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Guess?, Inc. Reports Fiscal Year 2023 Third Quarter Results

Q3 Fiscal 2023 Revenues Reached $633 Million, Down 2% in U.S. Dollars and Up 10% in Constant Currency Compared to Q3 Fiscal 2022

Delivered Q3 Operating Margin of 8.6%; Adjusted Operating Margin of 9.1%

Q3 EPS of $0.34 and Adjusted EPS of $0.44

Expects Fiscal 2023 Revenue Growth of About 2.0% in U.S. Dollars, 10.5% in Constant Currency, and GAAP and Adjusted Operating Margins of 9.3% and 9.7%, Respectively

Expects Fiscal 2023 GAAP EPS of $1.82 and Adjusted EPS of $2.35

Guess?, Inc. (NYSE: GES) today reported financial results for its third quarter ended October 29, 2022.

Carlos Alberini, Chief Executive Officer, commented, “We are pleased with our third quarter financial results, which exceeded our revenue and operating profit expectations in a challenging retail environment. Our revenues decreased by almost 2% in U.S. dollars but grew 10% in constant currency, driven primarily by the strength of our business in Europe. For the period, we managed the business well and delivered an 8.6% operating margin and $55 million in operating profit. Lower performance-based compensation helped us partially offset the gross margin pressure we experienced as a result of the adverse currency impact associated with the strong U.S. dollar and lower full price selling.”

Paul Marciano, Co-Founder and Chief Creative Officer, commented, “Our focus remains on delivering great product to support our customers’ lifestyles with one global product line for our multiple categories of apparel and accessories. Through our focus on brand elevation, we have improved the quality and styling of our products. Our Guess and Marciano collections are both resonating well across our different customer groups. I am very pleased with how our teams continue to work well together to leverage our strong brand momentum and gain market share.”

Mr. Alberini concluded, “We are well positioned for our holiday period. We have a solid business plan and inventory levels are well aligned with our business trends. Our updated outlook for the fiscal year reflects these trends and the impact of further currency headwinds. We believe that the combination of our diversified business model, our global brands and our strong capital structure provides us with a significant competitive advantage in the current marketplace and remain confident in our long-term growth opportunities.”

Non-GAAP Information

This press release contains non-GAAP financial measures, including certain adjusted results of operations and outlook measures, constant currency information and free cash flow measures. See the heading “Presentation of Non-GAAP Information” for further information and the accompanying tables for a reconciliation to the comparable GAAP financial measure.

Third Quarter Fiscal 2023 Results

For the third quarter of fiscal 2023, the Company recorded GAAP net earnings of $21.8 million, a 26.9% decrease from $29.9 million for the same prior-year quarter. GAAP diluted net earnings per share (“EPS”) decreased 24.4% to $0.34 for the third quarter of fiscal 2023, compared to $0.45 for the same prior-year quarter. The Company estimates a net positive impact from its adoption of the accounting guidance related to the Company’s convertible notes and share buybacks of $0.07 and a negative impact from currency of $0.22 on GAAP diluted EPS in the third quarter of fiscal 2023 when compared to the same prior-year quarter.

For the third quarter of fiscal 2023, the Company’s adjusted net earnings were $24.7 million, a 40.4% decrease from $41.6 million for the same prior-year quarter. Adjusted diluted EPS decreased 29.0% to $0.44, compared to $0.62 for the same prior-year quarter. The Company estimates a net positive impact from its share buybacks of $0.07 and a negative impact from currency of $0.28 on adjusted diluted EPS in the third quarter of fiscal 2023 when compared to the same prior-year quarter.

Net Revenue. Total net revenue for the third quarter of fiscal 2023 decreased 2% to $633.4 million from $643.1 million in the same prior-year quarter. In constant currency, net revenue increased by 10%.

  • Americas Retail revenues decreased 2% in U.S. dollars and 1% in constant currency. Retail comp sales, including e-commerce, decreased 1% in U.S. dollars and remained relatively flat in constant currency.
  • Americas Wholesale revenues decreased 10% in U.S. dollars and 9% in constant currency.
  • Europe revenues decreased 2% in U.S. dollars and increased 17% in constant currency. Retail comp sales, including e-commerce, decreased 8% in U.S. dollars and increased 9% in constant currency.
  • Asia revenues increased 10% in U.S. dollars and 28% in constant currency. Retail comp sales, including e-commerce, decreased 2% in U.S. dollars and increased 13% in constant currency.
  • Licensing revenues increased 4% in U.S. dollars and constant currency.

Earnings from Operations. GAAP earnings from operations for the third quarter of fiscal 2023 decreased 17% to $54.8 million (including $1.8 million in non-cash impairment charges taken on certain long-lived store related assets, $0.1 million net gains on lease modifications and an $11.9 million unfavorable currency translation impact), from $65.7 million (including $1.2 million in non-cash impairment charges taken on certain long-lived store related assets and $3.0 million net losses on lease modifications) in the same prior-year quarter. GAAP operating margin in the third quarter of fiscal 2023 decreased 1.6% to 8.6%, from 10.2% for the same prior-year quarter, driven primarily by the unfavorable impact of currency, higher costs and markdowns, partially offset by leveraging of expenses. The negative impact of currency on operating margin for the quarter was approximately 190 basis points.

For the third quarter of fiscal 2023, adjusted earnings from operations decreased 18% to $58.0 million, from $70.4 million in the same prior-year quarter. Adjusted operating margin decreased 1.8% to 9.1%, from 10.9% for the same prior-year quarter, driven primarily by the unfavorable impact of currency, higher costs and markdowns, partially offset by leveraging of expenses.

  • Operating margin for the Company’s Americas Retail segment decreased 7.3% to 6.9% in the third quarter of fiscal 2023, from 14.2% in the same prior-year quarter, driven primarily by the unfavorable impact from higher markdowns and inventory obsolescence reserves, higher costs and lower government subsidies compared to the same prior-year quarter, partially offset by higher initial markups.
  • Operating margin for the Company’s Americas Wholesale segment decreased 10.1% to 19.2% in the third quarter of fiscal 2023, from 29.3% in the same prior-year quarter, due primarily to higher markdowns and higher expenses.
  • Operating margin for the Company’s Europe segment decreased 2.3% to 11.2% in the third quarter of fiscal 2023, from 13.5% in the same prior-year quarter, driven primarily by the unfavorable impact of currency and higher costs, partially offset by leveraging of expenses.
  • Operating margin for the Company’s Asia segment increased 4.2% to a relative breakeven point in the third quarter of fiscal 2023, from negative 4.2% in the same prior-year quarter, driven primarily by leveraging of expenses.
  • Operating margin for the Company’s Licensing segment decreased 2.2% to 89.6% in the third quarter of fiscal 2023, from 91.8% in the same prior-year quarter, mainly due to higher expenses.

Other expense, net. Other expense, net for the third quarter of fiscal 2023 was $15.2 million compared to $7.8 million for the same prior-year quarter. The change was primarily due to net unrealized losses on the Company’s SERP-related assets compared to net unrealized gains in the same prior-year quarter and, to a lesser extent, higher unrealized losses from foreign currency exposures.

Nine-Month Period Results

For the nine months ended October 29, 2022, the Company recorded GAAP net earnings of $53.8 million, a 47.8% decrease from $102.9 million for the same prior-year period. GAAP diluted EPS decreased 48.4% to $0.80 for the nine months ended October 29, 2022, compared to $1.55 during the same prior-year period. The Company estimates a net positive impact from its adoption of the accounting guidance related to the Company’s convertible notes and share buybacks of $0.16 and a negative impact from currency of $0.53 on GAAP diluted EPS for the nine months ended October 29, 2022 when compared to same prior-year period.

For the nine months ended October 29, 2022, the Company recorded adjusted net earnings of $62.9 million, a 47.4% decrease from $119.5 million for the same prior-year period. Adjusted diluted EPS decreased 40.8% to $1.06, compared to $1.79 for the same prior-year period. The Company estimates its share buybacks had a net positive impact of $0.12, and currency had a negative impact of $0.61 on adjusted diluted EPS during the nine months ended October 29, 2022 when compared to same prior-year period.

Net Revenue. Total net revenue for the nine months ended October 29, 2022 increased 4% to $1.87 billion, from $1.79 billion in the same prior-year period. In constant currency, net revenue increased by 14%.

  • Americas Retail revenues remained consistent in U.S. dollars and increased 1% in constant currency. Retail comp sales, including e-commerce, decreased 2% in U.S. dollars and 1% in constant currency.
  • Americas Wholesale revenues increased 11% in U.S. dollars and 12% in constant currency.
  • Europe revenues increased 5% in U.S. dollars and 21% in constant currency. Retail comp sales, including e-commerce, decreased 6% in U.S. dollars and increased 8% in constant currency.
  • Asia revenues increased 5% in U.S. dollars and 17% in constant currency. Retail comp sales, including e-commerce, decreased 5% in U.S. dollars and increased 5% in constant currency.
  • Licensing revenues increased 13% in U.S. dollars and constant currency.

Earnings from Operations. GAAP earnings from operations for the nine months ended October 29, 2022 decreased 19% to $144.6 million (including $5.3 million in non-cash impairment charges taken on certain long-lived store related assets, $1.7 million net gains on lease modifications and a $25.6 million unfavorable currency translation impact), from $179.6 million (including $3.1 million in non-cash impairment charges taken on certain long-lived store related assets and $0.4 million net losses on lease modifications) in the same prior-year period. GAAP operating margin in the nine months ended October 29, 2022 decreased 2.3% to 7.7%, from 10.0% in the same prior-year period, driven primarily by the unfavorable currency impact, higher markdowns, higher costs and lower rent relief, partially offset by overall leveraging of expenses. The negative impact of currency on operating margin for the nine months ended October 29, 2022 was approximately 140 basis points.

For the nine months ended October 29, 2022, adjusted earnings from operations decreased 16% to $155.4 million, from $184.9 million in the same prior-year period. Adjusted operating margin decreased 2.0% to 8.3%, from 10.3% for the same prior-year period, driven primarily by the unfavorable currency impact, higher markdowns, higher costs and lower rent relief, partially offset by overall leveraging of expenses.

  • Operating margin for the Company’s Americas Retail segment decreased 6.5% to 9.6% in the nine months ended October 29, 2022, from 16.1% in the same prior-year period, driven primarily by the unfavorable impact from higher markdowns, higher store labor costs and lower government subsidies compared to last year, partially offset by higher initial markups.
  • Operating margin for the Company’s Americas Wholesale segment decreased 4.4% to 22.7% in the nine months ended October 29, 2022, from 27.1% in the same prior-year period, due primarily to higher markdowns.
  • Operating margin for the Company’s Europe segment decreased 1.7% to 9.5% in the nine months ended October 29, 2022, from 11.2% in the same prior-year period, driven primarily by unfavorable currency impact and lower initial markups, partially offset by leveraging of expenses.
  • Operating margin for the Company’s Asia segment increased 1.6% to negative 4.0% in the nine months ended October 29, 2022 from negative 5.6% in the prior-year period, due primarily to leveraging of expenses.
  • Operating margin for the Company’s Licensing segment decreased 2.1% to 89.3% in the nine months ended October 29, 2022, from 91.4% in the same prior-year period, mainly due to higher expenses.

Other expense, net. Other expense, net for the nine months ended October 29, 2022 was $40.7 million compared to $11.5 million in the same prior-year period. The change was primarily due to higher net unrealized and realized losses from foreign currency exposures and, to a lesser extent, net unrealized losses on our SERP-related assets compared to net unrealized gains in the same prior-year period.

Outlook

For the fourth quarter of fiscal 2023, we expect revenues to be down around 3.5% in U.S. dollars (up 3.5% in constant currency) versus the fourth quarter of fiscal 2022. For the full fiscal 2023, we expect revenues to be up around 2.0% in U.S. dollars (10.5% in constant currency) versus fiscal 2022.

A reconciliation of the Company’s outlook for GAAP operating margin to adjusted operating margin and GAAP diluted EPS to adjusted diluted EPS for the fourth quarter and fiscal 2023 is as follows:

Reconciliation of GAAP Outlook to Adjusted Outlook

 

 

Fourth Quarter of

Fiscal 2023

Fiscal 2023

 

 

 

GAAP operating margin

13.2%

9.3%

Certain professional service and legal fees and related (credits) costs1

—%

0.3%

Asset impairment charges1

—%

0.2%

Net gains on lease modifications1

—%

(0.1%)

Adjusted operating margin

13.2%

9.7%

 

 

 

GAAP diluted EPS

$1.09

$1.82

Certain professional service and legal fees and related (credits) costs1

0.08

Asset impairment charges1

0.06

Net gains on lease modifications1

(0.02)

Discrete income tax adjustments1

0.01

Impact of convertible share dilution2

0.23

0.40

Adjusted diluted EPS

$1.32

$2.35

____________________

See end of release for footnotes.

Dividend

The Company’s Board of Directors approved a quarterly cash dividend of $0.225 per share on the Company’s common stock. The dividend will be payable on December 23, 2022 to shareholders of record as of the close of business on December 7, 2022.

Share Repurchases

In March 2022, the Company entered into an accelerated share repurchase agreement (“ASR”), pursuant to which it initially received approximately 3.3 million shares of common stock (representing approximately $70.0 million, or 40%) of the $175.0 million notional amount of the ASR. The Company received a final delivery of an additional 5.2 million shares under the ASR on June 24, 2022. During the nine months ended October 29, 2022, the Company also repurchased approximately 0.5 million shares of its common stock in open market transactions totaling $11.7 million. Combined, these transactions resulted in the repurchase of approximately 9.0 million shares for $186.7 million during the nine months ended October 29, 2022, all of which occurred during the six months ended July 30, 2022.

Presentation of Non-GAAP Information

The financial information presented in this release includes non-GAAP financial measures, such as adjusted results and outlook, constant currency financial information and free cash flows. The adjusted measures exclude the impact of certain professional service and legal fees and related (credits) costs, asset impairment charges, net (gains) losses on lease modifications, non-cash amortization of debt discount on the Company’s convertible senior notes, the related income tax effects of the foregoing items, the impact from changes in the income tax law on deferred income taxes in certain tax jurisdictions, net income tax settlements and adjustments to specific uncertain income tax positions, as well as certain discrete income tax adjustments related primarily to an intra-entity transfer of intellectual property rights from certain U.S. entities to a wholly-owned Swiss subsidiary, in each case where applicable. These non-GAAP measures are provided in addition to, and not as alternatives for, the Company’s reported GAAP results and outlook.

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 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 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 different from 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 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 to provide 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 4:45 pm (ET) on November 22, 2022 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 October 29, 2022, the Company directly operated 1,064 retail stores in the Americas, Europe and Asia. The Company’s partners and distributors operated 566 additional retail stores worldwide. As of October 29, 2022, 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 impacts of the COVID-19 pandemic, the ongoing conflict in Ukraine and other events impacting the markets in which we operate; statements concerning the Company’s future outlook, including with respect to the fourth quarter and full year of fiscal 2023; statements concerning the Company’s expectations, goals, future prospects, and current business strategies and strategic initiatives; and statements expressing optimism or pessimism about future operating results and growth opportunities 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; sanctions and export controls targeting Russia and other impacts related to the war in Ukraine; impacts related to the COVID-19 pandemic or other public health crises; risks relating to our indebtedness; changes to estimates related to impairments, inventory and other reserves; 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; the high concentration of our Americas Wholesale business; risks related to the costs and timely delivery of merchandise to our distribution facilities, stores and 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 successfully enhance our global omni-channel capabilities; our ability to expand internationally and operate in regions where we have less experience, including through joint ventures; risks relating to our $300 million, 2.0% convertible senior notes due 2024, including our ability to settle the liability in cash; disruptions at our distribution facilities; our ability to attract and retain management and other key personnel; obligations or changes in estimates arising from new or existing litigation, income tax and other regulatory proceedings; risks related to the income tax treatment of our third quarter fiscal 2022 intra-entity transfer of intellectual property rights from certain U.S. entities to a wholly-owned Swiss subsidiary; catastrophic events or natural disasters; changes in U.S. or foreign income tax or tariff policy, including changes to tariffs on imports into the U.S.; accounting adjustments to our unaudited financial statements identified during the completion of our annual independent audit of financial statements and financial controls or from subsequent events arising after issuance of this release; risk of future non-cash asset impairments, including goodwill, right-of-use lease assets and/or other store asset impairments; violations of, or changes to, domestic or international laws and regulations; risks associated with the acts or omissions of our licensees and third party vendors, including a failure to comply with our vendor code of conduct or other policies; risks associated with cyber security incidents 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; changes in economic, political, social and other conditions affecting our foreign operations and sourcing, including the impact of currency fluctuations, global income tax rates and economic and market conditions in the various countries in which we operate; impacts of inflation and further inflationary pressures; fluctuations in quarterly performance; slowing in-person customer traffic; increases in labor costs; increases in wages; risks relating to activist investor activity; and the significant voting power of our family founders.

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, the ongoing conflict in Ukraine, the impact of the COVID-19 pandemic, and uncertainty surrounding potential changes in U.S. policies and regulations 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

(amounts in thousands, except per share data)

 

 

 

Three Months Ended

Nine Months Ended

 

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

 

 

 

 

 

 

 

 

 

Product sales

$

605,656

 

95.6

%

$

616,489

 

95.9

%

$

1,790,651

 

95.8

%

$

1,721,657

 

96.1

%

Net royalties

 

27,747

 

4.4

%

 

26,581

 

4.1

%

 

78,915

 

4.2

%

 

70,039

 

3.9

%

Net revenue

 

633,403

 

100.0

%

 

643,070

 

100.0

%

 

1,869,566

 

100.0

%

 

1,791,696

 

100.0

%

 

 

 

 

 

 

 

 

 

Cost of product sales

 

364,032

 

57.5

%

 

349,466

 

54.3

%

 

1,082,545

 

57.9

%

 

992,448

 

55.4

%

Gross profit

 

269,371

 

42.5

%

 

293,604

 

45.7

%

 

787,021

 

42.1

%

 

799,248

 

44.6

%

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

212,927

 

33.6

%

 

223,775

 

34.8

%

 

638,801

 

34.2

%

 

616,076

 

34.4

%

Asset impairment charges

 

1,789

 

0.3

%

 

1,152

 

0.2

%

 

5,252

 

0.3

%

 

3,094

 

0.2

%

Net (gains) losses on lease modifications

 

(146

)

(0.0

%)

 

3,006

 

0.5

%

 

(1,654

)

(0.1

%)

 

441

 

0.0

%

Earnings from operations

 

54,801

 

8.6

%

 

65,671

 

10.2

%

 

144,622

 

7.7

%

 

179,637

 

10.0

%

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense

 

(3,453

)

(0.5

%)

 

(5,550

)

(0.9

%)

 

(9,741

)

(0.5

%)

 

(17,485

)

(1.0

%)

Interest income

 

636

 

0.1

%

 

487

 

0.1

%

 

1,629

 

0.1

%

 

1,322

 

0.1

%

Other, net

 

(15,211

)

(2.4

%)

 

(7,800

)

(1.2

%)

 

(40,716

)

(2.2

%)

 

(11,502

)

(0.6

%)

Earnings before income tax expense

 

36,773

 

5.8

%

 

52,808

 

8.2

%

 

95,794

 

5.1

%

 

151,972

 

8.5

%

Income tax expense

 

11,616

 

1.8

%

 

20,441

 

3.2

%

 

32,743

 

1.7

%

 

43,588

 

2.4

%

Net earnings

 

25,157

 

4.0

%

 

32,367

 

5.0

%

 

63,051

 

3.4

%

 

108,384

 

6.1

%

Net earnings attributable to noncontrolling interests

 

3,322

 

0.6

%

 

2,487

 

0.4

%

 

9,284

 

0.5

%

 

5,436

 

0.3

%

Net earnings attributable to Guess?, Inc.

$

21,835

 

3.4

%

$

29,880

 

4.6

%

$

53,767

 

2.9

%

$

102,948

 

5.8

%

 

Net earnings per common share attributable to common stockholders:

Basic

$

0.40

 

 

$

0.46

 

 

$

0.93

 

 

$

1.58

 

 

Diluted3

$

0.34

 

 

$

0.45

 

 

$

0.80

 

 

$

1.55

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding attributable to common stockholders:

Basic

 

53,894

 

 

 

64,373

 

 

 

57,300

 

 

 

64,248

 

 

Diluted3

 

67,102

 

 

 

65,852

 

 

 

70,705

 

 

 

65,893

 

 

 

 

 

 

 

 

 

 

 

Effective income tax rate

 

31.6

%

 

 

38.7

%

 

 

34.2

%

 

 

28.7

%

 

Adjusted selling, general and administrative expenses4:

$

211,419

 

33.4

%

$

223,225

 

34.7

%

$

631,616

 

33.8

%

$

614,339

 

34.3

%

Adjusted earnings from operations4:

$

57,952

 

9.1

%

$

70,379

 

10.9

%

$

155,405

 

8.3

%

$

184,909

 

10.3

%

Adjusted net earnings attributable to Guess?, Inc.4:

$

24,746

 

3.9

%

$

41,553

 

6.5

%

$

62,856

 

3.4

%

$

119,504

 

6.7

%

Adjusted weighted average common shares outstanding attributable to common stockholders:

Adjusted Diluted3,4

 

55,204

 

 

 

65,852

 

 

 

58,807

 

 

 

65,893

 

 

Adjusted net earnings per common share attributable to common stockholders:

Adjusted Diluted3,4

$

0.44

 

 

$

0.62

 

 

$

1.06

 

 

$

1.79

 

 

Adjusted effective income tax rate4:

 

29.7

%

 

 

27.0

%

 

 

32.3

%

 

 

24.5

%

 

____________________

See end of release for footnotes.

Guess?, Inc. and Subsidiaries

Reconciliation of GAAP Results to Adjusted Results

(dollars in thousands)

The reconciliations of reported GAAP selling, general and administrative expenses to adjusted selling, general and administrative expenses, reported GAAP earnings from operations to adjusted earnings from operations, reported GAAP net earnings attributable to Guess?, Inc. to adjusted net earnings attributable to Guess?, Inc. and reported GAAP income tax expense to adjusted income tax expense follows:

 

Three Months Ended

Nine Months Ended

 

October 29,

2022

October 30,

2021

October 29,

2022

October 30,

2021

 

 

 

 

 

Reported GAAP selling, general and administrative expenses

$

212,927

 

$

223,775

 

$

638,801

 

$

616,076

 

Certain professional service and legal fees and related credits (costs)5

 

(1,508

)

 

(550

)

 

(7,185

)

 

(1,737

)

 

 

 

 

 

Adjusted selling, general and administrative expenses4

$

211,419

 

$

223,225

 

$

631,616

 

$

614,339

 

 

 

 

 

 

Reported GAAP earnings from operations

$

54,801

 

$

65,671

 

$

144,622

 

$

179,637

 

Certain professional service and legal fees and related (credits) costs5

 

1,508

 

 

550

 

 

7,185

 

 

1,737

 

Asset impairment charges6

 

1,789

 

 

1,152

 

 

5,252

 

 

3,094

 

Net (gains) losses on lease modifications7

 

(146

)

 

3,006

 

 

(1,654

)

 

441

 

 

 

 

 

 

Adjusted earnings from operations4

$

57,952

 

$

70,379

 

$

155,405

 

$

184,909

 

 

 

 

 

 

Reported GAAP net earnings attributable to Guess?, Inc.

$

21,835

 

$

29,880

 

$

53,767

 

$

102,948

 

Certain professional service and legal fees and related (credits) costs5

 

1,508

 

 

550

 

 

7,185

 

 

1,737

 

Asset impairment charges6

 

1,789

 

 

1,152

 

 

5,252

 

 

3,094

 

Net (gains) losses on lease modifications7

 

(146

)

 

3,006

 

 

(1,654

)

 

441

 

Amortization of debt discount8

 

 

 

2,782

 

 

 

 

8,344

 

Discrete income tax adjustments9

 

208

 

 

5,912

 

 

624

 

 

6,140

 

Income tax impact from adjustments10

 

(448

)

 

(1,729

)

 

(2,318

)

 

(3,200

)

 

 

 

 

 

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

 

2,911

 

 

11,673

 

 

9,089

 

 

16,556

 

 

 

 

 

 

Adjusted net earnings attributable to Guess?, Inc.4

$

24,746

 

$

41,553

 

$

62,856

 

$

119,504

 

 

 

 

 

 

Reported GAAP income tax expense

$

11,616

 

$

20,441

 

$

32,743

 

$

43,588

 

Discrete income tax adjustments9

 

(208

)

 

(5,912

)

 

(624

)

 

(6,140

)

Income tax impact from adjustments10

 

448

 

 

1,729

 

 

2,318

 

 

3,200

 

 

 

 

 

 

Adjusted income tax expense4

$

11,856

 

$

16,258

 

$

34,437

 

$

40,648

 

 

 

 

 

 

Adjusted effective income tax rate4

 

29.7

%

 

27.0

%

 

32.3

%

 

24.5

%

____________________

See end of release for footnotes.

Guess?, Inc. and Subsidiaries

Consolidated Segment Data

(dollars in thousands)

 

 

 

Three Months Ended

Nine Months Ended

 

October 29,

2022

October 30,

2021

%

change

October 29,

2022

October 30,

2021

%

change

Net revenue:

 

 

 

 

 

 

Americas Retail

$

165,603

 

$

169,617

 

(2%)

$

513,743

 

$

511,449

 

0%

Americas Wholesale

 

53,181

 

 

58,999

 

(10%)

 

171,733

 

 

154,287

 

11%

Europe

 

323,754

 

 

330,736

 

(2%)

 

936,470

 

 

895,311

 

5%

Asia

 

63,118

 

 

57,137

 

10%

 

168,705

 

 

160,610

 

5%

Licensing

 

27,747

 

 

26,581

 

4%

 

78,915

 

 

70,039

 

13%

Total net revenue

$

633,403

 

$

643,070

 

(2%)

$

1,869,566

 

$

1,791,696

 

4%

 

 

 

 

 

 

 

Earnings (loss) from operations:

 

 

 

 

 

 

Americas Retail

$

11,365

 

$

24,070

 

(53%)

$

49,552

 

$

82,260

 

(40%)

Americas Wholesale

 

10,229

 

 

17,316

 

(41%)

 

39,068

 

 

41,815

 

(7%)

Europe

 

36,222

 

 

44,509

 

(19%)

 

88,650

 

 

100,124

 

(11%)

Asia

 

(5

)

 

(2,399

)

(100%)

 

(6,792

)

 

(9,054

)

(25%)

Licensing

 

24,849

 

 

24,402

 

2%

 

70,499

 

 

63,987

 

10%

Total segment earnings from operations

 

82,660

 

 

107,898

 

(23%)

 

240,977

 

 

279,132

 

(14%)

 

 

 

 

 

 

 

Corporate overhead

 

(26,216

)

 

(38,069

)

(31%)

 

(92,757

)

 

(95,960

)

(3%)

Asset impairment charges

 

(1,789

)

 

(1,152

)

55%

 

(5,252

)

 

(3,094

)

70%

Net gains (losses) on lease modifications

 

146

 

 

(3,006

)

(105%)

 

1,654

 

 

(441

)

(475%)

Total earnings from operations

$

54,801

 

$

65,671

 

(17%)

$

144,622

 

$

179,637

 

(19%)

 

 

 

 

 

 

 

Operating margins:

 

 

 

 

 

 

Americas Retail

 

6.9

%

 

14.2

%

 

 

9.6

%

 

16.1

%

 

Americas Wholesale

 

19.2

%

 

29.3

%

 

 

22.7

%

 

27.1

%

 

Europe

 

11.2

%

 

13.5

%

 

 

9.5

%

 

11.2

%

 

Asia

 

(0.0

%)

 

(4.2

%)

 

 

(4.0

%)

 

(5.6

%)

 

Licensing

 

89.6

%

 

91.8

%

 

 

89.3

%

 

91.4

%

 

 

 

 

 

 

 

 

GAAP operating margin for total Company

 

8.6

%

 

10.2

%

 

 

7.7

%

 

10.0

%

 

Certain professional service and legal fees and related (credits) costs4,5

 

0.2

%

 

0.1

%

 

 

0.4

%

 

0.1

%

 

Asset impairment charges4,6

 

0.3

%

 

0.2

%

 

 

0.3

%

 

0.2

%

 

Net (gains) losses on lease modifications4,7

 

(0.0

%)

 

0.4

%

 

 

(0.1

%)

 

0.0

%

 

Adjusted operating margin for total Company4

 

9.1

%

 

10.9

%

 

 

8.3

%

 

10.3

%

 

____________________

See end of release for footnotes.

Guess?, Inc. and Subsidiaries

Constant Currency Financial Measures

(dollars in thousands)

 

 

As Reported

Foreign

Currency

Impact

Constant

Currency

As Reported

As Reported

Constant

Currency

 

October 29, 2022

October 30, 2021

 

 

 

 

 

 

 

 

 

 

Three Months Ended

% change

Net revenue:

 

 

 

 

 

 

Americas Retail

$

165,603

$

1,654

$

167,257

$

169,617

(2%)

 

(1%)

Americas Wholesale

 

53,181

 

721

 

53,902

 

58,999

(10%)

 

(9%)

Europe

 

323,754

 

64,049

 

387,803

 

330,736

(2%)

 

17%

Asia

 

63,118

 

10,022

 

73,140

 

57,137

10%

 

28%

Licensing

 

27,747

 

 

27,747

 

26,581

4%

 

4%

Total net revenue

$

633,403

$

76,446

$

709,849

$

643,070

(2%)

 

10%

 

 

Nine Months Ended

 

 

 

Net revenue:

 

 

 

 

 

 

 

Americas Retail

$

513,743

$

3,493

$

517,236

$

511,449

0%

 

1%

Americas Wholesale

 

171,733

 

1,269

 

173,002

 

154,287

11%

 

12%

Europe

 

936,470

 

145,965

 

1,082,435

 

895,311

5%

 

21%

Asia

 

168,705

 

19,375

 

188,080

 

160,610

5%

 

17%

Licensing

 

78,915

 

 

78,915

 

70,039

13%

 

13%

Total net revenue

$

1,869,566

$

170,102

$

2,039,668

$

1,791,696

4%

 

14%

 

Guess?, Inc. and Subsidiaries

Selected Condensed Consolidated Balance Sheet Data

(in thousands)

 

 

October 29,

2022

January 29,

2022

October 30,

2021

 

 

 

 

ASSETS

 

 

 

 

Cash and cash equivalents

$

174,065

$

415,565

$

391,065

 

 

 

 

Receivables, net

 

319,342

 

328,856

 

321,296

 

 

 

 

Inventories

 

574,574

 

462,295

 

482,475

 

 

 

 

Other current assets

 

82,553

 

77,378

 

76,414

 

 

 

 

Property and equipment, net

 

231,024

 

228,765

 

212,126

 

 

 

 

Restricted cash

 

 

 

224

 

 

 

 

Operating lease right-of-use assets

 

614,705

 

685,799

 

706,161

 

 

 

 

Other assets

 

320,361

 

356,970

 

372,680

 

 

 

 

Total assets

$

2,316,624

$

2,555,628

$

2,562,441

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

Current portion of borrowings and finance lease obligations

$

39,626

$

43,379

$

32,960

 

 

 

 

Current operating lease liabilities

 

159,152

 

195,516

 

209,072

 

 

 

 

Other current liabilities

 

533,949

 

578,979

 

562,606

 

 

 

 

Long-term debt and finance lease obligations

 

153,717

 

60,970

 

67,456

 

 

 

 

Convertible senior notes, net8

 

298,731

 

270,595

 

267,599

 

 

 

 

Long-term operating lease liabilities

 

519,594

 

582,757

 

599,472

 

 

 

 

Other long-term liabilities

 

150,733

 

160,289

 

159,820

 

 

 

 

Redeemable and nonredeemable noncontrolling interests

 

42,294

 

40,485

 

38,119

 

 

 

 

Guess?, Inc. stockholders’ equity

 

418,828

 

622,658

 

625,337

 

 

 

 

Total liabilities and stockholders’ equity

$

2,316,624

$

2,555,628

$

2,562,441

____________________

See end of release for footnotes.

Guess?, Inc. and Subsidiaries

Condensed Consolidated Cash Flow Data

(in thousands)

 

 

 

 

Nine Months Ended

 

October 29,

2022

October 30,

2021

 

 

 

Net cash provided by (used in) operating activities

$

(21,418

)

$

4,581

 

Net cash used in investing activities

 

(71,969

)

 

(40,375

)

Net cash used in financing activities

 

(131,779

)

 

(28,494

)

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

 

(16,334

)

 

(13,768

)

 

 

 

Net change in cash, cash equivalents and restricted cash

 

(241,500

)

 

(78,056

)

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

 

415,565

 

 

469,345

 

 

 

 

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

$

174,065

 

$

391,289

 

 

 

 

Supplemental information:

 

 

Depreciation and amortization

$

45,490

 

$

41,613

 

Total lease costs (excluding finance lease cost)

$

220,151

 

$

213,712

 

 

Guess?, Inc. and Subsidiaries

Reconciliation of Net Cash Provided By (Used In) Operating Activities to Free Cash Flow

(in thousands)

 

 

Nine Months Ended

 

October 29,

2022

October 30,

2021

 

 

 

Net cash provided by (used in) operating activities

$

(21,418

)

$

4,581

 

Less: Purchases of property and equipment

 

(71,729

)

 

(40,598

)

Less: Payments for property and equipment under finance leases

 

(5,261

)

 

(4,583

)

 

 

 

Free cash flow

$

(98,408

)

$

(40,600

)

 

Guess?, Inc. and Subsidiaries

Retail Store Data

Global Store and Concession Count

 

 

Stores

Concessions

Region

Total

Directly

Operated

Partner

Operated

Total

Directly

Operated

Partner

Operated

 

As of October 29, 2022

United States

242

 

242

 

 

 

 

Canada

72

 

72

 

 

 

 

Central and South America

103

 

69

 

34

 

29

 

29

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Americas

417

 

383

 

34

 

29

 

29

 

 

 

 

 

 

 

 

 

 

 

 

 

Europe and the Middle East

799

 

561

 

238

 

54

 

54

 

Asia and the Pacific

414

 

120

 

294

 

251

 

127

 

124

 

 

 

 

 

 

 

 

 

 

 

 

Total

1,630

 

1,064

 

566

 

334

 

210

 

124

 

As of October 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

United States

244

 

243

 

1

 

1

 

 

1

Canada

74

 

74

 

 

 

 

Central and South America

105

 

70

 

35

 

29

 

29

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Americas

423

 

387

 

36

 

30

 

29

 

1

 

 

 

 

 

 

 

 

 

 

 

 

Europe and the Middle East

760

 

540

 

220

 

46

 

46

 

Asia and the Pacific

427

 

125

 

302

 

268

 

103

 

165

 

 

 

 

 

 

 

 

 

 

 

 

Total

1,610

 

1,052

 

558

 

344

 

178

 

166

 

Guess?, Inc. and Subsidiaries

Footnotes to Condensed Consolidated Financial Data

Footnotes:

 

1

 

Amounts for the full fiscal year include (i) certain professional service and legal fees and related (credits) costs which the Company otherwise would not have incurred as part of its business operations, (ii) asset impairment charges related primarily to impairment of property and equipment and operating lease right-of-use assets related to certain retail locations resulting from lower revenue and future cash flow projections from under-performance and expected store closures, (iii) net gains (losses) on lease modifications related primarily to the early termination of certain lease agreements, and (iv) discrete income tax adjustments related primarily to the impacts from cumulative valuation allowances and the income tax benefits from an income tax rate change due to net operating loss carrybacks, in each case as recognized during the nine months ended October 29, 2022. See the heading “Presentation of Non-GAAP Information” for further information. The Company is unable to predict future amounts with respect to these items, as such amounts are inconsistent in magnitude 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 or credits with respect to these items in the accompanying GAAP outlook.

   

2

 

Amounts for the fourth quarter and full fiscal year represent the exclusion of the dilutive impact of the Company’s convertible notes for adjusted diluted shares and corresponding interest expenses at stock prices below $46.88, based on the bond hedge contracts in place that will deliver shares to offset dilution. The Company excludes the dilutive impact anticipated to be recorded in those periods as such amounts are known. The Company has not assumed any potential share dilution related to the related warrants.

   

3

 

Prior to adoption of ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40), for GAAP purposes, the Company incurred dilution above the initial strike price of the Company’s convertible senior notes of $25.78. At October 30, 2021, there was no dilution related to the convertible notes for the period.



The Company adopted ASU 2020-06 under the modified retrospective method as of January 30, 2022. Upon adoption, the Company prospectively utilizes the if-converted method to calculate GAAP diluted EPS. For GAAP purposes, the Company incurs dilution of the Company’s convertible senior notes based on the initial conversion rate associated with the senior notes. For the three and nine months ended October 29, 2022, shares used in computing diluted EPS increased by 11.9 million shares due to the change from the treasury stock method to the if-converted method. Diluted net income per share for the three and nine months ended October 29, 2022 is calculated based on GAAP net income and diluted weighted-average shares of 67.1 million and 70.7 million, respectively, which also includes the potentially dilutive effect of the Company’s stock options, restricted stock units and convertible senior notes.



For adjusted diluted shares, the Company excludes the dilutive impact of the convertible notes at stock prices below $46.88, based on the bond hedge contracts in place that will deliver shares to offset dilution. At stock prices in excess of $46.88, the Company would have an obligation to deliver additional shares in excess of the dilution protection provided by the bond hedges.

   

4

 

The adjusted results reflect the exclusion of certain professional service and legal fees and related (credits) costs, asset impairment charges, net (gains) losses on lease modifications, non-cash amortization of debt discount on the Company’s convertible senior notes, the related income tax impacts of these adjustments, as well as certain discrete income tax adjustments, where applicable. A reconciliation of actual results to adjusted results is presented in the “Reconciliation of GAAP Results to Adjusted Results.”

   

5

 

Amounts recorded represent certain professional service and legal fees and related (credits) costs which the Company otherwise would not have incurred as part of its business operations.

   

6

 

Amounts represent asset impairment charges related primarily to impairment of property and equipment and operating lease right-of-use assets related to certain retail locations resulting from under-performance and expected store closures.

   

7

 

Amounts recorded represent net (gains) losses on lease modifications related primarily to the early termination of certain lease agreements.

   

8

 

In April 2019, the Company issued $300 million principal amount of 2.00% convertible senior notes due 2024 (the “Notes”) in a private offering. Prior to adoption of ASU 2020-06, the Company separated the Notes into liability (debt) and equity (conversion option) components. The debt discount, which represented an amount equal to the fair value of the equity component, was amortized as non-cash interest expense over the term of the Notes. The Company adopted ASU 2020-06 under the modified retrospective method as of January 30, 2022. Upon adoption, the equity component was eliminated and recorded as an adjustment to retained earnings. Prior periods are not affected.

   

9

 

Amounts represent discrete income taxes related primarily to the adjustments from an intra-entity transfer of intellectual property rights from certain U.S. entities to a wholly-owned Swiss subsidiary, impacts from cumulative valuation allowances and the income tax benefits from an income tax rate change due to net operating loss carrybacks.

   

10

 

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

 

Contacts

Guess?, Inc.

Fabrice Benarouche

VP, Finance and Investor Relations

(213) 765-5578

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