Los Angeles, CA, July 31, 2001 – Guess?, Inc. (NYSE:GES) today announced its financial results for the second quarter and first half of 2001 as well as revised earnings expectations for the remainder of the fiscal year. The Company also announced that it plans to acquire the remaining 40% of Guess? Canada, Inc. that it does not currently own.Second Quarter Results
For the second quarter ended June 30, 2001, the Company reported net earnings of $1.5 million, or diluted earnings of $0.03 per share. These results are in line with the Company's previously announced expectations of $0.02-$0.04 per share, and compare to net earnings of $6.8 million, or diluted earnings of $0.16 per share, for the second quarter of 2000.
Maurice Marciano, Co-Chairman and Co-Chief Executive Officer, commented, “As expected, our financial performance for the second quarter reflects continuing weakness in the retail marketplace, which resulted in lower sales and gross margin pressure in both our retail and wholesale channels. Nevertheless, we are pleased with the positive impact of the measures we have implemented within this challenging environment to contain costs, increase efficiency and strengthen our balance sheet. We have successfully reduced SG&A expense by 18% in the quarter despite our 20% larger store base. We are also beginning to realize the benefits from the actions we have taken to increase efficiencies throughout the Company. In addition, our stronger balance sheet reflects our efforts to improve our inventory position and reduce borrowing levels.”
Net revenue from overall product sales declined 15.2% to $143.1 million in the second quarter of 2001 from $168.7 million in the second quarter last year.
The Company's retail stores, including the Canada operation, generated revenues of $83.2 million for the 2001 second quarter, a decrease of 1.9% from $84.8 million reported in the same period a year ago. Comparable store sales decreased 16.3% in the second quarter of 2001 versus the year-ago period.
Net revenue from the Company's wholesale business was $59.9 million in the second quarter of 2001, down 28.6% from $83.9 million for the 2000 period.
Net revenue from licensing declined 4.4% to $8.6 million in the 2001 second quarter from $9.0 million in the second quarter last year.
Gross profit decreased to $51.7 million in the second quarter of 2001, or 34.1% of net revenue, from $69.4 million, or 39.0% of net revenue, in the comparable 2000 period. The decrease in gross profit margin during the period in the Company's wholesale business was attributable to lower revenues, inventory write-down charges and higher allowances, while in the retail business it was due to higher markdowns and increased occupancy costs due to lower sales productivity.
Selling, general and administrative (SG&A) expenses decreased to $46.10 million, or 30.34% of net revenues, in the 2001 second quarter from $56.0 million, or 31.5% of net revenues, in the 2000 second quarter. The overall SG&A expense reduction of 17.75% resulted from cost containment initiatives in both the retail and wholesale businesses which were partially offset by the costs of operating new stores.
Earnings from operations decreased to $5.6 million in the second quarter of 2001 from $14.9 million in the year-ago period. The wholesale segment posted a loss from operations of $0.5 million for the second quarter of 2001 compared to earnings from operations of $0.8 million for the same period last year, which included a credit of $1.5 million of severance recovery. The retail segment posted a loss from operations of $1.1 million versus earnings from operations of $7.1 million for the 2000 second quarter. Earnings from operations for the licensing segment increased to $7.2 million from $6.9 million for the same period last year.Six Months Results
In the first half of 2001, the Company reported net earnings of $3.5 million, or diluted earnings per share of $0.08. In the comparable period for 2000, the Company reported net earnings of $21.2 million, or diluted earnings per share of $0.48.
Net revenue from overall product sales declined 12.5% to $303.6 million in 2001 from $347.1 million in the first half of 2000.
The Company's retail stores, including the Canada operation, generated sales of $162.6 million for the first half of 2001, roughly equal to sales for the same period last year. Sales generated by new stores were offset by a comparable store sales decrease of 15.2% for the 2001 six-month period.
Net revenue from the Company's wholesale business in the first half of 2001 declined by 23.5% to $141.1 million from $184.5 million in the first half of 2000.
Net revenue from licensing was $18.2 million for the 2001 first half, a decrease of 6.7% from $19.5 million for the same period in 2000.
Gross profit decreased to $110.4 million for the six-month period, or 34.3% of net revenue, from $148.5 million, or 40.5% of net revenue, for the same period in 2000. Lower revenues and higher allowances in the wholesale business contributed to the decline in gross profit for the 2001 first half. In the retail segment, higher markdowns and increased occupancy costs due to lower sales productivity adversely impacted gross profit margins.
SG&A expenses decreased to $98.72 million for the first half of 2001 from $108.5 million in the same period in 2000, a decline of 9.05%, as a result of cost containment programs in both the wholesale and retail businesses which more than offset the costs to operate new stores.
Earnings from operations decreased to $12.8 million for the first half of 2001 from $41.6 million for the 2000 period. Earnings from operations for the wholesale segment decreased to $5.1 million from $20.2 million in the year-ago period. For the retail segment, the loss from operations was $7.8 million compared to earnings from operations of $5.8 million in the first half of last year, which included a credit of $1.5 million of severance recovery. Earnings from operations for the licensing segment in the first half of 2001 were $15.4 million compared to $15.6 million in the first half of 2000.Fiscal Year 2001 Expectations
Based on current trends, the Company expects to report a comparablesame store sales decrease of approximately 25% for the month of July 2001 in its retail stores. The July 2001 sales performance was negatively impacted by lower sales of clearance merchandise this year relative to the same period a year ago.
The Company now expects diluted earnings per share in the 2001 third quarter to be in the range of $0.09 to $0.11 and in the range of $0.22 to $0.24 in the fourth quarter, resulting in diluted earnings per share for the full year 2001 in the range of $0.39 to $0.43. The Company's expectations for the third quarter and for the full year 2001 do not include a non-recurring charge of approximately $3 million that it expects to record during the third quarter related to additional restructuring initiatives and integration costs regarding its Canadian acquisition discussed below.
Mr. Marciano commented, “Given the ongoing challenges posed by the retail and economic climate, we are continuing to evaluate our strategies and operations with an eye towards improving the Company's near- and long-term performance. We are moving forward with a series of additional initiatives designed to further streamline our cost structure and increase efficiency as we continue to focus on maximizing the revenue and margin potential of our core men's and women's collections.”Acquisition of Remainder of Guess? Canada
The Company has signed a letter of intent to acquire the remaining 40% of the outstanding shares of Guess? Canada, Inc. not already owned by the Company. Pursuant to the terms of the letter of intent signed by both parties in June 2001, the Company will pay a nominal consideration in exchange for the remaining shares of Guess? Canada, Inc. Concurrent with the execution of the letter of intent, the Company made an additional investment of $3.0 million in the Canadian business to fund its ongoing operations. The acquisition transaction is subject to standard closing conditions and is expected to close during the third quarter of 2001. The Company plans to further integrate the Canadian business with its U.S. business and it expects to benefit from overall cost reductions in 2002 as a result of its integration efforts.2001 Share Repurchase Program
In May 2001, the Company's Board of Directors 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. During the second quarter, the Company purchased 56,400 shares at an aggregated cost of $451,000, or an average of $7.99 per share.
In order to access Aa live web-cast of the Company's previously recorded conference call discussing the events announced in this press release will be accessible at , please access either of the following URLs:http://www.guess.com/gspot/about.asp?subsection=about
http://www.guess.com/gspot/about/investor/www.guess.com via the “Investor's Page” link from the “Guess, Inc.” section of the site. The webcast will be archived on the website through Tuesday, August 7th at 7:30 pm (ET).