GES
$15.33
Guess
($.29)
(1.86%)
Earnings Details
3rd Quarter October 2017
Tuesday, November 21, 2017 4:15:00 PM
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Summary

Guess Misses

Guess (GES) reported 3rd Quarter October 2017 earnings of $0.12 per share on revenue of $554.1 million. The consensus earnings estimate was $0.11 per share on revenue of $566.0 million. The Earnings Whisper number was $0.15 per share. Revenue grew 3.3% on a year-over-year basis.

The company said it expects fourth quarter non-GAAP earnings of $0.48 to $0.55 per share on revenue of $747.2 million to $760.8 million. The current consensus earnings estimate is $0.52 per share on revenue of $753.8 million for the quarter ending January 31, 2018.

Guess? Inc., designs, markets, distributes and licenses a lifestyle collection of contemporary apparel and accessories for men, women and children that reflect the American lifestyle and European fashion sensibilities.

Results
Reported Earnings
$0.12
Earnings Whisper
$0.15
Consensus Estimate
$0.11
Reported Revenue
$554.1 Mil
Revenue Estimate
$566.0 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Guess?, Inc. Reports Third Quarter Results

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

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

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

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

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

Third Quarter Fiscal 2018 Results

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

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

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

Americas Retail revenues decreased 13.4% in U.S. dollars and 14.3% in constant currency. Retail comp sales including e-commerce decreased 10% in U.S. dollars and 11% in constant currency.

Europe revenues increased 18.8% in U.S. dollars and 11.9% in constant currency. Retail comp sales including e-commerce increased 10% in U.S. dollars and 4% in constant currency.

Asia revenues increased 16.8% in U.S. dollars and 18.5% in constant currency. Retail comp sales including e-commerce increased 3% in U.S. dollars and 5% in constant currency.

Americas Wholesale revenues decreased 2.5% in U.S. dollars and 4.5% in constant currency.

Licensing revenues increased 9.1% in U.S. dollars and constant currency.

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

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

Operating margin for the Company’s Americas Retail segment improved 240 basis points to negative 2.5% in the third quarter of fiscal 2018, compared to negative 4.9% in the prior-year quarter, driven primarily by the favorable impact from lower markdowns, negotiated rent reductions, higher initial markups and store closures, partially offset by the negative impact on the fixed cost structure resulting from negative comparable sales.

Operating margin for the Company’s Europe segment decreased 320 basis points to 3.0% in the third quarter of fiscal 2018, from 6.2% in the prior-year quarter, driven primarily by higher distribution costs resulting from the relocation of the Company’s European distribution center, partially offset by higher initial markups.

Operating margin for the Company’s Asia segment increased 680 basis points to 3.7% in the third quarter of fiscal 2018, compared to negative 3.1% in the prior-year quarter, driven primarily by overall leveraging of expenses.

Operating margin for the Company’s Americas Wholesale segment increased 70 basis points to 18.1% in the third quarter of fiscal 2018, compared to 17.4% in the prior-year quarter, due to a lower SG&A rate driven primarily by slightly lower expenses and higher gross margins.

Operating margin for the Company’s Licensing segment increased 620 basis points to 90.8% in the third quarter of fiscal 2018, compared to 84.6% in the prior-year quarter.

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

Nine-Month Period Results

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

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

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

Americas Retail revenues decreased 13.1% in U.S. dollars and 13.2% in constant currency. Retail comp sales including e-commerce decreased 12% in U.S. dollars and constant currency.

Europe revenues increased 20.5% in U.S. dollars and 19.0% in constant currency. Retail comp sales including e-commerce increased 7% in U.S. dollars and 6% in constant currency.

Asia revenues increased 17.0% in U.S. dollars and 17.1% in constant currency. Retail comp sales including e-commerce increased 4% in U.S. dollars and constant currency.

Americas Wholesale revenues increased 2.5% in U.S. dollars and 2.3% in constant currency.

Licensing revenues were relatively flat in U.S. dollars and constant currency.

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

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

Operating margin for the Company’s Americas Retail segment deteriorated 260 basis points to negative 6.0% in the first nine months of fiscal 2018, from negative 3.4% in the prior-year period, driven primarily by the negative impact on the fixed cost structure resulting from negative comparable sales.

Operating margin for the Company’s Europe segment increased 180 basis points to 4.8% in the first nine months of fiscal 2018, compared to 3.0% in the prior-year period. This increase was driven primarily by higher initial mark-ups and the favorable impact on the fixed cost structure resulting from overall leveraging of expenses, partially offset by higher distribution costs resulting from the relocation of the Company’s European distribution center.

Operating margin for the Company’s Asia segment increased 560 basis points to 2.5% in the first nine months of fiscal 2018, compared to negative 3.1% in the prior-year period. The improvement in operating margin was driven primarily by overall leveraging of expenses.

Operating margin for the Company’s Americas Wholesale segment increased 110 basis points to 17.5% in the first nine months of fiscal 2018, compared to 16.4% in the prior-year period. The increase in operating margin was due to higher gross margins.

Operating margin for the Company’s Licensing segment increased 100 basis points to 89.6% in the first nine months of fiscal 2018, compared to 88.6% in the prior-year period.

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

Dividends

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

Outlook

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

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

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

Reconciliation of GAAP Outlook to Adjusted Outlook
Fourth Quarter of Fiscal 2018
Fiscal Year 2018
GAAP operating margin
8.0% to 9.0%
2.5% to 2.8%
Net losses on lease terminations(1)
--
0.5%
Asset impairment charges(2)
--
0.2%
Adjusted operating margin
8.0% to 9.0%
3.2% to 3.5%
GAAP earnings per share
$0.48 to $0.55
$0.36 to $0.43
Net losses on lease terminations(1)
--
$0.15
Asset impairment charges(2)
--
$0.05
Adjusted earnings per share
$0.48 to $0.55
$0.56 to $0.63
Notes:
1
During the nine months ended October 28, 2017, the Company recorded
net losses on lease terminations related primarily to the
modification of certain lease agreements held with a common landlord
in North America.
2
During the nine months ended October 28, 2017, the Company
recognized asset impairment charges for certain retail locations
resulting from under-performance and expected store closures. The
adjusted results do not assume any additional asset impairment
charges.

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

Outlook by Segment(1)
Fourth Quarter of Fiscal 2018
Fiscal Year 2018
U.S. Dollars
Constant Currency(2)
U.S. Dollars
Constant Currency(2)
Americas Retail:
Comps
down MSD to LSD
down HSD to MSD
down LDD to HSD
down LDD to HSD
Net Revenue
down HSD to MSD
down HSD to MSD
down LDD
down LDD
Europe:
Comps
__
up MSD
__
up MSD
Net Revenue
up high-twenties to low-thirties
up high-teens to low-twenties
up low-twenties
up high-teens
Asia:
Comps
__
up LSD
__
up LSD
Net Revenue
up mid-twenties
up low-twenties
up high-teens
up high-teens
Americas Wholesale:
Net Revenue
up LSD
down LSD
up LSD
up LSD
Licensing:
Net Revenue
down HSD
__
down LSD
__
Notes:
1
As used in the table above, "LSD" is used to refer to the range of
Low-Single-Digits, "MSD" is used to refer to the range of
Mid-Single-Digits, "HSD" is used to refer to the range of
High-Single-Digits, and "LDD" is used to refer to the range of
Low-Double-Digits.
2
Eliminates the impact of expected foreign currency translation to
give investors a better understanding of the underlying trends
within the business.

Presentation of Non-GAAP Information

The financial information presented in this release includes non-GAAP financial measures such as adjusted results, constant currency financial information and free cash flow measures. For the three and nine months ended October 28, 2017, the adjusted results exclude the impact of net losses on lease terminations, asset impairment charges and the related tax impacts. For the three and nine months ended October 29, 2016, the adjusted results exclude the impact of a gain on sale of a minority interest investment, net gains on lease terminations, restructuring charges, a restructuring related exit tax charge, asset impairment charges and the tax effects of these adjustments, where applicable. These non-GAAP measures are provided in addition to, and not as alternatives for, the Company’s reported GAAP results.

The Company has excluded these items from its adjusted financial measures primarily because it believes that the adjusted financial information provided is useful for investors to evaluate the comparability of the Company’s operating results and its future outlook (when reviewed in conjunction with the Company’s GAAP financial statements). A reconciliation of reported GAAP results to comparable non-GAAP results is provided in the accompanying tables.

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

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

Investor Conference Call

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

About Guess?

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

Forward-Looking Statements

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

Guess?, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Loss)
(amounts in thousands, except per share data)
Three Months Ended
Nine Months Ended
October 28, 2017
October 29, 2016
October 28, 2017
October 29, 2016
$
%
$
%
$
%
$
%
Product sales
$ 528,209
95.3 %
$ 512,553
95.6 %
$ 1,518,323
95.7 %
$ 1,462,029
95.6 %
Net royalties
25,929
4.7 %
23,768
4.4 %
68,088
4.3 %
68,066
4.4 %
Net revenue
554,138
100.0 %
536,321
100.0 %
1,586,411
100.0 %
1,530,095
100.0 %
Cost of product sales
363,029
65.5 %
356,079
66.4 %
1,052,633
66.4 %
1,021,462
66.8 %
Gross profit
191,109
34.5 %
180,242
33.6 %
533,778
33.6 %
508,633
33.2 %
Selling, general and administrative expenses
178,552
32.2 %
164,317
30.6 %
519,497
32.7 %
500,066
32.6 %
Net (gains) losses on lease terminations
11,494
2.1 %
--
0.0 %
11,494
0.7 %
(695 )
(0.0 %)
Asset impairment charges
2,018
0.4 %
802
0.2 %
6,013
0.4 %
1,457
0.1 %
Restructuring charges
--
0.0 %
--
0.0 %
--
0.0 %
6,083
0.4 %
Earnings (loss) from operations
(955 )
(0.2 %)
15,123
2.8 %
(3,226 )
(0.2 %)
1,722
0.1 %
Other income (expense):
Interest expense
(684 )
(0.1 %)
(500 )
(0.1 %)
(1,642 )
(0.1 %)
(1,478 )
(0.0 %)
Interest income
891
0.2 %
861
0.2 %
3,022
0.2 %
1,763
0.1 %
Other income, net
2,759
0.5 %
125
0.0 %
3,561
0.2 %
26,417
1.7 %
Earnings before income tax expense
2,011
0.4 %
15,609
2.9 %
1,715
0.1 %
28,424
1.9 %
Income tax expense
3,673
0.7 %
5,880
1.1 %
8,723
0.5 %
11,682
0.8 %
Net earnings (loss)
(1,662 )
(0.3 %)
9,729
1.8 %
(7,008 )
(0.4 %)
16,742
1.1 %
Net earnings attributable to noncontrolling interests
1,198
0.2 %
626
0.1 %
1,926
0.2 %
548
0.0 %
Net earnings (loss) attributable to Guess?, Inc.
$
(2,860 )
(0.5 %)
$
9,103
1.7 %
$
(8,934 )
(0.6 %)
$
16,194
1.1 %
Net earnings (loss) per common share attributable to common
stockholders:
Basic
$
(0.04 )
$
0.11
$
(0.12 )
$
0.19
Diluted
$
(0.04 )
$
0.11
$
(0.12 )
$
0.19
Weighted average common shares outstanding attributable to common
stockholders:
Basic
82,390
83,758
82,599
83,631
Diluted
82,390
83,917
82,599
83,813
Effective tax rate
182.6
%
37.7
%
508.6 %
41.1 %
Adjusted earnings from operations(1):
$
12,557
2.3 %
$
15,925
3.0 %
$
14,281
0.9 %
$
8,567
0.6 %
Adjusted net earnings attributable to Guess?, Inc.(1):
$
10,390
1.9 %
$
9,608
1.8 %
$
7,090
0.4 %
$
2,193
0.1 %
Adjusted diluted earnings per common share attributable to common
$
0.12
$
0.11
$
0.08
$
0.02
stockholders(1):
Adjusted effective tax rate(1):
25.3
%
37.6 %
53.1 %
78.9 %
Notes:
1
The adjusted results for the three and nine months ended October 28,
2017 reflect the exclusion of net losses on lease terminations,
asset impairment charges and the related tax impact, where
applicable. The adjusted results for the three and nine months ended
October 29, 2016 reflect the exclusion of a gain on sale of a
minority interest investment, net gains on lease terminations,
restructuring charges, a restructuring related exit tax charge,
asset impairment charges and the tax impacts of these adjustments,
where applicable. A complete reconciliation of actual results to
adjusted results is presented in the table entitled "Reconciliation
of GAAP Results to Adjusted Results."
Guess?, Inc. and Subsidiaries
Reconciliation of GAAP Results to Adjusted Results
(dollars in thousands)
The following table provides reconciliations of reported GAAP
earnings (loss) from operations to adjusted earnings from
operations, reported GAAP net earnings (loss) attributable to
Guess?, Inc. to adjusted net earnings attributable to Guess?, Inc.
and reported GAAP income tax expense to adjusted income tax expense
for the three and nine months ended October 28, 2017 and October 29,
2016.
Three Months Ended
Nine Months Ended
October 28, 2017
October 29, 2016
October 28, 2017
October 29, 2016
Reported GAAP earnings (loss) from operations
$
(955 )
$
15,123
$
(3,226 )
$
1,722
Net (gains) losses on lease terminations(1)
11,494
--
11,494
(695 )
Asset impairment charges(2)
2,018
802
6,013
1,457
Restructuring charges(3)
--
--
--
6,083
Adjusted earnings from operations
$
12,557
$
15,925
$
14,281
$
8,567
Reported GAAP net earnings (loss) attributable to Guess?, Inc.
$
(2,860 )
$
9,103
$
(8,934 )
$ 16,194
Net (gains) losses on lease terminations(1)
11,494
--
11,494
(695 )
Asset impairment charges(2)
2,018
802
6,013
1,457
Restructuring charges(3)
--
--
--
6,083
Gain on sale of a minority interest investment(4)
--
--
--
(22,279 )
Income tax adjustments(5)
(262 )
(297 )
(1,483 )
(478 )
Exit tax charge(6)
--
--
--
1,911
Total adjustments affecting net earnings (loss) attributable to
13,250
505
16,024
(14,001 )
Guess?, Inc.
Adjusted net earnings attributable to Guess?, Inc.
$
10,390
$
9,608
$
7,090
$
2,193
Reported GAAP income tax expense
$
3,673
$
5,880
$
8,723
$ 11,682
Income tax adjustments(5)
262
297
1,483
478
Exit tax charge(6)
--
--
--
(1,911 )
Total income tax effect
262
297
1,483
(1,433 )
Adjusted income tax expense
$
3,935
$
6,177
$
10,206
$ 10,249
Adjusted effective tax rate
25.3 %
37.6 %
53.1 %
78.9 %
Notes:
1
During the three and nine months ended October 28, 2017, the Company
recorded net losses on lease terminations related primarily to the
modification of certain lease agreements held with a common landlord
in North America. During the nine months ended October 29, 2016, the
Company recorded net gains on lease terminations related primarily
to the early termination of certain lease agreements. The net gains
on lease terminations were recorded during the first and second
quarters of fiscal 2017. The results for the nine months ended
October 29, 2016 have been adjusted to show the impact of the net
gains on lease terminations for comparative purposes to same
current-year period results.
2
During the three and nine months ended October 28, 2017 and October
29, 2016, the Company recognized asset impairment charges for
certain retail locations resulting from under-performance and
expected store closures. The results for the three and nine months
ended October 29, 2016 have been adjusted to show the impact of the
asset impairment charges for comparative purposes to same
current-year period results.
3
During the first quarter of fiscal 2017, the Company implemented a
global cost reduction and restructuring plan to better align its
global cost and organizational structure with its current strategic
initiatives which resulted in restructuring charges, mainly related
to cash-based severance costs, incurred during the nine months ended
October 29, 2016. The restructuring charges were recorded during the
three months ended April 30, 2016.
4
The Company recognized a gain related to the sale of its minority
interest equity holding in a privately-held boutique apparel company
during the nine months ended October 29, 2016. The gain related to
the sale was recorded during the three months ended July 30, 2016.
5
The income tax effect of the net (gains) losses on lease
terminations, asset impairment charges and restructuring charges was
based on the Company’s assessment of deductibility using the
statutory tax rate (inclusive of the impact of valuation allowances)
of the tax jurisdiction in which the charges were incurred. The
income tax effect of the gain on sale of the minority interest
investment was based on the impact of the transaction on the
effective tax rate.
6
As a result of the global cost reduction and restructuring plan, the
Company incurred an estimated exit tax charge related to its
reorganization in Europe during the nine months ended October 29,
2016. The estimated exit tax charge was recorded during the three
months ended April 30, 2016.
Guess?, Inc. and Subsidiaries
Consolidated Segment Data
(dollars in thousands)
Three Months Ended
Nine Months Ended
October 28,
October 29,
%
October 28,
October 29,
%
2017
2016
change
2017
2016
change
Net revenue:
Americas Retail
$ 187,021
$ 215,862
(13%)
$
561,903
$
646,573
(13%)
Europe(1)
221,230
186,289
19%
641,833
532,847
20%
Asia(1)
74,322
63,617
17%
200,436
171,255
17%
Americas Wholesale(1)
45,636
46,785
(2%)
114,151
111,354
3%
Licensing
25,929
23,768
9%
68,088
68,066
0%
Total net revenue
$ 554,138
$ 536,321
3%
$ 1,586,411
$ 1,530,095
4%
Earnings (loss) from operations:
Americas Retail(1)
(4,670 )
(10,505 )
56%
(33,654 )
(22,279 )
(51%)
Europe(1)
6,678
11,597
(42%)
30,749
16,221
90%
Asia(1)
2,718
(1,962 )
239%
5,055
(5,251 )
196%
Americas Wholesale(1)
8,241
8,142
1%
20,011
18,211
10%
Licensing(1)
23,532
20,119
17%
61,019
60,325
1%
Total segment earnings from operations
36,499
27,391
33%
83,180
67,227
24%
Corporate overhead(1)
(23,942 )
(11,466 )
109%
(68,899 )
(58,660 )
17%
Net gains (losses) on lease terminations(1)
(11,494 )
--
(11,494 )
695
Asset impairment charges(1)
(2,018 )
(802 )
(6,013 )
(1,457 )
Restructuring charges
--
--
--
(6,083 )
Total earnings (loss) from operations
$
(955 )
$
15,123
(106%)
$
(3,226 )
$
1,722
(287%)
Operating margins:
Americas Retail(1)
(2.5 %)
(4.9 %)
(6.0 %)
(3.4 %)
Europe(1)
3.0 %
6.2 %
4.8 %
3.0 %
Asia(1)
3.7 %
(3.1 %)
2.5 %
(3.1 %)
Americas Wholesale(1)
18.1 %
17.4 %
17.5 %
16.4 %
Licensing(1)
90.8 %
84.6 %
89.6 %
88.6 %
GAAP operating margin for total Company
(0.2 %)
2.8 %
(0.2 %)
0.1 %
2.1 %
0.0 %
0.7 %
(0.0 %)
Net gains (losses) on lease terminations(1)
0.4 %
0.2 %
0.4 %
0.1 %
Asset impairment charges(1)
Restructuring charges
0.0 %
0.0 %
0.0 %
0.4 %
Adjusted operating margin for total Company
2.3 %
3.0 %
0.9 %
0.6 %
Notes:
1
During the first quarter of fiscal 2018, net revenue and related
costs and expenses for certain globally serviced customers were
reclassified into the segment primarily responsible for the
relationship. During the third quarter of fiscal 2018, segment
results were also adjusted to exclude corporate performance-based
compensation costs, net gains (losses) on lease terminations and
asset impairment charges due the fact that these items are no longer
included in the segment results provided to the Company’s chief
operating decision maker in order to allocate resources and assess
performance. Accordingly, segment results have been adjusted for the
nine months ended October 28, 2017 as well as the three and nine
months ended October 29, 2016 to conform to the current period
presentation.
Guess?, Inc. and Subsidiaries
Constant Currency Financial Measures
(dollars in thousands)
Three Months Ended
October 28, 2017
October 29, 2016
% change
As Reported
Foreign Currency Impact
Constant Currency
As Reported
As Reported
Constant Currency
Net revenue:
Americas Retail
$
187,021
$
(2,074 )
$
184,947
$
215,862
(13%)
(14%)
Europe(1)
221,230
(12,687 )
208,543
186,289
19%
12%
Asia(1)
74,322
1,035
75,357
63,617
17%
18%
Americas Wholesale(1)
45,636
(941 )
44,695
46,785
(2%)
(4%)
Licensing
25,929
--
25,929
23,768
9%
9%
$
554,138
$ (14,667 )
$
539,471
$
536,321
3%
1%
Nine Months Ended
October 28, 2017
October 29, 2016
% change
As Reported
Foreign Currency Impact
Constant Currency
As Reported
As Reported
Constant Currency
Net revenue:
Americas Retail
$
561,903
$
(826 )
$
561,077
$
646,573
(13%)
(13%)
Europe(1)
641,833
(7,726 )
634,107
532,847
20%
19%
Asia(1)
200,436
119
200,555
171,255
17%
17%
Americas Wholesale(1)
114,151
(186 )
113,965
111,354
3%
2%
Licensing
68,088
--
68,088
68,066
0%
0%
$ 1,586,411
$
(8,619 )
$ 1,577,792
$ 1,530,095
4%
3%
Notes:
1
During the first quarter of fiscal 2018, net revenue for certain
globally serviced customers was reclassified into the segment
primarily responsible for the relationship. Accordingly, segment
results for Europe, Asia and Americas Wholesale have been adjusted
for the three and nine months ended October 29, 2016 to conform to
the current year presentation.
Guess?, Inc. and Subsidiaries
Selected Condensed Consolidated Balance Sheet Data
(in thousands)
October 28,
January 28,
October 29,
2017
2017
2016
ASSETS
Cash and cash equivalents
$
233,089
$
396,129
$
349,104
Receivables, net
236,659
225,537
218,205
Inventories
477,177
367,381
428,139
Other current assets
59,658
54,965
59,479
Property and equipment, net
283,197
243,005
272,918
Restricted cash
225
1,521
821
Other assets
263,507
245,947
251,097
Total Assets
$ 1,553,512
$ 1,534,485
$
1,579,763
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of capital lease obligations and borrowings
$
2,121
$
566
$
560
Other current liabilities
387,821
344,887
363,416
Long-term debt and capital lease obligations
38,781
23,482
23,540
Other long-term liabilities
179,220
180,104
179,372
Redeemable and nonredeemable noncontrolling interests
19,228
16,224
14,659
Guess?, Inc. stockholders’ equity
926,341
969,222
998,216
Total Liabilities and Stockholders’ Equity
$ 1,553,512
$ 1,534,485
$
1,579,763
Guess?, Inc. and Subsidiaries
Condensed Consolidated Cash Flow Data
(in thousands)
Nine Months Ended
October 28,
October 29,
2017
2016
Net cash used in operating activities(1, 2)
$ (34,202 )
$
(30,233 )
Net cash used in investing activities
(68,626 )
(25,383 )
Net cash used in financing activities(1)
(82,316 )
(45,224 )
Effect of exchange rates on cash, cash equivalents and restricted
20,808
4,766
cash(1)
Net change in cash, cash equivalents and restricted cash(1)
(164,336 )
(96,074 )
Cash, cash equivalents and restricted cash at the beginning of the
397,650
445,999
year(1)
Cash, cash equivalents and restricted cash at the end of the period(1)
$ 233,314
$
349,925
Supplemental information:
Depreciation and amortization
$
46,769
$
51,194
Rent
$ 198,844
$
193,671
Non-cash investing and financing activity:
Assets acquired under capital lease obligations(3)
$
18,042
$ --
Notes:
1
As a result of the adoption of new authoritative guidance during the
first quarter of fiscal 2018 which impacted the classification of
certain cash receipts and cash payments in the statement of cash
flows, the amounts related to cash flows from operating and
financing activities as well as the effect of exchange rates on
cash, cash equivalents and restricted cash have been updated for the
nine months ended October 29, 2016 to conform to the current year
presentation.
2
During the third quarter of fiscal 2018, the Company recorded net
losses on lease terminations related primarily to the modification
of certain lease agreements held with a common landlord in North
America. In connection with this modification, the Company made
up-front payments of approximately $22 million, of which $12 million
was recognized as net losses on lease terminations and $10 million
was recorded as advance rent payments.
3
During the nine months ended October 28, 2017, the Company began the
relocation of its European distribution center to the Netherlands.
As a result, the Company entered into a capital lease of $16.5
million for equipment used in the new facility. During the nine
months ended October 28, 2017, the Company also entered into a
capital lease for $1.5 million related primarily to computer
hardware and software.
Guess?, Inc. and Subsidiaries
Reconciliation of Net Cash Used in Operating Activities to Free
Cash Flow
(in thousands)
Nine Months Ended
October 28,
October 29,
2017
2016
Net cash used in operating activities(1, 2)
$ (34,202 )
$ (30,233 )
Less: Purchases of property and equipment
(65,345 )
(66,849 )
Free cash flow(1, 2)
$ (99,547 )
$ (97,082 )
Notes:
1
As a result of the adoption of new authoritative guidance during the
first quarter of fiscal 2018 which impacted the classification of
certain cash receipts and cash payments in the statement of cash
flows, net cash used in operating activities and free cash flow have
been updated for the nine months ended October 29, 2016 to conform
to the current year presentation.
2
During the third quarter of fiscal 2018, the Company recorded net
losses on lease terminations related primarily to the modification
of certain lease agreements held with a common landlord in North
America. In connection with this modification, the Company made
up-front payments of approximately $22 million, of which $12 million
was recognized as net losses on lease terminations and $10 million
was recorded as advance rent payments.
Guess?, Inc. and Subsidiaries
Retail Store Data
International Store Count
As of October 28, 2017
As of October 29, 2016
Total
Directly Operated
Total
Directly Operated
Region
Stores
Stores
Stores
Stores
United States
317
315
342
341
Canada
96
96
111
111
Central and South America
97
54
91
48
Total Americas
510
465
544
500
Europe and the Middle East
661
385
614
321
Asia and the Pacific
482
132
493
95
1,653
982
1,651
916
Guess?, Inc. and Subsidiaries
Directly Operated Retail Store Data
U.S. and Canada
Nine Months Ended
October 28,
October 29,
2017
2016
Number of stores at the beginning of the year
450
455
Store openings
6
11
Store closures
(45)
(14)
Number of stores at the end of the period
411
452
Total store square footage at the end of the period
2,037,000
2,216,000

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SOURCE: Guess?, Inc.

Guess?, Inc.
Fabrice Benarouche
VP, Finance and Investor Relations
(213) 765-5578