Q3 Fiscal 2019
Revenues Increased 10% to $605 Million; Increased 13% in Constant
Currency
Q3 Fiscal 2019 GAAP
Net Loss per Share of $0.17, Compared to $0.04 in Q3 Fiscal 2018;
Q3 Fiscal 2019 Adjusted EPS of $0.13, Compared to $0.12 in Q3
Fiscal 2018
Guess?, Inc. (NYSE: GES) today reported financial results for
its third quarter ended November 3, 2018.
Victor Herrero, Chief Executive Officer, commented, “I am very
pleased to report another quarter of strong operating performance
with revenue growth of 10% in U.S. dollars and 13% in constant
currency, significant growth in adjusted earnings from operations
and adjusted operating margin finishing higher than our
expectations despite unexpected currency headwinds. I am very
encouraged by the overall sales momentum we are experiencing with
positive comps in all regions in the third quarter, which speaks to
the global strength and relevancy of the Guess brand.”
Mr. Herrero concluded, “This is truly an exciting time for our
Company as we continue to execute our turnaround. For this fiscal
year, we are planning for positive comps in all regions and
expecting every business segment to be profitable; beyond the
current year, we still have a lot of growth opportunities in Europe
and Asia; the results in the Americas retail business have
continued to show improvement; and we see more opportunities to
reduce costs, particularly in logistics. More than ever, we remain
focused on executing our strategic initiatives which are the
pillars of our revenue and profit growth and our 7.5% operating
margin goal.”
Adjusted Amounts
This press release contains certain non-GAAP, or adjusted,
financial measures. References to “adjusted” results exclude the
impact of (i) net (gains) losses on lease terminations, (ii) asset
impairment charges, (iii) certain professional service and legal
fees and related costs, (iv) charges related to the estimated
European Commission fine, (v) the related tax effects of the
foregoing items and (vi) revisions to provisional amounts
previously recorded related to the enactment of the 2017 Tax Cuts
and Jobs Act (the "Tax Reform"), 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.
European Commission Matter. As previously disclosed, the
Company has been cooperating with the European Commission in its
investigation into whether certain of the Company’s business
practices and agreements may have violated European competition
rules. During the third quarter of fiscal 2019, the Company
determined that it is likely to reach an agreement with the
European Commission that is expected to result in a fine ranging
from €37.0 million to €40.6 million ($42.4 million to $46.6
million). The Company has already made certain changes to its
business practices and agreements in response to these proceedings,
and the Company believes that such changes have not had, and will
not have, a material impact on its ongoing business operations
within the European Union. No further modifications to the
Company’s business practices and agreements related to these
proceedings are anticipated. During the three months ended November
3, 2018, the Company recorded an estimated charge related to this
matter of €37.0 million ($42.4 million), or a negative impact of
$0.52 per share.
Change in Provisional Amounts Recorded for Tax Reform.
During the third quarter of fiscal 2019, the Company completed the
preparation of its U.S. federal tax return for fiscal 2018 and
concluded, based on the additional information that has become
available, that no transition tax is due with respect to the Tax
Reform. As a result, during the three months ended November 3,
2018, the Company reversed provisional amounts initially recorded
during the three months ended February 3, 2018 and recorded a
benefit of $19.6 million, or a positive impact of $0.24 per
share.
Third Quarter Fiscal 2019
Results
For the third quarter of fiscal 2019, the Company recorded GAAP
net loss of $13.4 million, a 370.0% increase compared to $2.9
million for the third quarter of fiscal 2018. GAAP diluted loss per
share increased 325.0% to $0.17 for the third quarter of fiscal
2019, compared to $0.04 for the prior-year quarter. The Company
estimates that currency had a negative impact on diluted earnings
per share of $0.02 in the third quarter of fiscal 2019.
For the third quarter of fiscal 2019, the Company recorded
adjusted net earnings of $10.6 million, a 1.6% increase compared to
$10.4 million for the third quarter of fiscal 2018. Adjusted
diluted earnings per share increased 8.3% to $0.13, compared to
$0.12 for the prior-year quarter.
Net Revenue. Total net revenue for the third quarter of
fiscal 2019 increased 10.3% to $605.4 million, compared to $549.0
million in the prior-year quarter. In constant currency, net
revenue increased by 13.1%.
- Americas Retail revenues decreased 0.1%
in U.S. dollars and increased 1.1% in constant currency. Retail
comp sales including e-commerce increased 3% in U.S. dollars and 4%
in constant currency.
- Americas Wholesale revenues increased
15.5% in U.S. dollars and 18.2% in constant currency.
- Europe revenues increased 14.8% in U.S.
dollars and 19.8% in constant currency. Retail comp sales including
e-commerce increased 8% in U.S. dollars and 12% in constant
currency.
- Asia revenues increased 20.4% in U.S.
dollars and 21.8% in constant currency. Retail comp sales including
e-commerce increased 8% in U.S. dollars and 9% in constant
currency.
- Licensing revenues increased 7.4% in
U.S. dollars and constant currency.
Operating Loss. GAAP loss from operations for the third
quarter of fiscal 2019 increased 5,119.7% to $21.5 million
(including a $1.3 million unfavorable currency translation impact),
compared to $0.4 million in the prior-year quarter. GAAP operating
margin in the third quarter decreased 350 basis points to negative
3.6%, compared to negative 0.1% in the prior-year quarter, driven
primarily by the charges related to the estimated European
Commission fine and higher distribution costs related to the
relocation of the Company’s European distribution center, partially
offset by the favorable impact from higher European wholesale
shipments and lower markdowns in Americas Retail. The positive
impact of currency on operating margin for the quarter was
approximately 20 basis points.
For the third quarter of fiscal 2019, adjusted earnings from
operations increased 70.1% to $22.3 million, compared to $13.1
million in the same prior-year quarter. Adjusted operating margin
was 3.7%, an increase of 130 basis points compared to the same
prior-year quarter.
- Operating margin for the Company’s
Americas Retail segment improved 330 basis points to 2.0% in the
third quarter of fiscal 2019, compared to negative 1.3% in the
prior-year quarter, driven primarily by the favorable impact from
lower markdowns, positive sales comps and negotiated rent
reductions, partially offset by higher store selling expenses.
- Operating margin for the Company’s
Americas Wholesale segment improved 90 basis points to 19.7% in the
third quarter of fiscal 2019, from 18.8% in the prior-year quarter,
due primarily to higher gross margins.
- Operating margin for the Company’s
Europe segment decreased 120 basis points to 2.9% in the third
quarter of fiscal 2019, from 4.1% in the prior-year quarter, driven
primarily by the higher distribution costs related to the
relocation of the Company’s European distribution center, partially
offset by overall leveraging of expenses resulting from higher
wholesale shipments.
- Operating margin for the Company’s Asia
segment decreased 180 basis points to 2.2% in the third quarter of
fiscal 2019, from 4.0% in the prior-year quarter, driven primarily
by unfavorable country mix.
- Operating margin for the Company’s
Licensing segment decreased 100 basis points to 87.4% in the third
quarter of fiscal 2019, compared to 88.4% in the prior-year
quarter.
Other expense, net, was $5.8 million for the third quarter of
fiscal 2019, which primarily includes unrealized losses on
non-operating assets and net realized mark-to-market revaluation
losses on foreign currency balances, partially offset by realized
mark-to-market revaluation gains on foreign exchange currency
contracts, compared to other income, net, of $2.2 million in the
prior-year quarter.
Nine-Month Period
Results
For the nine months ended November 3, 2018, the Company recorded
GAAP net loss of $9.1 million, compared to $8.9 million for the
nine months ended October 28, 2017. GAAP diluted loss per share was
$0.12 for the nine months ended November 3, 2018 and for the same
prior-year period. The Company estimates there was no significant
impact of currency on GAAP diluted loss per share for the nine
months ended November 3, 2018.
For the nine months ended November 3, 2018, the Company recorded
adjusted net earnings of $22.2 million, compared to $7.1 million
for the nine months ended October 28, 2017. Adjusted diluted
earnings per share increased 237.5% to $0.27, compared to $0.08 for
the prior-year period.
Net Revenue. Total net revenue for the first nine months
of fiscal 2019 increased 12.8% to $1.77 billion, compared to $1.57
billion in the same prior-year period. In constant currency, net
revenue increased by 11.2%.
- Americas Retail revenues decreased 1.2%
in U.S. dollars and 1.0% in constant currency. Retail comp sales
including e-commerce increased 3% in U.S. dollars and constant
currency.
- Americas Wholesale revenues increased
11.8% in U.S. dollars and 12.8% in constant currency.
- Europe revenues increased 20.2% in U.S.
dollars and 16.9% in constant currency. Retail comp sales including
e-commerce increased 9% in U.S. dollars and 5% in constant
currency.
- Asia revenues increased 27.9% in U.S.
dollars and 25.1% in constant currency. Retail comp sales including
e-commerce increased 16% in U.S. dollars and 13% in constant
currency.
- Licensing revenues increased 16.0% in
U.S. dollars and constant currency.
Operating Loss. GAAP operating loss for the first nine
months of fiscal 2019 was $14.5 million (including a $5.6 million
unfavorable currency translation impact), compared to $1.6 million
in the same prior-year period. GAAP operating margin in the first
nine months of fiscal 2019 decreased 70 basis points to negative
0.8%, compared to negative 0.1% in the prior-year period, driven
primarily by the charges related to the estimated European
Commission fine and higher distribution costs related to the
relocation of the Company’s European distribution center, partially
offset by lower markdowns in Americas Retail. The negative impact
of currency on operating margin for the first nine months of fiscal
2019 was approximately 10 basis points.
For the nine months ended November 3, 2018, adjusted earnings
from operations increased 143.3% to $38.7 million, compared to
$15.9 million for the nine months ended October 28, 2017. Adjusted
operating margin was 2.2% for the nine months ended November 3,
2018, an increase of 120 basis points compared to the same
prior-year period.
- Operating margin for the Company’s
Americas Retail segment improved 560 basis points to 0.7% in the
first nine months of fiscal 2019, compared to negative 4.9% in the
same prior-year period, driven primarily by the favorable impact
from lower markdowns, negotiated rent reductions and positive sales
comps.
- Operating margin for the Company’s
Americas Wholesale segment decreased 120 basis points to 17.0% in
the first nine months of fiscal 2019, from 18.2% in the same
prior-year period. The decrease in operating margin was due
primarily to lower gross margins driven primarily by the
liquidation of aged inventory.
- Operating margin for the Company’s
Europe segment decreased 360 basis points to 2.3% in the first nine
months of fiscal 2019, from 5.9% in the same prior-year period.
This decrease was driven primarily by higher distribution costs
related to the relocation of the Company’s European distribution
center.
- Operating margin for the Company’s Asia
segment improved 10 basis points to 3.0% in the first nine months
of fiscal 2019, compared to 2.9% in the same prior-year period. The
improvement in operating margin was driven primarily by higher
gross margins due mainly to overall leveraging of occupancy costs,
partially offset by the unfavorable country mix.
- Operating margin for the Company’s
Licensing segment improved 140 basis points to 88.1% in the first
nine months of fiscal 2019, compared to 86.7% in the same
prior-year period.
Other expense, net, was $7.1 million for the first nine months
of fiscal 2019, which primarily includes net unrealized and
realized mark-to-market revaluation losses on foreign currency
balances and unrealized losses on non-operating assets, partially
offset by net unrealized and realized mark-to-market revaluation
gains on foreign exchange currency contracts, compared to other
income, net, of $1.9 million in the prior-year period.
Impact from Adoption of New Revenue Recognition
Standard
The Company 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 $2.7 million, as well as an
increase in selling, general and administrative expenses in our
Licensing, Americas Retail and Americas Wholesale segments and
corporate overhead of $0.3 million, $1.0 million, $0.6 million and
$0.6 million, respectively, during the three months ended November
3, 2018 compared to the same prior-year quarter. The net impact was
an approximately $0.2 million reduction in loss from operations for
the three months ended November 3, 2018. During the nine months
ended November 3, 2018, this resulted in an increase in net royalty
revenue within the Company’s Licensing segment of approximately
$7.1 million, as well as an increase in selling, general and
administrative expenses in our Licensing, Americas Retail and
Americas Wholesale segments and corporate overhead of $0.7 million,
$3.3 million, $1.5 million, and $1.7 million, respectively,
compared to the same prior-year period. The net impact was an
approximately $0.1 million increase in loss from operations for the
nine months ended November 3, 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 January 2, 2019 to shareholders of
record at the close of business on December 12, 2018.
Outlook
The Company’s expectations for the fourth quarter ending
February 2, 2019 and its updated outlook for the fiscal year
ending February 2, 2019 are as follows:
Outlook for Total Company1
Fourth Quarter of
Fiscal 2019 Fiscal Year 2019 Consolidated net
revenue in U.S. dollars increase between 4.0% and 6.0% increase
between 10% and 10.5% Consolidated net revenue in constant
currency2 increase between 7.5% and 9.5% increase between 10% and
10.5%
Estimated impact of fiscal 2018 extra week
on consolidated net revenue3
decrease of 2.5% decrease of 1.0% GAAP operating margin 9.5%
to 10.0% 2.5% to 2.8%
Adjusted operating margin4
9.5% to 10.0% 4.5% to 4.8%
Currency impact included in operating
margin5
10 basis points (10) basis points GAAP EPS $0.69 to $0.76
$0.57 to $0.64
Adjusted EPS4
$0.69 to $0.76 $0.96 to $1.03
Estimated impact of fiscal 2018 extra week
on fiscal 2018 EPS3
$0.03 $0.03
Currency impact included in EPS5
$0.01 $0.01 Notes: 1 The Company’s outlook for the
fourth quarter and fiscal year ending February 2, 2019 assumes that
foreign currency exchange rates remain at prevailing rates.
2 Eliminates the impact of expected foreign currency translation to
give investors a better understanding of the underlying trends
within the business. 3
The Company’s fourth quarter of fiscal
2019 will include 13 weeks, while the fourth quarter of fiscal 2018
included 14 weeks. The Company’s fiscal year 2019 will include 52
weeks, while fiscal year 2018 included 53 weeks.
4
The 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.
5
Represents 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 fourth quarter and the fiscal
year ending February 2, 2019 is as follows:
Reconciliation of GAAP Outlook to Adjusted Outlook
Fourth Quarter of
Fiscal 2019 Fiscal Year 2019 GAAP operating
margin 9.5% to 10.0% 2.5% to 2.8% Net gains on lease terminations1
— 0.0% Asset impairment charges2 — 0.2% Certain professional
service and legal fees and
related costs3
— 0.2% Estimated European Commission fine4 — 1.6% Adjusted
operating margin 9.5% to 10.0% 4.5% to 4.8% GAAP earnings
per share $0.69 to $0.76 $0.57 to $0.64 Net gains on lease
terminations1 — $0.00 Asset impairment charges2 — $0.05 Certain
professional service and legal fees and related costs3 — $0.06
Estimated European Commission fine4 — $0.52 Change in provisional
amount recorded related to Tax Reform5 — $(0.24) Adjusted
earnings per share $0.69 to $0.76 $0.96 to $1.03
Notes: 1 Amounts for the full fiscal year include net gains
on lease terminations recorded during the nine months ended
November 3, 2018 related primarily to the early termination of
certain lease agreements in North America. 2 Amounts for the
full fiscal year include asset impairment charges for certain
retail locations recognized during the nine months ended November
3, 2018 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. 3 Amounts for the full
fiscal year include certain professional service and legal fees and
related costs recognized during the nine months ended November 3,
2018 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. 4 Amounts for the full fiscal year include a
charge of €37.0 million ($42.4 million) recorded during the three
months ended November 3, 2018 related to the estimated European
Commission fine. The Company determined that the fine, when
received, is likely to range from €37.0 million to €40.6 million
($42.4 million to $46.6 million). The adjusted results do not
assume any additional charges for the fourth quarter of fiscal 2019
as the Company has recorded amounts currently anticipated under
GAAP. However, the actual fine administered could be higher than
the amount the Company has estimated and additional charges could
be incurred in the future. 5
Amounts for the full fiscal year include
the impact of revisions to the provisional amounts previously
recorded related to impact of the Tax Reform, and recorded income
tax benefits of $19.6 million. The Company will continue to refine
such amounts within the measurement period allowed if and when
additional interpretations are issued. As such, the adjusted
results do not assume any additional changes to these amounts.
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
Fourth Quarter of Fiscal 2019 Fiscal Year 2019
U.S. Dollars Constant Currency2 U.S. Dollars Constant Currency2
Americas Retail: Comps __ up LSD __ up LSD Net Revenue down
LSD down LSD down LSD down LSD Americas Wholesale: Net
Revenue up LSD to MSD up LSD to MSD up HSD to LDD up LDD
Europe: Comps __ up LSD to MSD __ up LSD Net Revenue up MSD to HSD
up low-teens up mid-teens up mid-teens Asia: Comps __ up
mid-teens __ up low-teens to mid-teens Net Revenue up high-teens to
low-twenties up low-twenties to mid-twenties up mid-twenties up
mid-twenties Licensing: Net Revenue3 down MSD to flat __ up
LDD __ Notes: 1 As
used in the table above, “LSD” is used to refer to the range of
Low-Single-Digits, “MSD” is used to refer to the range of
Mid-Single-Digits, “HSD” is used to refer to the range of
High-Single-Digits, and “LDD” is used to refer to the range of
Low-Double-Digits. 2 Eliminates the impact of expected
foreign currency translation to give investors a better
understanding of the underlying trends within the business.
3 Our outlook includes the impacts of changes resulting from the
prospective adoption of the revenue accounting standard in the
first quarter of fiscal 2019. Excluding this impact, our guidance
for Licensing net revenue would have been down in the low-teens to
high-single digits for the fourth quarter of fiscal 2019 and down
in the low-single digits for fiscal year 2019.
Presentation of Non-GAAP
Information
The financial information presented in this release includes
non-GAAP financial measures such as adjusted results, constant
currency financial information and free cash flow measures. For the
three and nine months ended November 3, 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, charges related to the estimated European Commission
fine, the tax effects of these adjustments, and the revisions to
provisional amounts previously recorded related to the enactment of
the Tax Reform, in each case where applicable. For the three and
nine months ended October 28, 2017, the adjusted results exclude
the impact of net losses on lease terminations, 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 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 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
November 28, 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
November 3, 2018, the Company directly operated 1,108 retail
stores in the Americas, Europe and Asia. The Company’s licensees
and distributors operated 584 additional retail stores worldwide.
As of November 3, 2018, the Company and its licensees and
distributors operated in approximately 100 countries worldwide. For
more information about the Company, please visit www.guess.com.
Forward-Looking
Statements
Except for historical information contained herein, certain
matters discussed in this press release or the related conference
call and webcast, including statements concerning the Company’s
expectations, future prospects, business strategies and strategic
initiatives; statements expressing optimism or pessimism about
future operating results, our turn-around, growth opportunities and
projected sales (including comparable sales), earnings, capital
expenditures, operating margins, cost reduction opportunities and
cash needs; and guidance for the fourth 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,” “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 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 or changes in estimates 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 related to 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 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 Nine Months Ended November 3, 2018
October 28, 2017 November 3, 2018 October 28,
2017 $ % $
%1 $ % $
%1 Product sales $ 583,121 96.3 % $
528,209 96.2 % $ 1,710,788 96.5 % $ 1,518,323 96.6 % Net royalties1
22,286 3.7 % 20,744 3.8 %
61,779 3.5 % 53,267 3.4 %
Net revenue1 605,407 100.0 % 548,953 100.0 % 1,772,567 100.0 %
1,571,590 100.0 % Cost of product sales1 385,264
63.6 % 357,844 65.2 % 1,139,055
64.3 % 1,037,812 66.0 %
Gross profit 220,143 36.4 % 191,109 34.8 % 633,512 35.7 %
533,778 34.0 % Selling, general and administrative expenses2
197,943 32.8 % 178,009 32.4 % 600,731 33.8 % 517,871 33.0 %
European Commission fine 42,428 7.0 % — — % 42,428 2.4 % — — %
Asset impairment charges 1,277 0.2 % 2,018 0.4 % 5,017 0.3 % 6,013
0.4 % Net (gains) losses on lease terminations —
— % 11,494 2.1 %
(152 ) (0.0 %)
11,494 0.7 % Loss from
operations2 (21,505 ) (3.6 )% (412 ) (0.1 %) (14,512 ) (0.8 %)
(1,600 ) (0.1 %) Other income (expense): Interest expense
(784 ) (0.1 %) (684 ) (0.1 %) (2,386 ) (0.1 %) (1,642 ) (0.1 %)
Interest income 783 0.1 % 891 0.2 % 2,892 0.2 % 3,022 0.2 % Other
income (expense), net2 (5,810 ) (0.9 %) 2,216
0.4 % (7,064 ) (0.5 %) 1,935
0.1 % Earnings (loss) before income tax
expense (benefit) (27,316 ) (4.5 %) 2,011 0.4 % (21,070 ) (1.2 %)
1,715 0.1 % Income tax expense (benefit) (14,500 )
(2.4 %) 3,673 0.7 % (13,001 )
(0.7 %) 8,723 0.6 % Net loss
(12,816 ) (2.1 %) (1,662 ) (0.3 %) (8,069 ) (0.5 %) (7,008 ) (0.5
%) Net earnings attributable to noncontrolling interests 626
0.1 % 1,198 0.2 % 1,064
0.0 % 1,926 0.1 %
Net loss attributable to Guess?, Inc. $ (13,442 )
(2.2 %) $ (2,860 ) (0.5 %) $ (9,133 )
(0.5 %) $ (8,934 ) (0.6 %) Net loss per common
share attributable to common stockholders: Basic $ (0.17 ) $
(0.04 ) $ (0.12 ) $ (0.12 ) Diluted $ (0.17 ) $ (0.04 ) $ (0.12 ) $
(0.12 ) Weighted average common shares outstanding
attributable to common stockholders: Basic 80,189 82,390
80,067 82,599 Diluted 80,189 82,390 80,067 82,599 Effective
tax rate 53.1 % 182.6 % 61.7 % 508.6 % Adjusted selling,
general and administrative expenses2,3: $ 197,864 32.7 % $ 178,009
32.4 % $ 594,817 33.6 % $ 517,871 33.0 % Adjusted earnings
from operations2,3: $ 22,279 3.7 % $ 13,100 2.4 % $ 38,695 2.2 % $
15,907 1.0 % Adjusted net earnings attributable to Guess?,
Inc.3: $ 10,552 1.7 % $ 10,390 1.9 % $ 22,175 1.3 % $ 7,090 0.4 %
Adjusted diluted earnings per common share attributable to
common stockholders3: $ 0.13 $ 0.12 $ 0.27 $ 0.08 Adjusted
effective tax rate3: 32.1 % 25.3 % 27.7 % 53.1 %
Notes: 1
During the fourth quarter of fiscal 2018,
the Company reclassified net royalties received on the Company’s
inventory purchases of licensed product from net revenue to cost of
product sales to reflect its treatment as a reduction of the cost
of such licensed product. Accordingly, amounts related to net
royalties, net revenue and cost of product sales for the three and
nine months ended October 28, 2017 have been adjusted to conform to
the current period presentation. This reclassification had no
impact on previously reported gross profit, loss from operations,
net loss or net loss per share.
2 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.
Accordingly, the Company reclassified approximately $0.5 million
and $1.6 million, respectively, from selling, general and
administrative expenses to other expense, net, for the three and
nine months ended October 28, 2017 to conform to the current period
presentation. This reclassification had no impact on previously
reported net loss or net loss per share. 3
The adjusted results for the three and
nine months ended November 3, 2018 reflect the exclusion of net
gains on lease terminations, asset impairment charges, certain
professional service and legal fees and related costs, charges
related to the estimated European Commission fine, and the related
tax impacts that were recorded, where applicable, as well as
revisions to the provisional amounts previously recorded related to
the Tax Reform. The adjusted results for the three and nine months
ended October 28, 2017 reflect the exclusion of asset impairment
charges and net losses on lease terminations 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 earnings from operations, reported GAAP net loss
attributable to Guess?, Inc. to adjusted net earnings attributable
to Guess?, Inc. and reported GAAP income tax expense (benefit) to
adjusted income tax expense for the three and nine months ended
November 3, 2018 and October 28, 2017.
Three Months Ended
Nine Months Ended
November3, 2018
October28, 2017
November3, 2018
October28, 2017
Reported GAAP selling, general and administrative expenses $
197,943 $ 178,009 $ 600,731 $ 517,871 Certain professional service
and legal fees and related costs1
(79
)
—
(5,914
)
—
Adjusted selling, general and administrative
expenses $ 197,864 $ 178,009
$ 594,817 $ 517,871
Reported GAAP loss from operations $ (21,505 ) $ (412
) $ (14,512 )
(1,600
) Certain professional service and legal fees and related costs1
79
—
5,914
—
Estimated European Commission fine2
42,428
—
42,428
—
Net (gains) losses on lease terminations3
—
11,494
(152
)
11,494
Asset impairment charges4
1,277
2,018
5,017
6,013
Adjusted earnings from operations $
22,279 $ 13,100 $
38,695 $ 15,907 Reported
GAAP net loss attributable to Guess?, Inc. $ (13,442 ) $ (2,860 ) $
(9,133 ) $ (8,934 ) Certain professional service and legal fees and
related costs1
79
—
5,914
—
Estimated European Commission fine2
42,428
—
42,428
—
Net (gains) losses on lease terminations3
—
11,494
(152
)
11,494
Asset impairment charges4
1,277
2,018
5,017
6,013
Income tax adjustments5
(239
)
(262
)
(2,348
)
(1,483
) Change in provisional amount recorded related to Tax Reform6
(19,551
)
—
(19,551
)
—
Total adjustments affecting net earnings attributable
to Guess?, Inc.
23,994
13,250
31,308
16,024
Adjusted net earnings attributable to Guess?,
Inc. $ 10,552 $ 10,390
$ 22,175 $ 7,090
Reported GAAP income tax expense (benefit) $ (14,500
) $ 3,673 $ (13,001 ) $ 8,723 Income tax adjustments5
239
262
2,348
1,483
Change in provisional amount recorded related to Tax Reform6
19,551
—
19,551
—
Adjusted income tax expense $
5,290 $ 3,935 $
8,898 $ 10,206
Adjusted effective tax rate
32.1
%
25.3
%
27.7
%
53.1
% Notes: 1 During the
three and nine months ended November 3, 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. 2
During the quarter ended November 3, 2018,
the Company recognized a charge of €37.0 million ($42.4 million)
related to an estimated fine expected to be imposed on the Company
by the European Commission related to its inquiry concerning
potential violations of European Union competition rules by the
Company.
3
During the nine months ended November 3,
2018, the Company recorded net gains on lease terminations and
during the three and nine months ended October 28, 2017, the
Company recorded net losses on lease terminations related primarily
to the early termination of certain lease agreements in North
America.
4 During the three and nine months ended November 3, 2018
and October 28, 2017, the Company recognized asset impairment
charges for certain retail locations resulting from
under-performance and expected store closures. 5
The income tax effect of the net gains
(losses) on lease terminations, asset impairment charges and
certain professional service and legal fees and related costs, and
estimated European Commission fine 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.
6
During the quarter ended November 3, 2018,
the Company revised the provisional amounts previously recorded
related to impact of the Tax Reform, and recorded income tax
benefits of $19.6 million.
Guess?, Inc. and Subsidiaries Consolidated Segment
Data (dollars in thousands)
Three Months Ended
Nine Months Ended
November 3,
October 28,
%
November 3,
October 28,
%
2018
2017
change
2018
2017
change Net revenue: Americas Retail $ 186,925 $
187,021 (0 %) $ 555,390 $ 561,903 (1 %) Americas Wholesale
52,698
45,636
15 %
127,630
114,151
12 % Europe
254,037
221,230
15 %
771,470
641,833
20 % Asia
89,461
74,322
20 %
256,298
200,436
28 % Licensing1
22,286
20,744
7 %
61,779
53,267
16 % Total net revenue1 $ 605,407 $ 548,953 10
% $ 1,772,567 $ 1,571,590 13 % Earnings
(loss) from operations:
Americas Retail2
$ 3,799 $ (2,414 ) 257 % $ 3,701 $ (27,550 ) 113 %
Americas Wholesale2
10,392
8,562
21 %
21,743
20,783
5 %
Europe2,3
7,410
9,095
(19 %)
17,608
38,147
(54 %)
Asia2
1,938
2,954
(34 %)
7,637
5,734
33 %
Licensing2
19,485
18,346
6 %
54,408
46,196
18 %
Total segment earnings from
operations3
43,024
36,543
18 %
105,097
83,310
26 %
Corporate overhead3
(20,824
)
(23,443
) (11 %)
(72,316
)
(67,403
) 7 %
Estimated European Commission fine4
(42,428
)
—
(42,428
)
—
Net gains (losses) on terminations
—
(11,494
)
152
(11,494
)
Asset impairment charges
(1,277
)
(2,018
)
(5,017
)
(6,013
)
Total loss from operations3,5
$ (21,505 ) $ (412 )
(5,120
%) $ (14,512 ) $ (1,600 )
(807
%) Operating margins:
Americas Retail2
2.0
%
(1.3
%)
0.7
%
(4.9
%)
Americas Wholesale2
19.7
%
18.8
%
17.0
%
18.2
%
Europe2,3
2.9
%
4.1
%
2.3
%
5.9
%
Asia2
2.2
%
4.0
%
3.0
%
2.9
%
Licensing1,2
87.4
%
88.4
%
88.1
%
86.7
%
GAAP operating margin for total
Company1,3
(3.6
%)
(0.1
%)
(0.8
%)
(0.1
%)
Net gains (losses) on terminations
—
%
2.1
%
(0.0
%)
0.7
%
Asset impairment charges
0.2
%
0.4
%
0.3
%
0.4
%
Estimated European Commission fine4
7.0
%
—
%
2.4
%
—
%
Certain professional service and legal
fees and related costs5
0.1
%
—
%
0.3
%
—
%
Adjusted operating margin for total
Company1,3,4,5
3.7
%
2.4
%
2.2
%
1.0
% Notes: 1 During
the fourth quarter of fiscal 2018, the Company reclassified net
royalties received on the Company’s inventory purchases of licensed
product from net revenue to cost of product sales to reflect its
treatment as a reduction of the cost of such licensed product.
Accordingly, net revenue for the three and nine months ended
October 28, 2017 have been adjusted to conform to the current
period presentation. This reclassification had no impact on
previously reported loss from operations. 2
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. Accordingly, segment results for
the three and nine months ended October 28, 2017 have been adjusted
to conform to the current period presentation.
3
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.
Accordingly, loss from operations and segment results for the three
and nine months ended October 28, 2017 have been adjusted to
conform to the current period presentation.
4
During the quarter ended November 3, 2018,
the Company recognized a charge of €37.0 million ($42.4 million)
related to an estimated fine expected to be imposed on the Company
by the European Commission related to its inquiry concerning
potential violations of certain European Union competition rules by
the Company.
5
During the three and nine months ended
November 3, 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.
Guess?, Inc. and Subsidiaries Constant Currency
Financial Measures (dollars in thousands)
Three Months Ended
November 3, 2018
October 28, 2017
% change
As Reported
ForeignCurrencyImpact
ConstantCurrency
As Reported
AsReported
ConstantCurrency
Net revenue: Americas Retail $ 186,925 $ 2,156 $ 189,081 $ 187,021
(0 %) 1 % Americas Wholesale
52,698
1,247
53,945
45,636 15 % 18 % Europe
254,037
11,059
265,096
221,230 15 % 20 % Asia
89,461
1,069
90,530
74,322 20 % 22 % Licensing1
22,286
—
22,286
20,744 7 % 7 % Total net revenue1 $ 605,407 $ 15,531
$ 620,938 $ 548,953 10 % 13 %
Nine Months Ended
November 3, 2018
October 28, 2017
% change
As Reported
ForeignCurrencyImpact
ConstantCurrency
As Reported
AsReported
ConstantCurrency
Net revenue: Americas Retail $ 555,390 $ 800 $ 556,190 $ 561,903 (1
%) (1 %) Americas Wholesale
127,630
1,088
128,718
114,151 12 % 13 % Europe
771,470
(21,156 )
750,314
641,833 20 % 17 % Asia
256,298
(5,519 )
250,779
200,436 28 % 25 % Licensing1
61,779
—
61,779
53,267 16 % 16 % Total net revenue1 $ 1,772,567 $
(24,787 ) $ 1,747,780 $ 1,571,590 13 % 11 %
Notes: 1
During the fourth quarter of fiscal 2018, the Company
reclassified net royalties received on the Company’s inventory
purchases of licensed product from net revenue to cost of product
sales to reflect its treatment as a reduction of the cost of such
licensed product. Accordingly, net revenue for the three and nine
months ended October 28, 2017 has been adjusted to conform to the
current period presentation.
Guess?, Inc. and
Subsidiaries Selected Condensed Consolidated Balance Sheet
Data (in thousands)
November 3,
February 3,
October 28,
2018
2018
2017
ASSETS Cash and cash equivalents $ 138,922 $
367,441 $ 233,089 Receivables, net
286,106
259,996
236,659
Inventories
548,517
428,304
477,177
Other current assets
109,178
52,964
59,658
Property and equipment, net
297,173
294,254
283,197
Restricted cash
532
241
225
Other assets
243,718
252,434
263,507
Total Assets $ 1,624,146 $ 1,655,634 $
1,553,512
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of capital lease obligations and borrowings
$ 3,538 $ 2,845 $ 2,121 Other current liabilities
557,126
465,000
387,821
Long-term debt and capital lease obligations
36,254
39,196
38,781
Other long-term liabilities
191,869
209,528
179,220
Redeemable and nonredeemable noncontrolling interests
18,461
22,246
19,228
Guess?, Inc. stockholders’ equity
816,898
916,819
926,341
Total Liabilities and Stockholders’ Equity $
1,624,146 $ 1,655,634 $ 1,553,512
Guess?, Inc. and
Subsidiaries Condensed Consolidated Cash Flow Data (in
thousands)
Nine Months Ended
November 3,
October 28,
2018
2017
Net cash used in operating activities $
(46,915
) $ (34,202 ) Net cash used in investing activities
(83,231 )
(68,626 ) Net cash used in financing activities
(78,279
)
(82,316 ) Effect of exchange rates on cash, cash equivalents
and restricted cash
(19,803 )
20,808 Net change in cash, cash equivalents and
restricted cash
(228,228 )
(164,336 ) 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 $ 139,454 $ 233,314
Supplemental information: Depreciation and
amortization $ 50,399 $ 46,769 Rent $ 223,880 $ 198,844
Non-cash investing and financing activity:
Assets acquired under capital lease obligations1 $ 1,172 $
18,042 Notes: 1
During the second quarter of fiscal 2019, the Company
entered into a capital lease for $1.2 million related primarily to
computer hardware and software. During the second quarter of fiscal
2018, the Company began the relocation of its European distribution
center to the Netherlands. As a result, the Company entered into a
capital lease of $16.0 million for equipment used in the new
facility. During the second quarter of fiscal 2018, the Company
also entered into a capital lease for $1.5 million related
primarily to computer hardware and software.
Guess?, Inc.
and Subsidiaries Reconciliation of Net Cash Used in
Operating Activities to Free Cash Flow (in thousands)
Nine Months Ended
November 3,
October 28,
2018
2017
Net cash used in operating activities $
(46,915
) $ (34,202 ) Less: Purchases of property and equipment
(74,890
)
(65,345
)
Less: Payments for property and equipment
under capital leases
(964
)
(171
)
Free cash flow $
(122,769
) $ (99,718 )
Guess?, Inc. and Subsidiaries Retail
Store Data Global Store and Concession Count
As of November 3, 2018 Stores
Concessions Directly Partner Directly
Partner Region Total Operated
Operated Total Operated Operated
United States 298 296 2 1 — 1 Canada 89 89 — — — — Central and
South America 103 65 38 27 27 — Total Americas 490 450 40 28
27 1 Europe and the Middle East 687 460 227 39 39 — Asia and
the Pacific 515 198 317 365 174 191 Total
1,692
1,108 584 432 240 192
As of October 28, 2017 Stores
Concessions Directly Partner Directly
Partner Region Total Operated
Operated Total Operated Operated
United States 317 315 2 1 — 1 Canada 96 96 — — — — Central and
South America 97 54 43 27 27 — Total Americas 510 465 45 28
27 1 Europe and the Middle East 661 385 276 33 33 — Asia and
the Pacific 482 132 350 371 183 188 Total
1,653
982 671 432 243 189
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181128005778/en/
Guess?, Inc.Fabrice BenaroucheVP, Finance and Investor
Relations(213) 765-5578
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