Market Overview

Guess?, Inc. Reports Third Quarter Results

Share:

Q3 Fiscal 2018 GAAP Net Loss Per Share of
$0.04, Compared to EPS of $0.11 in Q3 Fiscal 2017; Q3 Fiscal 2018
Adjusted EPS of $0.12, Compared to $0.11 in Q3 Fiscal 2017

Q3 Fiscal 2018 Revenues Increased 3% to $554
Million; Increased 1% in Constant Currency

Guess?, Inc. (NYSE:GES) today reported financial results for its third
quarter ended October 28, 2017.

Victor Herrero, Chief Executive Officer, commented, "Overall, our third
quarter adjusted operating profit finished within our expectations, and
adjusted earnings per share ended above the high-end of our guidance. We
continue to see good momentum in Europe and Asia, where our revenues
were up 19% and 17%, respectively, mainly driven by new store openings,
wholesale growth and positive comp sales. We were also thrilled with the
operating margin expansion in the Americas Retail despite a sales
decline. This is the result of our profit improvement plan which
included tight markdown management, higher IMUs, negotiated rent
reductions and unprofitable store closures."

Mr. Herrero concluded, "Overall, as I peek into the future of our
Company, I believe that Europe and Asia still offer a lot of opportunity
and should continue to grow double-digits next year. I expect the
profitability in the Americas to continue to benefit from our cost
reduction and margin improvement initiatives. Finally, we remain
committed to our long-term goal of 7.5% operating margin that we expect
to achieve through revenue growth and disciplined cost control."

This press release contains certain non-GAAP, or adjusted, financial
measures. References to "adjusted" results exclude the impact of (i) net
(gains) losses on lease terminations, (ii) asset impairment charges,
(iii) restructuring charges, (iv) a restructuring related exit tax
charge, (v) a gain from the sale of a minority interest investment and
(vi) the related tax effects of these adjustments, where applicable. A
reconciliation of reported GAAP results to comparable non-GAAP results
is provided in the accompanying tables and discussed under the heading
"Presentation of Non-GAAP Information" below.

Third Quarter Fiscal 2018 Results

For the third quarter of fiscal 2018, the Company recorded GAAP net loss
of $2.9 million, compared to GAAP net earnings of $9.1 million for the
third quarter of fiscal 2017. GAAP diluted loss per share was $0.04 for
the third quarter of fiscal 2018, compared to GAAP diluted earnings per
share of $0.11 for the prior-year quarter. The Company estimates that
currency had a minimal impact on diluted loss per share in the third
quarter of fiscal 2018.

For the third quarter of fiscal 2018, the Company recorded adjusted net
earnings of $10.4 million, an 8.1% increase compared to $9.6 million for
the third quarter of fiscal 2017. Adjusted diluted earnings per share
increased 9.1% to $0.12, compared to $0.11 for the prior-year quarter.

Net Revenue. Total net revenue for the third quarter of
fiscal 2018 increased 3.3% to $554.1 million, compared to $536.3 million
in the prior-year quarter. In constant currency, net revenue increased
by 0.6%.

  • Americas Retail revenues decreased 13.4% in U.S. dollars and 14.3% in
    constant currency. Retail comp sales including e-commerce decreased
    10% in U.S. dollars and 11% in constant currency.
  • Europe revenues increased 18.8% in U.S. dollars and 11.9% in constant
    currency. Retail comp sales including e-commerce increased 10% in U.S.
    dollars and 4% in constant currency.
  • Asia revenues increased 16.8% in U.S. dollars and 18.5% in constant
    currency. Retail comp sales including e-commerce increased 3% in U.S.
    dollars and 5% in constant currency.
  • Americas Wholesale revenues decreased 2.5% in U.S. dollars and 4.5% in
    constant currency.
  • Licensing revenues increased 9.1% in U.S. dollars and constant
    currency.

Operating Earnings (Loss). GAAP operating loss for the
third quarter of fiscal 2018 was $1.0 million (including a $0.2 million
favorable currency translation impact), compared to GAAP operating
earnings of $15.1 million in the prior-year quarter. GAAP operating
margin in the third quarter decreased 300 basis points to negative 0.2%,
from 2.8% in the prior-year quarter, driven primarily by net losses on
lease terminations incurred during the current year-quarter and higher
performance-based compensation costs. The negative impact of currency on
operating margin for the quarter was roughly 10 basis points.

For the third quarter of fiscal 2018, adjusted operating earnings
decreased 21.1% to $12.6 million, from $15.9 million in the same
prior-year quarter. Adjusted operating margin was 2.3%, a decrease of 70
basis points compared to the same prior-year quarter driven primarily by
higher performance-based compensation costs.

  • Operating margin for the Company's Americas Retail segment improved
    240 basis points to negative 2.5% in the third quarter of fiscal 2018,
    compared to negative 4.9% in the prior-year quarter, driven primarily
    by the favorable impact from lower markdowns, negotiated rent
    reductions, higher initial markups and store closures, partially
    offset by the negative impact on the fixed cost structure resulting
    from negative comparable sales.
  • Operating margin for the Company's Europe segment decreased 320 basis
    points to 3.0% in the third quarter of fiscal 2018, from 6.2% in the
    prior-year quarter, driven primarily by higher distribution costs
    resulting from the relocation of the Company's European distribution
    center, partially offset by higher initial markups.
  • Operating margin for the Company's Asia segment increased 680 basis
    points to 3.7% in the third quarter of fiscal 2018, compared to
    negative 3.1% in the prior-year quarter, driven primarily by overall
    leveraging of expenses.
  • Operating margin for the Company's Americas Wholesale segment
    increased 70 basis points to 18.1% in the third quarter of fiscal
    2018, compared to 17.4% in the prior-year quarter, due to a lower SG&A
    rate driven primarily by slightly lower expenses and higher gross
    margins.
  • Operating margin for the Company's Licensing segment increased 620
    basis points to 90.8% in the third quarter of fiscal 2018, compared to
    84.6% in the prior-year quarter.

Other net income was $2.8 million for the third quarter of fiscal 2018,
which primarily includes unrealized gains on non-operating assets and
net unrealized and realized mark-to-market revaluation gains on foreign
exchange currency contracts, compared to $0.1 million in the prior-year
quarter.

Nine-Month Period Results

For the nine months ended October 28, 2017, the Company recorded GAAP
net loss of $8.9 million, compared to GAAP net earnings of $16.2 million
for the nine months ended October 29, 2016. GAAP diluted loss per share
was $0.12 for the nine months ended October 28, 2017, compared to GAAP
diluted earnings per share of $0.19 for the prior-year period. The
Company estimates the negative impact of currency on diluted loss per
share for the nine months ended October 28, 2017 was approximately $0.02
per share.

For the nine months ended October 28, 2017, the Company recorded
adjusted net earnings of $7.1 million, a 223.3% increase compared to
$2.2 million for the nine months ended October 29, 2016. Adjusted
diluted earnings per share increased 300.0% to $0.08, compared to $0.02
for the prior-year period.

Net Revenue. Total net revenue for the first nine months
of fiscal 2018 increased 3.7% to $1.59 billion, compared to $1.53
billion in the prior-year period. In constant currency, net revenue
increased by 3.1%.

  • Americas Retail revenues decreased 13.1% in U.S. dollars and 13.2% in
    constant currency. Retail comp sales including e-commerce decreased
    12% in U.S. dollars and constant currency.
  • Europe revenues increased 20.5% in U.S. dollars and 19.0% in constant
    currency. Retail comp sales including e-commerce increased 7% in U.S.
    dollars and 6% in constant currency.
  • Asia revenues increased 17.0% in U.S. dollars and 17.1% in constant
    currency. Retail comp sales including e-commerce increased 4% in U.S.
    dollars and constant currency.
  • Americas Wholesale revenues increased 2.5% in U.S. dollars and 2.3% in
    constant currency.
  • Licensing revenues were relatively flat in U.S. dollars and constant
    currency.

Operating Earnings (Loss). GAAP operating loss for the
first nine months of fiscal 2018 was $3.2 million (including a $0.9
million favorable currency translation impact), compared to GAAP
operating earnings of $1.7 million in the prior-year period. GAAP
operating margin in the first nine months of fiscal 2018 decreased 30
basis points to negative 0.2%, from 0.1% in the prior-year period,
driven primarily by net losses on lease terminations incurred during the
current year-period and higher performance-based compensation costs. The
negative impact of currency on operating margin for the first nine
months of fiscal 2018 was roughly 10 basis points.

For the nine months ended October 28, 2017, adjusted operating earnings
increased 66.7% to $14.3 million, compared to $8.6 million for the nine
months ended October 29, 2016. Adjusted operating margin was 0.9% for
the nine months ended October 28, 2017, an increase of 30 basis points
compared to the same prior-year period.

  • Operating margin for the Company's Americas Retail segment
    deteriorated 260 basis points to negative 6.0% in the first nine
    months of fiscal 2018, from negative 3.4% in the prior-year period,
    driven primarily by the negative impact on the fixed cost structure
    resulting from negative comparable sales.
  • Operating margin for the Company's Europe segment increased 180 basis
    points to 4.8% in the first nine months of fiscal 2018, compared to
    3.0% in the prior-year period. This increase was driven primarily by
    higher initial mark-ups and the favorable impact on the fixed cost
    structure resulting from overall leveraging of expenses, partially
    offset by higher distribution costs resulting from the relocation of
    the Company's European distribution center.
  • Operating margin for the Company's Asia segment increased 560 basis
    points to 2.5% in the first nine months of fiscal 2018, compared to
    negative 3.1% in the prior-year period. The improvement in operating
    margin was driven primarily by overall leveraging of expenses.
  • Operating margin for the Company's Americas Wholesale segment
    increased 110 basis points to 17.5% in the first nine months of fiscal
    2018, compared to 16.4% in the prior-year period. The increase in
    operating margin was due to higher gross margins.
  • Operating margin for the Company's Licensing segment increased 100
    basis points to 89.6% in the first nine months of fiscal 2018,
    compared to 88.6% in the prior-year period.

Other net income was $3.6 million for the first nine months of fiscal
2018, which primarily includes unrealized gains on non-operating assets
and net unrealized mark-to-market revaluation gains on foreign currency
balances, partially offset by net realized and unrealized mark-to-market
revaluation losses on foreign exchange currency contracts, compared to
$26.4 million in the prior-year period. For the nine months ended
October 29, 2016, other net income included a realized gain of $22.3
million from the sale of a minority interest investment. The gain from
the sale of the minority interest investment has been excluded for
purposes of calculating adjusted financial measures for the nine months
ended October 29, 2016. 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.

Dividends

The Company's Board of Directors has approved a quarterly cash dividend
of $0.225 per share on the Company's common stock. The dividend will be
payable on January 3, 2018 to shareholders of record at the close of
business on December 13, 2017.

Outlook

The Company's expectations and updated outlook for the fourth quarter
and fiscal year ending February 3, 2018 are as follows:

Outlook for Total Company1
 
     
Fourth Quarter of Fiscal 20182 Fiscal Year 20182
 
Consolidated net revenue in U.S. dollars increase between 10.0% and 12.0% increase between 6.0% and 6.5%
 
Consolidated net revenue in constant currency3 increase between 5.0% and 7.0% increase between 4.0% and 4.5%
 
Estimated impact of extra week on consolidated net revenue increase of 3.0% increase of 1.0%
 
GAAP operating margin4 8.0% to 9.0% 2.5% to 2.8%
 
Adjusted operating margin5 8.0% to 9.0% 3.2% to 3.5%
 
Currency impact included in operating margin6 80 basis points 20 basis points
 
GAAP EPS4 $0.48 to $0.55 $0.36 to $0.43
 
Adjusted EPS5 $0.48 to $0.55 $0.56 to $0.63
 
Currency impact included in EPS6 $0.05 $0.02
 
Estimated impact of extra week on EPS $0.03 $0.03
   
Notes:
  1   The Company's outlook for the fourth quarter and fiscal year ending
February 3, 2018 assumes that foreign currency exchange rates remain
at prevailing rates.
 
2 The Company's fourth quarter of fiscal 2018 will include 14 weeks,
while the fourth quarter of fiscal 2017 included 13 weeks. The
Company's fiscal year 2018 will include 53 weeks, while fiscal year
2017 included 52 weeks.
 
3 Eliminates the impact of expected foreign currency translation to
give investors a better understanding of the underlying trends
within the business.
 
4 GAAP operating margin and EPS guidance for the fiscal year 2018
include the impact of net losses on lease terminations, asset
impairment charges and the related tax impacts incurred during the
first nine months of fiscal 2018.
 
5 The adjusted operating margin and adjusted EPS guidance for the
fiscal year 2018 reflect the exclusion of net losses on lease
terminations, asset impairment charges and the related tax impacts
incurred during the first nine months of fiscal 2018. The adjusted
results do not assume any additional asset impairment charges.
 
6 Represents the estimated translational and transactional gains
(losses) of foreign currency rate fluctuations within operating
margin and EPS measures presented.
 

A reconciliation of the Company's outlook for GAAP operating margin to
adjusted operating margin and GAAP earnings per share to adjusted
earnings per share for the fourth quarter and fiscal year ending
February 3, 2018 is as follows:

Reconciliation of GAAP Outlook to Adjusted Outlook
     
Fourth Quarter of Fiscal 2018 Fiscal Year 2018
 
GAAP operating margin 8.0% to 9.0% 2.5% to 2.8%
Net losses on lease terminations1 0.5%
Asset impairment charges2

0.2%

 
Adjusted operating margin 8.0% to 9.0% 3.2% to 3.5%
 

GAAP earnings per share

$0.48 to $0.55 $0.36 to $0.43
Net losses on lease terminations1 $0.15
Asset impairment charges2 $0.05
 
Adjusted earnings per share $0.48 to $0.55 $0.56 to $0.63
   
Notes:
  1   During the nine months ended October 28, 2017, the Company recorded
net losses on lease terminations related primarily to the
modification of certain lease agreements held with a common landlord
in North America.
 
2 During the nine months ended October 28, 2017, the Company
recognized asset impairment charges for certain retail locations
resulting from under-performance and expected store closures. The
adjusted results do not assume any additional asset impairment
charges.
 

On a segment basis, the Company expects the following ranges for
percentage changes for comparable sales including e-commerce ("comps")
and net revenue in U.S. dollars and constant currency compared to the
same prior-year period:

Outlook by Segment1
         
Fourth Quarter of Fiscal 2018 Fiscal Year 2018
 
U.S. Dollars Constant Currency2 U.S. Dollars Constant Currency2
 
Americas Retail:
Comps down MSD to LSD down HSD to MSD down LDD to HSD down LDD to HSD
Net Revenue down HSD to MSD down HSD to MSD down LDD down LDD
 
Europe:
Comps

__

up MSD __ up MSD
Net Revenue up high-twenties to low-thirties up high-teens to low-twenties up low-twenties up high-teens
 
Asia:
Comps __ up LSD __ up LSD
Net Revenue up mid-twenties up low-twenties up high-teens up high-teens
 
Americas Wholesale:
Net Revenue up LSD down LSD up LSD up LSD
 
Licensing:
Net Revenue down HSD __ down LSD __
       
Notes:
  1   As used in the table above, "LSD" is used to refer to the range of
Low-Single-Digits, "MSD" is used to refer to the range of
Mid-Single-Digits, "HSD" is used to refer to the range of
High-Single-Digits, and "LDD" is used to refer to the range of
Low-Double-Digits.
 
2 Eliminates the impact of expected foreign currency translation to
give investors a better understanding of the underlying trends
within the business.
 

Presentation of Non-GAAP Information

The financial information presented in this release includes non-GAAP
financial measures such as adjusted results, constant currency financial
information and free cash flow measures. For the three and nine months
ended October 28, 2017, the adjusted results exclude the impact of net
losses on lease terminations, asset impairment charges and the related
tax impacts. For the three and nine months ended October 29, 2016, the
adjusted results exclude the impact of a gain on sale of a minority
interest investment, net gains on lease terminations, restructuring
charges, a restructuring related exit tax charge, asset impairment
charges and the tax effects 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 that the adjusted financial
information provided is useful for investors to evaluate the
comparability of the Company's operating results and its future outlook
(when reviewed in conjunction with the Company's GAAP financial
statements). A reconciliation of reported GAAP results to comparable
non-GAAP results is provided in the accompanying tables.

This release also includes certain constant currency financial
information. Foreign currency exchange rate fluctuations affect the
amount reported from translating the Company's foreign revenue, expenses
and balance sheet amounts into U.S. dollars. These rate fluctuations can
have a significant effect on reported operating results under GAAP. The
Company provides constant currency information to enhance the visibility
of underlying business trends, excluding the effects of changes in
foreign currency translation rates. To calculate net revenue, comparable
sales and earnings (loss) from operations on a constant currency basis,
actual or forecasted results for the current-year period are translated
into U.S. dollars at the average exchange rates in effect during the
comparable period of the prior year. The constant currency calculations
do not adjust for the impact of revaluing specific transactions
denominated in a currency that is different to the functional currency
of that entity when exchange rates fluctuate. However, in calculating
the estimated impact of currency on our earnings (loss) per share for
our actual and forecasted results, the Company estimates gross margin
(including the impact of merchandise-related hedges) and expenses using
the appropriate prior-year rates, translates the estimated foreign
earnings at the comparable prior-year rates, and excludes the
year-over-year earnings impact of gains or losses arising from balance
sheet remeasurement and foreign currency contracts not designated as
merchandise hedges. The constant currency information presented may not
be comparable to similarly titled measures reported by other companies.

The Company also includes information regarding its free cash flows in
this release. The Company calculates free cash flows as cash flows from
operating activities less purchases of property and equipment. Free cash
flows is not intended to be an alternative to cash flows from operating
activities as a measure of liquidity, but rather provides additional
visibility to investors regarding how much cash is generated for
discretionary and non-discretionary items after deducting purchases of
property and equipment. Free cash flow information presented may not be
comparable to similarly titled measures reported by other companies. A
reconciliation of reported GAAP cash flows from operating activities to
the comparable non-GAAP free cash flow measure is provided in the
accompanying tables.

Investor Conference Call

The Company will hold a conference call at 4:45 pm (ET) on
November 21, 2017 to discuss the news announced in this press release. A
live webcast of the conference call will be accessible at
www.guess.com
via the "Investor Relations" link. The webcast will be archived on the
website for 30 days.

About Guess?

Guess?, Inc. designs, markets, distributes and licenses a lifestyle
collection of contemporary apparel, denim, handbags, watches, footwear
and other related consumer products. Guess? products are distributed
through branded Guess? stores as well as better department and specialty
stores around the world. As of October 28, 2017, the Company directly
operated 982 retail stores in the Americas, Europe and Asia. The
Company's licensees and distributors operated 671 additional retail
stores worldwide. As of October 28, 2017, the Company and its licensees
and distributors operated in roughly 100 countries worldwide. For more
information about the Company, please visit www.guess.com.

Forward-Looking Statements

Except for historical information contained herein, certain matters
discussed in this press release or the related conference call and
webcast, including statements concerning the Company's expectations,
future prospects, business strategies and strategic initiatives;
statements expressing optimism or pessimism about future operating
results or events and projected sales (including comparable sales),
earnings, capital expenditures, operating margins, cost savings and cash
needs; and guidance for the fourth quarter and full year of fiscal 2018,
are forward-looking statements that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements, which are frequently indicated by terms such
as "expect," "will," "should," "goal," "strategy," "believe,"
"estimate," "continue," "outlook," "plan" and similar terms, are only
expectations, and involve known and unknown risks and uncertainties,
which may cause actual results in future periods to differ materially
from what is currently anticipated. Factors which may cause actual
results in future periods to differ materially from current expectations
include, among others: our ability to maintain our brand image and
reputation; domestic and international economic conditions, including
economic and other events that could negatively impact consumer
confidence and discretionary consumer spending; changes in the
competitive marketplace and in our commercial relationships; our ability
to anticipate and adapt to changing consumer preferences and trends; our
ability to manage our inventory commensurate with customer demand; risks
related to the timing and costs of delivering merchandise to our stores
and our wholesale customers; unexpected or unseasonable weather
conditions; our ability to effectively operate our various retail
concepts, including securing, renewing, modifying or terminating leases
for store locations; our ability to successfully and/or timely implement
our growth strategies and other strategic initiatives; our ability to
expand internationally and operate in regions where we have less
experience, including through joint ventures; our ability to
successfully or timely implement plans for cost and workforce
reductions; our ability to complete the transfer of our European
distribution center without incurring additional shipment delays and/or
increased costs; our ability to attract and retain key personnel;
changes to our short or long-term strategic initiatives; obligations
arising from new or existing litigation, tax and other regulatory
proceedings (including the European Commission proceeding initiated
during the second quarter of fiscal 2018 to investigate whether the
Company breached certain European Union competition rules); changes in
U.S. tax or tariff policy including with respect to apparel and other
accessory merchandise produced in other countries; accounting
adjustments identified after issuance of this release; risk of future
store asset and/or goodwill impairments or restructuring charges; our
ability to adapt to new regulatory compliance and disclosure
obligations; risks associated with our foreign operations, such as
violations of laws prohibiting improper payments and the burdens of
complying with a variety of foreign laws and regulations (including
global data privacy regulations); risks associated with the acts or
omissions of our third party vendors, including a failure to comply with
our vendor code of conduct or other policies; risks associated with
cyber attacks and other cyber security risks; and changes in economic,
political, social and other conditions affecting our foreign operations
and sourcing, including the impact of currency fluctuations, global tax
rates and economic and market conditions in the various countries in
which we operate. In addition to these factors, the economic,
technological, managerial, and other risks identified in the Company's
most recent annual report on Form 10-K and other filings with the
Securities and Exchange Commission, including but not limited to the
risk factors discussed therein, could cause actual results to differ
materially from current expectations. The current global economic
climate and uncertainty surrounding potential changes in U.S. policies
and regulations under the new administration may amplify many of these
risks. The Company undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information,
future events or otherwise.

 
Guess?, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Loss)
(amounts in thousands, except per share data)
           
Three Months Ended Nine Months Ended
October 28, 2017 October 29, 2016 October 28, 2017 October 29, 2016
$ % $ % $ % $ %
 
Product sales $ 528,209 95.3 % $ 512,553 95.6 % $ 1,518,323 95.7 % $ 1,462,029 95.6 %
Net royalties 25,929   4.7 % 23,768   4.4 % 68,088   4.3 % 68,066   4.4 %
Net revenue 554,138 100.0 % 536,321 100.0 % 1,586,411 100.0 % 1,530,095 100.0 %
 
Cost of product sales 363,029   65.5 % 356,079   66.4 % 1,052,633   66.4 % 1,021,462   66.8 %
 
Gross profit 191,109 34.5 % 180,242 33.6 % 533,778 33.6 % 508,633 33.2 %
 
Selling, general and administrative expenses 178,552 32.2 % 164,317 30.6 % 519,497 32.7 % 500,066 32.6 %
Net (gains) losses on lease terminations 11,494 2.1 % 0.0 % 11,494 0.7 % (695 ) (0.0 %)
Asset impairment charges 2,018 0.4 % 802 0.2 % 6,013 0.4 % 1,457 0.1 %
Restructuring charges   0.0 %   0.0 %   0.0 % 6,083   0.4 %
 
Earnings (loss) from operations (955 ) (0.2 %) 15,123 2.8 % (3,226 ) (0.2 %) 1,722 0.1 %
 
Other income (expense):
Interest expense (684 ) (0.1 %) (500 ) (0.1 %) (1,642 ) (0.1 %) (1,478 ) (0.0 %)
Interest income 891 0.2 % 861 0.2 % 3,022 0.2 % 1,763 0.1 %
Other income, net 2,759   0.5 % 125   0.0 % 3,561   0.2 % 26,417   1.7 %
 
Earnings before income tax expense 2,011 0.4 % 15,609 2.9 % 1,715 0.1 % 28,424 1.9 %
 
Income tax expense 3,673   0.7 % 5,880   1.1 % 8,723   0.5 % 11,682   0.8 %
 
Net earnings (loss) (1,662 ) (0.3 %) 9,729 1.8 % (7,008 ) (0.4 %) 16,742 1.1 %
 
Net earnings attributable to noncontrolling interests 1,198   0.2 % 626   0.1 % 1,926   0.2 % 548   0.0 %
 
Net earnings (loss) attributable to Guess?, Inc. $ (2,860 ) (0.5 %) $ 9,103   1.7 % $ (8,934 ) (0.6 %) $ 16,194   1.1 %
 
Net earnings (loss) per common share attributable to common
stockholders:
 
Basic $ (0.04 ) $ 0.11 $ (0.12 ) $ 0.19
Diluted $ (0.04 ) $ 0.11 $ (0.12 ) $ 0.19
 
Weighted average common shares outstanding attributable to common
stockholders:
 
Basic 82,390 83,758 82,599 83,631
Diluted 82,390 83,917 82,599 83,813
 
Effective tax rate 182.6 % 37.7 % 508.6 % 41.1 %
 
Adjusted earnings from operations1: $ 12,557 2.3 % $ 15,925 3.0 % $ 14,281 0.9 % $ 8,567 0.6 %
 
Adjusted net earnings attributable to Guess?, Inc.1: $ 10,390 1.9 % $ 9,608 1.8 % $ 7,090 0.4 % $ 2,193 0.1 %
 
Adjusted diluted earnings per common share attributable to common
stockholders1:
$ 0.12 $ 0.11 $ 0.08 $ 0.02
 
Adjusted effective tax rate1: 25.3 % 37.6 % 53.1 % 78.9 %
     
Notes:
  1   The adjusted results for the three and nine months ended October 28,
2017 reflect the exclusion of net losses on lease terminations,
asset impairment charges and the related tax impact, where
applicable. The adjusted results for the three and nine months ended
October 29, 2016 reflect the exclusion of a gain on sale of a
minority interest investment, net gains on lease terminations,
restructuring charges, a restructuring related exit tax charge,
asset impairment charges and the 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
earnings (loss) from operations to adjusted earnings from
operations, reported GAAP net earnings (loss) attributable to
Guess?, Inc. to adjusted net earnings attributable to Guess?, Inc.
and reported GAAP income tax expense to adjusted income tax expense
for the three and nine months ended October 28, 2017 and October 29,
2016.
 
Three Months Ended Nine Months Ended
October 28, 2017 October 29, 2016 October 28, 2017 October 29, 2016
 
Reported GAAP earnings (loss) from operations $ (955 ) $ 15,123 $ (3,226 ) $ 1,722
Net (gains) losses on lease terminations1 11,494 11,494 (695 )
Asset impairment charges2 2,018 802 6,013 1,457
Restructuring charges3       6,083  
 
Adjusted earnings from operations $ 12,557   $ 15,925   $ 14,281   $ 8,567  
 
Reported GAAP net earnings (loss) attributable to Guess?, Inc. $ (2,860 ) $ 9,103 $ (8,934 ) $ 16,194
Net (gains) losses on lease terminations1 11,494 11,494 (695 )
Asset impairment charges2 2,018 802 6,013 1,457
Restructuring charges3 6,083
Gain on sale of a minority interest investment4 (22,279 )
Income tax adjustments5 (262 ) (297 ) (1,483 ) (478 )
Exit tax charge6       1,911  
 

Total adjustments affecting net earnings (loss) attributable to
Guess?, Inc.

13,250   505   16,024   (14,001 )
 
Adjusted net earnings attributable to Guess?, Inc. $ 10,390   $ 9,608   $ 7,090   $ 2,193  
 
Reported GAAP income tax expense $ 3,673 $ 5,880 $ 8,723 $ 11,682
Income tax adjustments5 262 297 1,483 478
Exit tax charge6       (1,911 )
 
Total income tax effect 262   297   1,483   (1,433 )
 
Adjusted income tax expense $ 3,935   $ 6,177   $ 10,206   $ 10,249  
 
Adjusted effective tax rate 25.3 % 37.6 % 53.1 % 78.9 %
       
Notes:
  1   During the three and nine months ended October 28, 2017, the Company
recorded net losses on lease terminations related primarily to the
modification of certain lease agreements held with a common landlord
in North America. During the nine months ended October 29, 2016, the
Company recorded net gains on lease terminations related primarily
to the early termination of certain lease agreements. The net gains
on lease terminations were recorded during the first and second
quarters of fiscal 2017. The results for the nine months ended
October 29, 2016 have been adjusted to show the impact of the net
gains on lease terminations for comparative purposes to same
current-year period results.
 
2 During the three and nine months ended October 28, 2017 and October
29, 2016, the Company recognized asset impairment charges for
certain retail locations resulting from under-performance and
expected store closures. The results for the three and nine months
ended October 29, 2016 have been adjusted to show the impact of the
asset impairment charges for comparative purposes to same
current-year period results.
 
3 During the first quarter of fiscal 2017, the Company implemented a
global cost reduction and restructuring plan to better align its
global cost and organizational structure with its current strategic
initiatives which resulted in restructuring charges, mainly related
to cash-based severance costs, incurred during the nine months ended
October 29, 2016. The restructuring charges were recorded during the
three months ended April 30, 2016.
 
4 The Company recognized a gain related to the sale of its minority
interest equity holding in a privately-held boutique apparel company
during the nine months ended October 29, 2016. The gain related to
the sale was recorded during the three months ended July 30, 2016.
 
5 The income tax effect of the net (gains) losses on lease
terminations, asset impairment charges and restructuring charges was
based on the Company's assessment of deductibility using the
statutory tax rate (inclusive of the impact of valuation allowances)
of the tax jurisdiction in which the charges were incurred. The
income tax effect of the gain on sale of the minority interest
investment was based on the impact of the transaction on the
effective tax rate.
 
6 As a result of the global cost reduction and restructuring plan, the
Company incurred an estimated exit tax charge related to its
reorganization in Europe during the nine months ended October 29,
2016. The estimated exit tax charge was recorded during the three
months ended April 30, 2016.
 
 
Guess?, Inc. and Subsidiaries
Consolidated Segment Data
(dollars in thousands)
                     
Three Months Ended Nine Months Ended
October 28, October 29, % October 28, October 29, %
2017 2016 change 2017 2016 change
 
Net revenue:
Americas Retail $ 187,021 $ 215,862 (13%) $ 561,903 $ 646,573 (13%)
Europe1 221,230 186,289 19% 641,833 532,847 20%
Asia1 74,322 63,617 17% 200,436 171,255 17%
Americas Wholesale1 45,636 46,785 (2%) 114,151 111,354 3%
Licensing 25,929   23,768   9% 68,088   68,066   0%
Total net revenue $ 554,138   $ 536,321   3% $ 1,586,411   $ 1,530,095   4%
 
Earnings (loss) from operations:
Americas Retail1 (4,670 ) (10,505 ) 56% (33,654 ) (22,279 ) (51%)
Europe1 6,678 11,597 (42%) 30,749 16,221 90%
Asia1 2,718 (1,962 ) 239% 5,055 (5,251 ) 196%
Americas Wholesale1 8,241 8,142 1% 20,011 18,211 10%
Licensing1 23,532   20,119   17% 61,019   60,325   1%
Total segment earnings from operations 36,499 27,391 33% 83,180 67,227 24%
 
Corporate overhead1 (23,942 ) (11,466 ) 109% (68,899 ) (58,660 ) 17%

Net gains (losses) on lease terminations1

(11,494 ) (11,494 ) 695

Asset impairment charges1

(2,018 ) (802 ) (6,013 ) (1,457 )
Restructuring charges       (6,083 )
Total earnings (loss) from operations $ (955 ) $ 15,123   (106%) $ (3,226 ) $ 1,722   (287%)
 
Operating margins:
Americas Retail1 (2.5 %) (4.9 %) (6.0 %) (3.4 %)
Europe1 3.0 % 6.2 % 4.8 % 3.0 %
Asia1 3.7 % (3.1 %) 2.5 % (3.1 %)
Americas Wholesale1 18.1 % 17.4 % 17.5 % 16.4 %
Licensing1 90.8 % 84.6 % 89.6 % 88.6 %
 
GAAP operating margin for total Company (0.2 %) 2.8 % (0.2 %) 0.1 %

Net gains (losses) on lease terminations1

2.1 % 0.0 % 0.7 % (0.0 %)

Asset impairment charges1

0.4 % 0.2 % 0.4 % 0.1 %
Restructuring charges 0.0 % 0.0 % 0.0 % 0.4 %
Adjusted operating margin for total Company 2.3 % 3.0 % 0.9 % 0.6 %
           
Notes:
  1   During the first quarter of fiscal 2018, net revenue and related
costs and expenses for certain globally serviced customers were
reclassified into the segment primarily responsible for the
relationship. During the third quarter of fiscal 2018, segment
results were also adjusted to exclude corporate performance-based
compensation costs, net gains (losses) on lease terminations and
asset impairment charges due the fact that these items are no longer
included in the segment results provided to the Company's chief
operating decision maker in order to allocate resources and assess
performance. Accordingly, segment results have been adjusted for the
nine months ended October 28, 2017 as well as the three and nine
months ended October 29, 2016 to conform to the current period
presentation.
 
Guess?, Inc. and Subsidiaries
Constant Currency Financial Measures
(dollars in thousands)
                   
Three Months Ended
October 28, 2017 October 29, 2016 % change
As Reported Foreign Currency Impact Constant Currency As Reported As Reported Constant Currency
Net revenue:
Americas Retail $ 187,021 $ (2,074 ) $ 184,947 $ 215,862 (13%) (14%)
Europe1 221,230 (12,687 ) 208,543 186,289 19% 12%
Asia1 74,322 1,035 75,357 63,617 17% 18%
Americas Wholesale1 45,636 (941 ) 44,695 46,785 (2%) (4%)
Licensing 25,929     25,929   23,768   9% 9%
$ 554,138   $ (14,667 ) $ 539,471   $ 536,321   3% 1%
 
 
Nine Months Ended
October 28, 2017 October 29, 2016 % change
As Reported Foreign Currency Impact Constant Currency As Reported As Reported Constant Currency
Net revenue:
Americas Retail $ 561,903 $ (826 ) $ 561,077 $ 646,573 (13%) (13%)
Europe1 641,833 (7,726 ) 634,107 532,847 20% 19%
Asia1 200,436 119 200,555 171,255 17% 17%
Americas Wholesale1 114,151 (186 ) 113,965 111,354 3% 2%
Licensing 68,088     68,088   68,066   0% 0%
$ 1,586,411   $ (8,619 ) $ 1,577,792   $ 1,530,095   4% 3%
                     
Notes:
  1   During the first quarter of fiscal 2018, net revenue for certain
globally serviced customers was reclassified into the segment
primarily responsible for the relationship. Accordingly, segment
results for Europe, Asia and Americas Wholesale have been adjusted
for the three and nine months ended October 29, 2016 to conform to
the current year presentation.
 
Guess?, Inc. and Subsidiaries
Selected Condensed Consolidated Balance Sheet Data
(in thousands)
                   
 
October 28, January 28, October 29,
2017 2017 2016
 
ASSETS
 
Cash and cash equivalents $ 233,089 $ 396,129 $ 349,104
 
Receivables, net 236,659 225,537 218,205
 
Inventories 477,177 367,381 428,139
 
Other current assets 59,658 54,965 59,479
 
Property and equipment, net 283,197 243,005 272,918
 
Restricted cash 225 1,521 821
 
Other assets 263,507 245,947 251,097
     
Total Assets $ 1,553,512   $ 1,534,485   $ 1,579,763
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current portion of capital lease obligations and borrowings $ 2,121 $ 566 $ 560
 
Other current liabilities 387,821 344,887 363,416
 
Long-term debt and capital lease obligations 38,781 23,482 23,540
 
Other long-term liabilities 179,220 180,104 179,372
 
Redeemable and nonredeemable noncontrolling interests 19,228 16,224 14,659
 
Guess?, Inc. stockholders' equity 926,341 969,222 998,216
     
Total Liabilities and Stockholders' Equity $ 1,553,512   $ 1,534,485   $ 1,579,763
 
 
Guess?, Inc. and Subsidiaries
Condensed Consolidated Cash Flow Data
(in thousands)
             
 
Nine Months Ended
October 28, October 29,
2017 2016
 
Net cash used in operating activities1, 2 $ (34,202 ) $ (30,233 )
 
Net cash used in investing activities (68,626 ) (25,383 )
 
Net cash used in financing activities1 (82,316 ) (45,224 )
 
Effect of exchange rates on cash, cash equivalents and restricted
cash1
20,808   4,766  
 
Net change in cash, cash equivalents and restricted cash1 (164,336 ) (96,074 )
 
Cash, cash equivalents and restricted cash at the beginning of the
year1
397,650 445,999
   
Cash, cash equivalents and restricted cash at the end of the period1 $ 233,314   $ 349,925  
 
 
Supplemental information:
 
Depreciation and amortization $ 46,769 $ 51,194
 
Rent $ 198,844 $ 193,671
 
 
Non-cash investing and financing activity:
 
Assets acquired under capital lease obligations3 $ 18,042 $
           
Notes:
  1   As a result of the adoption of new authoritative guidance during the
first quarter of fiscal 2018 which impacted the classification of
certain cash receipts and cash payments in the statement of cash
flows, the amounts related to cash flows from operating and
financing activities as well as the effect of exchange rates on
cash, cash equivalents and restricted cash have been updated for the
nine months ended October 29, 2016 to conform to the current year
presentation.
 
2 During the third quarter of fiscal 2018, the Company recorded net
losses on lease terminations related primarily to the modification
of certain lease agreements held with a common landlord in North
America. In connection with this modification, the Company made
up-front payments of approximately $22 million, of which $12 million
was recognized as net losses on lease terminations and $10 million
was recorded as advance rent payments.
 
3 During the nine months ended October 28, 2017, the Company began the
relocation of its European distribution center to the Netherlands.
As a result, the Company entered into a capital lease of $16.5
million for equipment used in the new facility. During the nine
months ended October 28, 2017, the Company also entered into a
capital lease for $1.5 million related primarily to computer
hardware and software.
 
Guess?, Inc. and Subsidiaries
Reconciliation of Net Cash Used in Operating Activities to Free
Cash Flow
(in thousands)
               
 
Nine Months Ended
October 28, October 29,
2017 2016
 
Net cash used in operating activities1, 2 $ (34,202 ) $ (30,233 )
 
Less: Purchases of property and equipment (65,345 ) (66,849 )
   
Free cash flow1, 2 $ (99,547 ) $ (97,082 )
           
Notes:
  1   As a result of the adoption of new authoritative guidance during the
first quarter of fiscal 2018 which impacted the classification of
certain cash receipts and cash payments in the statement of cash
flows, net cash used in operating activities and free cash flow have
been updated for the nine months ended October 29, 2016 to conform
to the current year presentation.
 
2 During the third quarter of fiscal 2018, the Company recorded net
losses on lease terminations related primarily to the modification
of certain lease agreements held with a common landlord in North
America. In connection with this modification, the Company made
up-front payments of approximately $22 million, of which $12 million
was recognized as net losses on lease terminations and $10 million
was recorded as advance rent payments.
 
Guess?, Inc. and Subsidiaries
Retail Store Data
International Store Count
         
 
As of October 28, 2017 As of October 29, 2016
Total Directly Operated Total Directly Operated
Region Stores Stores Stores Stores
 
United States 317 315 342 341
 
Canada 96 96 111 111
 
Central and South America 97 54 91 48
 
Total Americas 510 465 544 500
 
Europe and the Middle East 661 385 614 321
 
Asia and the Pacific 482 132 493 95
       
1,653 982 1,651 916
 
Guess?, Inc. and Subsidiaries
Directly Operated Retail Store Data
U.S. and Canada
               
 
Nine Months Ended
October 28, October 29,
2017 2016
 
Number of stores at the beginning of the year 450 455
 
Store openings 6 11
 
Store closures (45) (14)
   
Number of stores at the end of the period 411 452
 
 
Total store square footage at the end of the period 2,037,000 2,216,000
 

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