
0.1
%
Other income (expense), net
5,548
1.4
%
(6,355
)
(0.9
%)
(14,032
)
(2.2
%)
(4,284
)
(0.4
%)
Earnings (loss) before income tax expense
(benefit)
(14,306
)
(3.6
%)
34,994
5.1
%
(201,225
)
(30.5
%)
11,696
1.0
%
Income tax expense (benefit)
6,386
1.6
%
8,818
1.3
%
(19,995
)
(3.0
%)
6,101
0.5
%
Net earnings (loss)
(20,692
)
(5.2
%)
26,176
3.8
%
(181,230
)
(27.5
%)
5,595
0.5
%
Net earnings (loss) attributable to
noncontrolling interests
(334
)
(0.1
%)
854
0.1
%
(3,206
)
(0.5
%)
1,647
0.2
%
Net earnings (loss) attributable to
Guess?, Inc.
$
(20,358
)
(5.1
%)
$
25,322
3.7
%
$
(178,024
)
(27.0
%)
$
3,948
0.3
%
Net earnings (loss) per common share
attributable to common stockholders:
Basic
$
(0.31
)
$
0.36
$
(2.72
)
$
0.05
Diluted
$
(0.31
)
$
0.35
$
(2.72
)
$
0.05
Weighted average common shares outstanding
attributable to common stockholders:
Basic
65,177
70,508
65,446
75,216
Diluted
65,177
71,356
65,446
76,155
Effective tax rate
(44.6
)%
25.2
%
9.9
%
52.2
%
Adjusted selling, general and
administrative expenses1:
$
147,937
37.1
%
$
217,770
31.9
%
$
290,762
44.1
%
$
422,143
34.6
%
Adjusted earnings (loss) from
operations1:
$
(909
)
(0.2
%)
$
47,896
7.0
%
$
(109,505
)
(16.6
%)
$
25,472
2.1
%
Adjusted net earnings (loss) attributable
to Guess?, Inc.1:
$
(639
)
(0.2
%)
$
27,414
4.0
%
$
(119,552
)
(18.1
%)
$
7,798
0.6
%
Adjusted diluted earnings (loss) per
common share attributable to common stockholders1:
$
(0.01
)
$
0.38
$
(1.83
)
$
0.10
Adjusted effective tax rate1:
156.2
%
28.2
%
4.6
%
48.4
%
______________________________________________________________________
1
The adjusted results for the three and six
months ended August 1, 2020 reflect the exclusion of certain
professional service and legal fees and related (credits) costs,
certain separation charges, asset impairment charges, net gains on
lease terminations, non-cash amortization of debt discount on the
Company’s convertible senior notes, the related tax impacts of
these adjustments as well as certain discrete tax adjustments,
where applicable. The adjusted results for the three and six months
ended August 3, 2019 reflect the exclusion of certain professional
service and legal fees and related costs, asset impairment charges,
non-cash amortization of debt discount on the Company’s convertible
senior notes, the related tax impacts of these adjustments as well
as adjustments to uncertain tax positions excluded from results in
prior years, 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
selling, general and administrative expenses to adjusted selling,
general and administrative expenses, reported GAAP earnings (loss)
from operations to adjusted earnings (loss) from operations,
reported GAAP net earnings (loss) attributable to Guess?, Inc. to
adjusted net earnings (loss) attributable to Guess?, Inc. and
reported GAAP income tax expense (benefit) to adjusted income tax
expense (benefit) for the three and six months ended August 1, 2020
and August 3, 2019.
Three Months Ended
Six Months Ended
August 1, 2020
August 3, 2019
August 1, 2020
August 3, 2019
Reported GAAP selling, general and
administrative expenses
$
150,293
$
218,175
$
293,581
$
422,820
Certain professional service and legal
fees and related credits (costs)1
151
(405
)
(139
)
(677
)
Separation charges2
(2,507
)
—
(2,680
)
—
Adjusted selling, general and
administrative expenses
$
147,937
$
217,770
$
290,762
$
422,143
Reported GAAP earnings (loss) from
operations
$
(14,349
)
$
45,987
$
(176,836
)
$
21,516
Certain professional service and legal
fees and related (credits) costs1
(151
)
405
139
677
Separation charges2
2,507
—
2,680
—
Asset impairment charges3
11,969
1,504
64,941
3,279
Net gains on lease terminations4
(885
)
—
(429
)
—
Adjusted earnings (loss) from
operations
$
(909
)
$
47,896
$
(109,505
)
$
25,472
Reported GAAP net earnings (loss)
attributable to Guess?, Inc.
$
(20,358
)
$
25,322
$
(178,024
)
$
3,948
Certain professional service and legal
fees and related (credits) costs1
(151
)
405
139
677
Separation charges2
2,507
—
2,680
—
Asset impairment charges3
11,969
1,504
64,941
3,279
Net gains on lease terminations4
(885
)
—
(429
)
—
Amortization of debt discount5
2,598
2,449
5,197
2,662
Discrete tax adjustments6
8,061
—
170
—
Income tax impact from adjustments7
(4,380
)
(2,266
)
(14,226
)
(2,768
)
Total adjustments affecting net earnings
(loss) attributable to Guess?, Inc.
19,719
2,092
58,472
3,850
Adjusted net earnings (loss)
attributable to Guess?, Inc.
$
(639
)
$
27,414
$
(119,552
)
$
7,798
Reported GAAP income tax expense
(benefit)
$
6,386
$
8,818
$
(19,995
)
$
6,101
Discrete tax adjustments6
(8,061
)
—
(170
)
—
Income tax impact from adjustments7
4,380
2,266
14,226
2,768
Adjusted income tax expense
(benefit)
$
2,705
$
11,084
$
(5,939
)
$
8,869
Adjusted effective tax rate
156.2
%
28.2
%
4.6
%
48.4
%
______________________________________________________________________
1
During the three and six months ended
August 1, 2020 and August 3, 2019, the Company recorded certain
professional service and legal fees and related (credits) costs,
which it otherwise would not have incurred as part of its business
operations.
2
During the three months ended May 2, 2020,
the Company recorded $0.2 million in separation-related charges
mainly related to certain cash severance payments, partially offset
by adjustments to non-cash stock-based compensation expense related
to our former Chief Executive Officer resulting from changes in
expected performance conditions of certain previously granted stock
awards that were no longer subject to service vesting requirements
after his departure. During the three months ended August 1, 2020,
the Company recorded $2.5 million in separation-related charges
mainly related to headcount reduction in response to the pandemic.
There were no unusual separation charges recorded during the three
and six months ended August 3, 2019.
3
During the three and six months ended
August 1, 2020, the Company recognized asset impairment charges
related primarily to impairment of certain operating lease
right-of-use assets and impairment of property and equipment
related to certain retail locations resulting from lower revenue
and future cash flow projections from the ongoing effects of the
COVID-19 pandemic. During the three and six months ended August 3,
2019, the Company’s asset impairment charges related primarily to
impairment of property and equipment related to certain retail
locations resulting from under-performance and expected store
closures.
4
During the three and six months ended
August 1, 2020, the Company recorded net gains on lease
terminations related primarily to the early termination of certain
lease agreements.
5
In April 2019, the Company issued $300
million principal amount of 2.00% convertible senior notes due 2024
(the “Notes”) in a private offering. The Company has separated the
Notes into liability (debt) and equity (conversion option)
components. The debt discount, which represents an amount equal to
the fair value of the equity component, is amortized as non-cash
interest expense over the term of the Notes.
6
During the three months ended May 2, 2020,
the discrete tax adjustments related primarily to a tax benefit
from a tax rate change due to net operating loss carrybacks,
partially offset by the negative impact from a cumulative valuation
allowance. The Company recognized a tax benefit of approximately
$11.8 million from a tax rate change related to the ability to
carryback net operating losses to tax years with a higher federal
corporate tax rate as allowed under the CARES Act enacted in March
2020. This was partially offset by a valuation allowance of $3.7
million resulting from jurisdictions where there have been
cumulative net operating losses, limiting the Company’s ability to
consider other subjective evidence to continue to recognize the
existing deferred tax assets. During the three months ended August
1, 2020, the Company recorded a discrete tax expense of $7.9
million related to improved forecasts for the current fiscal year
which changes the estimate of the net operating losses that the
Company can carryback to tax years with a higher federal corporate
tax rate as allowed under the CARES Act.
7
The income tax effect of certain
professional service and legal fees and related (credits) costs,
separation charges, asset impairment charges, net gains on lease
terminations and the amortization of debt discount 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
adjustment for the three and six months ended August 3, 2019 also
included adjustments to uncertain tax positions excluded from
results in prior years.
Guess?, Inc. and
Subsidiaries
Consolidated Segment
Data
(dollars in thousands)
Three Months Ended
Six Months Ended
August 1, 2020
August 3, 2019
% change
August 1, 2020
August 3, 2019
% change
Net revenue:
Americas Retail
$
110,065
$
198,966
(45%)
$
184,649
$
375,389
(51%)
Americas Wholesale
20,285
41,902
(52%)
46,160
88,107
(48%)
Europe
205,851
340,509
(40%)
312,324
550,564
(43%)
Asia
50,191
83,301
(40%)
90,576
168,491
(46%)
Licensing
12,147
18,542
(34%)
25,081
37,360
(33%)
Total net revenue
$
398,539
$
683,220
(42%)
$
658,790
$
1,219,911
(46%)
Earnings (loss) from operations:
Americas Retail
$
(4,704
)
$
5,957
(179%)
$
(41,377
)
$
4,145
(1,098%)
Americas Wholesale
1,688
8,422
(80%)
3,312
16,236
(80%)
Europe
20,795
51,594
(60%)
(23,611
)
35,267
(167%)
Asia
(3,367
)
(4,800
)
30%
(26,144
)
(8,003
)
(227%)
Licensing
11,511
15,547
(26%)
21,605
32,191
(33%)
Total segment earnings (loss) from
operations
25,923
76,720
(66%)
(66,215
)
79,836
(183%)
Corporate overhead
(29,188
)
(29,229
)
(0%)
(46,109
)
(55,041
)
(16%)
Asset impairment charges
(11,969
)
(1,504
)
696%
(64,941
)
(3,279
)
1,881%
Net gains on lease terminations
885
—
429
—
Total earnings (loss) from operations
$
(14,349
)
$
45,987
(131%)
$
(176,836
)
$
21,516
(922%)
Operating margins:
Americas Retail
(4.3
%)
3.0
%
(22.4
%)
1.1
%
Americas Wholesale
8.3
%
20.1
%
7.2
%
18.4
%
Europe
10.1
%
15.2
%
(7.6
%)
6.4
%
Asia
(6.7
%)
(5.8
%)
(28.9
%)
(4.7
%)
Licensing
94.8
%
83.8
%
86.1
%
86.2
%
GAAP operating margin for total
Company
(3.6
%)
6.7
%
(26.8
%)
1.8
%
Certain professional service and legal
fees and related (credits) costs
(0.0
%)
0.1
%
0.0
%
0.0
%
Separation charges
0.6
%
—
%
0.4
%
—
%
Asset impairment charges
3.0
%
0.2
%
9.9
%
0.3
%
Net gains on lease terminations
(0.2
%)
—
%
(0.1
%)
—
%
Adjusted operating margin for total
Company
(0.2
%)
7.0
%
(16.6
%)
2.1
%
Guess?, Inc. and
Subsidiaries
Constant Currency Financial
Measures
(dollars in thousands)
Three Months Ended
August 1, 2020
August 3, 2019
% change
As Reported
Foreign Currency
Impact
Constant Currency
As Reported
As Reported
Constant Currency
Net revenue:
Americas Retail
$
110,065
$
1,154
$
111,219
$
198,966
(45%)
(44%)
Americas Wholesale
20,285
1,225
21,510
41,902
(52%)
(49%)
Europe
205,851
(51
)
205,800
340,509
(40%)
(40%)
Asia
50,191
834
51,025
83,301
(40%)
(39%)
Licensing
12,147
—
12,147
18,542
(34%)
(34%)
Total net revenue
$
398,539
$
3,162
$
401,701
$
683,220
(42%)
(41%)
Six Months Ended
August 1, 2020
August 3, 2019
% change
As Reported
Foreign Currency
Impact
Constant Currency
As Reported
As Reported
Constant Currency
Net revenue:
Americas Retail
$
184,649
$
1,748
$
186,397
$
375,389
(51%)
(50%)
Americas Wholesale
46,160
2,251
48,411
88,107
(48%)
(45%)
Europe
312,324
4,026
316,350
550,564
(43%)
(43%)
Asia
90,576
2,530
93,106
168,491
(46%)
(45%)
Licensing
25,081
—
25,081
37,360
(33%)
(33%)
Total net revenue
$
658,790
$
10,555
$
669,345
$
1,219,911
(46%)
(45%)
Guess?, Inc. and
Subsidiaries
Selected Condensed
Consolidated Balance Sheet Data
(in thousands)
August 1, 2020
February 1, 2020
August 3, 2019
ASSETS
Cash and cash equivalents
$
327,970
$
284,613
$
131,060
Receivables, net
246,471
327,281
292,985
Inventories
419,427
393,129
484,236
Other current assets
80,069
59,212
59,226
Property and equipment, net
240,081
288,112
302,906
Restricted cash
228
215
519
Operating lease right-of-use assets
766,853
851,990
900,062
Other assets
229,630
224,410
231,210
Total assets
$
2,310,729
$
2,428,962
$
2,402,204
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current portion of borrowings and finance
lease obligations
$
42,321
$
9,490
$
32,554
Current operating lease liabilities
235,749
192,066
213,912
Other current liabilities
452,410
436,857
426,886
Long-term debt and finance lease
obligations
66,069
32,770
35,512
Convertible senior notes, net
252,988
247,363
242,055
Long-term operating lease liabilities
659,118
714,079
747,791
Other long-term liabilities
143,225
130,259
125,915
Redeemable and nonredeemable
noncontrolling interests
20,581
26,364
22,707
Guess?, Inc. stockholders’ equity
438,268
639,714
554,872
Total liabilities and stockholders’
equity
$
2,310,729
$
2,428,962
$
2,402,204
Guess?, Inc. and
Subsidiaries
Condensed Consolidated Cash
Flow Data
(in thousands)
Six Months Ended
August 1, 2020
August 3, 2019
Net cash provided by (used in) operating
activities
$
40,685
$
(22,957
)
Net cash used in investing activities
(11,970
)
(33,868
)
Net cash provided by (used in) financing
activities
13,585
(18,549
)
Effect of exchange rates on cash, cash
equivalents and restricted cash
1,070
(4,042
)
Net change in cash, cash equivalents and
restricted cash
43,370
(79,416
)
Cash, cash equivalents and restricted cash
at the beginning of the year
284,828
210,995
Cash, cash equivalents and restricted cash
at the end of the period
$
328,198
$
131,579
Supplemental information:
Depreciation and amortization
$
32,250
$
37,225
Total lease costs (excluding finance lease
cost)
$
147,058
$
180,307
Guess?, Inc. and
Subsidiaries
Reconciliation of Net Cash
Provided By (Used In) Operating Activities to Free Cash
Flow
(in thousands)
Six Months Ended
August 1, 2020
August 3, 2019
Net cash provided by (used in) operating
activities
$
40,685
$
(22,957
)
Less: Purchases of property and
equipment
(10,099
)
(34,551
)
Less: Payments for property and equipment
under finance leases
(1,859
)
(1,202
)
Free cash flow
$
28,727
$
(58,710
)
Guess?, Inc. and
Subsidiaries
Retail Store Data
Global Store and Concession
Count
As of August 1, 2020
Stores
Concessions
Region
Total
Directly Operated
Partner Operated
Total
Directly Operated
Partner Operated
United States
259
257
2
1
—
1
Canada
79
79
—
—
—
—
Central and South America
110
72
38
27
27
—
Total Americas
448
408
40
28
27
1
Europe and the Middle East
742
515
227
38
38
—
Asia and the Pacific
432
161
271
303
115
188
Total
1,622
1,084
538
369
180
189
As of August 3, 2019
Stores
Concessions
Region
Total
Directly Operated
Partner Operated
Total
Directly Operated
Partner Operated
United States
287
285
2
1
—
1
Canada
80
80
—
—
—
—
Central and South America
111
71
40
27
27
—
Total Americas
478
436
42
28
27
1
Europe and the Middle East
726
510
216
37
37
—
Asia and the Pacific
520
216
304
337
162
175
Total
1,724
1,162
562
402
226
176
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200902005301/en/
Guess?, Inc. Fabrice Benarouche VP, Finance and Investor
Relations (213) 765-5578
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