Q3 Fiscal 2021
Revenues Decreased 8% to $569 Million; Decreased 10% in Constant
Currency, a Significant Improvement Versus the First Half of the
Year
Q3 Fiscal 2021 GAAP
EPS of $0.41, Compared to $0.18 in Q3 Fiscal 2020; Q3 Fiscal 2021
Adjusted EPS of $0.58, Compared to $0.22 in Q3 Fiscal
2020
Ended the Quarter with
$365 Million in Cash and Cash Equivalents Versus $110 Million in
the Prior-Year Quarter through Strategic Management of Working
Capital and Investments
Guess?, Inc. (NYSE: GES) today reported financial results for
its third quarter ended October 31, 2020.
Carlos Alberini, Chief Executive Officer, commented, “We are
very pleased with our third quarter performance, which
significantly exceeded our expectations, in spite of the
challenging circumstances we faced due to the pandemic. I am
extremely proud of our teams around the world, which continue to
excel in a difficult environment, demonstrating a relentless
commitment to our customers and our Company, tremendous agility and
exceptional execution. During the period, we have more than doubled
our earnings per share versus last year, and significantly expanded
our operating margin as our revenues decreased 7.6%. We managed the
business well, drove more full price selling, increased product
margins, reduced occupancy costs and leveraged expenses
effectively. Our balance sheet is in great shape, with cash and
equivalents of $365 million at quarter end and inventories 24%
below last year’s levels.”
Mr. Alberini continued, “We are well positioned for the holiday
period. While COVID-related restrictions are meaningfully impacting
several markets, especially in Europe, we are confident in our
brand, our product and our team’s ability to navigate the Company
through these challenges.”
Mr. Alberini concluded, “We continue to work on transforming our
business model and elevating our brand. During the period, we
launched our first-ever global product line for all categories.
This will enable us to represent the brand more consistently across
the globe and benefit from significant efficiencies in developing
our products. This is an incredible accomplishment that required
vision, determination and tremendous teamwork. We also completed
our Salesforce platform implementation and continue to work on
other projects focused on customer centricity and organizational
efficiencies. We have a clear vision for our Company and have a
great team that is very excited about our future and is ready to
take every challenge head on. I strongly believe we have a great
model to continue to gain market share and grow profitably for many
years to come.”
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
modifications, (iii) certain professional service and legal fees
and related net credits, (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 Third 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 third quarter of fiscal 2021, the Company
continued to experience lower net revenue compared to the same
prior-year period as it remained challenged by lower demand. The
Company partially offset these revenue declines by reducing its
SG&A expenses for the quarter through expense savings. Toward
the end of the third quarter of fiscal 2021, the Company started to
incur a new round of government-mandated temporary store closures,
resulting in the closure of just over 5% of our directly operated
stores as of October 31, 2020, mostly in Europe. That percentage
increased to slightly under 20% during the fiscal month of
November, but recent store re-openings have helped decrease the
store closure percentage to just under 10% as of November 29,
2020.
Third Quarter Fiscal 2021
Results
For the third quarter of fiscal 2021, the Company recorded GAAP
net earnings of $26.4 million, a 112.3% increase compared to $12.4
million for the third quarter of fiscal 2020. GAAP diluted earnings
per share increased 127.8% to $0.41 for the third quarter of fiscal
2021, compared to $0.18 for the same prior-year quarter. The
Company estimates that its share buybacks had a positive impact of
$0.03 on GAAP diluted earnings per share and currency had a
negative impact of $0.11 on diluted earnings per share in the third
quarter of fiscal 2021.
For the third quarter of fiscal 2021, the Company’s adjusted net
earnings were $37.4 million, a 150.7% increase compared to $14.9
million for the third quarter of fiscal 2020. Adjusted diluted
earnings per share increased 163.6% to $0.58, compared to $0.22 for
the same prior-year quarter. The Company estimates that its share
buybacks had a positive impact of $0.05 on adjusted diluted
earnings per share in the third quarter of fiscal 2021.
Net Revenue. Total net revenue for the third quarter of
fiscal 2021 decreased 7.6% to $569.3 million, compared to $615.9
million in the same prior-year quarter. In constant currency, net
revenue decreased by 10.1%.
- Americas Retail revenues decreased 26.7% in U.S. dollars and
26.2% in constant currency. Retail comp sales including e-commerce
decreased 21% in U.S. dollars and 20% in constant currency.
- Americas Wholesale revenues decreased 36.2% in U.S. dollars and
34.2% in constant currency.
- Europe revenues increased 16.0% in U.S. dollars and 10.2% in
constant currency. Retail comp sales including e-commerce decreased
9% in U.S. dollars and 13% in constant currency.
- Asia revenues decreased 24.7% in U.S. dollars and 26.6% in
constant currency. Retail comp sales including e-commerce decreased
15% in U.S. dollars and 18% in constant currency.
- Licensing revenues decreased 12.5% in U.S. dollars.
Earnings from Operations. GAAP earnings from operations
for the third quarter of fiscal 2021 increased 96.3% to $44.5
million (including $10.3 million in non-cash impairment charges
taken on certain long-lived store related assets and a $1.6 million
favorable currency translation impact), compared to $22.6 million
in the same prior-year quarter. GAAP operating margin in the third
quarter increased 410 basis points to 7.8%, compared to 3.7% in the
same prior-year quarter, driven primarily by the benefit of higher
wholesale revenues in Europe as we elongated the fall-winter
season’s shipment window, higher initial markups and overall lower
expenses, partially offset by the unfavorable impact from negative
comparable sales. The negative impact of currency on operating
margin for the quarter was approximately 40 basis points.
For the third quarter of fiscal 2021, adjusted earnings from
operations increased 139.5% to $55.3 million, compared to $23.1
million in the same prior-year quarter. Adjusted operating margin
increased 600 basis points to 9.7%, compared to 3.7% in the same
prior-year quarter, driven primarily by the benefit of higher
wholesale revenues in Europe as we elongated the fall-winter
season’s shipment window, higher initial markups and overall lower
expenses, partially offset by the unfavorable impact from negative
comparable sales.
- Operating margin for the Company’s Americas Retail segment
decreased 50 basis points to 0.4% in the third quarter of fiscal
2021, from 0.9% in the same prior-year quarter, driven primarily by
the deleveraging impact of negative comparable sales driven by
lower traffic as a result of the COVID-19 pandemic, partially
offset by lower store selling expenses.
- Operating margin for the Company’s Americas Wholesale segment
increased 300 basis points to 22.9% in the third quarter of fiscal
2021, from 19.9% in the same prior-year quarter, due mainly to
higher product margin.
- Operating margin for the Company’s Europe segment increased 900
basis points to 16.0% in the third quarter of fiscal 2021, compared
to 7.0% in the same prior-year quarter, driven primarily by overall
leveraging of costs due to higher wholesale revenues as we
elongated the fall-winter season’s shipment window and, to a lesser
extent, higher initial markups as well as rent concessions.
- Operating margin for the Company’s Asia segment increased 530
basis points to 2.3% in the third quarter of fiscal 2021, compared
to negative 3.0% in the same prior-year quarter, due mainly to
higher product margin and the favorable impact of business
mix.
- Operating margin for the Company’s Licensing segment increased
660 basis points to 93.8% in the third quarter of fiscal 2021,
compared to 87.2% in the same prior-year quarter.
Other expense, net, was $6.5 million for the third quarter of
fiscal 2021, compared to $0.1 million in the same prior-year
quarter. The change was driven primarily by market volatility which
resulted in net unrealized losses on the translation of foreign
currency balances and net unrealized losses on our SERP-related
assets, compared to net unrealized gains in the same prior-year
quarter. This was partially offset by lower net losses related to
one of our minority investments during the third quarter of fiscal
2021, compared to the same prior-year quarter.
Nine-Month Period
Results
For the nine months ended October 31, 2020, the Company recorded
GAAP net loss of $151.6 million, compared to GAAP net earnings of
$16.4 million for the nine months ended November 2, 2019. GAAP
diluted loss per share was $2.35 for the nine months ended October
31, 2020, compared to GAAP earnings per share of $0.22 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 $0.35 on GAAP diluted loss per share and
currency had a negative impact of $0.17 on diluted loss per share
for the nine months ended October 31, 2020.
For the nine months ended October 31, 2020, the Company recorded
adjusted net loss of $82.2 million, compared to adjusted net
earnings of $22.7 million for the nine months ended November 2,
2019. Adjusted diluted loss per share was $1.27, compared to
adjusted earnings per share of $0.31 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
$0.18 on adjusted diluted loss per share during the nine months
ended October 31, 2020.
Net Revenue. Total net revenue for the first nine months
of fiscal 2021 decreased 33.1% to $1.23 billion, from $1.84 billion
in the same prior-year period. In constant currency, net revenue
decreased by 33.4%.
- Americas Retail revenues decreased 43.1% in U.S. dollars and
42.6% in constant currency.
- Americas Wholesale revenues decreased 43.2% in U.S. dollars and
40.8% in constant currency.
- Europe revenues decreased 23.4% in U.S. dollars and 24.9% in
constant currency.
- Asia revenues decreased 39.2% in U.S. dollars and 38.8% in
constant currency.
- Licensing revenues decreased 25.3% in U.S. dollars.
Earnings (Loss) from Operations. GAAP loss from
operations for the first nine months of fiscal 2021 was $132.4
million (including $75.3 million in non-cash impairment charges
taken on certain long-lived store related assets and a $6.7 million
favorable currency translation impact), compared to GAAP earnings
from operations of $44.2 million in the same prior-year period.
GAAP operating margin in the first nine months of fiscal 2021
decreased 13.2% to negative 10.8%, from 2.4% in the same prior-year
period, driven primarily by overall deleveraging of expenses and
higher asset impairment charges due to the negative impact from the
COVID-19 pandemic on our global operations. The positive impact of
currency on operating margin for the first nine months of fiscal
2021 was approximately 20 basis points.
For the nine months ended October 31, 2020, adjusted operating
loss was $54.2 million, compared to adjusted earnings from
operations of $48.6 million for the nine months ended November 2,
2019. Adjusted operating margin decreased 700 basis points to
negative 4.4% for the nine months ended October 31, 2020, from 2.6%
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 14.0% to negative 13.0% in the first nine months of
fiscal 2021, from 1.0% in the same prior-year period, driven
primarily by the deleveraging impact of temporary store closures
and lower traffic as a result of the COVID-19 pandemic, partially
offset by lower store selling expenses.
- Operating margin for the Company’s Americas Wholesale segment
decreased 490 basis points to 14.1% in the first nine months of
fiscal 2021, from 19.0% 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 220
basis points to 4.4% in the first nine months of fiscal 2021, from
6.6% 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, partially offset by the favorable impact from
rent concessions and higher initial markups.
- Operating margin for the Company’s Asia segment decreased 12.0%
to negative 16.2% in the first nine months of fiscal 2021, from
negative 4.2% 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 increased
290 basis points to 89.5% in the first nine months of fiscal 2021,
from 86.6% in the same prior-year period.
Other expense, net, was $20.6 million for the first nine months
of fiscal 2021, compared to $4.3 million in the same prior-year
period. The change was due primarily to market volatility which
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. During
the first nine months of fiscal 2021, the Company also recognized
net mark-to-market losses on revaluation of foreign exchange
currency contracts, compared to gains in 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 fourth quarter or the full fiscal year
ending January 30, 2021. We expect revenues in the fourth quarter
of fiscal 2021 to be down in the low to mid-twenties, impacted by
lower customer traffic in stores related to the pandemic and
temporary government-mandated store closures, especially in Europe
and Canada, as well as permanent store closures. In addition, as a
result of strategic product development changes, a smaller
percentage of the European wholesale Spring/Summer collection will
be shipped in the fourth quarter of this year versus last year with
the remainder expected to ship mainly in the first quarter of next
year.
Dividend
The Company’s Board of Directors has approved a quarterly cash
dividend of $0.1125 per share on the Company’s common stock. The
dividend will be payable on January 4, 2021 to shareholders of
record as of the close of business on December 16, 2020.
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 nine months ended October 31, 2020, the adjusted results
exclude the impact of certain professional service and legal fees
and related net credits, certain separation charges, asset
impairment charges, net gains on lease modifications, 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 nine months ended November 2, 2019, the adjusted results
exclude the impact of certain professional service and legal fees
and related net credits, 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 from 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 4:45 pm (ET) on
December 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 October 31, 2020, the Company directly operated 1,068 retail
stores in the Americas, Europe and Asia. The Company’s partners and
distributors operated 536 additional retail stores worldwide. As of
October 31, 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 successfully implement or update information
technology systems, including enhancing our global omni-channel
capabilities; 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 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
Nine Months Ended
October 31, 2020
November 2, 2019
October 31, 2020
November 2, 2019
$
%
$
%
$
%
$
%
Product sales
$
549,851
96.6
%
$
593,736
96.4
%
$
1,183,560
96.4
%
$
1,776,287
96.8
%
Net royalties
19,433
3.4
%
22,208
3.6
%
44,514
3.6
%
59,568
3.2
%
Net revenue
569,284
100.0
%
615,944
100.0
%
1,228,074
100.0
%
1,835,855
100.0
%
Cost of product sales
329,764
57.9
%
386,445
62.7
%
807,297
65.7
%
1,158,741
63.1
%
Gross profit
239,520
42.1
%
229,499
37.3
%
420,777
34.3
%
677,114
36.9
%
Selling, general and administrative
expenses
184,739
32.5
%
205,003
33.3
%
478,320
39.0
%
627,823
34.2
%
Asset impairment charges
10,335
1.8
%
1,847
0.3
%
75,276
6.1
%
5,126
0.3
%
Net gains on lease modifications
(21
)
(0.0
%)
—
—
%
(450
)
(0.0
%)
—
—
%
Earnings (loss) from operations
44,467
7.8
%
22,649
3.7
%
(132,369
)
(10.8
%)
44,165
2.4
%
Other income (expense):
Interest expense
(5,809
)
(1.0
%)
(4,946
)
(0.8
%)
(17,212
)
(1.4
%)
(11,156
)
(0.6
%)
Interest income
562
0.1
%
492
0.1
%
1,608
0.1
%
1,166
0.1
%
Other expense, net
(6,521
)
(1.2
%)
(62
)
(0.1
%)
(20,553
)
(1.6
%)
(4,346
)
(0.3
%)
Earnings (loss) before income tax expense
(benefit)
32,699
5.7
%
18,133
2.9
%
(168,526
)
(13.7
%)
29,829
1.6
%
Income tax expense (benefit)
5,145
0.9
%
4,548
0.7
%
(14,850
)
(1.2
%)
10,649
0.6
%
Net earnings (loss)
27,554
4.8
%
13,585
2.2
%
(153,676
)
(12.5
%)
19,180
1.0
%
Net earnings (loss) attributable to
noncontrolling interests
1,178
0.2
%
1,162
0.2
%
(2,028
)
(0.2
%)
2,809
0.1
%
Net earnings (loss) attributable to
Guess?, Inc.
$
26,376
4.6
%
$
12,423
2.0
%
$
(151,648
)
(12.3
%)
$
16,371
0.9
%
Net earnings (loss) per common share
attributable to common stockholders:
Basic
$
0.41
$
0.19
$
(2.35
)
$
0.22
Diluted
$
0.41
$
0.18
$
(2.35
)
$
0.22
Weighted average common shares outstanding
attributable to common stockholders:
Basic
62,789
66,393
64,561
72,275
Diluted
63,579
67,314
64,561
73,211
Effective tax rate
15.7
%
25.1
%
8.8
%
35.7
%
Adjusted selling, general and
administrative expenses1:
$
184,231
32.4
%
$
206,417
33.6
%
$
474,993
38.7
%
$
628,560
34.3
%
Adjusted earnings (loss) from
operations1:
$
55,289
9.7
%
$
23,082
3.7
%
$
(54,216
)
(4.4
%)
$
48,554
2.6
%
Adjusted net earnings (loss) attributable
to Guess?, Inc.1:
$
37,363
6.6
%
$
14,902
2.4
%
$
(82,189
)
(6.7
%)
$
22,700
1.2
%
Adjusted diluted earnings (loss) per
common share attributable to common stockholders1:
$
0.58
$
0.22
$
(1.27
)
$
0.31
Adjusted effective tax rate1:
16.4
%
23.6
%
(2.0
%)
35.1
%
______________________________________________________________________
1
The adjusted results for the three and
nine months ended October 31, 2020 reflect the exclusion of certain
professional service and legal fees and related net credits,
certain separation charges, asset impairment charges, net gains on
lease modifications, 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 nine
months ended November 2, 2019 reflect the exclusion of certain
professional service and legal fees and related net credits, 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 for the three and nine months ended October 31, 2020 and
November 2, 2019.
Three Months Ended
Nine Months Ended
October 31, 2020
November 2, 2019
October 31, 2020
November 2, 2019
Reported GAAP selling, general and
administrative expenses
$
184,739
$
205,003
$
478,320
$
627,823
Certain professional service and legal
fees and related net credits1
195
1,414
56
737
Separation charges2
(703
)
—
(3,383
)
—
Adjusted selling, general and
administrative expenses
$
184,231
$
206,417
$
474,993
$
628,560
Reported GAAP earnings (loss) from
operations
$
44,467
$
22,649
$
(132,369
)
$
44,165
Certain professional service and legal
fees and related net credits1
(195
)
(1,414
)
(56
)
(737
)
Separation charges2
703
—
3,383
—
Asset impairment charges3
10,335
1,847
75,276
5,126
Net gains on lease modifications4
(21
)
—
(450
)
—
Adjusted earnings (loss) from
operations
$
55,289
$
23,082
$
(54,216
)
$
48,554
Reported GAAP net earnings (loss)
attributable to Guess?, Inc.
$
26,376
$
12,423
$
(151,648
)
$
16,371
Certain professional service and legal
fees and related net credits1
(195
)
(1,414
)
(56
)
(737
)
Separation charges2
703
—
3,383
—
Asset impairment charges3
10,335
1,847
75,276
5,126
Net gains on lease modifications4
(21
)
—
(450
)
—
Amortization of debt discount5
2,599
2,447
7,796
5,109
Discrete tax adjustments6
635
—
805
—
Income tax impact from adjustments7
(3,069
)
(401
)
(17,295
)
(3,169
)
Total adjustments affecting net earnings
(loss) attributable to Guess?, Inc.
10,987
2,479
69,459
6,329
Adjusted net earnings (loss)
attributable to Guess?, Inc.
$
37,363
$
14,902
$
(82,189
)
$
22,700
Reported GAAP income tax expense
(benefit)
$
5,145
$
4,548
$
(14,850
)
$
10,649
Discrete tax adjustments6
(635
)
—
(805
)
—
Income tax impact from adjustments7
3,069
401
17,295
3,169
Adjusted income tax expense
$
7,579
$
4,949
$
1,640
$
13,818
Adjusted effective tax rate
16.4
%
23.6
%
(2.0
%)
35.1
%
______________________________________________________________________
1
During the three and nine months ended
October 31, 2020 and November 2, 2019, the Company recorded certain
professional service and legal fees and related net credits, 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 and nine months ended October
31, 2020, the Company recorded $0.7 million and $3.2 million in
separation-related charges mainly related to headcount reduction in
response to the pandemic, respectively. There were no unusual
separation charges recorded during the three and nine months ended
November 2, 2019.
3
During the three and nine months ended
October 31, 2020, the Company recognized asset impairment charges
related primarily to impairment of 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 nine months ended November 2, 2019, the
Company’s asset impairment charges related primarily to impairment
of property and equipment and impairment of operating lease
right-of-use assets related to certain retail locations resulting
from under-performance and expected store closures.
4
During the three and nine months ended
October 31, 2020, the Company recorded net gains on lease
modifications 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 and nine months ended
October 31, 2020, the discrete tax adjustments related primarily to
the negative impact from cumulative valuation allowances, partially
offset by tax benefits from a tax rate change due to net operating
loss carryback. During the three and nine months ended October 31,
2020, the Company recognized valuation allowances of $1.2 million
and $4.9 million, respectively, 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. This was partially
offset by tax benefits of approximately $0.7 million and $4.6
million recorded during the three and nine months ended October 31,
2020, respectively, resulting 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.
7
The income tax effect of certain
professional service and legal fees and related net credits,
separation charges, asset impairment charges, net gains on lease
modifications 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 nine months ended November 2, 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
Nine Months Ended
October 31,
2020
November 2,
2019
% change
October 31,
2020
November 2,
2019
% change
Net revenue:
Americas Retail
$
130,328
$
177,824
(27
%)
$
314,977
$
553,213
(43
%)
Americas Wholesale
35,971
56,398
(36
%)
82,131
144,505
(43
%)
Europe
321,574
277,253
16
%
633,898
827,817
(23
%)
Asia
61,978
82,261
(25
%)
152,554
250,752
(39
%)
Licensing
19,433
22,208
(12
%)
44,514
59,568
(25
%)
Total net revenue
$
569,284
$
615,944
(8
%)
$
1,228,074
$
1,835,855
(33
%)
Earnings (loss) from operations:
Americas Retail
$
473
$
1,601
(70
%)
$
(40,904
)
$
5,746
(812
%)
Americas Wholesale
8,247
11,216
(26
%)
11,559
27,452
(58
%)
Europe
51,476
19,475
164
%
27,865
54,742
(49
%)
Asia
1,415
(2,432
)
158
%
(24,729
)
(10,435
)
(137
%)
Licensing
18,228
19,372
(6
%)
39,833
51,563
(23
%)
Total segment earnings from operations
79,839
49,232
62
%
13,624
129,068
(89
%)
Corporate overhead
(25,058
)
(24,736
)
1
%
(71,167
)
(79,777
)
(11
%)
Asset impairment charges
(10,335
)
(1,847
)
460
%
(75,276
)
(5,126
)
1,369
%
Net gains on lease modifications
21
—
450
—
Total earnings (loss) from operations
$
44,467
$
22,649
96
%
$
(132,369
)
$
44,165
(400
%)
Operating margins:
Americas Retail
0.4
%
0.9
%
(13.0
%)
1.0
%
Americas Wholesale
22.9
%
19.9
%
14.1
%
19.0
%
Europe
16.0
%
7.0
%
4.4
%
6.6
%
Asia
2.3
%
(3.0
%)
(16.2
%)
(4.2
%)
Licensing
93.8
%
87.2
%
89.5
%
86.6
%
GAAP operating margin for total
Company
7.8
%
3.7
%
(10.8
%)
2.4
%
Certain professional service and legal
fees and related net credits
(0.0
%)
(0.3
%)
(0.0
%)
(0.1
%)
Separation charges
0.1
%
—
%
0.3
%
—
%
Asset impairment charges
1.8
%
0.3
%
6.1
%
0.3
%
Net gains on lease modifications
(0.0
%)
—
%
(0.0
%)
—
%
Adjusted operating margin for total
Company
9.7
%
3.7
%
(4.4
%)
2.6
%
Guess?, Inc. and
Subsidiaries
Constant Currency Financial
Measures
(dollars in thousands)
Three Months Ended
October 31, 2020
November 2, 2019
% change
As Reported
Foreign
Currency
Impact
Constant
Currency
As Reported
As
Reported
Constant
Currency
Net revenue:
Americas Retail
$
130,328
$
921
$
131,249
$
177,824
(27
%)
(26
%)
Americas Wholesale
35,971
1,151
37,122
56,398
(36
%)
(34
%)
Europe
321,574
(16,006
)
305,568
277,253
16
%
10
%
Asia
61,978
(1,593
)
60,385
82,261
(25
%)
(27
%)
Licensing
19,433
—
19,433
22,208
(12
%)
(12
%)
Total net revenue
$
569,284
$
(15,527
)
$
553,757
$
615,944
(8
%)
(10
%)
Nine Months Ended
October 31, 2020
November 2, 2019
% change
As Reported
Foreign
Currency
Impact
Constant
Currency
As Reported
As
Reported
Constant
Currency
Net revenue:
Americas Retail
$
314,977
$
2,669
$
317,646
$
553,213
(43
%)
(43
%)
Americas Wholesale
82,131
3,402
85,533
144,505
(43
%)
(41
%)
Europe
633,898
(11,980
)
621,918
827,817
(23
%)
(25
%)
Asia
152,554
937
153,491
250,752
(39
%)
(39
%)
Licensing
44,514
—
44,514
59,568
(25
%)
(25
%)
Total net revenue
$
1,228,074
$
(4,972
)
$
1,223,102
$
1,835,855
(33
%)
(33
%)
Guess?, Inc. and
Subsidiaries
Selected Condensed
Consolidated Balance Sheet Data
(in thousands)
October 31,
2020
February 1,
2020
November 2,
2019
ASSETS
Cash and cash equivalents
$
365,259
$
284,613
$
110,095
Receivables, net
300,432
327,281
300,197
Inventories
393,162
393,129
519,875
Other current assets
74,063
59,212
67,425
Property and equipment, net
220,996
288,112
298,036
Restricted cash
226
215
522
Operating lease right-of-use assets
789,742
851,990
874,945
Other assets
236,126
224,410
219,805
Total assets
$
2,380,006
$
2,428,962
$
2,390,900
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current portion of borrowings and finance
lease obligations
$
34,079
$
9,490
$
37,484
Current operating lease liabilities
227,209
192,066
189,582
Other current liabilities
474,085
436,857
429,701
Long-term debt and finance lease
obligations
70,069
32,770
34,712
Convertible senior notes, net
255,801
247,363
244,696
Long-term operating lease liabilities
689,251
714,079
740,484
Other long-term liabilities
147,065
130,259
123,638
Redeemable and nonredeemable
noncontrolling interests
22,644
26,364
23,543
Guess?, Inc. stockholders’ equity
459,803
639,714
567,060
Total liabilities and stockholders’
equity
$
2,380,006
$
2,428,962
$
2,390,900
Guess?, Inc. and
Subsidiaries
Condensed Consolidated Cash
Flow Data
(in thousands)
Nine Months Ended
October 31,
2020
November 2,
2019
Net cash provided by (used in) operating
activities
$
98,351
$
(28,005
)
Net cash used in investing activities
(14,578
)
(47,950
)
Net cash used in financing activities
(4,548
)
(21,691
)
Effect of exchange rates on cash, cash
equivalents and restricted cash
1,432
(2,732
)
Net change in cash, cash equivalents and
restricted cash
80,657
(100,378
)
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
$
365,485
$
110,617
Supplemental information:
Depreciation and amortization
$
48,009
$
53,989
Total lease costs (excluding finance lease
cost)
$
219,820
$
268,900
Guess?, Inc. and
Subsidiaries
Reconciliation of Net Cash
Provided By (Used In) Operating Activities to Free Cash
Flow
(in thousands)
Nine Months Ended
October 31,
2020
November 2,
2019
Net cash provided by (used in) operating
activities
$
98,351
$
(28,005
)
Less: Purchases of property and
equipment
(12,364
)
(49,020
)
Less: Payments for property and equipment
under finance leases
(2,924
)
(2,081
)
Free cash flow
$
83,063
$
(79,106
)
Guess?, Inc. and
Subsidiaries
Retail Store Data
Global Store and Concession
Count
As of October 31, 2020
Stores
Concessions
Region
Total
Directly
Operated
Partner
Operated
Total
Directly
Operated
Partner
Operated
United States
254
252
2
1
—
1
Canada
78
78
—
—
—
—
Central and South America
107
72
35
27
27
—
Total Americas
439
402
37
28
27
1
Europe and the Middle East
742
511
231
43
43
—
Asia and the Pacific
423
155
268
297
109
188
Total
1,604
1,068
536
368
179
189
As of November 2, 2019
Stores
Concessions
Region
Total
Directly
Operated
Partner
Operated
Total
Directly
Operated
Partner
Operated
United States
287
285
2
1
—
1
Canada
82
82
—
—
—
—
Central and South America
112
72
40
27
27
—
Total Americas
481
439
42
28
27
1
Europe and the Middle East
743
516
227
40
40
—
Asia and the Pacific
519
219
300
327
154
173
Total
1,743
1,174
569
395
221
174
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201202005889/en/
Guess?, Inc. Fabrice Benarouche VP, Finance and Investor
Relations (213) 765-5578
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