Preserved Liquidity
and Reduced Cost Structure to Mitigate the Impact of the COVID-19
Crisis
Q1 Fiscal 2021
Revenues Decreased 52% to $260 Million; Decreased 50% in Constant
Currency Driven by COVID-19 Related Store Closures
Q1 Fiscal 2021 GAAP
Loss per Share of $2.40, Compared to $0.27 in Q1 Fiscal 2020; Q1
Fiscal 2021 Adjusted Loss per Share of $1.81, Compared to $0.25 in
Q1 Fiscal 2020
Guess?, Inc. (NYSE: GES) today reported financial results for
its first quarter ended May 2, 2020.
Carlos Alberini, Chief Executive Officer, commented, “The
COVID-19 Crisis has had a material impact on our Company, including
our operations and our financial results. I couldn’t be more proud
of our teams around the world as they acted decisively, quickly and
strongly to control what could be controlled and demonstrated a
level of commitment, leadership and empathy that is unparalleled.
Our top priority has been the safety and well-being of our
associates, customers and the communities we serve. To minimize our
loss and protect our liquidity, we challenged every aspect of our
business which was being significantly impacted by extensive store
closures and lower customer demand. In addition to postponing our
decision related to the payment of the quarterly dividend, we were
able to reduce expenses, adjust inventory levels and purchases,
lower capital expenditures and extend vendor payment terms to react
to the Crisis.”
Mr. Alberini continued, “Today we have all stores open in Asia,
over 400 stores in Europe and over 180 stores in the U.S. and
Canada. We are encouraged by our initial results, which have been
better than anticipated. Our sales productivity for re-opened
stores for the second quarter to date has reached roughly 75% in
the U.S. and Canada and 70% in Europe as compared to last year’s
level.”
Mr. Alberini concluded, “Looking forward, the building blocks of
our long-term strategy are still intact. We remain focused on
enhancing our omni-channel platform centered around the consumer
and are accelerating our efforts to gain efficiencies across our
global operations and rationalize our store portfolios. I fully
expect to be on the other side of this Crisis with a more efficient
business model, a more focused and consistent global brand strategy
and a more nimble and agile organization.”
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 losses on lease
terminations, (iii) certain professional service and legal fees and
related costs, (iv) certain separation charges, (v) non-cash debt
discount amortization on our convertible senior notes, (vi) the
related tax effects of the foregoing items, 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 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 first quarter of fiscal 2021, in addition
to the negative impact from lower net revenue, the Company’s
operating results also reflected asset impairment charges as well
as additional inventory valuation reserves and higher allowances
for markdowns and doubtful accounts due to the ongoing effects of
the COVID-19 pandemic. These charges were partially offset by the
favorable impact from various European and U.S. government
assistance programs related primarily to the recovery of employee
payroll costs as well as certain favorable tax treatments.
During the first half of fiscal 2021, the Company implemented a
number of measures to help mitigate the operating and financial
impact of the pandemic, including: (i) furloughing its U.S. and
Canada store associates and significant portions of its U.S. and
Canada corporate and distribution center associates and permanently
reducing U.S. corporate headcount; (ii) implementing temporary
tiered salary reductions for management level corporate employees,
including its executive officers; (iii) deferring annual merit
increases; (iv) executing substantial reductions in expenses, store
occupancy costs, capital expenditures and overall costs, including
through reduced inventory purchases; (v) working globally with
country management teams to maximize the Company’s participation in
all eligible government or other initiatives available to
businesses or employees impacted by the COVID-19 pandemic; (vi)
drawing down on certain credit facilities and entering into certain
term loans to ensure financial flexibility and maintain maximum
liquidity; (vii) engaging with landlords to negotiate rent
deferrals or other rent concessions; (viii) working with vendors to
extend payment terms; and (ix) postponing its decision related to
the payment of its quarterly cash dividend.
Beginning in mid-April, the Company began to reopen some of its
stores in Europe. In May 2020, the Company began to reopen some of
its stores in the U.S. and Canada. In Asia, where store closures
related to COVID-19 began, all of the Guess-operated stores have
reopened. The Company will continue to reopen stores in phases, as
state and local guidelines and conditions permit, taking an
informed, measured approach based on a number of factors. The
Company’s e-commerce sites remain open in all regions. In addition,
retail stores that are open have and continue to experience
significant reductions in traffic and therefore, revenue. The
Company’s e-commerce sites have experienced lower traffic, but this
has been partially offset by a strengthening in conversion. Many of
the Company’s wholesale and licensing partners have also
substantially reduced their operations. The Company has and will
continue to bring back store associates and support staff as stores
reopen.
First Quarter Fiscal 2021
Results
For the first quarter of fiscal 2021, the Company recorded GAAP
net loss of $157.7 million, compared to $21.4 million for the first
quarter of fiscal 2020. GAAP diluted loss per share was $2.40 for
the first quarter of fiscal 2021, compared to $0.27 for the same
prior-year quarter. The Company estimates that its prior year share
buybacks and convertible notes transaction had a net negative
impact of $0.50 on GAAP diluted loss per share and currency had a
negative impact of $0.09 on diluted loss per share in the first
quarter of fiscal 2021.
For the first quarter of fiscal 2021, the Company recorded
adjusted net loss of $118.9 million, compared to $19.6 million for
the first quarter of fiscal 2020. Adjusted diluted loss per share
was $1.81, compared to $0.25 for the same prior-year quarter. The
Company estimates that its prior year share buybacks and
convertible notes transaction had a net negative impact of $0.36 on
adjusted diluted loss per share in the first quarter of fiscal
2021.
Net Revenue. Total net revenue for the first quarter of
fiscal 2021 decreased 51.5% to $260.3 million, compared to $536.7
million in the same prior-year quarter. In constant currency, net
revenue decreased by 50.1%.
- Americas Retail revenues decreased 57.7% in U.S. dollars and
57.4% in constant currency.
- Americas Wholesale revenues decreased 44.0% in U.S. dollars and
41.8% in constant currency.
- Europe revenues decreased 49.3% in U.S. dollars and 47.4% in
constant currency.
- Asia revenues decreased 52.6% in U.S. dollars and 50.6% in
constant currency.
- Licensing revenues decreased 31.3% in U.S. dollars.
Operating Loss. GAAP loss from operations for the first
quarter of fiscal 2021 was $162.5 million (including $53.0 million
in non-cash impairment charges taken on certain long-lived store
related assets and a $4.6 million favorable currency translation
impact), compared to $24.5 million in the same prior-year quarter.
GAAP operating margin in the first quarter decreased 57.8% to
negative 62.4%, from negative 4.6% in the same prior-year quarter,
driven primarily by overall deleveraging of expenses due to the
negative impact from the COVID-19 pandemic on our global operations
and higher asset impairment charges. The negative impact of
currency on operating margin for the quarter was approximately 20
basis points.
For the first quarter of fiscal 2021, adjusted operating loss
was $108.6 million, compared to $22.4 million in the same
prior-year quarter. Adjusted operating margin decreased 37.5% to
negative 41.7%, compared to negative 4.2% in the same prior-year
quarter, driven primarily by overall deleveraging of expenses due
to the negative impact from the COVID-19 pandemic on our global
operations.
- Operating margin for the Company’s Americas Retail segment
decreased 48.2% to negative 49.2% in the first quarter of fiscal
2021, from negative 1.0% in the same prior-year quarter, driven
primarily by the deleverage impact of temporary store closures as a
result of the COVID-19 pandemic.
- Operating margin for the Company’s Americas Wholesale segment
decreased 10.6% to 6.3% in the first quarter of fiscal 2021, from
16.9% in the same prior-year quarter, due mainly to the negative
impacts from the COVID-19 pandemic which resulted in higher
markdowns and overall deleveraging of expenses.
- Operating margin for the Company’s Europe segment decreased
33.9% to negative 41.7% in the first quarter of fiscal 2021, from
negative 7.8% in the same prior-year quarter, driven primarily by
overall deleveraging of expenses due to lower revenue as a result
of the COVID-19 pandemic.
- Operating margin for the Company’s Asia segment decreased 52.6%
to negative 56.4% in the first quarter of fiscal 2021, from
negative 3.8% in the same prior-year quarter, due mainly to the
negative impacts from the COVID-19 pandemic which resulted in
significantly higher inventory reserves and overall deleveraging of
expenses.
- Operating margin for the Company’s Licensing segment decreased
10.4% to 78.0% in the first quarter of fiscal 2021, from 88.4% in
the same prior-year quarter.
Other expense, net, was $19.6 million for the first quarter of
fiscal 2021, compared to other income, net, of $2.1 million in the
same prior-year quarter. The change was driven primarily by market
volatility which resulted in higher 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.
Outlook
We expect that the global crisis will continue to have a
material impact on our consolidated financial position,
consolidated results of operations, and consolidated cash flows in
fiscal 2021. Based on the sales data we have for the
brick-and-mortar stores that have re-opened since May 2, 2020, we
have experienced sales productivity for reopened stores of roughly
75% in the U.S. and Canada and 70% in Europe as compared to last
year’s level. This data may not be indicative of future trends as
this is only representative of a portion of our stores for a
relatively short period of time. In addition, the extent and
duration of the global pandemic remains uncertain and may continue
to impact consumer purchasing activity throughout the year. Given
the dynamic situation, we have not provided detailed guidance for
the second quarter ending August 1, 2020 or the full fiscal year
ending January 30, 2021. However, based on these trends, we
currently expect revenues for the second quarter of fiscal 2021 to
have a decrease similar to that of the first quarter.
Dividend
During the first quarter of fiscal 2021, the Company announced
that its Board of Directors had deferred the decision with respect
to the payment of its quarterly cash dividend. While the Company
remains committed to returning capital to shareholders through a
dividend on a long-term basis, the Board of Directors has decided
to continue to postpone its decision to pay the quarterly cash
dividend at this time in order to preserve the Company’s cash
position and provide continued financial flexibility in light of
the uncertainties related to the COVID-19 pandemic.
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 2, 2020, the adjusted results exclude the
impact of certain professional service and legal fees and related
costs, certain separation charges, asset impairment charges, net
losses on lease terminations, non-cash amortization of debt
discount on the Company’s convertible senior notes, the related tax
impacts of these adjustments as well as certain discrete tax
adjustments, where applicable. For the three months ended May 4,
2019, the adjusted results exclude the impact of certain
professional service and legal fees and related costs, asset
impairment charges, non-cash amortization of debt discount on the
Company’s convertible senior notes and the related tax impacts of
these adjustments, where applicable. These non-GAAP measures are
provided in addition to, and not as alternatives for, the Company’s
reported GAAP results.
The Company has excluded these items from its adjusted financial
measures primarily because it believes these items are not
indicative of the underlying performance of its business and that
the adjusted financial information provided is useful for investors
to evaluate the comparability of the Company’s operating results
and its future outlook (when reviewed in conjunction with the
Company’s GAAP financial statements). A reconciliation of reported
GAAP results to comparable non-GAAP results is provided in the
accompanying tables.
This release also includes certain constant currency financial
information. Foreign currency exchange rate fluctuations affect the
amount reported from translating the Company’s foreign revenue,
expenses and balance sheet amounts into U.S. dollars. These rate
fluctuations can have a significant effect on reported operating
results under GAAP. The Company provides constant currency
information to enhance the visibility of underlying business
trends, excluding the effects of changes in foreign currency
translation rates. To calculate net revenue and earnings (loss)
from operations on a constant currency basis, actual or forecasted
results for the current-year period are translated into U.S.
dollars at the average exchange rates in effect during the
comparable period of the prior year. The constant currency
calculations do not adjust for the impact of revaluing specific
transactions denominated in a currency that is different to the
functional currency of that entity when exchange rates fluctuate.
However, in calculating the estimated impact of currency on our
earnings (loss) per share for our actual or forecasted results, the
Company estimates gross margin (including the impact of
merchandise-related hedges) and expenses using the appropriate
prior-year rates, translates the estimated foreign earnings at the
comparable prior-year rates, and excludes the year-over-year
earnings impact of gains or losses arising from balance sheet
remeasurement and foreign currency contracts not designated as
merchandise hedges. The constant currency information presented may
not be comparable to similarly titled measures reported by other
companies.
The Company also includes information regarding its free cash
flows in this release. The Company calculates free cash flows as
cash flows from operating activities less (i) purchases of property
and equipment and (ii) payments for property and equipment under
finance leases. Free cash flows are not intended to be an
alternative to cash flows from operating activities as a measure of
liquidity, but rather provides additional visibility to investors
regarding how much cash is generated for discretionary and
non-discretionary items after deducting purchases of property and
equipment and payments for property and equipment under finance
leases. Free cash flow information presented may not be comparable
to similarly titled measures reported by other companies. A
reconciliation of reported GAAP cash flows from operating
activities to the comparable non-GAAP free cash flow measure is
provided in the accompanying tables.
Investor Conference Call
The Company will hold a conference call at 8:00 am (ET) on June
10, 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 May 2, 2020, the Company directly operated 1,141 retail stores
in the Americas, Europe and Asia. The Company’s partners and
distributors operated 540 additional retail stores worldwide. As of
May 2, 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, future prospects, business
strategies and strategic initiatives; and statements expressing
optimism or pessimism about future operating results, growth
opportunities, earnings, capital expenditures, operating margins,
cost reduction opportunities and cash needs are forward-looking
statements that are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995.
Forward-looking statements, which are frequently indicated by terms
such as “expect,” “could,” “will,” “should,” “goal,” “strategy,”
“believe,” “estimate,” “continue,” “outlook,” “plan,” “create,”
“see,” and similar terms, are only expectations, and involve known
and unknown risks and uncertainties, which may cause actual results
in future periods to differ materially from what is currently
anticipated. Factors which may cause actual results in future
periods to differ materially from current expectations include,
among others: our ability to maintain our brand image and
reputation; domestic and international economic or political
conditions, including economic and other events that could
negatively impact consumer confidence and discretionary consumer
spending; the continuation or worsening of impacts related to the
COVID-19 pandemic, including business, financial, human capital,
litigation and other impacts to the Company and its partners; our
ability to successfully negotiate rent relief or other
lease-related terms with our landlords; our ability to successfully
negotiate or defer our vendor obligations; our ability to maintain
adequate levels of liquidity; changes to estimates related to
impairments, inventory and other reserves, including the impact of
the CARES Act, which were made using the best information available
at the time; changes in the competitive marketplace and in our
commercial relationships; our ability to anticipate and adapt to
changing consumer preferences and trends; our ability to manage our
inventory commensurate with customer demand; risks related to the
timing and costs of delivering merchandise to our stores and our
wholesale customers; unexpected or unseasonable weather conditions;
our ability to effectively operate our various retail concepts,
including securing, renewing, modifying or terminating leases for
store locations; our ability to successfully and/or timely
implement our growth strategies and other strategic initiatives;
our ability to expand internationally and operate in regions where
we have less experience, including through joint ventures; risks
related to our convertible senior notes issued in April 2019,
including our ability to settle the liability in cash; our ability
to successfully or timely implement plans for cost reductions; our
ability to effectively and efficiently manage the volume and costs
associated with our European distribution centers without incurring
shipment delays; our ability to attract and retain key personnel;
obligations or changes in estimates arising from new or existing
litigation, tax and other regulatory proceedings; risks related to
the complexity of the Tax Reform, future clarifications and
legislative amendments thereto, as well as our ability to
accurately interpret and predict its impact on our cash flows and
financial condition; the risk of economic uncertainty associated
with the transition period of the United Kingdom’s departure from
the European Union (“Brexit”) or any other similar referendums that
may be held; the occurrence of unforeseen epidemics, such as the
COVID-19 pandemic; other catastrophic events; changes in U.S. or
foreign tax or tariff policy, including changes to tariffs on
imports into the U.S.; accounting adjustments identified after
issuance of this release; risk of future non-cash asset
impairments, including goodwill, right of-use lease assets and/or
other store asset impairments; restructuring charges; our ability
to adapt to new regulatory compliance and disclosure obligations;
risks associated with our foreign operations, such as violations of
laws prohibiting improper payments and the burdens of complying
with a variety of foreign laws and regulations (including global
data privacy regulations); risks associated with the acts or
omissions of our third party vendors, including a failure to comply
with our vendor code of conduct or other policies; risks associated
with cyber-attacks and other cyber security risks; risks associated
with our ability to properly collect, use, manage and secure
consumer and employee data; risks associated with our vendors’
ability to maintain the strength and security of information
technology systems; and changes in economic, political, social and
other conditions affecting our foreign operations and sourcing,
including the impact of currency fluctuations, global tax rates and
economic and market conditions in the various countries in which we
operate. In addition to these factors, the economic, technological,
managerial, and other risks identified in the Company’s most recent
annual report on Form 10-K and other filings with the Securities
and Exchange Commission, including but not limited to the risk
factors discussed therein, could cause actual results to differ
materially from current expectations. The current global economic
climate, length and severity of the COVID-19 pandemic, and
uncertainty surrounding potential changes in U.S. policies and
regulations, including the upcoming U.S. election, may amplify many
of these risks. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
Guess?, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Loss
(amounts in thousands, except per
share data)
Three Months Ended
May 2, 2020
May 4, 2019
$
%
$
%
Product sales
$
247,317
95.0
%
$
517,873
96.5
%
Net royalties
12,934
5.0
%
18,818
3.5
%
Net revenue
260,251
100.0
%
536,691
100.0
%
Cost of product sales
226,022
86.8
%
354,742
66.1
%
Gross profit
34,229
13.2
%
181,949
33.9
%
Selling, general and administrative
expenses
143,288
55.0
%
204,645
38.2
%
Asset impairment charges
52,972
20.4
%
1,775
0.3
%
Net losses on lease terminations
456
0.2
%
—
—
%
Loss from operations
(162,487
)
(62.4
%)
(24,471
)
(4.6
%)
Other income (expense):
Interest expense
(5,462
)
(2.1
%)
(1,259
)
(0.2
%)
Interest income
610
0.2
%
361
0.1
%
Other income (expense), net
(19,580
)
(7.5
%)
2,071
0.4
%
Loss before income tax benefit
(186,919
)
(71.8
%)
(23,298
)
(4.3
%)
Income tax benefit
(26,381
)
(10.1
%)
(2,717
)
(0.5
%)
Net loss
(160,538
)
(61.7
%)
(20,581
)
(3.8
%)
Net earnings (loss) attributable to
noncontrolling interests
(2,872
)
(1.1
%)
793
0.2
%
Net loss attributable to Guess?, Inc.
$
(157,666
)
(60.6
%)
$
(21,374
)
(4.0
%)
Net loss per common share attributable to
common stockholders:
Basic
$
(2.40
)
$
(0.27
)
Diluted
$
(2.40
)
$
(0.27
)
Weighted average common shares outstanding
attributable to common stockholders:
Basic
65,715
79,925
Diluted
65,715
79,925
Effective tax rate
14.1
%
11.7
%
Adjusted selling, general and
administrative expenses1:
$
142,825
54.9
%
$
204,373
38.1
%
Adjusted loss from operations1:
$
(108,596
)
(41.7
%)
$
(22,424
)
(4.2
%)
Adjusted net loss attributable to Guess?,
Inc.1:
$
(118,913
)
(45.7
%)
$
(19,616
)
(3.7
%)
Adjusted diluted loss per common share
attributable to common stockholders1:
$
(1.81
)
$
(0.25
)
Adjusted effective tax rate1:
6.6
%
10.5
%
________________________________________________
Notes:
1
The adjusted results for the three months
ended May 2, 2020 reflect the exclusion of certain professional
service and legal fees and related costs, certain separation
charges, asset impairment charges, net losses on lease
terminations, non-cash amortization of debt discount on the
Company’s convertible senior notes, the related tax impacts of
these adjustments as well as certain discrete tax adjustments,
where applicable. The adjusted results for the three months ended
May 4, 2019 reflect the exclusion of certain professional service
and legal fees and related costs, asset impairment charges,
non-cash amortization of debt discount on the Company’s convertible
senior notes and the related tax impacts of these adjustments,
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 2, 2020 and May
4, 2019.
Three Months Ended
May 2, 2020
May 4, 2019
Reported GAAP selling, general and
administrative expenses
$
143,288
$
204,645
Certain professional service and legal
fees and related costs1
(290
)
(272
)
Separation charges2
(173
)
—
Adjusted selling, general and
administrative expenses
$
142,825
$
204,373
Reported GAAP loss from operations
$
(162,487
)
$
(24,471
)
Certain professional service and legal
fees and related costs1
290
272
Separation charges2
173
—
Asset impairment charges3
52,972
1,775
Net losses on lease terminations4
456
—
Adjusted loss from operations
$
(108,596
)
$
(22,424
)
Reported GAAP net loss attributable to
Guess?, Inc.
$
(157,666
)
$
(21,374
)
Certain professional service and legal
fees and related costs1
290
272
Separation charges2
173
—
Asset impairment charges3
52,972
1,775
Net losses on lease terminations4
456
—
Amortization of debt discount5
2,599
213
Discrete tax adjustments6
(7,891
)
—
Income tax impact from adjustments7
(9,846
)
(502
)
Total adjustments affecting net loss
attributable to Guess?, Inc.
38,753
1,758
Adjusted net loss attributable to Guess?,
Inc.
$
(118,913
)
$
(19,616
)
Reported GAAP income tax benefit
$
(26,381
)
$
(2,717
)
Discrete tax adjustments6
7,891
—
Income tax impact from adjustments7
9,846
502
Adjusted income tax benefit
$
(8,644
)
$
(2,215
)
Adjusted effective tax rate
6.6
%
10.5
%
________________________________________________
Notes:
1
During the three months ended May 2, 2020
and May 4, 2019, 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 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. There were no separation charges recorded
during the three months ended May 4, 2019.
3
During the three months ended May 2, 2020,
the Company recognized asset impairment charges related primarily
to impairment of certain operating lease right-of-use assets and
impairment of property and equipment related to certain retail
locations resulting from lower revenue and future cash flow
projections resulting from the ongoing effects of the COVID-19
pandemic. During the three months ended May 4, 2019, the Company’s
asset impairment charges related primarily to impairment of
property and equipment related to certain retail locations
resulting from under-performance and expected store closures.
4
During the three months ended May 2, 2020,
the Company recorded net losses on lease terminations related
primarily to the early termination of certain lease agreements.
5
In April 2019, the Company issued $300
million principal amount of 2.00% convertible senior notes due 2024
(the “Notes”) in a private offering. The Company has separated the
Notes into liability (debt) and equity (conversion option)
components. The debt discount, which represents an amount equal to
the fair value of the equity component, will be amortized as
non-cash interest expense over the term of the Notes.
6
During the three months ended May 2, 2020,
the discrete tax adjustments related primarily to a tax benefit
from a tax rate change due to net operating loss carrybacks,
partially offset by the negative impact from a cumulative valuation
allowance. The Company recognized a tax benefit of approximately
$11.8 million from a tax rate change related to the ability to
carryback net operating losses to tax years with a higher federal
corporate tax rate as allowed under the CARES Act enacted in March
2020. This was partially offset by a valuation allowance of $3.7
million resulting from jurisdictions where there have been
cumulative net operating losses, limiting the Company’s ability to
consider other subjective evidence to continue to recognize the
existing deferred tax assets.
7
The income tax effect of certain
professional service and legal fees and related costs, separation
charges, asset impairment charges, net losses on lease terminations
and the amortization of debt discount was based on the Company’s
assessment of deductibility using the statutory tax rate (inclusive
of the impact of valuation allowances) of the tax jurisdiction in
which the charges were incurred.
Guess?, Inc. and
Subsidiaries
Consolidated Segment
Data
(dollars in thousands)
Three Months Ended
May 2, 2020
May 4, 2019
% change
Net revenue:
Americas Retail
$
74,584
$
176,423
(58
%)
Americas Wholesale
25,875
46,205
(44
%)
Europe
106,473
210,055
(49
%)
Asia
40,385
85,190
(53
%)
Licensing
12,934
18,818
(31
%)
Total net revenue
$
260,251
$
536,691
(52
%)
Earnings (loss) from operations:
Americas Retail
$
(36,673
)
$
(1,812
)
(1,924
%)
Americas Wholesale
1,624
7,814
(79
%)
Europe
(44,406
)
(16,327
)
(172
%)
Asia
(22,777
)
(3,203
)
(611
%)
Licensing
10,094
16,644
(39
%)
Total segment earnings (loss) from
operations
(92,138
)
3,116
(3,057
%)
Corporate overhead
(16,921
)
(25,812
)
(34
%)
Asset impairment charges
(52,972
)
(1,775
)
2,884
%
Net losses on lease terminations
(456
)
—
Total loss from operations
$
(162,487
)
$
(24,471
)
(564
%)
Operating margins:
Americas Retail
(49.2
%)
(1.0
%)
Americas Wholesale
6.3
%
16.9
%
Europe
(41.7
%)
(7.8
%)
Asia
(56.4
%)
(3.8
%)
Licensing
78.0
%
88.4
%
GAAP operating margin for total
Company
(62.4
%)
(4.6
%)
Certain professional service and legal
fees and related costs
0.1
%
0.1
%
Separation charges
0.0
%
—
%
Asset impairment charges
20.4
%
0.3
%
Net losses on lease terminations
0.2
%
—
%
Adjusted operating margin for total
Company
(41.7
%)
(4.2
%)
Guess?, Inc. and
Subsidiaries
Constant Currency Financial
Measures
(dollars in thousands)
Three Months Ended
May 2, 2020
May 4, 2019
% change
As Reported
Foreign Currency
Impact
Constant Currency
As Reported
As Reported
Constant Currency
Net revenue:
Americas Retail
$
74,584
$
594
$
75,178
$
176,423
(58
%)
(57
%)
Americas Wholesale
25,875
1,026
26,901
46,205
(44
%)
(42
%)
Europe
106,473
4,077
110,550
210,055
(49
%)
(47
%)
Asia
40,385
1,696
42,081
85,190
(53
%)
(51
%)
Licensing
12,934
—
12,934
18,818
(31
%)
(31
%)
Total net revenue
$
260,251
$
7,393
$
267,644
$
536,691
(52
%)
(50
%)
Guess?, Inc. and
Subsidiaries
Selected Condensed
Consolidated Balance Sheet Data
(in thousands)
May 2, 2020
February 1, 2020
May 4, 2019
ASSETS
Cash and cash equivalents
$
419,415
$
284,613
$
112,933
Receivables, net
239,532
327,281
250,521
Inventories
392,490
393,129
478,223
Other current assets
58,961
59,212
76,308
Property and equipment, net
244,681
288,112
308,136
Restricted cash
213
215
523
Operating lease right-of-use assets
778,030
851,990
921,084
Other assets
213,430
224,410
234,032
Total assets
$
2,346,752
$
2,428,962
$
2,381,760
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current portion of borrowings and finance
lease obligations
$
160,501
$
9,490
$
49,141
Current operating lease liabilities
226,967
192,066
217,110
Other current liabilities
334,756
436,857
379,549
Long-term debt and finance lease
obligations
94,804
32,770
34,573
Convertible senior notes, net
250,176
247,363
239,394
Long-term operating lease liabilities
659,947
714,079
764,202
Other long-term liabilities
128,878
130,259
127,939
Redeemable and nonredeemable
noncontrolling interests
19,069
26,364
22,295
Guess?, Inc. stockholders’ equity
471,654
639,714
547,557
Total liabilities and stockholders’
equity
$
2,346,752
$
2,428,962
$
2,381,760
Guess?, Inc. and
Subsidiaries
Condensed Consolidated Cash
Flow Data
(in thousands)
Three Months Ended
May 2, 2020
May 4, 2019
Net cash used in operating activities
$
(61,553
)
$
(96,501
)
Net cash used in investing activities
(5,716
)
(17,182
)
Net cash provided by financing
activities
210,083
18,723
Effect of exchange rates on cash, cash
equivalents and restricted cash
(8,014
)
(2,579
)
Net change in cash, cash equivalents and
restricted cash
134,800
(97,539
)
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
$
419,628
$
113,456
Supplemental information:
Depreciation and amortization
$
17,024
$
18,598
Total lease costs
$
77,500
$
89,944
Guess?, Inc. and
Subsidiaries
Reconciliation of Net Cash
Used In Operating Activities to Free Cash Flow
(in thousands)
Three Months Ended
May 2, 2020
May 4, 2019
Net cash used in operating activities
$
(61,553
)
$
(96,501
)
Less: Purchases of property and
equipment
(5,973
)
(17,865
)
Less: Payments for property and equipment
under finance leases
(921
)
(433
)
Free cash flow
$
(68,447
)
$
(114,799
)
Guess?, Inc. and
Subsidiaries
Retail Store Data
Global Store and Concession
Count
As of May 2, 2020
Stores
Concessions
Region
Total
Directly Operated
Partner Operated
Total
Directly Operated
Partner Operated
United States
280
278
2
1
—
1
Canada
80
80
—
—
—
—
Central and South America
111
73
38
27
27
—
Total Americas
471
431
40
28
27
1
Europe and the Middle East
744
517
227
38
38
—
Asia and the Pacific
466
193
273
318
114
204
Total
1,681
1,141
540
384
179
205
As of May 4, 2019
Stores
Concessions
Region
Total
Directly Operated
Partner Operated
Total
Directly Operated
Partner Operated
United States
289
287
2
1
—
1
Canada
88
88
—
—
—
—
Central and South America
107
70
37
27
27
—
Total Americas
484
445
39
28
27
1
Europe and the Middle East
713
498
215
37
37
—
Asia and the Pacific
527
231
296
349
168
181
Total
1,724
1,174
550
414
232
182
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200610005193/en/
Guess?, Inc. Fabrice Benarouche VP, Finance and Investor
Relations (213) 765-5578
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