Q1 Fiscal 2019
Revenues Increased 15% to $521 Million; Increased 8% in Constant
Currency
Q1 Fiscal 2019 GAAP
Net Loss Per Share of $0.27, Compared to $0.26 in Q1 Fiscal 2018;
Q1 Fiscal 2019 Adjusted Loss Per Share of $0.23, Compared to $0.24
in Q1 Fiscal 2018
Guess?, Inc. (NYSE: GES) today reported financial results for
its first quarter ended May 5, 2018.
Victor Herrero, Chief Executive Officer, commented, “I am
pleased to report that our first quarter results finished above the
high-end of our expectations for revenues, adjusted operating
margin and adjusted earnings per share. Overall, the Company
revenues increased 15% in U.S. dollars and 8% in constant currency,
driven by continued momentum in Europe and Asia. We were also able
to expand the Company’s operating margin, despite cost pressures
related to our transition to our new distribution center in Europe.
Operating margin in Asia improved by 430 basis points as we
continue to leverage our infrastructure investments in China and
Japan. Turning to the Americas, I am especially proud of the work
that has been accomplished in retail where we ended the quarter
with positive comps while being significantly less promotional.
This translated into a 910 basis point improvement in operating
margin for the Americas Retail segment.”
Mr. Herrero concluded, “Overall, I am very excited by the
continued momentum, as the first quarter marks the seventh
consecutive quarter of revenue growth for the Company. For me, it
speaks to the global strength and potential of the Guess brand.
More than ever, we remain focused on executing our strategic
initiatives that have been the pillars of our revenue and profit
growth.”
This press release contains certain non-GAAP, or adjusted,
financial measures. References to “adjusted” results exclude the
impact of (i) net gains on lease terminations, (ii) asset
impairment charges, (iii) certain professional service and legal
fees and related costs and (iv) the related tax effects of these
adjustments, 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.
First Quarter Fiscal 2019
Results
For the first quarter of fiscal 2019, the Company recorded GAAP
net loss of $21.2 million, a 0.3% improvement compared to $21.3
million for the first quarter of fiscal 2018. GAAP diluted loss per
share deteriorated 3.8% to $0.27 for the first quarter of fiscal
2019, from $0.26 for the prior-year quarter. The Company estimates
that currency had a negative impact on diluted loss per share of
$0.03 in the first quarter of fiscal 2019.
For the first quarter of fiscal 2019, the Company recorded
adjusted net loss of $17.8 million, a 7.9% improvement compared to
$19.4 million for the first quarter of fiscal 2018. Adjusted
diluted loss per share improved 4.2% to $0.23, compared to $0.24
for the prior-year quarter.
Net Revenue. Total net revenue for the first quarter of
fiscal 2019 increased 14.7% to $521.3 million, compared to $454.3
million in the prior-year quarter. In constant currency, net
revenue increased by 7.7%.
- Americas Retail revenues decreased 1.4%
in U.S. dollars and 2.1% in constant currency. Retail comp sales
including e-commerce increased 2% in U.S. dollars and 1% in
constant currency.
- Americas Wholesale revenues increased
13.4% in U.S. dollars and 11.3% in constant currency.
- Europe revenues increased 24.2% in U.S.
dollars and 9.1% in constant currency. Retail comp sales including
e-commerce increased 15% in U.S. dollars and 1% in constant
currency.
- Asia revenues increased 32.6% in U.S.
dollars and 25.1% in constant currency. Retail comp sales including
e-commerce increased 22% in U.S. dollars and 15% in constant
currency.
- Licensing revenues increased 23.5% in
U.S. dollars and constant currency.
Operating Loss. GAAP operating loss for the first quarter
of fiscal 2019 improved 0.3% to $24.9 million (including a $4.0
million unfavorable currency translation impact), compared to $25.0
million in the prior-year quarter. GAAP operating margin in the
first quarter improved 70 basis points to negative 4.8%, compared
to negative 5.5% in the prior-year quarter, driven primarily by
segment mix and lower markdowns in Americas Retail, partially
offset by higher distribution costs resulting from the relocation
of the Company’s European distribution center and certain
professional service and legal fees and related costs. The negative
impact of currency on operating margin for the quarter was
approximately 30 basis points.
For the first quarter of fiscal 2019, adjusted operating loss
improved 7.8% to $20.5 million, compared to $22.2 million in the
same prior-year quarter. Adjusted operating margin was negative
3.9%, an improvement of 100 basis points compared to the same
prior-year quarter, driven primarily by segment mix and lower
markdowns in Americas Retail, partially offset by higher
distribution costs resulting from the relocation of the Company’s
European distribution center.
- Operating margin for the Company’s
Americas Retail segment improved 910 basis points to negative 3.3%
in the first quarter of fiscal 2019, compared to negative 12.4% in
the prior-year quarter, driven primarily by the favorable impact
from lower markdowns, negotiated rent reductions and higher initial
markups.
- Operating margin for the Company’s
Americas Wholesale segment decreased 470 basis points to 14.8% in
the first quarter of fiscal 2019, from 19.5% in the prior-year
quarter, due primarily to lower gross margins.
- Operating margin for the Company’s
Europe segment decreased 930 basis points to negative 9.9% in the
first quarter of fiscal 2019, from negative 0.6% in the prior-year
quarter, driven primarily by higher distribution costs resulting
from the relocation of the Company’s European distribution
center.
- Operating margin for the Company’s Asia
segment increased 430 basis points to 4.8% in the first quarter of
fiscal 2019, compared to 0.5% in the prior-year quarter, driven
primarily by higher gross margins due mainly to overall leveraging
of expenses and higher overall product margins driven primarily by
product mix.
- Operating margin for the Company’s
Licensing segment increased 440 basis points to 88.4% in the first
quarter of fiscal 2019, compared to 84.0% in the prior-year
quarter.
Other net expense was $2.6 million for the first quarter of
fiscal 2019, which primarily includes net unrealized mark-to-market
revaluation losses on foreign currency balances and unrealized
losses on non-operating assets, partially offset by net unrealized
mark-to-market revaluation gains on foreign exchange currency
contracts, compared to other net income of $1.9 million in the
prior-year quarter.
Segment Reclassifications
During the first quarter of fiscal 2019, the Company changed the
segment accountability for funds received from licensees on the
Company’s purchases of its licensed products. These amounts were
treated as a reduction of cost of product sales within the
Licensing segment but now are considered in the results of the
segments that control the respective purchases for purposes of
segment performance evaluation. This change is consistent with how
the management team now evaluates overall business strategy,
allocates resources and assesses performance of the Company. There
has been no change to total segment earnings (loss) from operations
as a result of this reclassification. This reclassification
increased the segment quarterly operating profits for fiscal 2018
by approximately $2 million for Americas Retail; minimal for
Americas Wholesale; $2 million for Europe; minimal for Asia and
reduced Licensing by approximately $5 million per quarter.
In addition, during the first quarter of fiscal 2019, the
Company adopted new authoritative guidance which requires that the
non-service components of net periodic defined benefit pension cost
be presented outside of earnings (loss) from operations. This
guidance required retrospective adoption, and as a result, the
Company reclassified approximately $0.5 million in total costs from
earnings (loss) from operations per quarter from within the Europe
and Asia segments and corporate overhead into other income
(expense).
For comparative purposes, segment earnings (loss) from
operations for each of the quarters in fiscal 2018 have been
restated to conform to the current presentation and are presented
below (in thousands):
Three Months Ended
Year Ended
April 29, 2017
July 29, 2017
October 28, 2017
February 3, 2018
February 3, 2018
Earnings (loss) from operations: Americas Retail $ (21,581 ) $
(3,555 ) $ (2,414 ) $ 16,454 $ (11,096 ) Americas Wholesale 6,983
5,238 8,562 5,062 25,845 Europe (1,006 ) 30,058 9,095 56,398 94,545
Asia 339 2,441 2,954 9,075 14,809 Licensing 13,461 14,389
18,347 17,341 63,538 Total segment
earnings (loss) from operations (1,804 ) 48,571 36,544 104,330
187,641 Corporate overhead (20,409 ) (23,551 ) (23,443 ) (33,031 )
(100,434 ) Net gains (losses) on lease terminations — — (11,494 )
121 (11,373 ) Asset impairment charges (2,762 ) (1,233 ) (2,018 )
(2,466 ) (8,479 ) Total earnings (loss) from operations $ (24,975 )
$ 23,787 $ (411 ) $ 68,954 $ 67,355
Impact from Adoption of New Revenue Recognition
Standard
The Company also adopted a comprehensive new revenue recognition
standard during the first quarter of fiscal 2019 under a modified
retrospective method that does not restate prior periods to be
comparable to the current period presentation. The adoption of this
guidance primarily impacted the presentation of advertising
contributions received from the Company’s licensees and the related
advertising expenditures incurred by the Company. Under previous
guidance, the Company recorded advertising contributions received
from its licensees and the related advertising expenditures
incurred by the Company on a net basis in its consolidated balance
sheet. To the extent that the advertising contributions exceeded
the Company’s advertising expenditures for its licensees, the
excess contribution was treated as a deferred liability and was
included in accrued expenses in the Company’s consolidated balance
sheet. Under the new revenue recognition standard, advertising
contributions and related advertising expenditures related to the
Company’s licensing business are recorded on a gross basis. This
resulted in an increase in net royalty revenue within the Company’s
Licensing segment of approximately $2.3 million for the quarter, as
well as an increase in selling, general and administrative expenses
in our Licensing, Americas Retail and Americas Wholesale segments
and corporate overhead of $0.2 million, $1.8 million, $0.7 million
and $0.6 million, respectively during the three months ended
May 5, 2018 compared to the same prior-year period. The net
impact was approximately $1.0 million reduction in earnings (loss)
from operations for the three months ended May 5, 2018.
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 June 29, 2018 to shareholders of
record at the close of business on June 13, 2018.
Outlook
The Company’s expectations for the second quarter ending
August 4, 2018 and its updated outlook for the fiscal year
ending February 2, 2019 are as follows:
Outlook for Total Company1 Second
Quarter of Fiscal 2019 Fiscal Year 2019
Consolidated net revenue in U.S. dollars increase between 14.0% and
15.5% increase between 8.5% and 9.5% Consolidated net
revenue in constant currency2 increase between 11.0% and 12.5%
increase between 6.5% and 7.5% GAAP operating margin 5.0% to
5.5% 4.1% to 4.5% Adjusted operating margin3 5.0% to 5.5%
4.2% to 4.6% Currency impact included in operating margin4
60 basis points 10 basis points GAAP EPS $0.27 to $0.30
$0.84 to $0.95 Adjusted EPS3 $0.27 to $0.30 $0.88 to $0.99
Currency impact included in EPS4 $0.08 $0.10 Notes:
1The Company’s outlook for the second
quarter ending August 4, 2018 and the fiscal year ending February
2, 2019 assumes that foreign currency exchange rates remain at
prevailing rates.
2Eliminates the impact of expected foreign
currency translation to give investors a better understanding of
the underlying trends within the business.
3The adjusted operating margin and
adjusted EPS guidance for the fiscal year 2019 reflect the
exclusion of certain items which the Company believes are not
indicative of the underlying performance of its business. Refer to
the table below for a reconciliation of our GAAP and adjusted
outlook.
4Represents the estimated translational
and transactional gains (losses) of foreign currency rate
fluctuations within operating margin and EPS measures
presented.
A reconciliation of the Company’s outlook for GAAP operating
margin to adjusted operating margin and GAAP earnings per share to
adjusted earnings per share for the second quarter ending
August 4, 2018 and the fiscal year ending February 2,
2019 is as follows:
Reconciliation of GAAP Outlook to Adjusted Outlook
Second Quarter of Fiscal 2019 Fiscal Year 2019
GAAP operating margin 5.0% to 5.5% 4.1% to 4.5% Net gains on
lease terminations1 — 0.0% Asset impairment charges2 — 0.0% Certain
professional service and legal fees and related costs3 — 0.1%
Adjusted operating margin 5.0% to 5.5% 4.2% to 4.6%
GAAP earnings per share $0.27 to $0.30 $0.84 to $0.95 Net gains on
lease terminations1 — $0.00 Asset impairment charges2 — $0.01
Certain professional service and legal fees and related costs3 —
$0.03 Adjusted earnings per share $0.27 to $0.30 $0.88 to
$0.99 Notes:
1Amounts for the full fiscal year include
net gains on lease terminations recorded during the first quarter
of fiscal 2019 related primarily to the early termination of
certain lease agreements in North America. The adjusted results do
not assume any additional gains (losses) from lease terminations as
the timing and exact amount of any future charges, if any, are not
known.
2Amounts for the full fiscal year include
asset impairment charges for certain retail locations recognized
during the first quarter of fiscal 2019 that resulted from store
under-performance and expected store closures. The adjusted results
do not assume any additional asset impairment charges as the
Company has recorded amounts currently anticipated under GAAP.
3Amounts for the full fiscal year include
certain professional service and legal fees and related costs
recognized during the first quarter of fiscal 2019 which the
Company otherwise would not have incurred as part of its business
operations. The Company is unable to predict future amounts as
these expenditures are inconsistent in amount and frequency and
certain elements used to estimate such items have not yet occurred
or are out of the Company’s control. As such, the Company has not
considered any future charges in the accompanying GAAP outlook.
On a segment basis, the Company expects the following ranges for
percentage changes for comparable 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
Second Quarter of Fiscal 2019 Fiscal Year 2019
U.S. Dollars Constant Currency2 U.S. Dollars Constant Currency2
Americas Retail: Comps __ flat to up LSD __ down LSD to up
LSD Net Revenue down LSD down LSD down MSD to LSD down MSD
to LSD Americas Wholesale: Net Revenue up MSD up MSD up MSD
up MSD Europe: Comps __ up LSD __ up LSD Net Revenue
up mid-twenties up low-twenties up mid-teens up low-teens
Asia: Comps __ up low-teens to mid-teens __ up mid-teens Net
Revenue up low thirties up mid-twenties up mid-twenties up
low-twenties Licensing: Net Revenue3 up HSD __ up MSD __
Notes:
1As 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.
2Eliminates the impact of expected foreign
currency translation to give investors a better understanding of
the underlying trends within the business.
3Our 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
down in the low-single digits in the second 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 months ended May 5, 2018, the adjusted results exclude
the impact of net gains on lease terminations, asset impairment
charges, certain professional service and legal fees and related
costs, and the tax effects of these adjustments, where applicable.
For the three months ended April 29, 2017, the adjusted results
exclude the impact of asset impairment charges and the related tax
impact, 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, comparable 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 (i) purchases of property
and equipment and (ii) payments for property and equipment under
capital leases. Free cash flows 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 and payments for property and equipment under capital
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
May 30, 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
May 5, 2018, the Company directly operated 1,020 retail stores
in the Americas, Europe and Asia. The Company’s licensees and
distributors operated 624 additional retail stores worldwide. As of
May 5, 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 second
quarter and full year of fiscal 2019, 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
identified 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. 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 Loss (amounts in thousands, except per share
data)
Three Months
Ended May 5, 2018 April 29, 2017 $
% $ %1 Product sales $
501,505 96.2 % $ 438,320 96.5 % Net royalties1 19,784 3.8 %
16,025 3.5 % Net revenue1 521,289 100.0 % 454,345 100.0 %
Cost of product sales1 347,351 66.6 % 309,703
68.2 % Gross profit 173,938 33.4 % 144,642 31.8 %
Selling, general and administrative expenses2 198,219 38.0 %
166,855 36.7 % Net gains on lease terminations (152 ) (0.0 %) — 0.0
%
Asset impairment charges
759 0.2 % 2,762 0.6 % Loss from operations2
(24,888 ) (4.8 %) (24,975 ) (5.5 %) Other income (expense):
Interest expense (739 ) (0.1 %) (414 ) (0.1 %) Interest income 977
0.2 % 871 0.2 % Other income (expense), net2 (2,614 ) (0.5 %) 1,888
0.4 % Loss before income tax benefit (27,264 ) (5.2
%) (22,630 ) (5.0 %) Income tax benefit (6,277 ) (1.2 %)
(1,403 ) (0.3 %) Net loss (20,987 ) (4.0 %) (21,227 ) (4.7
%) Net earnings attributable to noncontrolling interests 234
0.1 % 66 0.0 % Net loss attributable to
Guess?, Inc. $ (21,221 ) (4.1 %) $ (21,293 ) (4.7 %) Net
loss per common share attributable to common stockholders:
Basic $ (0.27 ) $ (0.26 ) Diluted $ (0.27 ) $ (0.26 )
Weighted average common shares outstanding attributable to common
stockholders: Basic 79,901 83,010 Diluted 79,901 83,010
Effective tax rate 23.0 % 6.2 % Adjusted selling,
general and administrative expenses2,3: $ 194,410 37.3 % $ 166,855
36.7 % Adjusted loss from operations2,3: $ (20,472 ) (3.9 %)
$ (22,213 ) (4.9 %) Adjusted net loss attributable to
Guess?, Inc.3: $ (17,831 ) (3.4 %) $ (19,351 ) (4.3 %)
Adjusted diluted loss per common share attributable to common
stockholders3: $ (0.23 ) $ (0.24 ) Adjusted effective tax
rate3: 23.0 % 2.9 % Notes:
1During 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 three
months ended April 29, 2017 have been adjusted to conform to the
current period presentation. This reclassification had no impact on
previously reported loss from operations, net loss or net loss per
share.
2During the first quarter of fiscal 2019,
the Company adopted new authoritative guidance which requires that
the non-service components of net periodic defined benefit pension
cost be presented outside of earnings (loss) from operations.
Accordingly, the Company reclassified approximately $0.5 million
from selling, general and administrative expenses to other income
(expense), net for the three months ended April 29, 2017 to conform
to the current period presentation. This reclassification had no
impact on previously reported net loss or net loss per share.
3The adjusted results for the three months
ended May 5, 2018 reflect the exclusion of net gains on lease
terminations, asset impairment charges, certain professional
service and legal fees and related costs, and the related tax
impacts that were recorded, where applicable. The adjusted results
for the three months ended April 29, 2017 reflect the exclusion of
asset impairment charges and the related tax impact, 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 loss from operations to
adjusted loss from operations, reported GAAP net loss attributable
to Guess?, Inc. to adjusted net loss attributable to Guess?, Inc.
and reported GAAP income tax benefit to adjusted income tax benefit
for the three months ended May 5, 2018 and April 29, 2017.
Three Months Ended May 5, 2018 April 29, 2017
$
% of Net
Revenue
$
% of Net
Revenue1
Reported GAAP selling, general and administrative expenses $
198,219 38.0 % $ 166,855 36.7 % Certain professional service and
legal fees and related costs2 (3,809 ) —
Adjusted
selling, general and administrative expenses $
194,410 37.3 % $ 166,855
36.7 % Reported GAAP loss from
operations $ (24,888 ) (4.8 %) $ (24,975 ) (5.5 %) Net gains on
lease terminations3 (152 ) — Asset impairment charges4 759 2,762
Certain professional service and legal fees and related costs2
3,809 —
Adjusted loss from operations
$ (20,472 ) (3.9 %) $
(22,213 ) (4.9 %) Reported GAAP
net loss attributable to Guess?, Inc. $ (21,221 ) (4.1 %) $ (21,293
) (4.7 %) Net gains on lease terminations3 (152 ) — Asset
impairment charges4 759 2,762 Certain professional service and
legal fees and related costs2 3,809 — Income tax adjustments5
(1,026 ) (820 ) Total adjustments affecting net loss
attributable to Guess?, Inc. 3,390 1,942
Adjusted net loss attributable to Guess?, Inc. $
(17,831 ) (3.4 %) $
(19,351 ) (4.3 %)
Reported GAAP income tax benefit $ (6,277 ) $ (1,403 ) Income tax
adjustments5 1,026 820
Adjusted income tax
benefit $ (5,251 ) $ (583
) Adjusted effective tax rate 23.0
% 2.9 % Notes:
1During 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, operating results as a
percentage of net revenue for the three months ended April 29, 2017
have been adjusted to conform to the current period
presentation.
2During the three months ended May 5,
2018, the Company recorded certain professional service and legal
fees and related costs, which it otherwise would not have incurred
as part of its business operations.
3During the three months ended May 5,
2018, the Company recorded net gains on lease terminations related
primarily to the early termination of certain lease agreements in
North America.
4During the three months ended May 5, 2018
and April 29, 2017, the Company recognized asset impairment charges
for certain retail locations resulting from under-performance and
expected store closures.
5The income tax effect of the net gains on
lease terminations, asset impairment charges and certain
professional service and legal fees and related costs 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.
Guess?, Inc. and Subsidiaries Consolidated Segment
Data (dollars in thousands)
Three Months Ended May 5,
April 29, % 2018 2017 change
Net revenue: Americas Retail $ 171,340 $ 173,694 (1%)
Americas Wholesale 40,679 35,857 13% Europe 205,435 165,388 24%
Asia 84,051 63,381 33% Licensing1 19,784 16,025 23%
Total net revenue1 $ 521,289 $ 454,345 15%
Earnings (loss) from operations: Americas Retail2,3 $ (5,680
) $ (21,581 ) 74% Americas Wholesale2,3 6,026 6,983 (14%)
Europe2,3,4 (20,333 ) (1,006 ) (1,921%) Asia2,3 4,065 339 1,099%
Licensing2,3 17,486 13,461 30% Total segment earnings
(loss) from operations4 1,564 (1,804 ) 187% Corporate
overhead2,4 (25,845 ) (20,409 ) 27% Net gains on lease
terminations2 152 — Asset impairment charges2 (759 ) (2,762 ) Total
loss from operations4 $ (24,888 ) $ (24,975 ) 0%
Operating margins: Americas Retail2,3 (3.3 %) (12.4 %) Americas
Wholesale2,3 14.8 % 19.5 % Europe2,3,4 (9.9 %) (0.6 %) Asia2,3 4.8
% 0.5 % Licensing1,2,3 88.4 % 84.0 % GAAP operating margin
for total Company1,4 (4.8 %) (5.5 %) Net gains on lease
terminations2 (0.0 %) 0.0 % Asset impairment charges2 0.2 % 0.6 %
Certain professional service and legal fees and related costs 0.7 %
0.0 % Adjusted operating margin for total Company1,4 (3.9 %) (4.9
%) Notes:
1During 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 three
months ended April 29, 2017 have been adjusted to conform to the
current period presentation. This reclassification had no impact on
previously reported loss from operations.
2During the third quarter of fiscal 2018,
segment results were adjusted to exclude corporate
performance-based compensation costs, net gains (losses) on lease
terminations and asset impairment charges due 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 months ended April 29, 2017 to conform
to the current period presentation.
3During the first quarter of fiscal 2019,
the Company changed the segment accountability for funds received
from licensees on the Company’s purchases of its licensed products.
These amounts were treated as a reduction of cost of product sales
within the Licensing segment but now are considered in the results
of the segments that control the respective purchases for purposes
of segment performance evaluation. Accordingly, segment results for
the three months ended April 29, 2017 have been adjusted to conform
to the current period presentation.
4During the first quarter of fiscal 2019,
the Company adopted new authoritative guidance which requires that
the non-service components of net periodic defined benefit pension
cost be presented outside of earnings (loss) from operations.
Accordingly, loss from operations and segment results for the three
months ended April 29, 2017 have been adjusted to conform to the
current period presentation.
Guess?, Inc. and Subsidiaries Constant Currency
Financial Measures (dollars in thousands)
Three Months Ended May
5, 2018 April 29, 2017 % change As
Reported
Foreign
Currency
Impact
Constant
Currency
As Reported
As
Reported
Constant
Currency
Net revenue: Americas Retail $ 171,340 $ (1,380 ) $ 169,960 $
173,694 (1%) (2%) Americas Wholesale 40,679 (787 ) 39,892 35,857
13% 11% Europe 205,435 (24,965 ) 180,470 165,388 24% 9% Asia 84,051
(4,743 ) 79,308 63,381 33% 25% Licensing1 19,784 —
19,784 16,025 23% 23% Total net revenue1 $ 521,289
$ (31,875 ) $ 489,414 $ 454,345 15% 8%
Notes:
1During 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 three
months ended April 29, 2017 has been adjusted to conform to the
current period presentation.
Guess?, Inc. and Subsidiaries Selected Condensed
Consolidated Balance Sheet Data (in thousands)
May
5, February 3, April 29, 2018 2018
2017 ASSETS Cash and cash equivalents $
232,492 $ 367,441 $ 316,395 Receivables, net 243,138 259,996
193,643 Inventories 434,922 428,304 402,673 Other
current assets 73,320 52,964 66,695 Property and equipment,
net 286,915 294,254 245,131 Restricted cash 232 241 1,529
Other assets 250,162 252,434 246,058
Total Assets $ 1,521,181 $ 1,655,634 $ 1,472,124
LIABILITIES AND STOCKHOLDERS’ EQUITY Current
portion of capital lease obligations and borrowings $ 3,363 $ 2,845
$ 571 Other current liabilities 390,426 465,000 323,995
Long-term debt and capital lease obligations 37,217 39,196
23,322 Other long-term liabilities 210,847 209,528 179,324
Redeemable and nonredeemable noncontrolling interests 21,637
22,246 18,796 Guess?, Inc. stockholders’ equity 857,691
916,819 926,116 Total Liabilities and
Stockholders’ Equity $ 1,521,181 $ 1,655,634 $
1,472,124
Guess?, Inc. and Subsidiaries Condensed
Consolidated Cash Flow Data (in thousands)
Three Months Ended May 5,
April 29, 2018 2017 Net cash used in
operating activities $ (67,576 ) $ (29,947 ) Net cash used
in investing activities (20,877 ) (19,234 ) Net cash used in
financing activities (38,284 ) (35,960 ) Effect of exchange
rates on cash, cash equivalents and restricted cash (8,221 ) 5,415
Net change in cash, cash equivalents and restricted
cash (134,958 ) (79,726 ) Cash, cash equivalents and
restricted cash at the beginning of the year 367,682 397,650
Cash, cash equivalents and restricted cash at the end of the
period $ 232,724 $ 317,924
Supplemental information:
Depreciation and amortization $ 16,499 $ 15,011 Rent
$ 72,226 $ 66,207
Guess?, Inc. and Subsidiaries
Reconciliation of Net Cash Used in Operating Activities to Free
Cash Flow (in thousands)
Three Months Ended May 5,
April 29, 2018 2017 Net cash used in
operating activities $ (67,576 ) $ (29,947 ) Less: Purchases
of property and equipment (19,004 ) (18,846 ) Less: Payments
for property and equipment under capital leases (386 ) —
Free cash flow $ (86,966 ) $ (48,793 )
Guess?,
Inc. and Subsidiaries Retail Store Data Global Store
and Concession Count
As of May 5, 2018 Stores
Concessions Directly Partner Directly
Partner Region Total Operated
Operated Total Operated Operated
United States 299 297 2 1 — 1 Canada 86 86 — — — — Central and
South America 103 61 42 27 27 — Total Americas 488 444 44 28
27 1 Europe and the Middle East 656 407 249 34 34 — Asia and
the Pacific 500 169 331 369 175 194 Total
1,644
1,020 624 431 236 195
As of April 29, 2017 Stores Concessions
Directly Partner Directly Partner
Region Total Operated Operated
Total Operated Operated United States
332 330 2 1 — 1 Canada 108 108 — — — — Central and South America 94
51 43 30 30 — Total Americas 534 489 45 31 30 1
Europe and the Middle East 647 354 293 30 30 — Asia and the Pacific
489 106 383 380 190 190 Total
1,670 949
721 441 250 191
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180530006316/en/
Guess?, Inc.Fabrice BenaroucheVP, Finance and Investor
Relations(213) 765-5578
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