GES
$23.07
Guess
($.11)
(.47%)
Earnings Details
1st Quarter April 2018
Wednesday, May 30, 2018 4:15:00 PM
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Summary

Guess Misses

Guess (GES) reported a 1st Quarter April 2018 loss of $0.23 per share on revenue of $521.3 million. The consensus estimate was a loss of $0.23 per share on revenue of $510.5 million. The Earnings Whisper number was for a loss of $0.20 per share. Revenue grew 13.7% on a year-over-year basis.

The company said it expects second quarter earnings of $0.27 to $0.30 per share on revenue of $654.0 million to $662.6 million. The current consensus earnings estimate is $0.28 per share on revenue of $622.2 million for the quarter ending July 31, 2018. The company also said it now expects fiscal year earnings of $0.88 to $0.99 per share on revenue of $2.56 billion to $2.58 billion. The company's previous guidance was earnings of $0.86 to $0.98 per share on revenue of $2.53 billion to $2.55 billion and the current consensus earnings estimate is $0.99 per share on revenue of $2.55 billion for the year ending January 31, 2019.

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
($0.23)
Earnings Whisper
($0.20)
Consensus Estimate
($0.23)
Reported Revenue
$521.3 Mil
Revenue Estimate
$510.5 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Guess?, Inc. Reports First Quarter Results

Q1 Fiscal 2019 Revenues Increased 15% to $521 Million; Increased 8% in Constant Currency

Q1 Fiscal 2019 GAAP Net Loss Per Share of $0.27, Compared to $0.26 in Q1 Fiscal 2018; Q1 Fiscal 2019 Adjusted Loss Per Share of $0.23, Compared to $0.24 in Q1 Fiscal 2018

LOS ANGELES--(BUSINESS WIRE)-- Guess?, Inc. (NYSE: GES) today reported financial results for its first quarter ended May 5, 2018.

Victor Herrero, Chief Executive Officer, commented, “I am pleased to report that our first quarter results finished above the high-end of our expectations for revenues, adjusted operating margin and adjusted earnings per share. Overall, the Company revenues increased 15% in U.S. dollars and 8% in constant currency, driven by continued momentum in Europe and Asia. We were also able to expand the Company’s operating margin, despite cost pressures related to our transition to our new distribution center in Europe. Operating margin in Asia improved by 430 basis points as we continue to leverage our infrastructure investments in China and Japan. Turning to the Americas, I am especially proud of the work that has been accomplished in retail where we ended the quarter with positive comps while being significantly less promotional. This translated into a 910 basis point improvement in operating margin for the Americas Retail segment.”

Mr. Herrero concluded, “Overall, I am very excited by the continued momentum, as the first quarter marks the seventh consecutive quarter of revenue growth for the Company. For me, it speaks to the global strength and potential of the Guess brand. More than ever, we remain focused on executing our strategic initiatives that have been the pillars of our revenue and profit growth.”

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.

First Quarter Fiscal 2019 Results

For the first quarter of fiscal 2019, the Company recorded GAAP net loss of $21.2 million, a 0.3% improvement compared to $21.3 million for the first quarter of fiscal 2018. GAAP diluted loss per share deteriorated 3.8% to $0.27 for the first quarter of fiscal 2019, from $0.26 for the prior-year quarter. The Company estimates that currency had a negative impact on diluted loss per share of $0.03 in the first quarter of fiscal 2019.

For the first quarter of fiscal 2019, the Company recorded adjusted net loss of $17.8 million, a 7.9% improvement compared to $19.4 million for the first quarter of fiscal 2018. Adjusted diluted loss per share improved 4.2% to $0.23, compared to $0.24 for the prior-year quarter.

Net Revenue. Total net revenue for the first quarter of fiscal 2019 increased 14.7% to $521.3 million, compared to $454.3 million in the prior-year quarter. In constant currency, net revenue increased by 7.7%.

  • Americas Retail revenues decreased 1.4% in U.S. dollars and 2.1% in constant currency. Retail comp sales including e-commerce increased 2% in U.S. dollars and 1% in constant currency.
  • Americas Wholesale revenues increased 13.4% in U.S. dollars and 11.3% in constant currency.
  • Europe revenues increased 24.2% in U.S. dollars and 9.1% in constant currency. Retail comp sales including e-commerce increased 15% in U.S. dollars and 1% in constant currency.
  • Asia revenues increased 32.6% in U.S. dollars and 25.1% in constant currency. Retail comp sales including e-commerce increased 22% in U.S. dollars and 15% in constant currency.
  • Licensing revenues increased 23.5% in U.S. dollars and constant currency.

Operating Loss. GAAP operating loss for the first quarter of fiscal 2019 improved 0.3% to $24.9 million (including a $4.0 million unfavorable currency translation impact), compared to $25.0 million in the prior-year quarter. GAAP operating margin in the first quarter improved 70 basis points to negative 4.8%, compared to negative 5.5% in the prior-year quarter, driven primarily by segment mix and lower markdowns in Americas Retail, partially offset by higher distribution costs resulting from the relocation of the Company’s European distribution center and certain professional service and legal fees and related costs. The negative impact of currency on operating margin for the quarter was approximately 30 basis points.

For the first quarter of fiscal 2019, adjusted operating loss improved 7.8% to $20.5 million, compared to $22.2 million in the same prior-year quarter. Adjusted operating margin was negative 3.9%, an improvement of 100 basis points compared to the same prior-year quarter, driven primarily by segment mix and lower markdowns in Americas Retail, partially offset by higher distribution costs resulting from the relocation of the Company’s European distribution center.

  • Operating margin for the Company’s Americas Retail segment improved 910 basis points to negative 3.3% in the first quarter of fiscal 2019, compared to negative 12.4% in the prior-year quarter, driven primarily by the favorable impact from lower markdowns, negotiated rent reductions and higher initial markups.
  • Operating margin for the Company’s Americas Wholesale segment decreased 470 basis points to 14.8% in the first quarter of fiscal 2019, from 19.5% in the prior-year quarter, due primarily to lower gross margins.
  • Operating margin for the Company’s Europe segment decreased 930 basis points to negative 9.9% in the first quarter of fiscal 2019, from negative 0.6% in the prior-year quarter, 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 430 basis points to 4.8% in the first quarter of fiscal 2019, compared to 0.5% in the prior-year quarter, driven primarily by higher gross margins due mainly to overall leveraging of expenses and higher overall product margins driven primarily by product mix.
  • Operating margin for the Company’s Licensing segment increased 440 basis points to 88.4% in the first quarter of fiscal 2019, compared to 84.0% in the prior-year quarter.

Other net expense was $2.6 million for the first quarter of fiscal 2019, which primarily includes net unrealized mark-to-market revaluation losses on foreign currency balances and unrealized losses on non-operating assets, partially offset by net unrealized mark-to-market revaluation gains on foreign exchange currency contracts, compared to other net income of $1.9 million in the prior-year quarter.

Segment Reclassifications

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. This change is consistent with how the management team now evaluates overall business strategy, allocates resources and assesses performance of the Company. There has been no change to total segment earnings (loss) from operations as a result of this reclassification. This reclassification increased the segment quarterly operating profits for fiscal 2018 by approximately $2 million for Americas Retail; minimal for Americas Wholesale; $2 million for Europe; minimal for Asia and reduced Licensing by approximately $5 million per quarter.

In addition, 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. This guidance required retrospective adoption, and as a result, the Company reclassified approximately $0.5 million in total costs from earnings (loss) from operations per quarter from within the Europe and Asia segments and corporate overhead into other income (expense).

For comparative purposes, segment earnings (loss) from operations for each of the quarters in fiscal 2018 have been restated to conform to the current presentation and are presented below (in thousands):

          Three Months Ended   Year Ended

April 29,
2017

 

July 29,
2017

 

October 28,
2017

 

February 3,
2018

February 3,
2018

Earnings (loss) from operations:
Americas Retail $ (21,581 ) $ (3,555 ) $ (2,414 ) $ 16,454 $ (11,096 )
Americas Wholesale 6,983 5,238 8,562 5,062 25,845
Europe (1,006 ) 30,058 9,095 56,398 94,545
Asia 339 2,441 2,954 9,075 14,809
Licensing 13,461   14,389   18,347   17,341   63,538  
Total segment earnings (loss) from operations (1,804 ) 48,571 36,544 104,330 187,641
Corporate overhead (20,409 ) (23,551 ) (23,443 ) (33,031 ) (100,434 )
Net gains (losses) on lease terminations (11,494 ) 121 (11,373 )
Asset impairment charges (2,762 ) (1,233 ) (2,018 ) (2,466 ) (8,479 )
Total earnings (loss) from operations $ (24,975 ) $ 23,787   $ (411 ) $ 68,954   $ 67,355  
 

Impact from Adoption of New Revenue Recognition Standard

The Company also 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 $2.3 million for the quarter, 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, $1.8 million, $0.7 million and $0.6 million, respectively during the three months ended May 5, 2018 compared to the same prior-year period. The net impact was approximately $1.0 million reduction in earnings (loss) from operations for the three months ended May 5, 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 June 29, 2018 to shareholders of record at the close of business on June 13, 2018.

Outlook

The Company’s expectations for the second quarter ending August 4, 2018 and its updated outlook for the fiscal year ending February 2, 2019 are as follows:

Outlook for Total Company1
   
Second Quarter of Fiscal 2019 Fiscal Year 2019
 
Consolidated net revenue in U.S. dollars increase between 14.0% and 15.5% increase between 8.5% and 9.5%
 
Consolidated net revenue in constant currency2 increase between 11.0% and 12.5% increase between 6.5% and 7.5%
 
GAAP operating margin 5.0% to 5.5% 4.1% to 4.5%
 
Adjusted operating margin3 5.0% to 5.5% 4.2% to 4.6%
 
Currency impact included in operating margin4 60 basis points 10 basis points
 
GAAP EPS $0.27 to $0.30 $0.84 to $0.95
 
Adjusted EPS3 $0.27 to $0.30 $0.88 to $0.99
 
Currency impact included in EPS4 $0.08 $0.10
 
Notes:

1The Company’s outlook for the second quarter ending August 4, 2018 and the fiscal year ending February 2, 2019 assumes that foreign currency exchange rates remain at prevailing rates.

 

2Eliminates the impact of expected foreign currency translation to give investors a better understanding of the underlying trends within the business.

 

3The 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.

 

4Represents 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 second quarter ending August 4, 2018 and the fiscal year ending February 2, 2019 is as follows:

Reconciliation of GAAP Outlook to Adjusted Outlook
   
Second Quarter of Fiscal 2019 Fiscal Year 2019
 
GAAP operating margin 5.0% to 5.5% 4.1% to 4.5%
Net gains on lease terminations1 0.0%
Asset impairment charges2 0.0%
Certain professional service and legal fees and related costs3 0.1%
 
Adjusted operating margin 5.0% to 5.5% 4.2% to 4.6%
 
GAAP earnings per share $0.27 to $0.30 $0.84 to $0.95
Net gains on lease terminations1 $0.00
Asset impairment charges2 $0.01
Certain professional service and legal fees and related costs3 $0.03
 
Adjusted earnings per share $0.27 to $0.30 $0.88 to $0.99
 
Notes:

1Amounts for the full fiscal year include net gains on lease terminations recorded during the first quarter of fiscal 2019 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.

 

2Amounts for the full fiscal year include asset impairment charges for certain retail locations recognized during the first quarter of fiscal 2019 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.

 

3Amounts for the full fiscal year include certain professional service and legal fees and related costs recognized during the first quarter of fiscal 2019 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
       
Second Quarter of Fiscal 2019 Fiscal Year 2019
 
U.S. Dollars Constant Currency2 U.S. Dollars Constant Currency2
 
Americas Retail:
Comps __ flat to up LSD __ down LSD to up LSD
 
Net Revenue down LSD down LSD down MSD to LSD down MSD to LSD
 
Americas Wholesale:
Net Revenue up MSD up MSD up MSD up MSD
 
Europe:
Comps __ up LSD __ up LSD
 
Net Revenue up mid-twenties up low-twenties up mid-teens up low-teens
 
Asia:
Comps __ up low-teens to mid-teens __ up mid-teens
 
Net Revenue up low thirties up mid-twenties up mid-twenties up low-twenties
 
Licensing:
Net Revenue3 up HSD __ up MSD __
     
Notes:

1As 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.

 

2Eliminates the impact of expected foreign currency translation to give investors a better understanding of the underlying trends within the business.

 

3Our 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 low-single digits in the second quarter of fiscal 2019 and down in the mid-single digits for fiscal year 2019.

 

Presentation of Non-GAAP Information

The financial information presented in this release includes non-GAAP financial measures such as adjusted results, constant currency financial information and free cash flow measures. For the three months ended May 5, 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 months ended April 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 May 30, 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 May 5, 2018, the Company directly operated 1,020 retail stores in the Americas, Europe and Asia. The Company’s licensees and distributors operated 624 additional retail stores worldwide. As of May 5, 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 second 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 Loss
(amounts in thousands, except per share data)
           
Three Months Ended
May 5, 2018 April 29, 2017
$   % $   %1
 
Product sales $ 501,505 96.2 % $ 438,320 96.5 %
Net royalties1 19,784   3.8 % 16,025   3.5 %
Net revenue1 521,289 100.0 % 454,345 100.0 %
 
Cost of product sales1 347,351   66.6 % 309,703   68.2 %
 
Gross profit 173,938 33.4 % 144,642 31.8 %
 
Selling, general and administrative expenses2 198,219 38.0 % 166,855 36.7 %
Net gains on lease terminations (152 ) (0.0 %) 0.0 %

Asset impairment charges

759   0.2 % 2,762   0.6 %
 
Loss from operations2 (24,888 ) (4.8 %) (24,975 ) (5.5 %)
 
Other income (expense):
Interest expense (739 ) (0.1 %) (414 ) (0.1 %)
Interest income 977 0.2 % 871 0.2 %
Other income (expense), net2 (2,614 ) (0.5 %) 1,888   0.4 %
 
Loss before income tax benefit (27,264 ) (5.2 %) (22,630 ) (5.0 %)
 
Income tax benefit (6,277 ) (1.2 %) (1,403 ) (0.3 %)
 
Net loss (20,987 ) (4.0 %) (21,227 ) (4.7 %)
 
Net earnings attributable to noncontrolling interests 234   0.1 % 66   0.0 %
 
Net loss attributable to Guess?, Inc. $ (21,221 ) (4.1 %) $ (21,293 ) (4.7 %)
 
Net loss per common share attributable to common stockholders:
 
Basic $ (0.27 ) $ (0.26 )
Diluted $ (0.27 ) $ (0.26 )
 
Weighted average common shares outstanding attributable to common stockholders:
 
Basic 79,901 83,010
Diluted 79,901 83,010
 
Effective tax rate 23.0 % 6.2 %
 
Adjusted selling, general and administrative expenses2,3: $ 194,410 37.3 % $ 166,855 36.7 %
 
Adjusted loss from operations2,3: $ (20,472 ) (3.9 %) $ (22,213 ) (4.9 %)
 
Adjusted net loss attributable to Guess?, Inc.3: $ (17,831 ) (3.4 %) $ (19,351 ) (4.3 %)
 
Adjusted diluted loss per common share attributable to common stockholders3: $ (0.23 ) $ (0.24 )
 
Adjusted effective tax rate3: 23.0 % 2.9 %
     
Notes:

1During 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 months ended April 29, 2017 have been adjusted to conform to the current period presentation. This reclassification had no impact on previously reported loss from operations, net loss or net loss per share.

 

2During 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 from selling, general and administrative expenses to other income (expense), net for the three months ended April 29, 2017 to conform to the current period presentation. This reclassification had no impact on previously reported net loss or net loss per share.

 

3The adjusted results for the three months ended May 5, 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 months ended April 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 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 5, 2018 and April 29, 2017.
 
Three Months Ended
May 5, 2018 April 29, 2017
$

% of Net

Revenue

$

% of Net

Revenue1

 
Reported GAAP selling, general and administrative expenses $ 198,219 38.0 % $ 166,855 36.7 %
Certain professional service and legal fees and related costs2 (3,809 )  
 
Adjusted selling, general and administrative expenses $ 194,410   37.3 % $ 166,855   36.7 %
 
Reported GAAP loss from operations $ (24,888 ) (4.8 %) $ (24,975 ) (5.5 %)
Net gains on lease terminations3 (152 )
Asset impairment charges4 759 2,762
Certain professional service and legal fees and related costs2 3,809    
 
Adjusted loss from operations $ (20,472 ) (3.9 %) $ (22,213 ) (4.9 %)
 
Reported GAAP net loss attributable to Guess?, Inc. $ (21,221 ) (4.1 %) $ (21,293 ) (4.7 %)
Net gains on lease terminations3 (152 )
Asset impairment charges4 759 2,762
Certain professional service and legal fees and related costs2 3,809
Income tax adjustments5 (1,026 ) (820 )
 
Total adjustments affecting net loss attributable to Guess?, Inc. 3,390   1,942  
 
Adjusted net loss attributable to Guess?, Inc. $ (17,831 ) (3.4 %) $ (19,351 ) (4.3 %)
 
 
Reported GAAP income tax benefit $ (6,277 ) $ (1,403 )
Income tax adjustments5 1,026   820  
 
Adjusted income tax benefit $ (5,251 ) $ (583 )
 
Adjusted effective tax rate 23.0 % 2.9 %
 
Notes:

1During 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, operating results as a percentage of net revenue for the three months ended April 29, 2017 have been adjusted to conform to the current period presentation.

 

2During the three months ended May 5, 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.

 

3During the three months ended May 5, 2018, the Company recorded net gains on lease terminations related primarily to the early termination of certain lease agreements in North America.

 

4During the three months ended May 5, 2018 and April 29, 2017, the Company recognized asset impairment charges for certain retail locations resulting from under-performance and expected store closures.

 

5The 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
May 5, April 29, %
2018 2017 change
 
Net revenue:
Americas Retail $ 171,340 $ 173,694 (1%)
Americas Wholesale 40,679 35,857 13%
Europe 205,435 165,388 24%
Asia 84,051 63,381 33%
Licensing1 19,784   16,025   23%
Total net revenue1 $ 521,289   $ 454,345   15%
 
 
Earnings (loss) from operations:
Americas Retail2,3 $ (5,680 ) $ (21,581 ) 74%
Americas Wholesale2,3 6,026 6,983 (14%)
Europe2,3,4 (20,333 ) (1,006 ) (1,921%)
Asia2,3 4,065 339 1,099%
Licensing2,3 17,486   13,461   30%
Total segment earnings (loss) from operations4 1,564 (1,804 ) 187%
 
Corporate overhead2,4 (25,845 ) (20,409 ) 27%
Net gains on lease terminations2 152
Asset impairment charges2 (759 ) (2,762 )
Total loss from operations4 $ (24,888 ) $ (24,975 ) 0%
 
 
Operating margins:
Americas Retail2,3 (3.3 %) (12.4 %)
Americas Wholesale2,3 14.8 % 19.5 %
Europe2,3,4 (9.9 %) (0.6 %)
Asia2,3 4.8 % 0.5 %
Licensing1,2,3 88.4 % 84.0 %
 
GAAP operating margin for total Company1,4 (4.8 %) (5.5 %)
Net gains on lease terminations2 (0.0 %) 0.0 %
Asset impairment charges2 0.2 % 0.6 %
Certain professional service and legal fees and related costs 0.7 % 0.0 %
Adjusted operating margin for total Company1,4 (3.9 %) (4.9 %)
 
Notes:

1During 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 months ended April 29, 2017 have been adjusted to conform to the current period presentation. This reclassification had no impact on previously reported loss from operations.

 

2During 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 months ended April 29, 2017 to conform to the current period presentation.

 

3During 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 months ended April 29, 2017 have been adjusted to conform to the current period presentation.

 

4During 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, loss from operations and segment results for the three months ended April 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
May 5, 2018 April 29, 2017 % change
As Reported

Foreign

Currency

Impact

Constant

Currency

As Reported

As

Reported

Constant

Currency

Net revenue:
Americas Retail $ 171,340 $ (1,380 ) $ 169,960 $ 173,694 (1%) (2%)
Americas Wholesale 40,679 (787 ) 39,892 35,857 13% 11%
Europe 205,435 (24,965 ) 180,470 165,388 24% 9%
Asia 84,051 (4,743 ) 79,308 63,381 33% 25%
Licensing1 19,784     19,784   16,025   23% 23%
Total net revenue1 $ 521,289   $ (31,875 ) $ 489,414   $ 454,345   15% 8%
 
Notes:

1During 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 months ended April 29, 2017 has been adjusted to conform to the current period presentation.

 
Guess?, Inc. and Subsidiaries
Selected Condensed Consolidated Balance Sheet Data
(in thousands)
                 
 
May 5, February 3, April 29,
2018 2018 2017
 
ASSETS
 
Cash and cash equivalents $ 232,492 $ 367,441 $ 316,395
 
Receivables, net 243,138 259,996 193,643
 
Inventories 434,922 428,304 402,673
 
Other current assets 73,320 52,964 66,695
 
Property and equipment, net 286,915 294,254 245,131
 
Restricted cash 232 241 1,529
 
Other assets 250,162 252,434 246,058
     
Total Assets $ 1,521,181   $ 1,655,634   $ 1,472,124
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
Current portion of capital lease obligations and borrowings $ 3,363 $ 2,845 $ 571
 
Other current liabilities 390,426 465,000 323,995
 
Long-term debt and capital lease obligations 37,217 39,196 23,322
 
Other long-term liabilities 210,847 209,528 179,324
 
Redeemable and nonredeemable noncontrolling interests 21,637 22,246 18,796
 
Guess?, Inc. stockholders’ equity 857,691 916,819 926,116
     
Total Liabilities and Stockholders’ Equity $ 1,521,181   $ 1,655,634   $ 1,472,124
 
Guess?, Inc. and Subsidiaries
Condensed Consolidated Cash Flow Data
(in thousands)
             
Three Months Ended
May 5, April 29,
2018 2017
 
Net cash used in operating activities $ (67,576 ) $ (29,947 )
 
Net cash used in investing activities (20,877 ) (19,234 )
 
Net cash used in financing activities (38,284 ) (35,960 )
 
Effect of exchange rates on cash, cash equivalents and restricted cash (8,221 ) 5,415  
 
Net change in cash, cash equivalents and restricted cash (134,958 ) (79,726 )
 
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 $ 232,724   $ 317,924  
 
 

Supplemental information:

 
Depreciation and amortization $ 16,499 $ 15,011
 
Rent $ 72,226 $ 66,207
 
Guess?, Inc. and Subsidiaries
Reconciliation of Net Cash Used in Operating Activities to Free Cash Flow
(in thousands)
               
 
Three Months Ended
May 5, April 29,
2018 2017
 
Net cash used in operating activities $ (67,576 ) $ (29,947 )
 
Less: Purchases of property and equipment (19,004 ) (18,846 )
 
Less: Payments for property and equipment under capital leases (386 )
   
Free cash flow $ (86,966 ) $ (48,793 )
 
Guess?, Inc. and Subsidiaries
Retail Store Data
Global Store and Concession Count
               
 
As of May 5, 2018
Stores Concessions
Directly Partner Directly Partner
Region Total Operated Operated Total Operated Operated
 
United States 299 297 2 1 1
Canada 86 86
Central and South America 103 61 42 27 27
 
Total Americas 488 444 44 28 27 1
 
Europe and the Middle East 656 407 249 34 34
Asia and the Pacific 500 169 331 369 175 194
 
Total 1,644 1,020 624 431 236 195
 
 
As of April 29, 2017
Stores Concessions
Directly Partner Directly Partner
Region Total Operated Operated Total Operated Operated
 
United States 332 330 2 1 1
Canada 108 108
Central and South America 94 51 43 30 30
 
Total Americas 534 489 45 31 30 1
 
Europe and the Middle East 647 354 293 30 30
Asia and the Pacific 489 106 383 380 190 190
 
Total 1,670 949 721 441 250 191
 

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

Source: Guess?, Inc.