Guess?, Inc. Reports First Quarter Results

Nachrichtenquelle: Business Wire (engl.)
10.06.2020, 13:30  |  140   |   |   

Guess?, Inc. (NYSE: GES) today reported financial results for its first quarter ended May 2, 2020.

Carlos Alberini, Chief Executive Officer, commented, “The COVID-19 Crisis has had a material impact on our Company, including our operations and our financial results. I couldn’t be more proud of our teams around the world as they acted decisively, quickly and strongly to control what could be controlled and demonstrated a level of commitment, leadership and empathy that is unparalleled. Our top priority has been the safety and well-being of our associates, customers and the communities we serve. To minimize our loss and protect our liquidity, we challenged every aspect of our business which was being significantly impacted by extensive store closures and lower customer demand. In addition to postponing our decision related to the payment of the quarterly dividend, we were able to reduce expenses, adjust inventory levels and purchases, lower capital expenditures and extend vendor payment terms to react to the Crisis.”

Mr. Alberini continued, “Today we have all stores open in Asia, over 400 stores in Europe and over 180 stores in the U.S. and Canada. We are encouraged by our initial results, which have been better than anticipated. Our sales productivity for re-opened stores for the second quarter to date has reached roughly 75% in the U.S. and Canada and 70% in Europe as compared to last year’s level.”

Mr. Alberini concluded, “Looking forward, the building blocks of our long-term strategy are still intact. We remain focused on enhancing our omni-channel platform centered around the consumer and are accelerating our efforts to gain efficiencies across our global operations and rationalize our store portfolios. I fully expect to be on the other side of this Crisis with a more efficient business model, a more focused and consistent global brand strategy and a more nimble and agile organization.”

Adjusted Amounts

This press release contains certain non-GAAP, or adjusted, financial measures. References to “adjusted” results exclude the impact of (i) asset impairment charges, (ii) net losses on lease terminations, (iii) certain professional service and legal fees and related costs, (iv) certain separation charges, (v) non-cash debt discount amortization on our convertible senior notes, (vi) the related tax effects of the foregoing items, and (vii) certain discrete tax adjustments, in each case where applicable. A reconciliation of reported GAAP results to comparable non-GAAP results is provided in the accompanying tables and discussed under the heading “Presentation of Non-GAAP Information” below.

COVID-19 Business Update

The coronavirus (or “COVID-19”) pandemic has had and is continuing to have a material impact on the Company’s financial performance. During the first quarter of fiscal 2021, in addition to the negative impact from lower net revenue, the Company’s operating results also reflected asset impairment charges as well as additional inventory valuation reserves and higher allowances for markdowns and doubtful accounts due to the ongoing effects of the COVID-19 pandemic. These charges were partially offset by the favorable impact from various European and U.S. government assistance programs related primarily to the recovery of employee payroll costs as well as certain favorable tax treatments.

During the first half of fiscal 2021, the Company implemented a number of measures to help mitigate the operating and financial impact of the pandemic, including: (i) furloughing its U.S. and Canada store associates and significant portions of its U.S. and Canada corporate and distribution center associates and permanently reducing U.S. corporate headcount; (ii) implementing temporary tiered salary reductions for management level corporate employees, including its executive officers; (iii) deferring annual merit increases; (iv) executing substantial reductions in expenses, store occupancy costs, capital expenditures and overall costs, including through reduced inventory purchases; (v) working globally with country management teams to maximize the Company’s participation in all eligible government or other initiatives available to businesses or employees impacted by the COVID-19 pandemic; (vi) drawing down on certain credit facilities and entering into certain term loans to ensure financial flexibility and maintain maximum liquidity; (vii) engaging with landlords to negotiate rent deferrals or other rent concessions; (viii) working with vendors to extend payment terms; and (ix) postponing its decision related to the payment of its quarterly cash dividend.

Beginning in mid-April, the Company began to reopen some of its stores in Europe. In May 2020, the Company began to reopen some of its stores in the U.S. and Canada. In Asia, where store closures related to COVID-19 began, all of the Guess-operated stores have reopened. The Company will continue to reopen stores in phases, as state and local guidelines and conditions permit, taking an informed, measured approach based on a number of factors. The Company’s e-commerce sites remain open in all regions. In addition, retail stores that are open have and continue to experience significant reductions in traffic and therefore, revenue. The Company’s e-commerce sites have experienced lower traffic, but this has been partially offset by a strengthening in conversion. Many of the Company’s wholesale and licensing partners have also substantially reduced their operations. The Company has and will continue to bring back store associates and support staff as stores reopen.

First Quarter Fiscal 2021 Results

For the first quarter of fiscal 2021, the Company recorded GAAP net loss of $157.7 million, compared to $21.4 million for the first quarter of fiscal 2020. GAAP diluted loss per share was $2.40 for the first quarter of fiscal 2021, compared to $0.27 for the same prior-year quarter. The Company estimates that its prior year share buybacks and convertible notes transaction had a net negative impact of $0.50 on GAAP diluted loss per share and currency had a negative impact of $0.09 on diluted loss per share in the first quarter of fiscal 2021.

For the first quarter of fiscal 2021, the Company recorded adjusted net loss of $118.9 million, compared to $19.6 million for the first quarter of fiscal 2020. Adjusted diluted loss per share was $1.81, compared to $0.25 for the same prior-year quarter. The Company estimates that its prior year share buybacks and convertible notes transaction had a net negative impact of $0.36 on adjusted diluted loss per share in the first quarter of fiscal 2021.

Net Revenue. Total net revenue for the first quarter of fiscal 2021 decreased 51.5% to $260.3 million, compared to $536.7 million in the same prior-year quarter. In constant currency, net revenue decreased by 50.1%.

  • Americas Retail revenues decreased 57.7% in U.S. dollars and 57.4% in constant currency.
  • Americas Wholesale revenues decreased 44.0% in U.S. dollars and 41.8% in constant currency.
  • Europe revenues decreased 49.3% in U.S. dollars and 47.4% in constant currency.
  • Asia revenues decreased 52.6% in U.S. dollars and 50.6% in constant currency.
  • Licensing revenues decreased 31.3% in U.S. dollars.

Operating Loss. GAAP loss from operations for the first quarter of fiscal 2021 was $162.5 million (including $53.0 million in non-cash impairment charges taken on certain long-lived store related assets and a $4.6 million favorable currency translation impact), compared to $24.5 million in the same prior-year quarter. GAAP operating margin in the first quarter decreased 57.8% to negative 62.4%, from negative 4.6% in the same prior-year quarter, driven primarily by overall deleveraging of expenses due to the negative impact from the COVID-19 pandemic on our global operations and higher asset impairment charges. The negative impact of currency on operating margin for the quarter was approximately 20 basis points.

For the first quarter of fiscal 2021, adjusted operating loss was $108.6 million, compared to $22.4 million in the same prior-year quarter. Adjusted operating margin decreased 37.5% to negative 41.7%, compared to negative 4.2% in the same prior-year quarter, driven primarily by overall deleveraging of expenses due to the negative impact from the COVID-19 pandemic on our global operations.

  • Operating margin for the Company’s Americas Retail segment decreased 48.2% to negative 49.2% in the first quarter of fiscal 2021, from negative 1.0% in the same prior-year quarter, driven primarily by the deleverage impact of temporary store closures as a result of the COVID-19 pandemic.
  • Operating margin for the Company’s Americas Wholesale segment decreased 10.6% to 6.3% in the first quarter of fiscal 2021, from 16.9% in the same prior-year quarter, due mainly to the negative impacts from the COVID-19 pandemic which resulted in higher markdowns and overall deleveraging of expenses.
  • Operating margin for the Company’s Europe segment decreased 33.9% to negative 41.7% in the first quarter of fiscal 2021, from negative 7.8% in the same prior-year quarter, driven primarily by overall deleveraging of expenses due to lower revenue as a result of the COVID-19 pandemic.
  • Operating margin for the Company’s Asia segment decreased 52.6% to negative 56.4% in the first quarter of fiscal 2021, from negative 3.8% in the same prior-year quarter, due mainly to the negative impacts from the COVID-19 pandemic which resulted in significantly higher inventory reserves and overall deleveraging of expenses.
  • Operating margin for the Company’s Licensing segment decreased 10.4% to 78.0% in the first quarter of fiscal 2021, from 88.4% in the same prior-year quarter.

Other expense, net, was $19.6 million for the first quarter of fiscal 2021, compared to other income, net, of $2.1 million in the same prior-year quarter. The change was driven primarily by market volatility which resulted in higher unrealized losses on the translation of foreign currency balances and net unrealized losses on our SERP-related assets compared to net unrealized gains in the same prior-year quarter.

Outlook

We expect that the global crisis will continue to have a material impact on our consolidated financial position, consolidated results of operations, and consolidated cash flows in fiscal 2021. Based on the sales data we have for the brick-and-mortar stores that have re-opened since May 2, 2020, we have experienced sales productivity for reopened stores of roughly 75% in the U.S. and Canada and 70% in Europe as compared to last year’s level. This data may not be indicative of future trends as this is only representative of a portion of our stores for a relatively short period of time. In addition, the extent and duration of the global pandemic remains uncertain and may continue to impact consumer purchasing activity throughout the year. Given the dynamic situation, we have not provided detailed guidance for the second quarter ending August 1, 2020 or the full fiscal year ending January 30, 2021. However, based on these trends, we currently expect revenues for the second quarter of fiscal 2021 to have a decrease similar to that of the first quarter.

Dividend

During the first quarter of fiscal 2021, the Company announced that its Board of Directors had deferred the decision with respect to the payment of its quarterly cash dividend. While the Company remains committed to returning capital to shareholders through a dividend on a long-term basis, the Board of Directors has decided to continue to postpone its decision to pay the quarterly cash dividend at this time in order to preserve the Company’s cash position and provide continued financial flexibility in light of the uncertainties related to the COVID-19 pandemic.

Presentation of Non-GAAP Information

The financial information presented in this release includes non-GAAP financial measures such as adjusted results, constant currency financial information and free cash flow measures. For the three months ended May 2, 2020, the adjusted results exclude the impact of certain professional service and legal fees and related costs, certain separation charges, asset impairment charges, net losses on lease terminations, non-cash amortization of debt discount on the Company’s convertible senior notes, the related tax impacts of these adjustments as well as certain discrete tax adjustments, where applicable. For the three months ended May 4, 2019, the adjusted results exclude the impact of certain professional service and legal fees and related costs, asset impairment charges, non-cash amortization of debt discount on the Company’s convertible senior notes and the related tax impacts of these adjustments, where applicable. These non-GAAP measures are provided in addition to, and not as alternatives for, the Company’s reported GAAP results.

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

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

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

Investor Conference Call

The Company will hold a conference call at 8:00 am (ET) on June 10, 2020 to discuss the news announced in this press release. A live webcast of the conference call will be accessible at www.guess.com via the “Investor Relations” link. The webcast will be archived on the website for 30 days.

About Guess?

Guess?, Inc. designs, markets, distributes and licenses a lifestyle collection of contemporary apparel, denim, handbags, watches, eyewear, footwear and other related consumer products. Guess? products are distributed through branded Guess? stores as well as better department and specialty stores around the world. As of May 2, 2020, the Company directly operated 1,141 retail stores in the Americas, Europe and Asia. The Company’s partners and distributors operated 540 additional retail stores worldwide. As of May 2, 2020, the Company and its partners and distributors operated in approximately 100 countries worldwide. For more information about the Company, please visit www.guess.com.

Forward-Looking Statements

Except for historical information contained herein, certain matters discussed in this press release or the related conference call and webcast, including statements concerning the potential actions and impacts related to the COVID-19 pandemic; statements concerning the Company’s expectations, future prospects, business strategies and strategic initiatives; and statements expressing optimism or pessimism about future operating results, growth opportunities, earnings, capital expenditures, operating margins, cost reduction opportunities and cash needs are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements, which are frequently indicated by terms such as “expect,” “could,” “will,” “should,” “goal,” “strategy,” “believe,” “estimate,” “continue,” “outlook,” “plan,” “create,” “see,” and similar terms, are only expectations, and involve known and unknown risks and uncertainties, which may cause actual results in future periods to differ materially from what is currently anticipated. Factors which may cause actual results in future periods to differ materially from current expectations include, among others: our ability to maintain our brand image and reputation; domestic and international economic or political conditions, including economic and other events that could negatively impact consumer confidence and discretionary consumer spending; the continuation or worsening of impacts related to the COVID-19 pandemic, including business, financial, human capital, litigation and other impacts to the Company and its partners; our ability to successfully negotiate rent relief or other lease-related terms with our landlords; our ability to successfully negotiate or defer our vendor obligations; our ability to maintain adequate levels of liquidity; changes to estimates related to impairments, inventory and other reserves, including the impact of the CARES Act, which were made using the best information available at the time; changes in the competitive marketplace and in our commercial relationships; our ability to anticipate and adapt to changing consumer preferences and trends; our ability to manage our inventory commensurate with customer demand; risks related to the timing and costs of delivering merchandise to our stores and our wholesale customers; unexpected or unseasonable weather conditions; our ability to effectively operate our various retail concepts, including securing, renewing, modifying or terminating leases for store locations; our ability to successfully and/or timely implement our growth strategies and other strategic initiatives; our ability to expand internationally and operate in regions where we have less experience, including through joint ventures; risks related to our convertible senior notes issued in April 2019, including our ability to settle the liability in cash; our ability to successfully or timely implement plans for cost reductions; our ability to effectively and efficiently manage the volume and costs associated with our European distribution centers without incurring shipment delays; our ability to attract and retain key personnel; obligations or changes in estimates arising from new or existing litigation, tax and other regulatory proceedings; risks related to the complexity of the Tax Reform, future clarifications and legislative amendments thereto, as well as our ability to accurately interpret and predict its impact on our cash flows and financial condition; the risk of economic uncertainty associated with the transition period of the United Kingdom’s departure from the European Union (“Brexit”) or any other similar referendums that may be held; the occurrence of unforeseen epidemics, such as the COVID-19 pandemic; other catastrophic events; changes in U.S. or foreign tax or tariff policy, including changes to tariffs on imports into the U.S.; accounting adjustments identified after issuance of this release; risk of future non-cash asset impairments, including goodwill, right of-use lease assets and/or other store asset impairments; restructuring charges; our ability to adapt to new regulatory compliance and disclosure obligations; risks associated with our foreign operations, such as violations of laws prohibiting improper payments and the burdens of complying with a variety of foreign laws and regulations (including global data privacy regulations); risks associated with the acts or omissions of our third party vendors, including a failure to comply with our vendor code of conduct or other policies; risks associated with cyber-attacks and other cyber security risks; risks associated with our ability to properly collect, use, manage and secure consumer and employee data; risks associated with our vendors’ ability to maintain the strength and security of information technology systems; and changes in economic, political, social and other conditions affecting our foreign operations and sourcing, including the impact of currency fluctuations, global tax rates and economic and market conditions in the various countries in which we operate. In addition to these factors, the economic, technological, managerial, and other risks identified in the Company’s most recent annual report on Form 10-K and other filings with the Securities and Exchange Commission, including but not limited to the risk factors discussed therein, could cause actual results to differ materially from current expectations. The current global economic climate, length and severity of the COVID-19 pandemic, and uncertainty surrounding potential changes in U.S. policies and regulations, including the upcoming U.S. election, may amplify many of these risks. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Guess?, Inc. and Subsidiaries

Condensed Consolidated Statements of Loss

(amounts in thousands, except per share data)

 

 

 

 

 

 

 

Three Months Ended

 

May 2, 2020

 

May 4, 2019

 

$

 

%

 

$

 

%

 

 

 

 

 

 

Product sales

$

247,317

 

95.0

%

 

$

517,873

 

96.5

%

Net royalties

12,934

 

5.0

%

 

18,818

 

3.5

%

Net revenue

260,251

 

100.0

%

 

536,691

 

100.0

%

 

 

 

 

 

 

Cost of product sales

226,022

 

86.8

%

 

354,742

 

66.1

%

 

 

 

 

 

 

Gross profit

34,229

 

13.2

%

 

181,949

 

33.9

%

 

 

 

 

 

 

Selling, general and administrative expenses

143,288

 

55.0

%

 

204,645

 

38.2

%

Asset impairment charges

52,972

 

20.4

%

 

1,775

 

0.3

%

Net losses on lease terminations

456

 

0.2

%

 

 

%

 

 

 

 

 

 

Loss from operations

(162,487

)

(62.4

%)

 

(24,471

)

(4.6

%)

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

Interest expense

(5,462

)

(2.1

%)

 

(1,259

)

(0.2

%)

Interest income

610

 

0.2

%

 

361

 

0.1

%

Other income (expense), net

(19,580

)

(7.5

%)

 

2,071

 

0.4

%

 

 

 

 

 

 

Loss before income tax benefit

(186,919

)

(71.8

%)

 

(23,298

)

(4.3

%)

 

 

 

 

 

 

Income tax benefit

(26,381

)

(10.1

%)

 

(2,717

)

(0.5

%)

 

 

 

 

 

 

Net loss

(160,538

)

(61.7

%)

 

(20,581

)

(3.8

%)

 

 

 

 

 

 

Net earnings (loss) attributable to noncontrolling interests

(2,872

)

(1.1

%)

 

793

 

0.2

%

 

 

 

 

 

 

Net loss attributable to Guess?, Inc.

$

(157,666

)

(60.6

%)

 

$

(21,374

)

(4.0

%)

 

 

 

 

 

 

Net loss per common share attributable to common stockholders:

Basic

$

(2.40

)

 

 

$

(0.27

)

 

Diluted

$

(2.40

)

 

 

$

(0.27

)

 

 

 

 

 

 

 

Weighted average common shares outstanding attributable to common stockholders:

Basic

65,715

 

 

 

79,925

 

 

Diluted

65,715

 

 

 

79,925

 

 

 

 

 

 

 

 

Effective tax rate

14.1

%

 

 

11.7

%

 

 

 

 

 

 

 

Adjusted selling, general and administrative expenses1:

$

142,825

 

54.9

%

 

$

204,373

 

38.1

%

 

 

 

 

 

 

Adjusted loss from operations1:

$

(108,596

)

(41.7

%)

 

$

(22,424

)

(4.2

%)

 

 

 

 

 

 

Adjusted net loss attributable to Guess?, Inc.1:

$

(118,913

)

(45.7

%)

 

$

(19,616

)

(3.7

%)

 

 

 

 

 

 

Adjusted diluted loss per common share attributable to common stockholders1:

$

(1.81

)

 

 

$

(0.25

)

 

 

 

 

 

 

 

Adjusted effective tax rate1:

6.6

%

 

 

10.5

%

 

________________________________________________

 

Notes:

1

The adjusted results for the three months ended May 2, 2020 reflect the exclusion of certain professional service and legal fees and related costs, certain separation charges, asset impairment charges, net losses on lease terminations, non-cash amortization of debt discount on the Company’s convertible senior notes, the related tax impacts of these adjustments as well as certain discrete tax adjustments, where applicable. The adjusted results for the three months ended May 4, 2019 reflect the exclusion of certain professional service and legal fees and related costs, asset impairment charges, non-cash amortization of debt discount on the Company’s convertible senior notes and the related tax impacts of these adjustments, where applicable. A complete reconciliation of actual results to adjusted results is presented in the table entitled “Reconciliation of GAAP Results to Adjusted Results.”

Guess?, Inc. and Subsidiaries

Reconciliation of GAAP Results to Adjusted Results

(dollars in thousands)

The following table provides reconciliations of reported GAAP selling, general and administrative expenses to adjusted selling, general and administrative expenses, reported GAAP loss from operations to adjusted loss from operations, reported GAAP net loss attributable to Guess?, Inc. to adjusted net loss attributable to Guess?, Inc. and reported GAAP income tax benefit to adjusted income tax benefit for the three months ended May 2, 2020 and May 4, 2019.

 

Three Months Ended

 

May 2, 2020

 

May 4, 2019

 

 

 

 

Reported GAAP selling, general and administrative expenses

$

143,288

 

 

$

204,645

 

Certain professional service and legal fees and related costs1

(290

)

 

(272

)

Separation charges2

(173

)

 

 

 

 

 

 

Adjusted selling, general and administrative expenses

$

142,825

 

 

$

204,373

 

 

 

 

 

Reported GAAP loss from operations

$

(162,487

)

 

$

(24,471

)

Certain professional service and legal fees and related costs1

290

 

 

272

 

Separation charges2

173

 

 

 

Asset impairment charges3

52,972

 

 

1,775

 

Net losses on lease terminations4

456

 

 

 

 

 

 

 

Adjusted loss from operations

$

(108,596

)

 

$

(22,424

)

 

 

 

 

Reported GAAP net loss attributable to Guess?, Inc.

$

(157,666

)

 

$

(21,374

)

Certain professional service and legal fees and related costs1

290

 

 

272

 

Separation charges2

173

 

 

 

Asset impairment charges3

52,972

 

 

1,775

 

Net losses on lease terminations4

456

 

 

 

Amortization of debt discount5

2,599

 

 

213

 

Discrete tax adjustments6

(7,891

)

 

 

Income tax impact from adjustments7

(9,846

)

 

(502

)

 

 

 

 

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

38,753

 

 

1,758

 

 

 

 

 

Adjusted net loss attributable to Guess?, Inc.

$

(118,913

)

 

$

(19,616

)

 

 

 

 

Reported GAAP income tax benefit

$

(26,381

)

 

$

(2,717

)

Discrete tax adjustments6

7,891

 

 

 

Income tax impact from adjustments7

9,846

 

 

502

 

 

 

 

 

Adjusted income tax benefit

$

(8,644

)

 

$

(2,215

)

 

 

 

 

Adjusted effective tax rate

6.6

%

 

10.5

%

________________________________________________

Notes:

1

During the three months ended May 2, 2020 and May 4, 2019, the Company recorded certain professional service and legal fees and related costs, which it otherwise would not have incurred as part of its business operations.

2

During the three months ended May 2, 2020, the Company recorded $0.2 million in separation-related charges mainly related to certain cash severance payments, partially offset by adjustments to non-cash stock-based compensation expense related to our former Chief Executive Officer resulting from changes in expected performance conditions of certain previously granted stock awards that were no longer subject to service vesting requirements after his departure. There were no separation charges recorded during the three months ended May 4, 2019.

3

During the three months ended May 2, 2020, the Company recognized asset impairment charges related primarily to impairment of certain operating lease right-of-use assets and impairment of property and equipment related to certain retail locations resulting from lower revenue and future cash flow projections resulting from the ongoing effects of the COVID-19 pandemic. During the three months ended May 4, 2019, the Company’s asset impairment charges related primarily to impairment of property and equipment related to certain retail locations resulting from under-performance and expected store closures.

4

During the three months ended May 2, 2020, the Company recorded net losses on lease terminations related primarily to the early termination of certain lease agreements.

5

In April 2019, the Company issued $300 million principal amount of 2.00% convertible senior notes due 2024 (the “Notes”) in a private offering. The Company has separated the Notes into liability (debt) and equity (conversion option) components. The debt discount, which represents an amount equal to the fair value of the equity component, will be amortized as non-cash interest expense over the term of the Notes.

6

During the three months ended May 2, 2020, the discrete tax adjustments related primarily to a tax benefit from a tax rate change due to net operating loss carrybacks, partially offset by the negative impact from a cumulative valuation allowance. The Company recognized a tax benefit of approximately $11.8 million from a tax rate change related to the ability to carryback net operating losses to tax years with a higher federal corporate tax rate as allowed under the CARES Act enacted in March 2020. This was partially offset by a valuation allowance of $3.7 million resulting from jurisdictions where there have been cumulative net operating losses, limiting the Company’s ability to consider other subjective evidence to continue to recognize the existing deferred tax assets.

7

The income tax effect of certain professional service and legal fees and related costs, separation charges, asset impairment charges, net losses on lease terminations and the amortization of debt discount was based on the Company’s assessment of deductibility using the statutory tax rate (inclusive of the impact of valuation allowances) of the tax jurisdiction in which the charges were incurred.

Guess?, Inc. and Subsidiaries

Consolidated Segment Data

(dollars in thousands)

 

 

 

 

 

 

 

Three Months Ended

 

May 2,
2020

 

May 4,
2019

 

%
change

 

 

 

 

 

 

Net revenue:

 

 

 

 

 

Americas Retail

$

74,584

 

 

$

176,423

 

 

(58

%)

Americas Wholesale

25,875

 

 

46,205

 

 

(44

%)

Europe

106,473

 

 

210,055

 

 

(49

%)

Asia

40,385

 

 

85,190

 

 

(53

%)

Licensing

12,934

 

 

18,818

 

 

(31

%)

Total net revenue

$

260,251

 

 

$

536,691

 

 

(52

%)

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from operations:

 

 

 

 

 

Americas Retail

$

(36,673

)

 

$

(1,812

)

 

(1,924

%)

Americas Wholesale

1,624

 

 

7,814

 

 

(79

%)

Europe

(44,406

)

 

(16,327

)

 

(172

%)

Asia

(22,777

)

 

(3,203

)

 

(611

%)

Licensing

10,094

 

 

16,644

 

 

(39

%)

Total segment earnings (loss) from operations

(92,138

)

 

3,116

 

 

(3,057

%)

 

 

 

 

 

 

Corporate overhead

(16,921

)

 

(25,812

)

 

(34

%)

Asset impairment charges

(52,972

)

 

(1,775

)

 

2,884

%

Net losses on lease terminations

(456

)

 

 

 

 

Total loss from operations

$

(162,487

)

 

$

(24,471

)

 

(564

%)

 

 

 

 

 

 

 

 

 

 

 

 

Operating margins:

 

 

 

 

 

Americas Retail

(49.2

%)

 

(1.0

%)

 

 

Americas Wholesale

6.3

%

 

16.9

%

 

 

Europe

(41.7

%)

 

(7.8

%)

 

 

Asia

(56.4

%)

 

(3.8

%)

 

 

Licensing

78.0

%

 

88.4

%

 

 

 

 

 

 

 

 

GAAP operating margin for total Company

(62.4

%)

 

(4.6

%)

 

 

Certain professional service and legal fees and related costs

0.1

%

 

0.1

%

 

 

Separation charges

0.0

%

 

%

 

 

Asset impairment charges

20.4

%

 

0.3

%

 

 

Net losses on lease terminations

0.2

%

 

%

 

 

Adjusted operating margin for total Company

(41.7

%)

 

(4.2

%)

 

 

Guess?, Inc. and Subsidiaries

Constant Currency Financial Measures

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

May 2, 2020

 

May 4, 2019

 

% change

 

As Reported

 

Foreign
Currency
Impact

 

Constant
Currency

 

As Reported

 

As
Reported

 

Constant
Currency

Net revenue:

 

 

 

 

 

 

 

 

 

 

 

Americas Retail

$

74,584

 

 

$

594

 

 

$

75,178

 

 

$

176,423

 

 

(58

%)

 

(57

%)

Americas Wholesale

25,875

 

 

1,026

 

 

26,901

 

 

46,205

 

 

(44

%)

 

(42

%)

Europe

106,473

 

 

4,077

 

 

110,550

 

 

210,055

 

 

(49

%)

 

(47

%)

Asia

40,385

 

 

1,696

 

 

42,081

 

 

85,190

 

 

(53

%)

 

(51

%)

Licensing

12,934

 

 

 

 

12,934

 

 

18,818

 

 

(31

%)

 

(31

%)

Total net revenue

$

260,251

 

 

$

7,393

 

 

$

267,644

 

 

$

536,691

 

 

(52

%)

 

(50

%)

 

 

 

 

 

 

 

 

 

 

 

 

Guess?, Inc. and Subsidiaries

Selected Condensed Consolidated Balance Sheet Data

(in thousands)

 

 

 

 

 

 

 

May 2,
2020

 

February 1,
2020

 

May 4,
2019

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

$

419,415

 

 

$

284,613

 

 

$

112,933

 

 

 

 

 

 

 

Receivables, net

239,532

 

 

327,281

 

 

250,521

 

 

 

 

 

 

 

Inventories

392,490

 

 

393,129

 

 

478,223

 

 

 

 

 

 

 

Other current assets

58,961

 

 

59,212

 

 

76,308

 

 

 

 

 

 

 

Property and equipment, net

244,681

 

 

288,112

 

 

308,136

 

 

 

 

 

 

 

Restricted cash

213

 

 

215

 

 

523

 

 

 

 

 

 

 

Operating lease right-of-use assets

778,030

 

 

851,990

 

 

921,084

 

 

 

 

 

 

 

Other assets

213,430

 

 

224,410

 

 

234,032

 

 

 

 

 

 

 

Total assets

$

2,346,752

 

 

$

2,428,962

 

 

$

2,381,760

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current portion of borrowings and finance lease obligations

$

160,501

 

 

$

9,490

 

 

$

49,141

 

 

 

 

 

 

 

Current operating lease liabilities

226,967

 

 

192,066

 

 

217,110

 

 

 

 

 

 

 

Other current liabilities

334,756

 

 

436,857

 

 

379,549

 

 

 

 

 

 

 

Long-term debt and finance lease obligations

94,804

 

 

32,770

 

 

34,573

 

 

 

 

 

 

 

Convertible senior notes, net

250,176

 

 

247,363

 

 

239,394

 

 

 

 

 

 

 

Long-term operating lease liabilities

659,947

 

 

714,079

 

 

764,202

 

 

 

 

 

 

 

Other long-term liabilities

128,878

 

 

130,259

 

 

127,939

 

 

 

 

 

 

 

Redeemable and nonredeemable noncontrolling interests

19,069

 

 

26,364

 

 

22,295

 

 

 

 

 

 

 

Guess?, Inc. stockholders’ equity

471,654

 

 

639,714

 

 

547,557

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

$

2,346,752

 

 

$

2,428,962

 

 

$

2,381,760

 

Guess?, Inc. and Subsidiaries

Condensed Consolidated Cash Flow Data

(in thousands)

 

 

 

 

 

 

 

Three Months Ended

 

 

May 2,
2020

 

May 4,
2019

 

 

 

 

 

Net cash used in operating activities

 

$

(61,553

)

 

$

(96,501

)

 

 

 

 

 

Net cash used in investing activities

 

(5,716

)

 

(17,182

)

 

 

 

 

 

Net cash provided by financing activities

 

210,083

 

 

18,723

 

 

 

 

 

 

Effect of exchange rates on cash, cash equivalents and restricted cash

 

(8,014

)

 

(2,579

)

 

 

 

 

 

Net change in cash, cash equivalents and restricted cash

 

134,800

 

 

(97,539

)

 

 

 

 

 

Cash, cash equivalents and restricted cash at the beginning of the year

 

284,828

 

 

210,995

 

 

 

 

 

 

Cash, cash equivalents and restricted cash at the end of the period

 

$

419,628

 

 

$

113,456

 

 

 

 

 

 

 

 

 

 

 

Supplemental information:

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

$

17,024

 

 

$

18,598

 

 

 

 

 

 

Total lease costs

 

$

77,500

 

 

$

89,944

 

Guess?, Inc. and Subsidiaries

Reconciliation of Net Cash Used In Operating Activities to Free Cash Flow

(in thousands)

 

 

 

 

 

 

 

Three Months Ended

 

 

May 2,
2020

 

May 4,
2019

 

 

 

 

 

Net cash used in operating activities

 

$

(61,553

)

 

$

(96,501

)

 

 

 

 

 

Less: Purchases of property and equipment

 

(5,973

)

 

(17,865

)

 

 

 

 

 

Less: Payments for property and equipment under finance leases

 

(921

)

 

(433

)

 

 

 

 

 

Free cash flow

 

$

(68,447

)

 

$

(114,799

)

Guess?, Inc. and Subsidiaries

Retail Store Data

Global Store and Concession Count

 

 

 

 

 

 

 

 

 

 

 

 

 

As of May 2, 2020

 

Stores

 

Concessions

Region

Total

 

Directly
Operated

 

Partner
Operated

 

Total

 

Directly
Operated

 

Partner
Operated

 

 

 

 

 

 

 

 

 

 

 

 

United States

280

 

278

 

2

 

1

 

 

1

Canada

80

 

80

 

 

 

 

Central and South America

111

 

73

 

38

 

27

 

27

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Americas

471

 

431

 

40

 

28

 

27

 

1

 

 

 

 

 

 

 

 

 

 

 

 

Europe and the Middle East

744

 

517

 

227

 

38

 

38

 

Asia and the Pacific

466

 

193

 

273

 

318

 

114

 

204

 

 

 

 

 

 

 

 

 

 

 

 

Total

1,681

 

1,141

 

540

 

384

 

179

 

205

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of May 4, 2019

 

Stores

 

Concessions

Region

Total

 

Directly
Operated

 

Partner
Operated

 

Total

 

Directly
Operated

 

Partner
Operated

 

 

 

 

 

 

 

 

 

 

 

 

United States

289

 

287

 

2

 

1

 

 

1

Canada

88

 

88

 

 

 

 

Central and South America

107

 

70

 

37

 

27

 

27

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Americas

484

 

445

 

39

 

28

 

27

 

1

 

 

 

 

 

 

 

 

 

 

 

 

Europe and the Middle East

713

 

498

 

215

 

37

 

37

 

Asia and the Pacific

527

 

231

 

296

 

349

 

168

 

181

 

 

 

 

 

 

 

 

 

 

 

 

Total

1,724

 

1,174

 

550

 

414

 

232

 

182

 

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