Market Overview

Guess?, Inc. Reports Fourth Quarter Results

Share:

Q4 Fiscal 2018 Revenues Increased 18% to $792
Million; Increased 10% in Constant Currency

Q4 Fiscal 2018 GAAP EPS of $0.01, Compared to
$0.08 in Q4 Fiscal 2017; Q4 Fiscal 2018 Adjusted EPS of $0.62, Compared
to $0.43 in Q4 Fiscal 2017

Fiscal Year 2018 Revenues Increased 8% to $2.4
Billion; Increased 5% in Constant Currency

Fiscal Year 2018 GAAP Loss Per Share of $0.11,
Compared to EPS of $0.27 in Fiscal Year 2017; Fiscal Year 2018 Adjusted
EPS of $0.70, Compared to $0.46 in Fiscal Year 2017

Guess?, Inc. (NYSE:GES) today reported unaudited financial results for
its fourth quarter and fiscal year ended February 3, 2018.

Victor Herrero, Chief Executive Officer, commented, "I am pleased to
report that the overall results of the fourth quarter finished above the
high-end of our expectations, with higher sales, higher adjusted
operating profit and higher adjusted earnings per share. This quarter
concludes a year where we saw revenue increase, operating profit growth,
adjusted operating margin expansion and adjusted EPS growth of 52%. I
believe that this year marks the beginning of a turnaround for the
Company."

Mr. Herrero concluded, "I am convinced that maintaining the focus on the
strategic initiatives I outlined on my arrival at the Company in August
2015 is now clearly showing in our financial results. And looking
forward to fiscal 2019, we expect to make continued progress on this
front. I still see a lot of opportunities left in Europe and Asia, where
we will continue to allocate capital for superior returns and where we
plan to continue growing sales in double digits while also expanding
margins. We will keep working on improving the profitability of the
Americas by executing on our cost reduction and margin improvement
initiatives. This is truly a very exciting time for our Company as a lot
of opportunities are in front of us."

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, (vi)
the related tax effects of these adjustments, (vii) tax impacts
resulting from the enactment of the 2017 Tax Cuts and Jobs Act (the "Tax
Reform") and (viii) a non-cash valuation allowance established on
certain deferred tax assets, 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.

As further discussed below, during the fourth quarter of fiscal 2018,
the Company reclassified certain royalties received from net revenue to
cost of product sales. Accordingly, amounts presented related to net
royalties, net revenue and cost of product sales for the twelve months
ended February 3, 2018 as well as the three and twelve months ended
January 28, 2017 have been adjusted to conform to the current period
presentation. This reclassification had no impact on previously reported
earnings from operations, net earnings, net earnings per share or cash
flows.

Fourth Quarter Fiscal 2018 Results

For the fourth quarter of fiscal 2018, the Company recorded GAAP net
earnings of $1.0 million, an 84.2% decrease from $6.6 million for the
fourth quarter of fiscal 2017. GAAP diluted earnings per share decreased
87.5% to $0.01 for the fourth quarter of fiscal 2018, from $0.08 in the
prior-year quarter. The Company estimates the positive impact of
currency on diluted earnings per share in the fourth quarter of fiscal
2018 was approximately $0.04 per share. The Company's fourth quarter of
fiscal 2018 results included 14 weeks, while the fourth quarter of
fiscal 2017 results included 13 weeks.

For the fourth quarter of fiscal 2018, the Company recorded adjusted net
earnings of $51.3 million, a 40.2% increase compared to $36.6 million
for the fourth quarter of fiscal 2017. Adjusted diluted earnings per
share increased 44.2% to $0.62, compared to $0.43 for the prior-year
quarter.

Net Revenue. Total net revenue for the fourth quarter of
fiscal 2018 increased 17.5% to $792.2 million, compared to $674.0
million in the prior-year quarter. In constant currency, net revenue
increased by 10.2%.

  • Americas Retail revenues decreased 6.1% in U.S. dollars and 7.2% in
    constant currency. Retail comp sales including e-commerce decreased 4%
    in U.S. dollars and 5% in constant currency.
  • Americas Wholesale revenues increased 3.8% in U.S. dollars and 0.9% in
    constant currency.
  • Europe revenues increased 39.7% in U.S. dollars and 24.1% in constant
    currency. Retail comp sales including e-commerce increased 18% in U.S.
    dollars and 6% in constant currency.
  • Asia revenues increased 40.2% in U.S. dollars and 33.1% in constant
    currency. Retail comp sales including e-commerce increased 14% in U.S.
    dollars and 8% in constant currency.
  • Licensing revenues increased 11.4% in U.S. dollars and constant
    currency.

Operating Earnings. GAAP operating earnings for the fourth
quarter of fiscal 2018 increased 225.9% to $68.4 million (including a
$7.1 million favorable currency translation impact), compared to $21.0
million in the prior-year quarter. GAAP operating margin in the fourth
quarter increased 550 basis points to 8.6%, compared to 3.1% in the
prior-year quarter, driven primarily by lower asset impairment charges.
The positive impact of currency on operating margin for the quarter was
roughly 80 basis points.

For the fourth quarter of fiscal 2018, adjusted operating earnings
increased 31.2% to $70.7 million, compared to $53.9 million in the
prior-year quarter. Adjusted operating margin was 8.9%, an increase of
90 basis points compared to the same prior-year quarter, driven
primarily by overall leveraging of expenses, partially offset by higher
performance-based compensation costs.

  • Operating margin for the Company's Americas Retail segment increased
    620 basis points to 6.0% in the fourth quarter of fiscal 2018,
    compared to negative 0.2% in the prior-year quarter. This increase was
    driven primarily by cost reductions due primarily to store closures
    and negotiated rent reductions, higher initial markups and lower
    markdowns, partially offset by the negative impact on the fixed cost
    structure resulting from negative comparable sales.
  • Operating margin for the Company's Americas Wholesale segment
    decreased 290 basis points to 14.2% in the fourth quarter of fiscal
    2018, from 17.1% in the prior-year quarter, driven primarily by lower
    gross margins and overall deleveraging of expenses.
  • Operating margin for the Company's Europe segment decreased 10 basis
    points to 15.9% in the fourth quarter of fiscal 2018, from 16.0% in
    the prior-year quarter, due primarily to higher distribution costs
    resulting from the relocation of the Company's European distribution
    center, partially offset by overall leveraging of expenses and higher
    initial markups.
  • Operating margin for the Company's Asia segment increased 470 basis
    points to 8.4% in the fourth quarter of fiscal 2018, compared to 3.7%
    in the same prior-year quarter, driven primarily by overall leveraging
    of expenses.
  • Operating margin for the Company's Licensing segment decreased 26.9%
    to 87.7% in the fourth quarter of fiscal 2018, from 114.6% in the
    prior-year quarter.

Other Income (Expense), Net. Other net expense was $0.1
million in the fourth quarter of fiscal 2018, which primarily includes
net unrealized and realized mark-to-market revaluation losses on foreign
exchange currency contracts, partially offset by unrealized gains on
non-operating assets and net unrealized mark-to-market revaluation gains
on foreign currency balances, compared to other net income of $4.5
million in the prior-year quarter.

Income Taxes. On December 22, 2017, the Tax Reform was
enacted into law and contains several key tax provisions that affected
the Company, including a one-time mandatory transition tax on
accumulated foreign earnings and a reduction of the U.S. corporate
income tax rate from 35% to 21%. Our GAAP results for the fourth quarter
of fiscal 2018 include the impact of a $47.9 million charge related to
the Tax Reform, or an unfavorable $0.58 per share impact. This is
comprised of a $24.9 million charge for the provisional re-measurement
of certain deferred taxes and related amounts and a provisional charge
of $23.0 million to income tax expense for the estimated effects of the
transitional tax on the deemed repatriation of foreign earnings. These
provisional amounts will be finalized in fiscal 2019 as the Company
completes its analysis of the impact of the Tax Reform. Our GAAP results
for the fourth quarter of fiscal 2017 included the impact of a valuation
allowance established on certain deferred tax assets of $6.8 million, a
portion of which was generated from asset impairment charges recorded
during the fourth quarter of fiscal 2017.

The Company's GAAP effective tax rate increased to 95.5% for the fourth
quarter of fiscal 2018, compared to 65.6% in the prior-year quarter. The
Company's adjusted effective tax rate decreased to 24.7% for the fourth
quarter of fiscal 2018, from 33.4% in the prior-year quarter.

Fiscal Year 2018 Results

For the fiscal year ended February 3, 2018, the Company recorded GAAP
net loss of $7.9 million, compared to GAAP net earnings of $22.8 million
for the fiscal year ended January 28, 2017. GAAP diluted loss per share
was $0.11 in fiscal 2018, compared to GAAP diluted earnings per share of
$0.27 in the prior year. The Company estimates the positive impact of
currency on diluted loss per share for the fiscal year ended February 3,
2018 was approximately $0.02 per share. The Company's fiscal 2018
results included 53 weeks, while fiscal 2017 results included 52 weeks.

For the fiscal year ended February 3, 2018, the Company recorded
adjusted net earnings of $58.4 million, a 50.6% increase compared to
$38.8 million for the fiscal year ended January 28, 2017. Adjusted
diluted earnings per share increased 52.2% to $0.70 in fiscal 2018,
compared to $0.46 for the prior year.

Net Revenue. Total net revenue for fiscal 2018 increased
7.9% to $2.36 billion, compared to $2.19 billion in the prior year. In
constant currency, net revenue increased by 5.3%.

  • Americas Retail revenues decreased 10.9% in U.S. dollars and 11.4% in
    constant currency. Retail comp sales including e-commerce decreased 9%
    in U.S. dollars and 10% in constant currency.
  • Americas Wholesale revenues increased 2.8% in U.S. dollars and 2.0% in
    constant currency.
  • Europe revenues increased 26.7% in U.S. dollars and 20.6% in constant
    currency. Retail comp sales including e-commerce increased 11% in U.S.
    dollars and 6% in constant currency.
  • Asia revenues increased 24.3% in U.S. dollars and 22.1% in constant
    currency. Retail comp sales including e-commerce increased 8% in U.S.
    dollars and 5% in constant currency.
  • Licensing revenues increased 1.2% in U.S. dollars and constant
    currency.

Operating Earnings. GAAP operating earnings for fiscal
2018 increased 187.0% to $65.2 million (including an $8.1 million
favorable currency translation impact), compared to $22.7 million in the
prior year. GAAP operating margin for fiscal 2018 increased 180 basis
points to 2.8%, compared to 1.0% in the prior year, driven primarily by
overall leveraging of expenses, higher initial mark-ups and lower asset
impairment charges, partially offset by the negative impact on the fixed
cost structure resulting from negative comparable sales in Americas
Retail and higher performance-based compensation costs. The positive
impact of currency on operating margin for fiscal 2018 was roughly 30
basis points.

For fiscal 2018, adjusted operating earnings increased 36.1% to $85.0
million, compared to $62.5 million in the prior year. Adjusted operating
margin was 3.6%, an increase of 70 basis points compared to the prior
year, driven primarily by overall leveraging of expenses and higher
initial mark-ups in Europe, partially offset by the negative impact on
the fixed cost structure resulting from negative comparable sales in
Americas Retail and higher performance-based compensation costs.

  • Operating margin for the Company's Americas Retail segment improved 30
    basis points to negative 2.1% in fiscal 2018, compared to negative
    2.4% in the prior year. This improvement was driven primarily by cost
    reductions due primarily to store closures and negotiated rent
    reductions and higher initial markups, partially offset by the
    negative impact on the fixed cost structure resulting from negative
    comparable store sales.
  • Operating margin for the Company's Americas Wholesale segment
    increased 20 basis points to 16.7% in fiscal 2018, compared to 16.5%
    in the prior year. The increase in operating margin was due to higher
    gross margins, partially offset by overall deleveraging of expenses.
  • Operating margin for the Company's Europe segment increased 150 basis
    points to 8.7% in fiscal 2018, compared to 7.2% in the prior year, due
    to 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 4.6% in fiscal 2018, compared to negative 1.0% in the prior
    year. The increase in operating margin was driven primarily by overall
    leveraging of expenses.
  • Operating margin for the Company's Licensing segment decreased 450
    basis points to 107.3% in fiscal 2018, from 111.8% in the prior year.

Other Income, Net. Other net income was $3.4 million for
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 $30.9 million for the prior year. For the fiscal
year ended January 28, 2017, 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 fiscal 2017.
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.

Income Taxes. On December 22, 2017, the Tax Reform was
enacted into law and contains several key tax provisions that affected
the Company, including a one-time mandatory transition tax on
accumulated foreign earnings and a reduction of the U.S. corporate
income tax rate from 35% to 21%. Our GAAP results for fiscal 2018
include the impact of a $47.9 million charge related to the Tax Reform,
or an unfavorable $0.58 per share impact. This is comprised of a $24.9
million charge for the provisional re-measurement of certain deferred
taxes and related amounts and a provisional charge of $23.0 million to
income tax expense for the estimated effects of the transitional tax on
the deemed repatriation of foreign earnings. These provisional amounts
will be finalized in fiscal 2019 as the Company completes its analysis
of the impact of the Tax Reform. Our GAAP results for fiscal 2017
included the impact of a valuation allowance established on certain
deferred tax assets of $6.8 million, a portion of which was generated
from asset impairment charges recorded during fiscal 2017.

The Company's GAAP effective tax rate increased to 105.6% for fiscal
2018, compared to 52.6% in the prior year. The Company's adjusted
effective tax rate decreased to 30.7% for fiscal 2018, compared to 41.7%
in the prior year.

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 April 20, 2018 to shareholders of record at the close of
business on April 4, 2018.

Reclassification of Prior Period Financial
Statements

In connection with our implementation of the new revenue standard for
fiscal 2019, we determined that conclusions reached under existing
revenue standards as to the appropriate classification of payments
received by us related to the Company's purchases of licensed inventory
products was not correct. While the Company has concluded that the
impact of these reclassification errors on the Company's
previously-issued consolidated financial statement is not material, the
Company has determined to revise its comparable periods when presented
herein and in future filings. During the fourth quarter of fiscal 2018,
the Company reclassified certain royalties received from net revenue to
cost of product sales.

For fiscal 2018, the historical quarterly periods ended April 29, 2017,
July 29, 2017, October 28, 2017, which are not presented herein as
comparisons, the reclassification would have reduced net revenue and
cost of product sales by $4.2 million, $5.4 million, and $5.2 million,
respectively, impacting the cumulative twelve months ended February 3,
2018 presented by $14.8 million. The comparative periods for the three
and twelve months ended January 28, 2017 have been reduced by $5.3
million and $18.9 million, respectively, to conform to the current
period presentation. This reclassification had no impact on previously
reported earnings from operations, net earnings, net earnings per share
or cash flows.

Outlook

The Company's expectations and outlook for the first quarter and fiscal
year ending February 2, 2019 are as follows:

Outlook for Total Company1
     
First Quarter of Fiscal 2019 Fiscal Year 20192
 
Consolidated net revenue in U.S. dollars3 increase between 11.0% and 12.5% increase between 7.0% and 8.0%
 
Consolidated net revenue in constant currency3, 4 increase between 5.5% and 7.0% increase between 5.0% and 6.0%
 
Operating margin5 (4.5)% to (4.0)% 4.0% to 4.5%
 
Currency impact included in operating margin6 40 basis points 50 basis points
 

Estimated effective tax rate

10% 25%
 
Earnings (loss) per share $(0.27) to $(0.24) $0.86 to $0.98
 
Currency impact included in earnings (loss) per share6 $0.00 $0.15
   
Notes:
1 The Company's outlook for the first quarter ending May 5, 2018 and
the fiscal year ending February 2, 2019 assumes that foreign
currency exchange rates remain at prevailing rates.
 
2 The Company's fiscal year 2019 will include 52 weeks, while fiscal
year 2018 included 53 weeks.
 
3 The Company adopted the new accounting standard ASC 606, Revenue
From Contracts With Customers
("ASC 606"), during the
first quarter of fiscal 2019. As such the Company's outlook for the
first quarter ending May 5, 2018 and the fiscal year ending February
2, 2019 reflects the accounting treatment of revenue transactions
under this new standard. If the outlook was presented under the
current accounting standard, the outlook for net revenue would have
been reduced by 0.4% and 0.2% for the first quarter and full year
2019, respectively.
 
4 Eliminates the impact of expected foreign currency translation to
give investors a better understanding of the underlying trends
within the business.
 
5

The Company adopted new authoritative guidance during the first
quarter of fiscal 2019 related to the presentation of net periodic
pension cost in the income statement. This guidance requires that
the non-service components of net periodic pension cost be
presented outside of earnings from operations, and all prior
periods will be comparably restated when presented in the future.
As a result, our outlook includes the presentation of
approximately $2 million of net periodic pension cost within other
income (expense) that was presented within SG&A expenses in fiscal
2018.

 
6 Represents the estimated translational and transactional gains
(losses) of foreign currency rate fluctuations within operating
margin and EPS measures presented.
 
 

On a segment basis, the Company expects the following ranges for
percentage changes for comparable store 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
         
First Quarter of Fiscal 2019 Fiscal Year 2019
 
U.S. Dollars Constant Currency2 U.S. Dollars Constant Currency2
 
Americas Retail:
Comps

__

up LSD __ down LSD
Net Revenue down LSD to up LSD down LSD to flat down MSD down MSD
 
Americas Wholesale:
Net Revenue up MSD up LSD up LSD up LSD
 
Europe:
Comps __ flat __ up LSD to MSD
Net Revenue up high-teens up MSD up mid-teens up LDD
 
Asia:
Comps up low to high-teens up low to mid-teens
Net Revenue up mid to high twenties up mid to high twenties up high-teens up low twenties
 
Licensing:
Net Revenue3 up low twenties __ up 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.
 
3 Our outlook includes the impacts of changes resulting from the
prospective adoption of the revenue accounting standard in the first
quarter of fiscal 2019. Excluding this impact, our guidance for
Licensing net revenue would have been up in the high-single digits
in the first quarter of fiscal 2019 and down in the mid-single
digits for fiscal year 2019.
 
 

Presentation of Non-GAAP Information

The financial information presented in this release includes non-GAAP
financial measures such as adjusted results, constant currency financial
information and free cash flow measures. For the three and twelve months
ended February 3, 2018, the adjusted results exclude the impact of net
losses on lease terminations, asset impairment charges and the tax
impacts of these adjustments, as well as the tax impacts resulting from
the enactment of the Tax Reform, where applicable. For the three and
twelve months ended January 28, 2017, the adjusted results exclude the
impact of asset impairment charges, a gain from the sale of a minority
interest investment, restructuring charges, a restructuring related exit
tax charge, net gains on lease terminations and the tax effects of these
adjustments, as well as the impact of a non-cash valuation allowance
established on certain deferred tax assets, 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
store 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
flow measure 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 March 21,
2018 to discuss the news announced in this press release. A live webcast
of the conference call will be accessible at
www.guess.com
via the "Investor Relations" link. The webcast will be archived on the
website for 30 days.

About Guess?

Guess?, Inc. designs, markets, distributes and licenses a lifestyle
collection of contemporary apparel, denim, handbags, watches, footwear
and other related consumer products. Guess? products are distributed
through branded Guess? stores as well as better department and specialty
stores around the world. As of February 3, 2018, the Company directly
operated 1,011 retail stores in the Americas, Europe and Asia. The
Company's licensees and distributors operated 652 additional retail
stores worldwide. As of February 3, 2018, the Company and its licensees
and distributors operated in approximately 100 countries worldwide. For
more information about the Company, please visit www.guess.com.

Forward-Looking Statements

Except for historical information contained herein, certain matters
discussed in this press release or the related conference call and
webcast, including statements concerning the Company's expectations,
future prospects, business strategies and strategic initiatives;
statements expressing optimism or pessimism about future operating
results or events and projected sales (including comparable sales),
earnings, capital expenditures, operating margins, cost savings and cash
needs; and guidance for the first quarter and full year of fiscal 2019,
including the impact of the new revenue recognition standard, are
forward-looking statements that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements, which are frequently indicated by terms such
as "expect," "will," "should," "goal," "strategy," "believe,"
"estimate," "continue," "outlook," "plan" and similar terms, are only
expectations, and involve known and unknown risks and uncertainties,
which may cause actual results in future periods to differ materially
from what is currently anticipated. Factors which may cause actual
results in future periods to differ materially from current expectations
include, among others: our ability to maintain our brand image and
reputation; domestic and international economic conditions, including
economic and other events that could negatively impact consumer
confidence and discretionary consumer spending; changes in the
competitive marketplace and in our commercial relationships; our ability
to anticipate and adapt to changing consumer preferences and trends; our
ability to manage our inventory commensurate with customer demand; risks
related to the timing and costs of delivering merchandise to our stores
and our wholesale customers; unexpected or unseasonable weather
conditions; our ability to effectively operate our various retail
concepts, including securing, renewing, modifying or terminating leases
for store locations; our ability to successfully and/or timely implement
our growth strategies and other strategic initiatives; our ability to
expand internationally and operate in regions where we have less
experience, including through joint ventures; our ability to
successfully or timely implement plans for cost reductions; our ability
to complete the transfer of our European distribution center without
incurring additional shipment delays and/or increased costs; our ability
to attract and retain key personnel; changes to our short or long-term
strategic initiatives; obligations arising from new or existing
litigation, tax and other regulatory proceedings (including the European
Commission proceeding initiated during the second quarter of fiscal 2018
to investigate whether the Company breached certain European Union
competition rules); risks related to the complexity of the Tax Reform
and our ability to accurately interpret and predict its impact on our
cash flows and financial condition; significant changes in our
provisional estimates of the Tax Reform; changes in U.S. or foreign tax
or tariff policy including with respect to apparel and other accessory
merchandise; accounting adjustments to our unaudited financial
statements identified during the completion of our annual independent
audit of financial statements and financial controls or from subsequent
events arising 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. Additional information with respect to known and unknown risks
will also be set forth in the Company's annual report on Form 10-K for
the year ended February 3, 2018, which will be filed with the Securities
and Exchange Commission in the first quarter of fiscal 2019. 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 Ended1 Twelve Months Ended1
February 3, 2018 January 28, 2017 February 3, 2018 January 28, 2017
$ % $ %2 $ %2 $ %2
 
Product sales $ 772,676 97.5 % $ 656,505 97.4 % $ 2,290,999 96.9 % $ 2,118,534 96.7 %
Net royalties2 19,488   2.5 % 17,499   2.6 % 72,755   3.1 % 71,919   3.3 %
Net revenue2 792,164 100.0 % 674,004 100.0 % 2,363,754 100.0 % 2,190,453 100.0 %
Cost of product sales2 497,094   62.8 % 437,597   64.9 % 1,534,906   64.9 % 1,445,413   66.0 %
 
Gross profit 295,070 37.2 % 236,407 35.1 % 828,848 35.1 % 745,040 34.0 %
 
Selling, general and administrative expenses 224,326

28.3

%

182,493 27.1 % 743,823 31.5 % 682,559 31.1 %
Net (gains) losses on lease terminations (121 ) (0.0 %) 0.0 % 11,373 0.5 % (695 ) (0.0 %)
Asset impairment charges 2,466 0.3 % 32,928 4.9 % 8,479 0.3 % 34,385 1.6 %
Restructuring charges   0.0 %   0.0 %   0.0 % 6,083   0.3 %
 
Earnings from operations 68,399 8.6 % 20,986 3.1 % 65,173 2.8 % 22,708 1.0 %
 
Other income (expense):
Interest expense (789 ) (0.1 %) (419 ) (0.1 %) (2,431 ) (0.1 %) (1,897 ) (0.1 %)
Interest income 1,084 0.2 % 127 0.0 % 4,106 0.2 % 1,890 0.1 %
Other income (expense), net (138 ) (0.0 %) 4,492   0.7 % 3,423   0.1 % 30,909   1.4 %
 
Earnings before income tax expense 68,556 8.7 % 25,186 3.7 % 70,271 3.0 % 53,610 2.4 %
Income tax expense 65,449   8.3 % 16,530   2.4 % 74,172   3.2 % 28,212   1.2 %
 
Net earnings (loss) 3,107 0.4 % 8,656 1.3 % (3,901 ) (0.2 %) 25,398 1.2 %
Net earnings attributable to noncontrolling interests 2,067   0.3 % 2,089   0.3 % 3,993   0.1 % 2,637   0.2 %
 
Net earnings (loss) attributable to Guess?, Inc. $ 1,040   0.1 % $ 6,567   1.0 % $ (7,894 ) (0.3 %) $ 22,761   1.0 %
 
Net earnings (loss) per common share attributable to common
stockholders:
Basic $ 0.01 $ 0.08 $ (0.11 ) $ 0.27
Diluted $ 0.01 $ 0.08 $ (0.11 ) $ 0.27
 
Weighted average common shares outstanding attributable to common
stockholders:
Basic 81,046 83,769 82,189 83,666
Diluted 82,377 83,970 82,189 83,829
 
Effective tax rate 95.5 % 65.6 % 105.6 % 52.6 %
 
Adjusted earnings from operations 3: $ 70,744 8.9 % $ 53,914 8.0 % $ 85,025 3.6 % $ 62,481 2.9 %
 
Adjusted net earnings attributable to Guess?, Inc.3: $ 51,336 6.5 % $ 36,607 5.4 % $ 58,426 2.5 % $ 38,800 1.8 %
 
Adjusted diluted earnings per common share attributable to common
stockholders3:
$ 0.62 $ 0.43 $ 0.70 $ 0.46
 
Adjusted effective tax rate3: 24.7 % 33.4 % 30.7 % 41.7 %
           
Notes:
1 The three and twelve months ended February 3, 2018 contain 14 and 53
weeks, respectively. The three and twelve months ended January 28,
2017 contain 13 and 52 weeks, respectively.
 
2 During the fourth quarter of fiscal 2018, the Company reclassified
net royalties received on the Company's inventory purchases of
licensed product from net revenue to cost of product sales to
reflect its treatment as a reduction of the cost of such licensed
product. Accordingly, amounts related to net royalties, net revenue
and cost of product sales for the twelve months ended February 3,
2018 as well as the three and twelve months ended January 28, 2017
have been adjusted to conform to the current period presentation.
This reclassification had no impact on previously reported earnings
from operations, net earnings or net earnings per share.
 
3

The adjusted results for the three and twelve months ended
February 3, 2018 reflect the exclusion of net (gains) losses on
lease terminations, asset impairment charges and the tax impacts
of these adjustments, as well as the tax impacts resulting from
the enactment of the 2017 Tax Cuts and Jobs Act ("Tax Reform"),
where applicable. The adjusted results for the three and twelve
months ended January 28, 2017 reflect the exclusion of asset
impairment charges, a gain from the sale of a minority interest
investment, restructuring charges, a restructuring related exit
tax charge, net gains on lease terminations and the tax impacts of
these adjustments, as well as the impact of a non-cash valuation
allowance established on certain deferred tax assets, 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 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
twelve months ended February 3, 2018 and January 28, 2017.
 
Three Months Ended1 Twelve Months Ended1
February 3, January 28, February 3, January 28,
2018 2017 2018 2017
 
Reported GAAP earnings from operations $ 68,399 $ 20,986 $ 65,173 $ 22,708
Net (gains) losses on lease terminations2 (121 ) 11,373 (695 )
Asset impairment charges3 2,466 32,928 8,479 34,385
Restructuring charges4       6,083  
 
Adjusted earnings from operations $ 70,744   $ 53,914   $ 85,025   $ 62,481  
 
Reported GAAP net earnings (loss) attributable to Guess?, Inc. $ 1,040 $ 6,567 $ (7,894 ) $ 22,761
Net (gains) losses on lease terminations2 (121 ) 11,373 (695 )
Asset impairment charges3 2,466 32,928 8,479 34,385
Restructuring charges4 6,083
Gain on sale of a minority interest investment5 (22,279 )
Income tax adjustments6 61 (9,718 ) (1,422 ) (10,196 )
Tax Reform - repatriation tax adjustment7 23,034 23,034
Tax Reform - deferred tax adjustment7 24,856 24,856
Valuation allowance on certain deferred tax assets8 6,830 6,830
Exit tax charge9       1,911  
 
Total adjustments affecting net earnings (loss) attributable to
Guess?, Inc.
50,296   30,040   66,320   16,039  
 
Adjusted net earnings attributable to Guess?, Inc. $ 51,336   $ 36,607   $ 58,426   $ 38,800  
 
Reported GAAP income tax expense $ 65,449 $ 16,530 $ 74,172 $ 28,212
Income tax adjustments6 (61 ) 9,718 1,422 10,196
Tax Reform - repatriation tax adjustment7 (23,034 ) (23,034 )
Tax Reform - deferred tax adjustment7 (24,856 ) (24,856 )
Valuation allowance on certain deferred tax assets8 (6,830 ) (6,830 )
Exit tax charge9       (1,911 )
 
Total income tax effect (47,951 ) 2,888   (46,468 ) 1,455  
 
Adjusted income tax expense $ 17,498   $ 19,418   $ 27,704   $ 29,667  
 
Adjusted effective tax rate 24.7 % 33.4 % 30.7 % 41.7 %
       
Notes:
1 The three and twelve months ended February 3, 2018 contain 14 and 53
weeks, respectively. The three and twelve months ended January 28,
2017 contain 13 and 52 weeks, respectively.
 
2 During the three and twelve months ended February 3, 2018, the
Company recorded net (gains) losses on lease terminations related
primarily to the modification of certain lease agreements held with
a common landlord in North America. During the twelve months ended
January 28, 2017, 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 twelve months ended January 28, 2017 have been adjusted to show
the impact of the net gains on lease terminations for comparative
purposes to same current-year period results.
 
3 During the three and twelve months ended February 3, 2018 and
January 28, 2017, the Company recognized asset impairment charges
for certain retail locations resulting from under-performance and
expected store closures.
 
4 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 twelve months
ended January 28, 2017. The restructuring charges were recorded
during the three months ended April 30, 2016.
 
5 The Company recognized a gain related to the sale of its minority
interest equity holding in a privately-held boutique apparel company
during the twelve months ended January 28, 2017. The gain related to
the sale was recorded during the three months ended July 30, 2016.
 
6 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 on the gain on sale of the minority interest
investment was based on the impact of the transaction on the
effective tax rate.
 
7 During the fourth quarter of fiscal 2018, the Company recognized
additional tax expense resulting from the enactment of the 2017 Tax
Reform to account for deemed repatriation of foreign earnings and
reduced deferred tax assets due to lower future U.S. corporate tax
rates.
 
8

During the fourth quarter of fiscal 2017, the Company recorded a
non-cash valuation allowance on certain of its deferred tax
assets, a portion of which was generated from the impairments
discussed above.

 
9 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 twelve months ended January 28,
2017. 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 Ended1 Twelve Months Ended1
February 3, January 28, % February 3, January 28, %
2018 2017 change 2018 2017 change
 
Net revenue:
Americas Retail $ 271,174 $ 288,906 (6%) $ 833,077 $ 935,479 (11%)
Americas Wholesale2 36,215 34,906 4% 150,366 146,260 3%
Europe2 356,824 255,347 40% 998,657 788,194 27%
Asia2 108,463 77,346 40% 308,899 248,601 24%
Licensing3 19,488   17,499   11% 72,755   71,919   1%
Total net revenue3 $ 792,164   $ 674,004   18% $ 2,363,754   $ 2,190,453   8%
 
 
Earnings (loss) from operations:
Americas Retail2 $ 16,353 $ (537 ) 3,145% $ (17,301 ) $ (22,816 ) 24%
Americas Wholesale2 5,150 5,979 (14%) 25,161 24,190 4%
Europe2 56,627 40,740 39% 87,376 56,961 53%
Asia2 9,061 2,870 216% 14,116 (2,381 ) 693%
Licensing2 17,083   20,061   (15%) 78,102   80,386   (3%)
Total segment earnings from operations 104,274 69,113 51% 187,454 136,340 37%
 
Corporate overhead2 (33,530 ) (15,199 ) 121% (102,429 ) (73,859 ) 39%
Net gains (losses) on lease terminations2 121 (11,373 ) 695
Asset impairment charges2 (2,466 ) (32,928 ) (8,479 ) (34,385 )
Restructuring charges       (6,083 )
Total earnings from operations $ 68,399   $ 20,986   226% $ 65,173   $ 22,708   187%
 
 
Operating margins:
Americas Retail2 6.0 % (0.2 %) (2.1 %) (2.4 %)
Americas Wholesale2 14.2 % 17.1 % 16.7 % 16.5 %
Europe2 15.9 % 16.0 % 8.7 % 7.2 %
Asia2 8.4 % 3.7 % 4.6 % (1.0 %)
Licensing2, 3 87.7 % 114.6 % 107.3 % 111.8 %
 
GAAP operating margin for total Company3 8.6 % 3.1 % 2.8 % 1.0 %
Net gains (losses) on lease terminations2 (0.0 %) 0.0 % 0.5 % (0.0 %)
Asset impairment charges2 0.3 % 4.9 % 0.3 % 1.6 %
Restructuring charges 0.0 % 0.0 % 0.0 % 0.3 %
Adjusted operating margin for total Company 8.9 % 8.0 % 3.6 % 2.9 %
           
Notes:
1 The three and twelve months ended February 3, 2018 contain 14 and 53
weeks, respectively. The three and twelve months ended January 28,
2017 contain 13 and 52 weeks, respectively.
 
2 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 to the fact that these items are no
longer included in the segment results provided to the Company's
chief operating decision maker in order to allocate resources and
assess performance. Accordingly, segment results have been adjusted
for the three and twelve months ended January 28, 2017 to conform to
the current period presentation.
 
3 During the fourth quarter of fiscal 2018, the Company reclassified
net royalties received on the Company's inventory purchases of
licensed product from net revenue to cost of product sales to
reflect its treatment as a reduction of the cost of such licensed
product. Accordingly, net revenue for the twelve months ended
February 3, 2018 as well as the three and twelve months ended
January 28, 2017 have been adjusted to conform to the current period
presentation. This reclassification had no impact on previously
reported earnings from operations.
 
 
Guess?, Inc. and Subsidiaries
Constant Currency Financial Measures
(dollars in thousands)
                   
Three Months Ended1
February 3, 2018 January 28, 2017 % change
As Reported Foreign Currency Impact Constant Currency As Reported As Reported Constant Currency
Net revenue:
Americas Retail $ 271,174 $ (3,105 ) $ 268,069 $ 288,906 (6%) (7%)
Americas Wholesale2 36,215 (982 ) 35,233 34,906 4% 1%
Europe2 356,824 (40,017 ) 316,807 255,347 40% 24%
Asia2 108,463 (5,536 ) 102,927 77,346 40% 33%
Licensing3 19,488     19,488   17,499   11% 11%
Total net revenue3 $ 792,164   $ (49,640 ) $ 742,524   $ 674,004   18% 10%
 
 
Twelve Months Ended1
February 3, 2018 January 28, 2017 % change
As Reported Foreign Currency Impact Constant Currency As Reported As Reported Constant Currency
Net revenue:
Americas Retail $ 833,077 $ (3,931 ) $ 829,146 $ 935,479 (11%) (11%)
Americas Wholesale2 150,366 (1,168 ) 149,198 146,260 3% 2%
Europe2 998,657 (47,743 ) 950,914 788,194 27% 21%
Asia2 308,899 (5,417 ) 303,482 248,601 24% 22%
Licensing3 72,755     72,755   71,919   1% 1%
Total net revenue3 $ 2,363,754   $ (58,259 ) $ 2,305,495   $ 2,190,453   8% 5%
           
Notes
1 The three and twelve months ended February 3, 2018 contain 14 and 53
weeks, respectively. The three and twelve months ended January 28,
2017 contain 13 and 52 weeks, respectively.
 
2 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 Americas Wholesale, Europe and Asia have been adjusted
for the three and twelve months ended January 28, 2017 to conform to
the current year presentation.
 
3 During the fourth quarter of fiscal 2018, the Company reclassified
net royalties received on the Company's inventory purchases of
licensed product from net revenue to cost of product sales to
reflect its treatment as a reduction of the cost of such licensed
product. Accordingly, net revenue for the twelve months ended
February 3, 2018 as well as the three and twelve months ended
January 28, 2017 have been adjusted to conform to the current period
presentation.
 
 
Guess?, Inc. and Subsidiaries
Selected Condensed Consolidated Balance Sheet Data
(in thousands)
                   
 
February 3, January 28,
2018 2017
 
ASSETS
 
Cash and cash equivalents $ 367,441 $ 396,129
 
Receivables, net 259,996 225,537
 
Inventories 428,304 367,381
 
Other current assets 52,964 54,965
 
Property and equipment, net 294,254 243,005
 
Restricted cash 241 1,521
 
Other assets 252,434 245,947
   
Total Assets $ 1,655,634   $ 1,534,485
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current portion of capital lease obligations and borrowings $ 2,845 $ 566
 
Other current liabilities 465,000 344,887
 
Long-term debt and capital lease obligations 39,196 23,482
 
Other long-term liabilities 209,528 180,104
 
Redeemable and nonredeemable noncontrolling interests 22,246 16,224
 
Guess?, Inc. stockholders' equity 916,819 969,222
   
Total Liabilities and Stockholders' Equity $ 1,655,634   $ 1,534,485
 
 
Guess?, Inc. and Subsidiaries
Condensed Consolidated Cash Flow Data
(in thousands)
           
 
Twelve Months Ended
February 3, January 28,
2018 2017
 
Net cash provided by operating activities1, 2 $ 148,370 $ 71,740
 
Net cash used in investing activities1 (90,347 ) (48,984 )
 
Net cash used in financing activities1 (128,737 ) (69,034 )
 
Effect of exchange rates on cash, cash equivalents and restricted
cash1
40,746   (2,071 )
 
Net change in cash, cash equivalents and restricted cash1 (29,968 ) (48,349 )
 
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 year1 $ 367,682   $ 397,650  
 
Supplemental information:
 
Depreciation and amortization $ 63,588 $ 69,319
 
Rent $ 272,332 $ 263,126
 
Non-cash investing and financing activity:
 
Assets acquired under capital lease obligations3 $ 18,502 $
           
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, investing
and financing activities as well as the effect of exchange rates on
cash, cash equivalents and restricted cash have been updated for the
twelve months ended January 28, 2017 to conform to the current year
presentation.
 
2 During 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 fiscal 2018, the Company began the relocation of its European
distribution center to the Netherlands. As a result, the Company
entered into a capital lease of $17.0 million for equipment used in
the new facility. During fiscal 2018, the Company also entered into
a capital lease for $1.5 million related primarily to computer
hardware and software.
 
 
Guess?, Inc. and Subsidiaries
Reconciliation of Net Cash Provided by Operating Activities to
Free Cash Flow
(in thousands)
             
 
Twelve Months Ended
February 3, January 28,
2018 2017
 
Net cash provided by operating activities1,2 $ 148,370 $ 71,740
 
Less: Purchases of property and equipment (84,655 ) (90,581 )
 
Free cash flow1,2 $ 63,715   $ (18,841 )
           
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 provided by operating activities and free cash flow
have been updated for the twelve months ended January 28, 2017 to
conform to the current year presentation.
 
2 During 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 February 3, 2018 As of January 28, 2017
Total Directly Operated Total Directly Operated
Region Stores Stores Stores Stores
 
United States 308 306 341 339
 
Canada 89 89 111 111
 
Central and South America 103 59 95 51
 
Total Americas 500 454 547 501
 
Europe and the Middle East 669 400 629 336
 
Asia 494 157 504 108
       
1,663 1,011 1,680 945
 
 
Guess?, Inc. and Subsidiaries
Directly Operated Retail Store Data
U.S. and Canada
               
 
Twelve Months Ended
February 3, January 28,
2018 2017
 
Number of stores at the beginning of the year 450 455
 
Store openings 7 19
 
Store closures (62) (24)
   
Number of stores at the end of the year 395 450
 
 
Total store square footage at the end of the year 1,980,000 2,198,000

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