Market Overview

Guess?, Inc. Reports Second Quarter Results

Share:

Q2 Fiscal 2019 Revenues Increased 14% to $646
Million; Increased 12% in Constant Currency

Q2 Fiscal 2019 GAAP EPS of $0.31, Compared to
$0.18 in Q2 Fiscal 2018; Q2 Fiscal 2019 Adjusted EPS of $0.36, Compared
to $0.19 in Q2 Fiscal 2018

Guess?, Inc. (NYSE:GES) today reported financial results for its second
quarter ended August 4, 2018.

Victor Herrero, Chief Executive Officer, commented, "I am pleased to
report that our second quarter results finished above the high-end of
our expectations for adjusted operating margin and adjusted earnings per
share. Overall, total Company revenues increased 14% in U.S. dollars and
12% in constant currency, driven by continued momentum in Europe and
Asia. The second quarter marked another quarter of operating margin
expansion for the Company, with a 70 basis points increase in GAAP
operating margin and 130 basis points increase in adjusted operating
margin. In addition, I am very encouraged by the trends in our Americas
Retail business where we posted another quarter of positive comps and
expanded our operating margin."

Mr. Herrero concluded, "Overall, I am very pleased by the momentum we
are experiencing across the globe. We are now planning for positive
comps in all regions, including the Americas. Looking forward, I feel
confident that the 'turnaround' has only just begun, as we are well
positioned to exit this fiscal year with every business segment
profitable and the Company firmly on the path to our 7.5% operating
margin goal by continuing to execute on our strategic initiatives."

This press release contains certain non-GAAP, or adjusted, financial
measures. References to "adjusted" results exclude the impact of (i) net
gains on lease terminations, (ii) asset impairment charges, (iii)
certain professional service and legal fees and related costs, and (iv)
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.

Second Quarter Fiscal 2019 Results

For the second quarter of fiscal 2019, the Company recorded GAAP net
earnings of $25.5 million, a 67.8% increase compared to $15.2 million
for the second quarter of fiscal 2018. GAAP diluted earnings per share
increased 72.2% to $0.31 for the second quarter of fiscal 2019, compared
to $0.18 for the prior-year quarter. The Company estimates that currency
had a positive impact on diluted earnings per share of $0.05 in the
second quarter of fiscal 2019.

For the second quarter of fiscal 2019, the Company recorded adjusted net
earnings of $29.5 million, an 83.5% increase compared to $16.1 million
for the second quarter of fiscal 2018. Adjusted diluted earnings per
share increased 89.5% to $0.36, compared to $0.19 for the prior-year
quarter.

Net Revenue. Total net revenue for the second quarter of
fiscal 2019 increased 13.7% to $645.9 million, compared to $568.3
million in the prior-year quarter. In constant currency, net revenue
increased by 12.2%.

  • Americas Retail revenues decreased 2.0% in U.S. dollars and constant
    currency. Retail comp sales including e-commerce increased 3% in U.S.
    dollars and constant currency.
  • Americas Wholesale revenues increased 4.9% in U.S. dollars and 6.8% in
    constant currency.
  • Europe revenues increased 22.2% in U.S. dollars and 19.4% in constant
    currency. Retail comp sales including e-commerce increased 5% in U.S.
    dollars and 2% in constant currency.
  • Asia revenues increased 32.0% in U.S. dollars and 29.0% in constant
    currency. Retail comp sales including e-commerce increased 17% in U.S.
    dollars and 14% in constant currency.
  • Licensing revenues increased 19.5% in U.S. dollars and constant
    currency.

Operating Earnings. GAAP earnings from operations for the
second quarter of fiscal 2019 increased 34.0% to $31.9 million
(including a $0.8 million unfavorable currency translation impact),
compared to $23.8 million in the prior-year quarter. GAAP operating
margin in the second quarter increased 70 basis points to 4.9%, compared
to 4.2% in the prior-year quarter, driven primarily by the favorable
impact from higher European wholesale shipments and lower markdowns in
Americas Retail, partially offset by higher distribution costs resulting
from the relocation of the Company's European distribution center and
higher retail promotions in Europe. The positive impact of currency on
operating margin for the quarter was approximately 10 basis points.

For the second quarter of fiscal 2019, adjusted earnings from operations
increased 47.4% to $36.9 million, compared to $25.0 million in the same
prior-year quarter. Adjusted operating margin was 5.7%, an increase of
130 basis points compared to the same prior-year quarter.

  • Operating margin for the Company's Americas Retail segment improved
    460 basis points to 2.8% in the second quarter of fiscal 2019,
    compared to negative 1.8% in the prior-year quarter, driven primarily
    by the favorable impact from lower markdowns and negotiated rent
    reductions, partially offset by higher store selling expenses.
  • Operating margin for the Company's Americas Wholesale segment
    decreased 50 basis points to 15.5% in the second quarter of fiscal
    2019, from 16.0% in the prior-year quarter, due primarily to lower
    gross margins driven primarily by the liquidation of aged inventory.
  • Operating margin for the Company's Europe segment decreased 200 basis
    points to 9.8% in the second quarter of fiscal 2019, from 11.8% in the
    prior-year quarter, driven primarily by higher distribution costs
    resulting from the relocation of the Company's European distribution
    center and higher retail promotions, partially offset by overall
    leveraging of expenses resulting from higher wholesale shipments.
  • Operating margin for the Company's Asia segment decreased 190 basis
    points to 2.0% in the second quarter of fiscal 2019, from 3.9% in the
    prior-year quarter, driven primarily by higher expenses resulting from
    retail expansion in Australia.
  • Operating margin for the Company's Licensing segment increased 130
    basis points to 88.5% in the second quarter of fiscal 2019, compared
    to 87.2% in the prior-year quarter.

Other net income was $1.4 million for the second quarter of fiscal 2019,
which primarily includes net unrealized and realized mark-to-market
revaluation gains on foreign exchange currency contracts and unrealized
gains on non-operating assets, partially offset by net unrealized
mark-to-market revaluation losses on foreign currency balances, compared
to other net expense of $2.2 million in the prior-year quarter.

Six-Month Period Results

For the six months ended August 4, 2018, the Company recorded GAAP net
earnings of $4.3 million, compared to GAAP net loss of $6.1 million for
the six months ended July 29, 2017. GAAP diluted earnings per share was
$0.05 for the six months ended August 4, 2018, compared to GAAP diluted
loss per share of $0.08 for the same prior-year period. The Company
estimates the positive impact of currency on diluted earnings per share
for the six months ended August 4, 2018 was approximately $0.02 per
share.

For the six months ended August 4, 2018, the Company recorded adjusted
net earnings of $11.6 million, compared to adjusted net loss of $3.3
million for the six months ended July 29, 2017. Adjusted diluted
earnings per share were $0.14, compared to adjusted diluted loss per
share of $0.04 for the prior-year period.

Net Revenue. Total net revenue for the first six months of
fiscal 2019 increased 14.1% to $1.17 billion, compared to $1.02 billion
in the same prior-year period. In constant currency, net revenue
increased by 10.2%.

  • Americas Retail revenues decreased 1.7% in U.S. dollars and 2.1% in
    constant currency. Retail comp sales including e-commerce increased 2%
    in U.S. dollars and constant currency.
  • Americas Wholesale revenues increased 9.4% in U.S. dollars and 9.1% in
    constant currency.
  • Europe revenues increased 23.0% in U.S. dollars and 15.4% in constant
    currency. Retail comp sales including e-commerce increased 9% in U.S.
    dollars and 2% in constant currency.
  • Asia revenues increased 32.3% in U.S. dollars and 27.1% in constant
    currency. Retail comp sales including e-commerce increased 20% in U.S.
    dollars and 15% in constant currency.
  • Licensing revenues increased 21.4% in U.S. dollars and constant
    currency.

Operating Earnings (Loss). GAAP earnings from operations
for the first six months of fiscal 2019 was $7.0 million (including a
$4.8 million unfavorable currency translation impact), compared to GAAP
operating loss of $1.2 million in the same prior-year period. GAAP
operating margin in the first six months of fiscal 2019 increased 70
basis points to 0.6%, compared to negative 0.1% in the prior-year
period, driven primarily by lower markdowns in Americas Retail and
segment mix, partially offset by higher distribution costs resulting
from the relocation of the Company's European distribution center. The
negative impact of currency on operating margin for the first six months
of fiscal 2019 was approximately 20 basis points.

For the six months ended August 4, 2018, adjusted earnings from
operations increased 484.8% to $16.4 million, compared to $2.8 million
for the six months ended July 29, 2017. Adjusted operating margin was
1.4% for the six months ended August 4, 2018, an increase of 110 basis
points compared to the same prior-year period.

  • Operating margin for the Company's Americas Retail segment improved
    670 basis points to relatively breakeven in the first six months of
    fiscal 2019, compared to negative 6.7% in the same prior-year period,
    driven primarily by the favorable impact from lower markdowns and
    negotiated rent reductions.
  • Operating margin for the Company's Americas Wholesale segment
    decreased 270 basis points to 15.1% in the first six months of fiscal
    2019, from 17.8% in the same prior-year period. The decrease in
    operating margin was due primarily to lower gross margins driven
    primarily by the liquidation of aged inventory.
  • Operating margin for the Company's Europe segment decreased 490 basis
    points to 2.0% in the first six months of fiscal 2019, from 6.9% in
    the same prior-year period. This decrease was driven primarily by
    higher distribution costs resulting from the relocation of the
    Company's European distribution center.
  • Operating margin for the Company's Asia segment increased 120 basis
    points to 3.4% in the first six months of fiscal 2019, compared to
    2.2% in the same prior-year period. The improvement in operating
    margin was driven primarily by higher gross margins due mainly to
    overall leveraging of occupancy costs, partially offset by the higher
    expenses resulting from retail expansion in Australia.
  • Operating margin for the Company's Licensing segment increased 280
    basis points to 88.4% in the first six months of fiscal 2019, compared
    to 85.6% in the same prior-year period.

Other net expense was $1.3 million for the first six months of fiscal
2019, which primarily includes net unrealized mark-to-market revaluation
losses on foreign currency balances, partially offset by net unrealized
and realized mark-to-market revaluation gains on foreign exchange
currency contracts, compared to $0.3 million in the prior-year period.

Impact from Adoption of New Revenue Recognition Standard

The Company adopted a comprehensive new revenue recognition standard
during the first quarter of fiscal 2019 under a modified retrospective
method that does not restate prior periods to be comparable to the
current period presentation. The adoption of this guidance primarily
impacted the presentation of advertising contributions received from the
Company's licensees and the related advertising expenditures incurred by
the Company. Under previous guidance, the Company recorded advertising
contributions received from its licensees and the related advertising
expenditures incurred by the Company on a net basis in its consolidated
balance sheet. To the extent that the advertising contributions exceeded
the Company's advertising expenditures for its licensees, the excess
contribution was treated as a deferred liability and was included in
accrued expenses in the Company's consolidated balance sheet. Under the
new revenue recognition standard, advertising contributions and related
advertising expenditures related to the Company's licensing business are
recorded on a gross basis. This resulted in an increase in net royalty
revenue within the Company's Licensing segment of approximately $2.1
million, as well as an increase in selling, general and administrative
expenses in our Licensing, Americas Retail and Americas Wholesale
segments and corporate overhead of $0.2 million, $0.5 million, $0.2
million and $0.5 million, respectively, during the three months ended
August 4, 2018 compared to the same prior-year quarter. The net impact
was approximately $0.6 million increase in earnings from operations for
the three months ended August 4, 2018. During the six months ended
August 4, 2018, this resulted in an increase in net royalty revenue
within the Company's Licensing segment of approximately $4.4 million, as
well as an increase in selling, general and administrative expenses in
our Licensing, Americas Retail and Americas Wholesale segments and
corporate overhead of $0.4 million, $2.3 million, $0.9 million and $1.1
million, respectively, compared to the same prior-year period. The net
impact was approximately $0.4 million reduction in earnings from
operations for the six months ended August 4, 2018.

Dividends

The Company's Board of Directors has approved a quarterly cash dividend
of $0.225 per share on the Company's common stock. The dividend will be
payable on September 28, 2018 to shareholders of record at the close of
business on September 12, 2018.

Outlook

The Company's expectations for the third quarter ending November 3, 2018
and its updated outlook for the fiscal year ending February 2, 2019 are
as follows:

Outlook for Total Company1
   
Third Quarter of Fiscal 2019 Fiscal Year 2019
 
Consolidated net revenue in U.S. dollars increase between 9.0% and 10.0% increase between 9.0% and 9.5%
 
Consolidated net revenue in constant currency2 increase between 10.5% and 11.5% increase between 8.0% and 8.5%
 
GAAP operating margin 2.5% to 3.0% 4.0% to 4.3%
 
Adjusted operating margin3 2.5% to 3.0% 4.4% to 4.7%
 
Currency impact included in operating margin4 30 basis points 0 basis points
 
GAAP EPS $0.12 to $0.15 $0.85 to $0.94
 
Adjusted EPS3 $0.12 to $0.15 $0.94 to $1.03
 
Currency impact included in EPS4 $0.02 $0.06

_______________

Notes:

1   The Company's outlook for the third quarter ending November 3, 2018
and the fiscal year ending February 2, 2019 assumes that foreign
currency exchange rates remain at prevailing rates.
 
2 Eliminates the impact of expected foreign currency translation to
give investors a better understanding of the underlying trends
within the business.
 
3 The adjusted operating margin and adjusted EPS guidance for the
fiscal year 2019 reflect the exclusion of certain items which the
Company believes are not indicative of the underlying performance of
its business. Refer to the table below for a reconciliation of our
GAAP and adjusted outlook.
 
4 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 third quarter ending November 3, 2018 and the
fiscal year ending February 2, 2019 is as follows:

Reconciliation of GAAP Outlook to Adjusted Outlook
   
Third Quarter of Fiscal 2019 Fiscal Year 2019
 
GAAP operating margin 2.5% to 3.0% 4.0% to 4.3%
Net gains on lease terminations1 0.0%
Asset impairment charges2 0.2%

Certain professional service and legal fees and related costs3

0.2%
 
Adjusted operating margin 2.5% to 3.0% 4.4% to 4.7%
 
GAAP earnings per share $0.12 to $0.15 $0.85 to $0.94
Net gains on lease terminations1 $0.00
Asset impairment charges2 $0.04
Certain professional service and legal fees and related costs3 $0.05
 
Adjusted earnings per share $0.12 to $0.15 $0.94 to $1.03

_______________

Notes:
1   Amounts for the full fiscal year include net gains on lease
terminations recorded during the six months ended August 4, 2018
related primarily to the early termination of certain lease
agreements in North America. The adjusted results do not assume any
additional gains (losses) from lease terminations as the timing and
exact amount of any future charges, if any, are not known.
 
2 Amounts for the full fiscal year include asset impairment charges
for certain retail locations recognized during the six months ended
August 4, 2018 that resulted from store under-performance and
expected store closures. The adjusted results do not assume any
additional asset impairment charges as the Company has recorded
amounts currently anticipated under GAAP.
 
3 Amounts for the full fiscal year include certain professional
service and legal fees and related costs recognized during the six
months ended August 4, 2018 which the Company otherwise would not
have incurred as part of its business operations. The Company is
unable to predict future amounts as these expenditures are
inconsistent in amount and frequency and certain elements used to
estimate such items have not yet occurred or are out of the
Company's control. As such, the Company has not considered any
future charges in the accompanying GAAP outlook.

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
 
  Third Quarter of Fiscal 2019   Fiscal Year 2019
   
U.S. Dollars Constant Currency2 U.S. Dollars Constant Currency2
 
Americas Retail:
Comps __ up LSD __ up LSD
Net Revenue down LSD down LSD down LSD down LSD
 
Americas Wholesale:
Net Revenue up mid-teens up high-teens up HSD up HSD
 
Europe:
Comps __ up MSD __ up LSD
Net Revenue up low-teens up mid-teens up low-teens up low-teens
 
Asia:
Comps __ up low-teens __ up mid-teens
Net Revenue up mid-twenties up mid-twenties up mid-twenties up low-twenties
 
Licensing:
Net Revenue3 up LSD __ up HSD __

_______________

Notes:
1   As used in the table above, "LSD" is used to refer to the range of
Low-Single-Digits, "MSD" is used to refer to the range of
Mid-Single-Digits, "HSD" is used to refer to the range of
High-Single-Digits, and "LDD" is used to refer to the range of
Low-Double-Digits.
 
2 Eliminates the impact of expected foreign currency translation to
give investors a better understanding of the underlying trends
within the business.
 
3 Our outlook includes the impacts of changes resulting from the
prospective adoption of the revenue accounting standard in the first
quarter of fiscal 2019. Excluding this impact, our guidance for
Licensing net revenue would have been down in the mid-single digits
in the third quarter of fiscal 2019 and down in the low-single
digits for fiscal year 2019.

Presentation of Non-GAAP Information

The financial information presented in this release includes non-GAAP
financial measures such as adjusted results, constant currency financial
information and free cash flow measures. For the three and six months
ended August 4, 2018, the adjusted results exclude the impact of net
gains on lease terminations, asset impairment charges, certain
professional service and legal fees and related costs, and the tax
effects of these adjustments, where applicable. For the three and six
months ended July 29, 2017, the adjusted results exclude the impact of
asset impairment charges and the related tax impact, where applicable.
These non-GAAP measures are provided in addition to, and not as
alternatives for, the Company's reported GAAP results.

The Company has excluded these items from its adjusted financial
measures primarily because it believes these items are not indicative of
the underlying performance of its business and that the adjusted
financial information provided is useful for investors to evaluate the
comparability of the Company's operating results and its future outlook
(when reviewed in conjunction with the Company's GAAP financial
statements). A reconciliation of reported GAAP results to comparable
non-GAAP results is provided in the accompanying tables.

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

The Company also includes information regarding its free cash flows in
this release. The Company calculates free cash flows as cash flows from
operating activities less (i) purchases of property and equipment and
(ii) payments for property and equipment under capital leases. Free cash
flows 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 and payments for property and equipment under
capital leases. Free cash flow information presented may not be
comparable to similarly titled measures reported by other companies. A
reconciliation of reported GAAP cash flows from operating activities to
the comparable non-GAAP free cash flow measure is provided in the
accompanying tables.

Investor Conference Call

The Company will hold a conference call at 4:45 pm (ET) on August 29,
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 August 4, 2018, the Company directly
operated 1,061 retail stores in the Americas, Europe and Asia. The
Company's licensees and distributors operated 601 additional retail
stores worldwide. As of August 4, 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 third quarter and full year of fiscal 2019,
are forward-looking statements that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements, which are frequently indicated by terms such
as "expect," "will," "should," "goal," "strategy," "believe,"
"estimate," "continue," "outlook," "plan" 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 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 Six Months Ended
August 4, 2018 July 29, 2017 August 4, 2018 July 29, 2017
  $     %   $    

%1

  $    

%

  $    

%1

 
Product sales $ 626,162 96.9 % $ 551,794 97.1 % $ 1,127,667 96.6 % $ 990,114 96.8 %
Net royalties1   19,709     3.1 %   16,498     2.9 %   39,493     3.4 %   32,523     3.2 %
Net revenue1 645,871 100.0 % 568,292 100.0 % 1,167,160 100.0 % 1,022,637 100.0 %
 
Cost of product sales1   406,440     62.9 %   370,265     65.2 %   753,791     64.6 %   679,968     66.5 %
Gross profit 239,431 37.1 % 198,027 34.8 % 413,369 35.4 % 342,669 33.5 %
 
Selling, general and administrative expenses2 204,569 31.7 % 173,007 30.4 % 402,788 34.5 % 339,862 33.2 %
Net gains on lease terminations 0.0 % 0.0 % (152 ) (0.0 %) 0.0 %
Asset impairment charges   2,981     0.5 %   1,233     0.2 %   3,740     0.3 %   3,995     0.4 %
Earnings (loss) from operations2 31,881 4.9 % 23,787 4.2 % 6,993 0.6 % (1,188 ) (0.1 %)
 
Other income (expense):
Interest expense (863 ) (0.1 %) (544 ) (0.1 %) (1,602 ) (0.1 %) (958 ) (0.1 %)
Interest income 1,132 0.2 % 1,260 0.2 % 2,109 0.1 % 2,131 0.2 %
Other income (expense), net2   1,360     0.2 %   (2,169 )   (0.4 %)   (1,254 )   (0.1 %)   (281 )   (0.0 %)
Earnings (loss) before income tax expense 33,510 5.2 % 22,334 3.9 % 6,246 0.5 % (296 ) (0.0 %)
 
Income tax expense   7,776     1.2 %   6,453     1.1 %   1,499     0.1 %   5,050     0.5 %
Net earnings (loss) 25,734 4.0 % 15,881 2.8 % 4,747 0.4 % (5,346 ) (0.5 %)
 
Net earnings attributable to noncontrolling interests   204     0.0 %   662     0.1 %   438     0.0 %   728     0.1 %
Net earnings (loss) attributable to Guess?, Inc. $ 25,530     4.0 % $ 15,219     2.7 % $ 4,309     0.4 % $ (6,074 )   (0.6 %)
 
Net earnings (loss) per common share attributable to common
stockholders:
 
Basic $ 0.32 $ 0.18 $ 0.05 $ (0.08 )
Diluted $ 0.31 $ 0.18 $ 0.05 $ (0.08 )
 
Weighted average common shares outstanding attributable to common
stockholders:
 
Basic 80,110 82,396 80,006 82,703
Diluted 81,550 82,763 81,248 82,703
 
Effective tax rate 23.2 % 28.9 % 24.0 % (1,706.1 %)
 
Adjusted selling, general and administrative expenses2,3: $ 202,543 31.4 % $ 173,007 30.4 % $ 396,953 34.0 % $ 339,862 33.2 %

Adjusted earnings from operations2,3:

$ 36,888 5.7 % $ 25,020 4.4 % $ 16,416 1.4 % $ 2,807 0.3 %
Adjusted net earnings (loss) attributable to Guess?, Inc.3: $ 29,454 4.6 % $ 16,051 2.8 % $ 11,623 1.0 % $ (3,300 ) (0.3 %)
Adjusted diluted earnings (loss) per common share attributable to
common stockholders3:
$ 0.36 $ 0.19 $ 0.14 $ (0.04 )
Adjusted effective tax rate3: 23.0 % 29.1 % 23.0 % 169.5 %

_______________

Notes:
1   During the fourth quarter of fiscal 2018, the Company reclassified
net royalties received on the Company's inventory purchases of
licensed product from net revenue to cost of product sales to
reflect its treatment as a reduction of the cost of such licensed
product. Accordingly, amounts related to net royalties, net revenue
and cost of product sales for the three and six months ended July
29, 2017 have been adjusted to conform to the current period
presentation. This reclassification had no impact on previously
reported earnings (loss) from operations, net earnings (loss) or net
earnings (loss) per share.
 
2 During the first quarter of fiscal 2019, the Company adopted new
authoritative guidance which requires that the non-service
components of net periodic defined benefit pension cost be presented
outside of earnings (loss) from operations. Accordingly, the Company
reclassified approximately $0.5 million and $1.1 million,
respectively, from selling, general and administrative expenses to
other expense, net for the three and six months ended July 29, 2017
to conform to the current period presentation. This reclassification
had no impact on previously reported net earnings (loss) or net
earnings (loss) per share.
 
3 The adjusted results for the three and six months ended August 4,
2018 reflect the exclusion of net gains on lease terminations, asset
impairment charges, certain professional service and legal fees and
related costs, and the related tax impacts that were recorded, where
applicable. The adjusted results for the three and six months ended
July 29, 2017 reflect the exclusion of asset impairment charges and
the related tax impact, where applicable. A complete reconciliation
of actual results to adjusted results is presented in the table
entitled "Reconciliation of GAAP Results to Adjusted Results."
 
Guess?, Inc. and Subsidiaries
Reconciliation of GAAP Results to Adjusted Results
(dollars in thousands)
 
The following table provides reconciliations of reported GAAP
selling, general and administrative expenses to adjusted selling,
general and administrative expenses, reported GAAP earnings (loss)
from operations to adjusted earnings from operations, reported GAAP
net earnings (loss) attributable to Guess?, Inc. to adjusted net
earnings (loss) attributable to Guess?, Inc. and reported GAAP
income tax expense to adjusted income tax expense for the three and
six months ended August 4, 2018 and July 29, 2017.
       
Three Months Ended Six Months Ended
August 4, July 29, August 4, July 29,
  2018     2017     2018     2017  
 
Reported GAAP selling, general and administrative expenses $ 204,569 $ 173,007 $ 402,788 $ 339,862
Certain professional service and legal fees and related costs1   (2,026 )       (5,835 )    
 
Adjusted selling, general and administrative expenses $ 202,543   $ 173,007   $ 396,953   $ 339,862  
 
Reported GAAP earnings (loss) from operations $ 31,881 $ 23,787 $ 6,993 $ (1,188 )
Net gains on lease terminations2 (152 )
Asset impairment charges3 2,981 1,233 3,740 3,995
Certain professional service and legal fees and related costs1   2,026         5,835      
 
Adjusted earnings from operations $ 36,888   $ 25,020   $ 16,416   $ 2,807  
 
Reported GAAP net earnings (loss) attributable to Guess?, Inc. $ 25,530 $ 15,219 $ 4,309 $ (6,074 )
Net gains on lease terminations2 (152 )
Asset impairment charges3 2,981 1,233 3,740 3,995
Certain professional service and legal fees and related costs1 2,026 5,835
Income tax adjustments4   (1,083 )   (401 )   (2,109 )   (1,221 )
 
Total adjustments affecting net earnings (loss) attributable to
Guess?, Inc.
  3,924     832     7,314     2,774  
 
Adjusted net earnings (loss) attributable to Guess?, Inc. $ 29,454   $ 16,051   $ 11,623   $ (3,300 )
 
 
Reported GAAP income tax expense $ 7,776 $ 6,453 $ 1,499 $ 5,050
Income tax adjustments4   1,083     401     2,109     1,221  
 
Adjusted income tax expense $ 8,859   $ 6,854   $ 3,608   $ 6,271  
 
Adjusted effective tax rate 23.0 % 29.1 % 23.0 % 169.5 %

_______________

Notes:
1   During the three and six months ended August 4, 2018, the Company
recorded certain professional service and legal fees and related
costs, which it otherwise would not have incurred as part of its
business operations.
 
2 During the six months ended August 4, 2018, the Company recorded net
gains on lease terminations related primarily to the early
termination of certain lease agreements in North America. The net
gains on lease terminations were recorded during the three months
ended May 5, 2018.
 
3 During the three and six months ended August 4, 2018 and July 29,
2017, the Company recognized asset impairment charges for certain
retail locations resulting from under-performance and expected store
closures.
 
4 The income tax effect of the net gains on lease terminations, asset
impairment charges and certain professional service and legal fees
and related costs was based on the Company's assessment of
deductibility using the statutory tax rate (inclusive of the impact
of valuation allowances) of the tax jurisdiction in which the
charges were incurred.
 
Guess?, Inc. and Subsidiaries
Consolidated Segment Data
(dollars in thousands)
 
 
  Three Months Ended   Six Months Ended
August 4,   July 29,   % August 4,   July 29,   %
  2018     2017   change   2018     2017   change
 
Net revenue:
Americas Retail $ 197,125 $ 201,188 (2%) $ 368,465 $ 374,882 (2%)
Americas Wholesale 34,253 32,658 5% 74,932 68,515 9%
Europe 311,998 255,215 22% 517,433 420,603 23%
Asia 82,786 62,733 32% 166,837 126,114 32%
Licensing1   19,709     16,498   19%   39,493     32,523   21%
Total net revenue1 $ 645,871   $ 568,292   14% $ 1,167,160   $ 1,022,637   14%
 
 
Earnings (loss) from operations:
Americas Retail2,3 $ 5,582 $ (3,555 ) 257% $ (98 ) $ (25,136 ) 100%
Americas Wholesale2,3 5,325 5,238 2% 11,351 12,221 (7%)
Europe2,3,4 30,531 30,058 2% 10,198 29,052 (65%)
Asia2,3 1,634 2,441 (33%) 5,699 2,780 105%
Licensing2,3   17,437     14,389   21%   34,923     27,850   25%
Total segment earnings from operations2,4 60,509 48,571 25% 62,073 46,767 33%
 
Corporate overhead2,4 (25,647 ) (23,551 ) 9% (51,492 ) (43,960 ) 17%
Net gains on lease terminations2 152
Asset impairment charges2   (2,981 )   (1,233 )   (3,740 )   (3,995 )
Total earnings (loss) from operations4 $ 31,881   $ 23,787   34% $ 6,993   $ (1,188 ) 689%
 
 
Operating margins:
Americas Retail2,3 2.8 % (1.8 %) (0.0 %) (6.7 %)
Americas Wholesale2,3 15.5 % 16.0 % 15.1 % 17.8 %
Europe2,3,4 9.8 % 11.8 % 2.0 % 6.9 %
Asia2,3 2.0 % 3.9 % 3.4 % 2.2 %
Licensing1,2,3 88.5 % 87.2 % 88.4 % 85.6 %
 
GAAP operating margin for total Company1,4 4.9 % 4.2 % 0.6 % (0.1 %)
Net gains on lease terminations2 0.0 % 0.0 % 0.0 % 0.0 %
Asset impairment charges2 0.5 % 0.2 % 0.3 % 0.4 %
Certain professional service and legal fees and related costs   0.3 %   0.0 %   0.5 %   0.0 %
Adjusted operating margin for total Company1,4   5.7 %   4.4 %   1.4 %   0.3 %

_______________

Notes:
1   During the fourth quarter of fiscal 2018, the Company reclassified
net royalties received on the Company's inventory purchases of
licensed product from net revenue to cost of product sales to
reflect its treatment as a reduction of the cost of such licensed
product. Accordingly, net revenue for the three and six months ended
July 29, 2017 have been adjusted to conform to the current period
presentation. This reclassification had no impact on previously
reported earnings (loss) from operations.
 
2 During the third quarter of fiscal 2018, segment results were
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 three and
six months ended July 29, 2017 to conform to the current period
presentation.
 
3 During the first quarter of fiscal 2019, the Company changed the
segment accountability for funds received from licensees on the
Company's purchases of its licensed products. These amounts were
treated as a reduction of cost of product sales within the Licensing
segment but now are considered in the results of the segments that
control the respective purchases for purposes of segment performance
evaluation. Accordingly, segment results for the three and six
months ended July 29, 2017 have been adjusted to conform to the
current period presentation.
 
4 During the first quarter of fiscal 2019, the Company adopted new
authoritative guidance which requires that the non-service
components of net periodic defined benefit pension cost be presented
outside of earnings (loss) from operations. Accordingly, earnings
(loss) from operations and segment results for the three and six
months ended July 29, 2017 have been adjusted to conform to the
current period presentation.
 
Guess?, Inc. and Subsidiaries
Constant Currency Financial Measures
(dollars in thousands)
 
  Three Months Ended    
August 4, 2018   July 29, 2017 % change
  Foreign  
Currency Constant As Constant
As Reported Impact Currency As Reported Reported Currency
Net revenue:
Americas Retail $ 197,125 $ 24 $ 197,149 $ 201,188 (2%) (2%)
Americas Wholesale 34,253 628 34,881 32,658 5% 7%
Europe 311,998 (7,250 ) 304,748 255,215 22% 19%
Asia 82,786 (1,845 ) 80,941 62,733 32% 29%
Licensing1   19,709       19,709   16,498 19% 19%
Total net revenue1 $ 645,871 $ (8,443 ) $ 637,428 $ 568,292 14% 12%
 
 
Six Months Ended
August 4, 2018 July 29, 2017 % change
Foreign
Currency Constant As Constant
As Reported Impact Currency As Reported Reported Currency
Net revenue:
Americas Retail $ 368,465 $ (1,356 ) $ 367,109 $ 374,882 (2%) (2%)
Americas Wholesale 74,932 (159 ) 74,773 68,515 9% 9%
Europe 517,433 (32,215 ) 485,218 420,603 23% 15%
Asia 166,837 (6,588 ) 160,249 126,114 32% 27%
Licensing1   39,493       39,493   32,523 21% 21%
Total net revenue1 $ 1,167,160 $ (40,318 ) $ 1,126,842 $ 1,022,637 14% 10%

_______________

Notes:

1   During the fourth quarter of fiscal 2018, the Company reclassified
net royalties received on the Company's inventory purchases of
licensed product from net revenue to cost of product sales to
reflect its treatment as a reduction of the cost of such licensed
product. Accordingly, net revenue for the three and six months ended
July 29, 2017 has been adjusted to conform to the current period
presentation.
 
Guess?, Inc. and Subsidiaries
Selected Condensed Consolidated Balance Sheet Data
(in thousands)
     
 
August 4, February 3, July 29,
2018 2018 2017
 
ASSETS
 
Cash and cash equivalents $ 219,062 $ 367,441 $ 316,543
 
Receivables, net 283,375 259,996 233,635
 
Inventories 464,531 428,304 436,044
 
Other current assets 86,030 52,964 61,208
 
Property and equipment, net 288,740 294,254 275,417
 
Restricted cash 372 241 1,258
 
Other assets 247,788 252,434 253,102
     
Total Assets $ 1,589,898 $ 1,655,634 $ 1,577,207
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current portion of capital lease obligations and borrowings $ 3,504 $ 2,845 $ 2,033
 
Other current liabilities 466,385 465,000 374,628
 
Long-term debt and capital lease obligations 36,945 39,196 39,214
 
Other long-term liabilities 212,032 209,528 185,253
 
Redeemable and nonredeemable noncontrolling interests 19,163 22,246 20,264
 
Guess?, Inc. stockholders' equity 851,869 916,819 955,815
     
Total Liabilities and Stockholders' Equity $ 1,589,898 $ 1,655,634 $ 1,577,207
 
Guess?, Inc. and Subsidiaries
Condensed Consolidated Cash Flow Data
(in thousands)
   
 
Six Months Ended
August 4, July 29,
  2018     2017  
 
Net cash used in operating activities $ (21,652 ) $ (9,665 )
 
Net cash used in investing activities (53,223 ) (39,537 )
 
Net cash used in financing activities (56,792 ) (55,091 )
 
Effect of exchange rates on cash, cash equivalents and restricted
cash
  (16,581 )   24,444  
 
Net change in cash, cash equivalents and restricted cash (148,248 ) (79,849 )
 
Cash, cash equivalents and restricted cash at the beginning of the
year
367,682 397,650
   
Cash, cash equivalents and restricted cash at the end of the period $ 219,434   $ 317,801  
 
 
Supplemental information:
 
Depreciation and amortization $ 33,045 $ 30,585
 
Rent $ 142,805 $ 132,816
 
 
Non-cash investing and financing activity:
 
Assets acquired under capital lease obligations1 $ 1,164 $ 17,522

_______________

Notes:
1   During the second quarter of fiscal 2019, the Company entered into a
capital lease for $1.2 million related primarily to computer
hardware and software. During the second quarter of fiscal 2018, the
Company began the relocation of its European distribution center to
the Netherlands. As a result, the Company entered into a capital
lease of $16.0 million for equipment used in the new facility.
During the second quarter of fiscal 2018, the Company also entered
into a capital lease for $1.5 million related primarily to computer
hardware and software.
 
Guess?, Inc. and Subsidiaries
Reconciliation of Net Cash Used in Operating Activities to Free
Cash Flow
(in thousands)
   
 
Six Months Ended
August 4, July 29,
  2018     2017  
 
Net cash used in operating activities $ (21,652 ) $ (9,665 )
 
Less: Purchases of property and equipment (46,006 ) (39,591 )
 
Less: Payments for property and equipment under capital leases (776 ) (150 )
   
Free cash flow $ (68,434 ) $ (49,406 )
 
Guess?, Inc. and Subsidiaries
Retail Store Data
Global Store and Concession Count
           
 
As of August 4, 2018
Stores Concessions
Directly Partner Directly Partner
Region Total Operated Operated Total Operated Operated
 
United States 295 293 2 1 1
Canada 86 86
Central and South America 104 61 43 27 27
 
Total Americas 485 440 45 28 27 1
 
Europe and the Middle East 674 440 234 36 36
Asia and the Pacific 503 181 322 365 174 191
 
Total 1,662 1,061 601 429 237 192
 
 
As of July 29, 2017
Stores Concessions
Directly Partner Directly Partner
Region Total Operated Operated Total Operated Operated
 
United States 320 318 2 1 1
Canada 104 104
Central and South America 94 51 43 27 27
 
Total Americas 518 473 45 28 27 1
 
Europe and the Middle East 646 363 283 30 30
Asia and the Pacific 480 109 371 374 188 186
 
Total 1,644 945 699 432 245 187

View Comments and Join the Discussion!