Los Angeles, CA, May 9, 2001 – Guess? Inc. (NYSE:GES) today announced its financial results for the first quarter ended March 31, 2001 and the authorization by its Board of Directors of a $15 million share repurchase program. The Company also announced that it has entered into a licensing agreement for its children's product line and has decided to slow new store opening plans, as the Company focuses on improving the performance of its core businesses.First Quarter Results
The Company reported net earnings for the first quarter ended March 31, 2001 of $2.1 million, or diluted earnings per share of $0.05. These results include the recognition of special pretax charges, discussed below, of $1.0 million, as well as a $1.1 million gain associated with the sale of property. The 2001 results compare to net earnings of $14.4 million, or diluted earnings of $0.33 per share, for the first quarter ended April 1, 2000.
Maurice Marciano, Co-Chairman and Co-Chief Executive Officer, commented, “Our financial results came in slightly above our expectations for the period, despite challenges in both our retail and wholesale channels due to lower sales and gross margin pressures. We've been focusing our energies on key priorities to enhance both our operating and financial performance, and we are pleased with the progress made during the first quarter. We've initiated actions to improve our inventory position, streamline our cost structure, and better manage our business, as we work toward our objective of repositioning the Company for profitable growth over the long term. In spite of our efforts to recapture revenues, we expect business to remain soft in 2001 and we will continue to focus on delivering bottom-line results.”
Net revenue from overall product sales declined 10% to $160.5 million in the first quarter ended March 31, 2001 from $178.4 million in the 2000 first quarter period.
The Company's retail stores, including the Canada operation, generated revenue of $79.4 million for the 2001 first quarter period, an increase of 2.1% over the $77.8 million reported in the same period a year ago. The sales increase was attributable to the opening of new stores. Comparable store sales decreased 14.1% in the first quarter of 2001 versus the same 2000 period.
Net revenue from the Company's wholesale business decreased by 19.4% to $81.1 million in 2001 from $100.6 million for the 2000 period. Net revenue from royalties was $9.6 million in the 2001 first quarter, a 7.7% decline from $10.4 million in the first quarter of 2000.
Gross profit decreased to $58.7 million in the first quarter of 2001, or 34.5% of net revenue, from $79.1 million, or 41.9% of net revenue, in the comparable 2000 period. Lower revenues, inventory write-down charges, higher returns and markdown allowances in the wholesale business and higher occupancy costs in the retail business negatively impacted the first quarter gross profit margin.
Selling, general and administrative (SG&A) expenses decreased to $52.2 million in the 2001 first quarter from $52.5 million in the 2000 first quarter, as a result of the cost containment initiatives in both the retail and wholesale businesses, partially offset by the costs of operating 50 additional stores.
Earnings from operations reached $7.2 million in the first quarter of 2001, versus $26.7 million in the same 2000 fiscal period. Earnings from operations for the wholesale segment for the first quarter 2001 decreased to $5.6 million from $19.3 million for the same fiscal period last year. The retail segment posted a loss from operations of $6.7 million, versus a $1.3 million loss from operations for the 2000 first quarter. Earnings from operations for the licensing segment decreased to $8.2 million from $8.7 million for the same period last year.
As part of a restructuring of its operations implemented during the first quarter, the Company has streamlined its organization and eliminated certain positions primarily from its corporate functions. The Company also decided to license its existing children's business, now produced in-house, to Designer Classics, LLC its licensee for its Baby Guess? product line. The agreement was finalized in the second quarter of 2001 and is effective for fiscal year 2002. In connection with these actions, during the first quarter ended March 31, 2001, the Company recorded special charges consisting of severance costs of $400,000 related to the reorganization of its operations and approximately $600,000 in inventory write-down charges included in cost of sales resulting from the decision to license the children's product line. The Company also sold idle real estate during the current fiscal period at a gain of $1.1 million.
Paul Marciano, Co-Chairman and Co-Chief Executive Officer, commented, “We are delighted to expand our partnership with Designer Classics and know firsthand the core capabilities and experience that they will bring to our children's line. We look forward to working together to grow this business over the long term. For Guess?, this agreement will result in increased royalty revenues, while reducing our capital investment needs and allowing us to concentrate more fully on what we do best: our core women's and men's businesses.”
2001 Retail Expansion Plans and Share Repurchase Program
Based on a careful evaluation of its current store portfolio and investment opportunities, the Company decided to reduce its 2001 new store openings plan to 17 stores from its original plan to open 25 stores. As a result of this decision and other cost reduction initiatives, it now plans to spend approximately $25 million in capital expenditures during the 2001 fiscal year, versus its original plan of $40 million.
The Company's Board of Directors has authorized the Company to repurchase shares of its own stock in an amount of up to $15 million from time to time, in open market transactions.
Carlos Alberini, President and Chief Operating Officer, commented, “I am very pleased with our Board's decision. I strongly believe our future prospects are bright and purchasing our stock represents an excellent use of our capital to create value for all of our shareholders. Our capital structure remains solid, and even if we execute a large part of this share repurchase program this year, we expect to end 2001 with no borrowings under our credit facility.”
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Guess?, Inc. designs, markets, distributes and licenses one of the world's leading lifestyle collections of contemporary apparel, accessories and related consumer products.