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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q 
          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended August 1, 2020
OR 
      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to           
Commission file number: 1-11893
GUESS?, INC.
(Exact name of registrant as specified in its charter)
Delaware
95-3679695
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
1444 South Alameda Street
Los Angeles,
California
90021
(Address of principal executive offices and zip code)
(213) 765-3100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading symbol(s)
 
Name of each exchange on which registered
 
 
 
 
 
 
Common Stock, par value $0.01 per share
 
GES
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes x  No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
 
 
 
 
 
Non-accelerated filer
 
Smaller reporting company
 
 
 
 
 
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No x
As of August 31, 2020, the registrant had 63,610,474 shares of Common Stock, $.01 par value per share, outstanding.
 



GUESS?, INC.
FORM 10-Q
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

i


PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
GUESS?, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data) 
 
Aug 1, 2020
 
Feb 1, 2020
 
(unaudited)
 
 
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
327,970

 
$
284,613

Accounts receivable, net
246,471

 
327,281

Inventories
419,427

 
393,129

Other current assets
80,069

 
59,212

Total current assets
1,073,937

 
1,064,235

Property and equipment, net
240,081

 
288,112

Goodwill
36,232

 
34,777

Deferred tax assets
62,444

 
63,555

Restricted cash
228

 
215

Operating lease right-of-use assets
766,853

 
851,990

Other assets
130,954

 
126,078

 
$
2,310,729

 
$
2,428,962

LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Current portion of borrowings and finance lease obligations
$
42,321

 
$
9,490

Accounts payable
259,743

 
232,761

Accrued expenses and other current liabilities
192,667

 
204,096

Current portion of operating lease liabilities
235,749

 
192,066

Total current liabilities
730,480

 
638,413

Convertible senior notes, net
252,988

 
247,363

Long-term debt and finance lease obligations
66,069

 
32,770

Long-term operating lease liabilities
659,118

 
714,079

Other long-term liabilities
143,225

 
130,259

 
1,851,880

 
1,762,884

Redeemable noncontrolling interests
4,021

 
4,731

 
 
 
 
Commitments and contingencies (Note 13)


 


 
 
 
 
Stockholders’ equity:
 

 
 

Preferred stock, $.01 par value. Authorized 10,000,000 shares; no shares issued and outstanding

 

Common stock, $.01 par value. Authorized 150,000,000 shares; issued 142,843,839 and 142,867,947 shares, outstanding 63,614,749 and 65,848,510 shares, as of August 1, 2020 and February 1, 2020, respectively
636

 
658

Paid-in capital
548,602

 
563,004

Retained earnings
952,707

 
1,130,409

Accumulated other comprehensive loss
(131,609
)
 
(139,910
)
Treasury stock, 79,229,090 and 77,019,437 shares as of August 1, 2020 and February 1, 2020, respectively
(932,068
)
 
(914,447
)
Guess?, Inc. stockholders’ equity
438,268

 
639,714

Nonredeemable noncontrolling interests
16,560

 
21,633

Total stockholders’ equity
454,828

 
661,347

 
$
2,310,729

 
$
2,428,962

 
See accompanying notes to condensed consolidated financial statements.

1


GUESS?, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands, except per share data)
(unaudited)
 
Three Months Ended
 
Six Months Ended
 
Aug 1, 2020
 
Aug 3, 2019
 
Aug 1, 2020
 
Aug 3, 2019
Product sales
$
386,392

 
$
664,678

 
$
633,709

 
$
1,182,551

Net royalties
12,147

 
18,542

 
25,081

 
37,360

Net revenue
398,539

 
683,220

 
658,790

 
1,219,911

Cost of product sales
251,511

 
417,554

 
477,533

 
772,296

Gross profit
147,028

 
265,666

 
181,257

 
447,615

Selling, general and administrative expenses
150,293

 
218,175

 
293,581

 
422,820

Asset impairment charges
11,969

 
1,504

 
64,941

 
3,279

Net gains on lease terminations
(885
)
 

 
(429
)
 

Earnings (loss) from operations
(14,349
)
 
45,987

 
(176,836
)
 
21,516

Other income (expense):
 

 
 

 
 
 
 
Interest expense
(5,941
)
 
(4,951
)
 
(11,403
)
 
(6,210
)
Interest income
436

 
313

 
1,046

 
674

Other income (expense), net
5,548

 
(6,355
)
 
(14,032
)
 
(4,284
)
 
43

 
(10,993
)
 
(24,389
)
 
(9,820
)
 
 
 
 
 
 
 
 
Earnings (loss) before income tax expense (benefit)
(14,306
)
 
34,994

 
(201,225
)
 
11,696

Income tax expense (benefit)
6,386

 
8,818

 
(19,995
)
 
6,101

Net earnings (loss)
(20,692
)
 
26,176

 
(181,230
)
 
5,595

Net earnings (loss) attributable to noncontrolling interests
(334
)
 
854

 
(3,206
)
 
1,647

Net earnings (loss) attributable to Guess?, Inc.
$
(20,358
)
 
$
25,322

 
$
(178,024
)
 
$
3,948

 
 
 
 
 
 
 
 
Net earnings (loss) per common share attributable to common stockholders (Note 3):
Basic
$
(0.31
)
 
$
0.36

 
$
(2.72
)
 
$
0.05

Diluted
$
(0.31
)
 
$
0.35

 
$
(2.72
)
 
$
0.05

 
 
 
 
 
 
 
 
Weighted average common shares outstanding attributable to common stockholders (Note 3):
Basic
65,177

 
70,508

 
65,446

 
75,216

Diluted
65,177

 
71,356

 
65,446

 
76,155


See accompanying notes to condensed consolidated financial statements.


2


GUESS?, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
 
Three Months Ended
 
Six Months Ended
 
Aug 1, 2020
 
Aug 3, 2019
 
Aug 1, 2020
 
Aug 3, 2019
Net earnings (loss)
$
(20,692
)
 
$
26,176

 
$
(181,230
)
 
$
5,595

Other comprehensive income (loss) (“OCI”):
 

 
 

 
 
 
 
Foreign currency translation adjustment
 
 
 
 
 
 
 
Gains (losses) arising during the period
32,802

 
(5,293
)
 
14,303

 
(17,360
)
Derivative financial instruments designated as cash flow hedges
 

 
 

 
 
 
 
Gains (losses) arising during the period
(7,897
)
 
2,286

 
(4,361
)
 
6,722

Less income tax effect
885

 
(308
)
 
529

 
(880
)
Reclassification to net earnings (loss) for gains realized
(2,462
)
 
(1,801
)
 
(4,450
)
 
(2,077
)
Less income tax effect
264

 
229

 
483

 
324

Defined benefit plans
 

 
 

 
 
 
 
Foreign currency and other adjustments
(236
)
 
(167
)
 
(236
)
 
(60
)
Less income tax effect
25

 
16

 
24

 
5

Net actuarial loss amortization
97

 
111

 
193

 
222

Prior service credit amortization
(16
)
 
(9
)
 
(32
)
 
(19
)
Less income tax effect
(10
)
 
(12
)
 
(19
)
 
(23
)
Total comprehensive income (loss)
2,760

 
21,228

 
(174,796
)
 
(7,551
)
Less comprehensive income (loss) attributable to noncontrolling interests:
 

 
 

 
 
 
 
Net earnings (loss)
(334
)
 
854

 
(3,206
)
 
1,647

Foreign currency translation adjustment
1,759

 
(452
)
 
(1,867
)
 
(142
)
Amounts attributable to noncontrolling interests
1,425

 
402

 
(5,073
)
 
1,505

Comprehensive income (loss) attributable to Guess?, Inc.
$
1,335

 
$
20,826

 
$
(169,723
)
 
$
(9,056
)

See accompanying notes to condensed consolidated financial statements.


3


GUESS?, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Six Months Ended
 
Aug 1, 2020
 
Aug 3, 2019
Cash flows from operating activities:
 

 
 

Net earnings (loss)
$
(181,230
)
 
$
5,595

Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
 

 
 

Depreciation and amortization
32,250

 
37,225

Amortization of debt discount
5,197

 
2,662

Amortization of debt issuance costs
661

 
276

Share-based compensation expense
9,789

 
9,454

Forward contract gains
3,420

 
(34
)
Net loss on impairment and disposition of property and equipment and long-term assets
65,974

 
3,753

Other items, net
11,889

 
5,606

Changes in operating assets and liabilities:
 

 
 

Accounts receivable
94,373

 
24,492

Inventories
(16,002
)
 
(22,926
)
Prepaid expenses and other assets
(20,550
)
 
(1,596
)
Operating lease assets and liabilities, net
39,902

 
1,340

Accounts payable and accrued expenses
(3,923
)
 
(87,423
)
Other long-term liabilities
(1,065
)
 
(1,381
)
Net cash provided by (used in) operating activities
40,685

 
(22,957
)
Cash flows from investing activities:
 

 
 

Purchases of property and equipment
(10,099
)
 
(34,551
)
Proceeds from sale of long-term assets
336

 

Net cash settlement of forward contracts
(273
)
 
162

Purchases of investments
(1,882
)
 

Other investing activities
(52
)
 
521

Net cash used in investing activities
(11,970
)
 
(33,868
)
Cash flows from financing activities:
 

 
 

Proceeds from borrowings
274,594

 
90,136

Repayments on borrowings and finance lease obligations
(218,267
)
 
(63,285
)
Proceeds from issuance of convertible senior notes

 
300,000

Proceeds from issuance of warrants

 
28,080

Purchase of convertible note hedges

 
(60,990
)
Convertible debt issuance costs

 
(5,068
)
Purchase of equity forward contracts

 
(68,000
)
Dividends paid
(958
)
 
(26,901
)
Issuance of common stock, net of tax withholdings on vesting of stock awards
(2,908
)
 
43

Purchase of treasury stock
(38,876
)
 
(212,564
)
Net cash provided by (used in) financing activities
13,585

 
(18,549
)
Effect of exchange rates on cash, cash equivalents and restricted cash
1,070

 
(4,042
)
Net change in cash, cash equivalents and restricted cash
43,370

 
(79,416
)
Cash, cash equivalents and restricted cash at the beginning of the year
284,828

 
210,995

Cash, cash equivalents and restricted cash at the end of the period
$
328,198

 
$
131,579

 
 
 
 
Supplemental cash flow data:
 

 
 

Interest paid
$
5,277

 
$
1,535

Income taxes paid, net of refunds
$
2,967

 
$
4,201

 
 
 
 
Non-cash investing and financing activity:
 
 
 
Assets acquired under finance lease obligations
$
276

 
$
3,055

Receivable and related adjustments from sale of retail locations
$
(364
)
 
$
5,088

 
See accompanying notes to condensed consolidated financial statements.

4


GUESS?, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
 
For the three and six months ended August 1, 2020
 
Guess?, Inc. Stockholders’ Equity
 
 
 
 
 
Common Stock
 
 
 
 
 
 
 
Treasury Stock
 
 
 
 
 
Shares
 
Amount
 
Paid-in
Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Shares
 
Amount
 
Nonredeemable
Noncontrolling
Interests
 
Total
Balance at February 1, 2020
65,848,510

 
$
658

 
$
563,004

 
$
1,130,409

 
$
(139,910
)
 
77,019,437

 
$
(914,447
)
 
$
21,633

 
$
661,347

Net loss

 

 

 
(157,666
)
 

 

 

 
(2,872
)
 
(160,538
)
Other comprehensive loss, net of income tax of ($147)

 

 

 

 
(13,392
)
 

 

 
(3,626
)
 
(17,018
)
Issuance of common stock under stock compensation plans including tax effect
1,763,311

 
18

 
(24,264
)
 

 

 
(1,770,223
)
 
21,017

 

 
(3,229
)
Issuance of stock under Employee Stock Purchase Plan
32,427

 

 
(192
)
 

 

 
(32,427
)
 
385

 

 
193

Share-based compensation

 

 
5,771

 
15

 

 

 

 

 
5,786

Dividends, net of forfeitures on non-participating securities

 

 

 
248

 

 

 

 

 
248

Balance at May 2, 2020
67,644,248

 
$
676

 
$
544,319

 
$
973,006

 
$
(153,302
)
 
75,216,787

 
$
(893,045
)
 
$
15,135

 
$
486,789

Net loss

 

 

 
(20,358
)
 

 

 

 
(334
)
 
(20,692
)
Other comprehensive income, net of income tax of $1,164

 

 

 

 
21,693

 

 

 
1,759

 
23,452

Issuance of common stock under stock compensation plans including tax effect
(54,926
)
 

 
429

 

 

 
37,730

 
(448
)
 

 
(19
)
Issuance of stock under Employee Stock Purchase Plan
25,427

 

 
(154
)
 

 

 
(25,427
)
 
301

 

 
147

Share-based compensation

 

 
3,968

 
35

 

 

 

 

 
4,003

Dividends, net of forfeitures on non-participating securities

 

 

 
24

 

 

 

 

 
24

Share repurchases
(4,000,000
)
 
(40
)
 
40

 

 

 
4,000,000

 
(38,876
)
 

 
(38,876
)
Balance at August 1, 2020
63,614,749

 
$
636

 
$
548,602

 
$
952,707

 
$
(131,609
)
 
79,229,090

 
$
(932,068
)
 
$
16,560

 
$
454,828




5


GUESS?, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
 
For the three and six months ended August 3, 2019
 
Guess?, Inc. Stockholders’ Equity
 
 
 
 
 
Common Stock
 
 
 
 
 
 
 
Treasury Stock
 
 
 
 
 
Shares
 
Amount
 
Paid-in
Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Shares
 
Amount
 
Nonredeemable
Noncontrolling
Interests
 
Total
Balance at February 2, 2019
81,379,660

 
$
814

 
$
523,331

 
$
1,077,747

 
$
(126,179
)
 
61,327,640

 
$
(638,486
)
 
$
16,418

 
$
853,645

Cumulative adjustment from adoption of new accounting guidance

 

 

 
(1,684
)
 
1,981

 

 

 

 
297

Net earnings (loss)

 

 

 
(21,374
)
 

 

 

 
793

 
(20,581
)
Other comprehensive income (loss), net of income tax of ($499)

 

 

 

 
(8,508
)
 

 

 
310

 
(8,198
)
Issuance of common stock under stock compensation plans including tax effect
545,881

 
5

 
(3,042
)
 

 

 
(211,221
)
 
2,225

 

 
(812
)
Issuance of stock under Employee Stock Purchase Plan
11,377

 
1

 
69

 

 

 
(11,377
)
 
120

 

 
190

Share-based compensation

 

 
4,440

 
28

 

 

 

 

 
4,468

Dividends, net of forfeitures on non-participating securities

 

 

 
(18,331
)
 

 

 

 

 
(18,331
)
Share repurchases
(10,264,052
)
 
(103
)
 
103

 

 

 
10,264,052

 
(201,564
)
 

 
(201,564
)
Equity component value of convertible note issuance, net

 

 
42,324

 

 

 

 

 

 
42,324

Sale of common stock warrant

 

 
28,080

 

 

 

 

 

 
28,080

Purchase of convertible note hedge

 

 
(46,440
)
 

 

 

 

 

 
(46,440
)
Equity forward contract issuance

 

 
(68,000
)
 

 

 

 

 

 
(68,000
)
Balance at May 4, 2019
71,672,866

 
$
717

 
$
480,865

 
$
1,036,386

 
$
(132,706
)
 
71,369,094

 
$
(837,705
)
 
$
17,521

 
$
565,078

Net earnings

 

 

 
25,322

 

 

 

 
854

 
26,176

Other comprehensive loss, net of income tax of ($75)

 

 

 

 
(4,496
)
 

 

 
(452
)
 
(4,948
)
Issuance of common stock under stock compensation plans including tax effect
64,080

 

 
(852
)
 

 

 
(106,039
)
 
1,249

 

 
397

Issuance of stock under Employee Stock Purchase Plan
19,538

 

 
38

 

 

 
(19,538
)
 
230

 

 
268

Share-based compensation

 

 
4,928

 
58

 

 

 

 

 
4,986

Dividends, net of forfeitures on non-participating securities

 

 

 
(8,162
)
 

 

 

 

 
(8,162
)
Share repurchases
(749,252
)
 
(7
)
 
7

 

 

 
749,252

 
(11,000
)
 

 
(11,000
)
Balance at August 3, 2019
71,007,232

 
$
710

 
$
484,986

 
$
1,053,604

 
$
(137,202
)
 
71,992,769

 
$
(847,226
)
 
$
17,923

 
$
572,795


See accompanying notes to condensed consolidated financial statements.

6


GUESS?, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 1, 2020
(unaudited) 
(1)
Basis of Presentation and New Accounting Guidance
Description of the Business
Guess?, Inc. (the “Company” or “GUESS?”) designs, markets, distributes and licenses a leading lifestyle collection of contemporary apparel and accessories for men, women and children that reflect the American lifestyle and European fashion sensibilities. The Company’s designs are sold in GUESS? owned stores, to a network of wholesale accounts that includes better department stores, selected specialty retailers and upscale boutiques and through the Internet. GUESS? branded products, some of which are produced under license, are also sold internationally through a series of retail store licensees and wholesale distributors.
Basis of Presentation
In the opinion of management, the accompanying unaudited condensed consolidated financial statements of the Company contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the condensed consolidated balance sheets as of August 1, 2020 and February 1, 2020, the condensed consolidated statements of income (loss), comprehensive income (loss) and stockholders’ equity for the three and six months ended August 1, 2020 and August 3, 2019 and the condensed consolidated statements of cash flows for the six months ended August 1, 2020 and August 3, 2019. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and the instructions to Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, they have been condensed and do not include all of the information and footnotes required by GAAP for complete financial statements. The results of operations for the three and six months ended August 1, 2020 are not necessarily indicative of the results of operations to be expected for the full fiscal year. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended February 1, 2020.
The three and six months ended August 1, 2020 had the same number of days as the three and six months ended August 3, 2019. All references herein to “fiscal 2021,” “fiscal 2020” and “fiscal 2019” represent the results of the 52-week fiscal year ending January 30, 2021 and the 52-week fiscal years ended February 1, 2020 and February 2, 2019, respectively.
Reclassifications
The Company has made certain reclassifications to prior period amounts to conform to the current period presentation within the accompanying notes to the condensed consolidated financial statements.
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in the financial statements and disclosed in the accompanying notes. Significant areas requiring the use of management estimates relate to the allowances for doubtful accounts, sales return and markdown allowances, gift card and loyalty accruals, valuation of inventories, share-based compensation, income taxes, recoverability of deferred taxes, unrecognized tax benefits, the useful life of assets for depreciation and amortization, evaluation of asset impairment (including goodwill and long-lived assets, such as property and equipment and operating lease right-of-use (“ROU”) assets), pension obligations, workers’ compensation and medical self-insurance expense and accruals, litigation reserves and restructuring expense and accruals. Actual results could differ from those estimates. Revisions in estimates could materially impact the results of operations and financial position.
As discussed further below, the coronavirus (or “COVID-19”) pandemic has materially impacted the Company’s results during the three and six months ended August 1, 2020. The Company’s operations could continue to be impacted in ways we are not able to predict today due to the developing situation. While the

7


Company believes it has made reasonable accounting estimates based on the facts and circumstances that were available as of the reporting date, to the extent there are differences between these estimates and actual results, the Company’s results of operations and financial position could be materially impacted.
COVID-19 Business Update
The COVID-19 pandemic has had and is continuing to have a material impact on the Company’s financial performance. The pandemic is ongoing and dynamic in nature and, to date, the Company has experienced temporary closures in key regions globally. During the second quarter of fiscal 2021, the Company gradually reopened most of its global fleet of brick-and-mortar stores resulting in stores being closed for approximately 30% and 35% of the total days during the three and six months ended August 1, 2020, respectively. As of August 1, 2020, approximately 95% of the Company’s stores were open, with the majority of closed stores located primarily within interior malls in California. The Company will continue to reopen stores (and/or close again, if appropriate), as state and local guidelines and conditions permit or require, taking an informed, measured approach based on a number of factors. The Company’s e-commerce sites have remained open in all regions. In addition, retail stores that are open have and continue to experience significant reductions in traffic and revenue. Many of the Company’s wholesale and licensing partners have also substantially reduced their operations. The Company has been bringing back furloughed store associates and support staff as stores reopen. The extent and duration of the global pandemic remains uncertain and may continue to impact consumer purchasing activity into the foreseeable future.
During the first half of fiscal 2021, in addition to the negative impact from lower net revenue, the Company’s operating results 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 lower selling, general and administrative (“SG&A”) expenses driven primarily by expense savings, both one-time, such as furloughs and temporary salary reductions, and permanent, such as headcount reductions and lower discretionary spending. In addition, the Company benefited from various 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.
During the second quarter of fiscal 2021, as the situation began to stabilize, the Company repaid a significant portion of its previously drawn down credit facilities, continued to bring back furloughed employees, eliminated the temporary tiered salary reductions and invested in share repurchases to return value to its shareholders. Subsequent to the second quarter of fiscal 2021, the Company also announced that it would resume paying its quarterly cash dividend beginning in the third quarter of fiscal 2021, but decided to not declare any cash dividends for the first and second quarters of fiscal 2021.
In response to the COVID-19 pandemic, governments in various jurisdictions have implemented relief programs to provide assistance in the form of wage subsidies and tax related payment deferrals (related to payroll, income, sales and other taxes). The Company is leveraging these relief initiatives where able to help mitigate expenses and provide additional liquidity. An example of such an economic relief program is the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which was enacted by the U.S. government in March 2020. The provisions of the CARES Act include the deferral of the employer portion of social security taxes, creation

8


of refundable employee retention tax credits, modification of net operating loss carryback periods, relaxation of the net interest deduction limitations and technical amendment for qualified improvement property deduction.
In light of store closures and reduced traffic in stores, the Company has taken certain actions with respect to certain of its existing leases, including engaging with landlords to discuss rent deferrals as well as other rent concessions. Since April 2020, the Company has suspended rental payments and/or paid reduced rental amounts with respect to its retail stores that were closed or were experiencing drastically reduced customer traffic as a result of the COVID-19 pandemic. The Company is engaging in discussions with the affected landlords in an effort to achieve appropriate rent relief and other lease concessions and, in some cases, to terminate existing leases. Consistent with updated guidance from the Financial Accounting Standards Board (“FASB”) in April 2020, the Company has elected to treat any such agreed-upon payment deferrals related to the COVID-19 pandemic as if there were no modifications to the lease contract and has accrued such amounts within the current portion of operating lease liabilities in the Company’s condensed consolidated balance sheet. The Company has elected to treat other rent concessions which result in reduced lease payments as variable lease payments if the concessions that are provided are for a period of less than 12 months. For any rent concessions which reduce the lease payments for a period of more than 12 months or change the payment terms from minimum rental amounts to amounts based on a percentage of sales volume for the remainder of the lease term, the Company has elected to treat such changes as lease modifications under the current lease guidance.
Revenue Recognition
The Company recognizes the majority of its revenue from its direct-to-consumer (brick-and-mortar retail stores and concessions as well as e-commerce) and wholesale distribution channels at a point in time when it satisfies a performance obligation and transfers control of the product to the respective customer.
The Company also recognizes royalty revenue from its trademark license agreements. The Company’s trademark license agreements represent symbolic licenses that are dependent on the Company’s continued support over the term of the license agreement. The amount of revenue that is recognized from the licensing arrangements is based on sales-based royalty and advertising fund contributions as well as specific fixed payments, where applicable. The Company’s trademark license agreements customarily provide for a multi-year initial term ranging from three to ten years, and may contain options to renew prior to expiration for an additional multi-year period. The unrecognized portion of upfront payments is included in deferred royalties in accrued expenses and other long-term liabilities depending on the short or long-term nature of the payments to be recognized. As of August 1, 2020, the Company had $6.4 million and $15.7 million of deferred royalties related to these upfront payments included in accrued expenses and other long-term liabilities, respectively. This compares to $6.7 million and $18.7 million of deferred royalties related to these upfront payments included in accrued expenses and other long-term liabilities, respectively, at February 1, 2020. During the three and six months ended August 1, 2020, the Company recognized $3.1 million and $6.7 million in net royalties related to the amortization of the deferred royalties, respectively. During the three and six months ended August 3, 2019, the Company recognized $3.1 million and $6.1 million in net royalties related to the amortization of the deferred royalties, respectively.
Refer to Note 8 for further information on disaggregation of revenue by segment and country.
Allowance for Doubtful Accounts
During the first quarter of fiscal 2021, the Company adopted authoritative guidance related to the measurement of credit losses on financial instruments. This guidance replaces the “as incurred” loss model with an “expected loss” model which requires the recognition of an allowance for credit losses expected to be incurred over an asset’s lifetime. The adoption of this guidance did not have a material impact on the Company’s allowance for doubtful accounts.
In the normal course of business, the Company grants credit directly to certain wholesale customers after a credit analysis is performed based on financial and other criteria. Accounts receivable are recorded net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses that may result from the inability of its wholesale customers and licensing partners to make their required payments. The Company bases its allowances on analysis of the aging of accounts receivable at the date of the financial

9


statements, assessments of historical and current collection trends, an evaluation of the impact of current and future forecasted economic conditions and whether the Company has obtained credit insurance or other guarantees. Management performs regular evaluations concerning the ability of its customers and records a provision for doubtful accounts based on these evaluations.
As of August 1, 2020, approximately 58% of the Company’s total net trade accounts receivable and 68% of its European net trade receivables were subject to credit insurance coverage, certain bank guarantees or letters of credit for collection purposes. The Company’s credit insurance coverage contains certain terms and conditions specifying deductibles and annual claim limits. Management evaluates the creditworthiness of the counterparties to the credit insurance, bank guarantees, and letters of credit and records a provision for the risk of loss on these instruments based on these evaluations as considered necessary.
The Company’s credit losses for the periods presented were not significant compared to sales and did not significantly exceed management’s estimates. Refer to Note 5 for further information on the Company’s allowance for doubtful accounts.
Net Gains on Lease Terminations
During the three and six months ended August 1, 2020, the Company recorded net gains on lease terminations of $0.9 million and $0.4 million, respectively, related primarily to the early termination of certain lease agreements.
Other Assets
During fiscal 2019, the Company invested $8.3 million in a privately-held apparel company. During the second quarter of fiscal 2021, the Company invested an additional $1.9 million. The Company’s ownership in this company (a 30% minority interest) is accounted for under the equity method of accounting. The Company recognized its proportionate share of net losses of this company of $2.0 million and $4.1 million in other income (expense) in its condensed consolidated statements of income (loss) during the three and six months ended August 1, 2020, respectively. During the three and six months ended August 3, 2019, the Company recognized its proportionate share of net losses of this company of $2.9 million in other income (expense) in its condensed consolidated statements of income (loss).
Sale of Australian Stores
During fiscal 2020, the Company entered into a definitive agreement to sell its Australian retail locations to the Company’s wholesale distributor in the region for approximately AUD$7.1 million (US$4.9 million), subject to certain adjustments, and recognized a loss on the sale of approximately AUD$1.2 million (US$0.8 million). During the second quarter of fiscal 2021, the Company recorded an adjustment of AUD$0.5 million (US$0.4 million) to reduce the purchase price. As per the terms of the agreement, the wholesale distributor entered into a promissory note with the Company to make periodic payments on the sale through August 2021. As of August 1, 2020, the Company included AUD$2.0 million (US$1.4 million) and AUD$2.6 million (US$1.9 million) in accounts receivable, net and other assets, respectively, in its condensed consolidated balance sheet based on the timing of the payments. This compares to AUD$1.8 million (US$1.2 million) and AUD$3.3 million (US$2.2 million) included in accounts receivable, net and other assets, respectively, as of February 1, 2020.
New Accounting Guidance
Recently Adopted Accounting Guidance
In June 2016, the FASB issued authoritative guidance related to the measurement of credit losses on financial instruments. This guidance replaces the “as incurred” loss model with an “expected loss” model which requires the recognition of an allowance for credit losses expected to be incurred over an asset’s lifetime. The measurement of expected credit losses is based on relevant information about past events, current conditions and reasonable and supportable forecasts impacting the collectibility of the reported amounts. This guidance was adopted as of February 2, 2020 on a modified retrospective basis and did not have a material impact on the Company’s consolidated financial statements or related disclosures.

10


In August 2018, the FASB issued authoritative guidance to modify the disclosure requirements on fair value measurements. This guidance was adopted as of February 2, 2020 on a prospective basis and did not have a material impact on the Company’s related disclosures.
In August 2018, the FASB issued authoritative guidance to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company adopted this guidance as of February 2, 2020 on a prospective basis. Prior to the adoption of this guidance, the Company capitalized implementation costs related to a hosting arrangement that is a service contract to property and equipment, net in the Company’s consolidated balance sheets and included such expenditures within the investing section of the Company’s consolidated statements of cash flows. These assets were amortized over their estimated useful life with the related amortization included in depreciation and amortization in either cost of product sales or SG&A expenses in the Company’s consolidated statements of income (loss) depending on the nature of how the assets were used. Subsequent to the adoption of this guidance, these costs are included within other current assets or other assets in the Company’s consolidated balance sheets depending on the short or long-term nature of the underlying hosting agreement with such expenditures included in the operating section of the Company’s consolidated statements of cash flows. These assets are now amortized over the shorter of the estimated useful life or the term of the underlying hosting agreement, including any probable renewal periods, with the related amortization included in cost of product sales or SG&A expenses in the Company’s consolidated statements of income (loss), consistent with the presentation of the expense related to the underlying hosting arrangement. The adoption of this guidance, including the different classification requirements for the implementation costs, did not have a material impact on the Company’s consolidated financial statements or the related disclosures.
In December 2019, the FASB issued authoritative guidance that simplifies the accounting for income taxes by eliminating certain exceptions to general principles related to intraperiod tax allocations, ownership changes in foreign investments and calculating income taxes in an interim period when year-to-date losses exceed total anticipated losses. The new guidance also simplifies the accounting for income taxes related to franchise taxes that are partially based on income, the step up in the tax basis of goodwill, allocation of current and deferred tax expense for certain legal entities and enacted changes in tax laws or rates during interim periods, among other improvements. This guidance was adopted during the second quarter of fiscal 2021 on a prospective basis and did not have a material impact on the Company’s consolidated financial statements or related disclosures.
Recently Issued Accounting Guidance
In August 2018, the FASB issued authoritative guidance to modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This guidance is effective for fiscal years beginning after December 15, 2020, which will be the Company’s first quarter of fiscal 2022, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its financial statement disclosures.
In March 2020, the FASB issued authoritative guidance to provide temporary optional expedients and exceptions related to contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR. This guidance may be adopted as of March 12, 2020 through December 31, 2022. This temporary relief cannot be applied to contract modifications after December 31, 2022. The Company is currently evaluating its election options and the impact on its consolidated financial statements and related disclosures.
In August 2020, the FASB issued authoritative guidance to simplify the accounting for convertible instruments and contracts in an entity’s own equity and the diluted earnings per share computations for these instruments. This guidance removes major separation models required under current guidance which will enable more convertible debt instruments to be reported as a single liability instrument with no separate accounting for embedded conversion features. This guidance also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception. The new guidance also requires the “if -converted” method to be applied for all convertible instruments (the treasury stock method is no longer available) and removes

11


the ability to rebut the presumption of share settlement for contracts that may be settled in cash or stock. In addition, expanded disclosures are required on the terms and features of convertible instruments. This guidance is effective for fiscal years beginning after December 31, 2021, which will be the Company’s first quarter of fiscal 2023, on either a full or modified retrospective basis. Early adoption is permitted for fiscal years beginning after December 31, 2020, which will be the Company’s first quarter of fiscal 2022. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial statements and related disclosures.
(2)    Lease Accounting
The Company primarily leases its showrooms, advertising, licensing, sales and merchandising offices, remote distribution and warehousing facilities and retail and factory outlet store locations under operating lease agreements expiring on various dates through January 2039. The Company also leases some of its equipment as well as computer hardware and software under operating and finance lease agreements expiring on various dates through May 2027.
The Company’s lease agreements primarily provide for lease payments based on a minimum annual rental amount, a percentage of annual sales volume, periodic adjustments related to inflation or a combination of such lease payments. Certain retail store leases provide for lease payments based upon the minimum annual rental amount and a percentage of annual sales volume, generally ranging from 3% to 23%, when specific sales volumes are exceeded. The Company’s retail concession leases also provide for lease payments primarily based upon a percentage of annual sales volume, which averages approximately 35%.
In addition to the amounts as disclosed below, the Company has estimated additional operating lease commitments of approximately $24.4 million for leases where the Company has not yet taken possession of the underlying asset as of August 1, 2020. As such, the related operating lease ROU assets and operating lease liabilities have not been recognized in the Company’s condensed consolidated balance sheet as of August 1, 2020.
As of August 1, 2020 and February 1, 2020, the components of leases are as follows (in thousands):
 
Balance Sheet Location
Aug 1, 2020
 
Feb 1, 2020
Assets
 
 
 
 
Operating
Operating lease right-of-use assets
$
766,853

 
$
851,990

Finance
Property and equipment, net
15,451

 
15,972

Total lease assets
$
782,304

 
$
867,962

 
 
 
 
 
Liabilities
 
 
 
 
Current:
 
 
 
 
Operating
Current portion of operating lease liabilities
$
235,749

 
$
192,066

Finance
Current portion of borrowings and finance lease obligations
2,524

 
2,273

Noncurrent:
 
 
 
 
Operating
Long-term operating lease liabilities
659,118

 
714,079

Finance
Long-term debt and finance lease obligations
13,729

 
14,262

Total lease liabilities
$
911,120

 
$
922,680



12



As of August 1, 2020 and August 3, 2019, the components of lease costs are as follows (in thousands):
 
 
Three Months Ended
 
Six Months Ended
 
Income Statement Location
Aug 1, 2020
 
Aug 3, 2019
 
Aug 1, 2020
 
Aug 3, 2019
Operating lease costs
Cost of product sales
$
50,005

 
$
58,749

 
$
105,374

 
$
117,565

Operating lease costs
Selling, general and administrative expenses
5,355

 
5,720

 
10,531

 
10,984

Finance lease costs
 
 
 
 
 
 
 
 
Amortization of leased assets1, 2
Cost of product sales
20

 
44

 
32

 
87

Amortization of leased assets1, 2
Selling, general and administrative expenses
474

 
637

 
1,338

 
1,180

Interest on lease liabilities
Interest expense
208

 
286

 
490

 
573

Variable lease costs3
Cost of product sales
13,209

 
25,083

 
27,557

 
49,908

Variable lease costs3
Selling, general and administrative expenses
638

 
628

 
1,217

 
1,455

Short-term lease costs
Cost of product sales
181

 

 
420

 

Short-term lease costs
Selling, general and administrative expenses
170

 
183

 
1,959

 
395

Total lease costs
$
70,260

 
$
91,330

 
$
148,918


$
182,147

____________________________________________________________________
Notes:
1  
The Company has made certain reclassifications to prior period amounts to conform to the current period presentation.
2  
Amortization of leased assets related to finance leases are included in depreciation expense within cost of product sales or selling, general and administrative expenses depending on the nature of the asset in the Company’s condensed consolidated statements of income (loss).
3  
During the three and six months ended August 1, 2020, variable lease costs included certain rent concessions received by the Company, primarily in Europe, related to the COVID-19 pandemic of approximately $7.7 million and $10.5 million, respectively. Refer to Note 1 for further information.

Maturities of the Company’s operating and finance lease liabilities as of August 1, 2020 are as follows (in thousands):
Maturity of Lease Liabilities
Operating Leases
 
Finance Leases
 
Total
20211
$
155,961

 
$
1,618

 
$
157,579

2022
207,825

 
3,904

 
211,729

2023
172,592

 
3,483

 
176,075

2024
144,021

 
3,260

 
147,281

2025
99,851

 
2,446

 
102,297

After 2025
201,665

 
5,229

 
206,894

Total lease payments
981,915

 
19,940

 
1,001,855

Less: Interest
87,048

 
3,687

 
90,735

Present value of lease liabilities
$
894,867

 
$
16,253

 
$
911,120

______________________________________________________________________
Notes:
1 
Represents the maturity of lease liabilities for the remainder of fiscal 2021 and also includes rent payments that have been deferred due to the COVID-19 pandemic. This amount does not include payments made during the six months ended August 1, 2020.

13


Other supplemental information is as follows (dollars in thousands):
Lease Term and Discount Rate
Aug 1, 2020
Weighted-average remaining lease term (years)
 
Operating leases
5.7 years
Finance leases
5.9 years
Weighted-average discount rate
 
Operating leases
3.7%
Finance leases
7.0%
 
Six Months Ended
Supplemental Cash Flow Information
Aug 1, 2020
 
Aug 3, 2019
Cash paid for amounts included in the measurement of lease liabilities
 
 
 
Operating cash flows from operating leases
$
70,890

 
$
124,687

New operating ROU assets obtained in exchange for lease liabilities
$
19,566

 
$
99,951


Impairment
During the three and six months ended August 1, 2020, the Company recorded asset impairment charges of $8.2 million and $36.5 million, respectively, related to ROU assets at certain retail locations in North America and Europe. The asset impairment charges were determined based on the excess of carrying value over the fair value of the ROU assets. The Company uses estimates of market participant rents to calculate fair value of the ROU assets. There were no asset impairment charges recorded related to the Company’s ROU assets during the three and six months ended August 3, 2019. Refer to Note 15 for more information on the Company’s impairment testing.
(3)
Earnings (Loss) per Share
Basic earnings (loss) per share represents net earnings (loss) attributable to common stockholders divided by the weighted average number of common shares outstanding during the period. The Company considers any restricted stock units with forfeitable dividend rights that are issued and outstanding, but considered contingently returnable if certain service conditions are not met, as common equivalent shares outstanding. These restricted stock units are excluded from the weighted average number of common shares outstanding and basic earnings (loss) per share calculation until the respective service conditions have been met. Diluted earnings per share represents net earnings attributable to common stockholders divided by the weighted average number of common shares outstanding, inclusive of the dilutive impact of common equivalent shares outstanding during the period, and the dilutive impact of the Company’s convertible senior notes and related warrants, as applicable.
The Company expects to settle the principal amount of its outstanding convertible senior notes in cash and any excess in shares. As a result, upon conversion of the convertible senior notes, only the amounts in excess of the principal amount are considered in diluted earnings per share under the treasury stock method, if applicable. See Note 10 for more information regarding the Company’s convertible senior notes.
In periods when there is a net loss, the potentially dilutive impact of common equivalent shares outstanding is not included in the computation of diluted net loss per share as the impact of the shares would be antidilutive. Nonvested restricted stock awards (referred to as participating securities) are excluded from the dilutive impact of common equivalent shares outstanding in accordance with authoritative guidance under the two-class method since the nonvested restricted stockholders are entitled to participate in dividends declared on common stock as if the shares were fully vested and hence are deemed to be participating securities. Under the two-class method, distributed and undistributed earnings attributable to nonvested restricted stockholders are excluded from net earnings (loss) attributable to common stockholders for purposes of calculating basic and diluted earnings (loss) per common share. However, net losses are not allocated to nonvested restricted stockholders because they are not contractually obligated to share in the losses of the Company.
In addition, the Company has granted certain nonvested stock units that are subject to certain performance-based or market-based vesting conditions as well as continued service requirements through the respective vesting periods. These nonvested stock units are included in the computation of diluted net earnings per common share

14


attributable to common stockholders only to the extent that the underlying performance-based or market-based vesting conditions are satisfied as of the end of the reporting period, or would be considered satisfied if the end of the reporting period was the end of the related contingency period, and the results would be dilutive under the treasury stock method.
The computation of basic and diluted net earnings (loss) per common share attributable to common stockholders is as follows (in thousands, except per share data):
 
Three Months Ended
 
Six Months Ended
 
Aug 1, 2020
 
Aug 3, 2019
 
Aug 1, 2020
 
Aug 3, 2019
Net earnings (loss) attributable to Guess?, Inc.
$
(20,358
)
 
$
25,322

 
$
(178,024
)
 
$
3,948

Less net earnings attributable to nonvested restricted stockholders

 
233

 

 
235

Net (earnings) loss attributable to common stockholders
$
(20,358
)
 
$
25,089

 
$
(178,024
)
 
$
3,713

 
 
 
 
 
 
 
 
Weighted average common shares used in basic computations
65,177

 
70,508

 
65,446

 
75,216

Effect of dilutive securities:
 

 
 

 
 

 
 

Stock options and restricted stock units1

 
848

 

 
939

Weighted average common shares used in diluted computations
65,177

 
71,356

 
65,446

 
76,155

 
 
 
 
 
 
 
 
Net earnings (loss) per common share attributable to common stockholders:
Basic
$
(0.31
)
 
$
0.36

 
$
(2.72
)
 
$
0.05

Diluted
$
(0.31
)
 
$
0.35

 
$
(2.72
)
 
$
0.05


______________________________________________________________________
Notes:
1 
For the three and six months ended August 1, 2020, there were 262,086 and 382,222, respectively, of potentially dilutive shares that were not included in the computation of diluted weighted average common shares and common equivalent shares outstanding because their effect would have been antidilutive given the Company’s net loss.
For the three months ended August 1, 2020 and August 3, 2019, equity awards granted for 4,121,433 and 3,258,910, respectively, of the Company’s common shares and for the six months ended August 1, 2020 and August 3, 2019, equity awards granted for 3,890,881 and 2,899,760, respectively, of the Company’s common shares were outstanding but were excluded from the computation of diluted weighted average common shares and common equivalent shares outstanding because the assumed proceeds, as calculated under the treasury stock method, resulted in these awards being antidilutive. For the three and six months ended August 1, 2020, the Company also excluded 525,875 nonvested stock units which are subject to the achievement of performance-based vesting conditions from the computation of diluted weighted average common shares and common equivalent shares outstanding because these conditions were not achieved as of August 1, 2020. For the three and six months ended August 3, 2019, the Company excluded 1,228,017 nonvested stock units which were subject to the achievement of performance-based vesting conditions from the computation of diluted weighted average common shares and common equivalent shares outstanding because these conditions were not achieved as of August 3, 2019.
The conversion spread on the Company’s convertible senior notes will have a dilutive impact on diluted earnings per share when the average market price of the Company’s common stock for a given period exceeds the conversion price of $25.78 per share of common stock. For the three and six months ended August 1, 2020 and August 3, 2019, the convertible senior notes have been excluded from the computation of diluted earnings per share as the effect would be antidilutive since the conversion price of the convertible senior notes exceeded the average market price of the Company’s common stock. Warrants to initially purchase 11.6 million shares of the Company’s common shares at an initial strike price of $46.88 per share were outstanding as of August 1, 2020. These warrants were excluded from the computation of diluted earnings per share since the warrants’ adjusted strike price was greater than the average market price of the Company’s common stock during the three and six

15


months ended August 1, 2020 and August 3, 2019. See Note 10 for more information regarding the Company’s convertible senior notes.

(4)
Stockholders’ Equity
Share Repurchase Program
On June 26, 2012, the Company’s Board of Directors authorized a program to repurchase, from time-to-time and as market and business conditions warrant, up to $500 million of the Company’s common stock. Repurchases under the program may be made on the open market or in privately negotiated transactions, pursuant to Rule 10b5-1 trading plans or other available means. There is no minimum or maximum number of shares to be repurchased under the program, which may be discontinued at any time, without prior notice. There were 4,000,000 shares repurchased at an aggregate cost of $38.8 million under the program during the three and six months ended August 1, 2020. During the six months ended August 3, 2019, the Company repurchased 11,013,304 shares under the program at an aggregate cost of $212.5 million, which is inclusive of the shares repurchased under the accelerated share repurchase agreement (the “ASR Contract”) as described below. The Company repurchased 10,264,052 shares at an aggregate cost of $201.5 million during the three months ended May 4, 2019 and an additional 749,252 shares at an aggregate cost of $11.0 million during the three months ended August 3, 2019. As of August 1, 2020, the Company had remaining authority under the program to purchase $47.8 million of its common stock.
On April 26, 2019, pursuant to existing stock repurchase authorizations, the Company entered into an ASR Contract with JPMorgan Chase Bank, National Association (in such capacity, the “ASR Counterparty”), to repurchase an aggregate of $170 million of the Company’s common stock. Under the ASR Contract, the Company made an initial payment of $170 million to the ASR Counterparty and received an initial delivery of approximately 5.2 million shares of common stock, which represented approximately $102 million (or 60%) of the ASR Contract. The Company received a final delivery of an additional 5.4 million shares, or $68 million, under its ASR Contract during the third quarter of fiscal 2020. The final share amount was determined based on the daily volume-weighted average price since the effective date of the ASR Contract, less the applicable contractual discount. When combined with the 5.2 million upfront shares received at the inception of the ASR in April 2019, the Company repurchased approximately 10.6 million of its shares under the ASR at an average repurchase price of $16.09 per share. All shares were repurchased in accordance with the Company’s publicly announced ASR program, which was completed during the third quarter of fiscal 2020. The shares delivered under the ASR Contract reduced the Company’s outstanding shares and its weighted average number of common shares outstanding for purposes of calculating basic and diluted earnings per share.
Dividends
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. The Board of Directors decided to continue to postpone its decision with respect to the payment of its quarterly cash dividend during the second quarter of fiscal 2021 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. As a result, there was no cash dividend declared during the three and six months ended August 1, 2020. During the three and six months ended August 1, 2020, dividends paid related to the vesting of restricted stock units that are considered non-participating securities and are only entitled to dividend payments once the respective awards vest. Subsequent to the second quarter of fiscal 2021, the Company announced that it would resume paying its quarterly cash dividend of $0.1125 per share beginning in the third quarter of fiscal 2021, but decided to not declare any cash dividends for the first and second quarters of fiscal 2021.
During the three and six months ended August 3, 2019, the Company declared a cash dividend of $0.1125 per share and $0.3375 per share, respectively.
During the first quarter of fiscal 2020, the Company announced that its Board of Directors reduced the future quarterly cash dividends that may be paid to holders of the Company’s common stock, when, as and if any such dividend is declared by the Company’s Board of Directors, from $0.225 per share to $0.1125 per share to redeploy capital and return incremental value to shareholders through share repurchases.

16


Decisions on whether, when and in what amounts to continue making any future dividend distributions will remain at all times entirely at the discretion of the Company’s Board of Directors, which reserves the right to change or terminate the Company’s dividend practices at any time and for any reason without prior notice. The payment of cash dividends in the future will be based upon a number of business, legal and other considerations, including our cash flow from operations, capital expenditures, debt service and covenant requirements, cash paid for income taxes, earnings, share repurchases, economic conditions and U.S. and global liquidity.
Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss), net of related income taxes, for the three and six months ended August 1, 2020 and August 3, 2019 are as follows (in thousands):
 
Three Months Ended Aug 1, 2020
 
Foreign Currency Translation Adjustment
 
Derivative Financial Instruments Designated as Cash Flow Hedges
 
Defined Benefit Plans
 
Total
Balance at May 2, 2020
$
(152,162
)
 
$
7,711

 
$
(8,851
)
 
$
(153,302
)
Gains (losses) arising during the period
31,043

 
(7,012
)
 
(211
)
 
23,820

Reclassification to net loss for (gains) losses realized

 
(2,198
)
 
71

 
(2,127
)
Net other comprehensive income (loss)
31,043

 
(9,210
)
 
(140
)
 
21,693

Balance at August 1, 2020
$
(121,119
)
 
$
(1,499
)
 
$
(8,991
)
 
$
(131,609
)
 
Six Months Ended Aug 1, 2020
 
Foreign Currency Translation Adjustment
 
Derivative Financial Instruments Designated as Cash Flow Hedges
 
Defined Benefit Plans
 
Total
Balance at February 1, 2020
$
(137,289
)
 
$
6,300

 
$
(8,921
)
 
$
(139,910
)
Gains (losses) arising during the period
16,170

 
(3,832
)
 
(212
)
 
12,126

Reclassification to net loss for (gains) losses realized

 
(3,967
)
 
142

 
(3,825
)
Net other comprehensive income (loss)
16,170

 
(7,799
)
 
(70
)
 
8,301

Balance at August 1, 2020
$
(121,119
)
 
$
(1,499
)
 
$
(8,991
)
 
$
(131,609
)
 
Three Months Ended Aug 3, 2019
 
Foreign Currency Translation Adjustment
 
Derivative Financial Instruments Designated as Cash Flow Hedges
 
Defined Benefit Plans
 
Total
Balance at May 4, 2019
$
(131,923
)

$
8,663


$
(9,446
)
 
$
(132,706
)
Gains (losses) arising during the period
(4,841
)
 
1,978

 
(151
)
 
(3,014
)
Reclassification to net earnings for (gains) losses realized

 
(1,572
)
 
90

 
(1,482
)
Net other comprehensive income (loss)
(4,841
)
 
406

 
(61
)
 
(4,496
)
Balance at August 3, 2019
$
(136,764
)
 
$
9,069

 
$
(9,507
)
 
$
(137,202
)


17


 
Six Months Ended Aug 3, 2019
 
Foreign Currency Translation Adjustment
 
Derivative Financial Instruments Designated as Cash Flow Hedges
 
Defined Benefit Plans
 
Total
Balance at February 2, 2019
$
(119,546
)

$
2,999


$
(9,632
)
 
$
(126,179
)
Cumulative adjustment reclassified from retained earnings due to adoption of new accounting guidance1

 
1,981

 

 
1,981

Gains (losses) arising during the period
(17,218
)
 
5,842

 
(55
)
 
(11,431
)
Reclassification to net earnings for (gains) losses realized

 
(1,753
)
 
180

 
(1,573
)
Net other comprehensive income (loss)
(17,218
)
 
4,089

 
125

 
(13,004
)
Balance at August 3, 2019
$
(136,764
)
 
$
9,069

 
$
(9,507
)
 
$
(137,202
)
______________________________________________________________________
Notes:
1 
During the first quarter of fiscal 2020, the Company adopted new authoritative guidance which eliminated the requirement to separately measure and report ineffectiveness for instruments that qualify for hedge accounting and generally requires that the entire change in the fair value of such instruments ultimately be presented in the same line as the respective hedge item. As a result, there is no interest component recognized for the ineffective portion of instruments that qualify for hedge accounting, but rather all changes in the fair value of such instruments are included in other comprehensive income (loss). Upon adoption of this guidance, the Company reclassified approximately $2.0 million in gains from retained earnings to accumulated other comprehensive loss related to the previously recorded interest component on outstanding instruments that qualified for hedge accounting.
Details on reclassifications out of accumulated other comprehensive income (loss) to net earnings (loss) during the three and six months ended August 1, 2020 and August 3, 2019 are as follows (in thousands):
 
Three Months Ended
 
Six Months Ended
 
Location of (Gain) Loss Reclassified from Accumulated OCI into Earnings (Loss)
 
Aug 1, 2020
 
Aug 3, 2019
 
Aug 1, 2020
 
Aug 3, 2019
 
Derivative financial instruments designated as cash flow hedges:
 
 
   Foreign exchange currency contracts
$
(2,504
)
 
$
(1,757
)
 
$
(4,495
)
 
$
(1,987
)
 
Cost of product sales
   Interest rate swap
42

 
(44
)
 
45

 
(90
)
 
Interest expense
      Less income tax effect
264

 
229

 
483

 
324

 
Income tax expense (benefit)
 
(2,198
)
 
(1,572
)
 
(3,967
)
 
(1,753
)
 
 
Defined benefit plans:
 
 
 
 
 
 
 
 
 
   Net actuarial loss amortization
97

 
111

 
193

 
222

 
Other income (expense)
   Prior service credit amortization
(16
)
 
(9
)
 
(32
)
 
(19
)
 
Other income (expense)
      Less income tax effect
(10
)
 
(12
)
 
(19
)
 
(23
)
 
Income tax expense (benefit)
 
71

 
90

 
142

 
180

 
 
Total reclassifications during the period
$
(2,127
)
 
$
(1,482
)
 
$
(3,825
)
 
$
(1,573
)
 
 


18


(5)
Accounts Receivable
Accounts receivable is summarized as follows (in thousands):
 
Aug 1, 2020
 
Feb 1, 2020
Trade
$
237,399

 
$
309,508

Royalty
9,248

 
12,775

Other
14,224

 
13,429

 
260,871

 
335,712

Less allowances1
14,400

 
8,431

 
$
246,471

 
$
327,281


______________________________________________________________________
Notes:
1 
During the first quarter of fiscal 2021, the Company adopted authoritative guidance related to the measurement of credit losses on financial instruments. This guidance replaces the “as incurred” loss model with an “expected loss” model which requires the recognition of an allowance for credit losses expected to be incurred over an asset’s lifetime. The adoption of this guidance did not have a material impact on the Company’s allowance for doubtful accounts. Refer to Note 1 for further information.
Accounts receivable consists of trade receivables relating primarily to the Company’s wholesale business in Europe and, to a lesser extent, to its wholesale businesses in the Americas and Asia, royalty receivables relating to its licensing operations, credit card and retail concession receivables related to its retail businesses and certain other receivables. Other receivables generally relate to amounts due to the Company that result from activities that are not related to the direct sale of the Company’s products or collection of royalties.
(6)
Inventories