Fiscal 2025 Strategic Plan
The Company’s priorities to drive revenue and operating profit growth over the next five years are:
- Brand relevancy - We will optimize our brand architecture to be relevant with our three target consumer groups: Heritage, Millennials, and Generation Z. We will continue to execute celebrity and influencer partnerships and collaborations as we believe that they are critical to engage more effectively with a younger and broader audience.
- Customer centricity - We intend to place the customers at the center of everything we do. We will implement processes and platforms to provide our customers with a seamless omni-channel experience.
- Global footprint - We will continue to expand the reach of our brands by optimizing the productivity and profitability of our current footprint and expanding our distribution channels.
- Product excellence - We will extend our product offering to provide our customers with products for the different occasions of their lifestyles. We will seek to better address local product needs.
- Functional capabilities - We expect to drive material operational improvements in the next five years, primarily in the areas of logistics, sourcing, product development and production, inventory management, and overall infrastructure.
Fiscal 2025 Financial Targets
The Company’s expectations for the fiscal year ending
Outlook for Total Company(1) |
||||||
|
|
|
|
|
|
|
|
|
Fiscal 20 vs. Fiscal 19 |
|
Fiscal 21 to Fiscal 25 Cadence(2) |
|
Fiscal 25 vs. Fiscal 20 |
|
|
|
|
|
|
|
Sales |
|
increase between 2.7% and 3.0% |
|
up low single digit CAGR |
|
up approx. +$250M |
|
|
|
|
|
|
|
Operating profit(3) |
|
increase between 26% and 30% |
|
up mid-teens CAGR |
|
up approx. +$150M |
|
|
|
|
|
|
|
Gross margin |
|
increase 160bp |
|
up 80bp annual average |
|
up 400bp |
|
|
|
|
|
|
|
SG&A rate(3) |
|
increase between 60bp and 40bp |
|
down (10)bp annual average |
|
down (50)bp |
|
|
|
|
|
|
|
Operating margin(3) |
|
increase between 100bp and 120bp |
|
up 90bp annual average |
|
up 450bp |
|
|
|
|
|
|
|
EPS(3) |
|
increase between 34% and 39% |
|
up high-teens CAGR |
|
2.3x |
|
$1.31 to $1.36 vs. $0.98 |
|
|
$3.00 vs. $1.31 to $1.36 |
||
|
|
|
|
|
|
|
Free cash flow(3) |
|
$57 million to $62 million vs. $(28) million |
|
up low-twenties CAGR |
|
3.0x |
|
|
|
|
|
|
|
Notes: |
|
|
|
|
|
|
(1) The Company’s outlook for the fiscal years ending February 1, 2020 and February 1, 2025 assumes that foreign currency exchange rates remain at prevailing rates. |
||||||
(2) Represents the average annual growth rate vs. prior year for each of the years from fiscal 2021 to fiscal 2025. |
||||||
(3) Represents a non-GAAP, or adjusted, financial measure. Please refer to the discussion and accompanying reconciliation tables under the heading “Presentation of Non-GAAP Information” below. |
On a segment basis, the Company expects the following ranges for percentage changes for net revenue in U.S. dollars and operating margin for the periods presented:
Outlook by Segment(1) |
|||||
|
|
|
|
|
|
|
|
|
Fiscal 20 vs. Fiscal 19 |
|
Fiscal 25 vs. Fiscal 20(2) |
|
|
|
|
|
|
Americas Retail: |
|
|
|
|
|
|
Net Revenue |
|
Down LSD |
|
up LSD CAGR |
|
Operating Margin |
|
~ flat |
|
up 400bp |
|
|
|
|
|
|
Americas Wholesale: |
|
|
|
|
|
|
Net Revenue |
|
up HSD |
|
up LSD CAGR |
|
Operating Margin |
|
up 100bp |
|
up 50bp |
|
|
|
|
|
|
Europe: |
|
|
|
|
|
|
Net Revenue |
|
up HSD |
|
up LSD CAGR |
|
Operating Margin |
|
up 500bp |
|
up 500bp |
|
|
|
|
|
|
Asia: |
|
|
|
|
|
|
Net Revenue |
|
down MSD |
|
up LSD CAGR |
|
Operating Margin |
|
down 500bp |
|
up 500bp |
|
|
|
|
|
|
Licensing: |
|
|
|
|
|
|
Net Revenue |
|
down LSD |
|
~ flat |
|
Operating Margin |
|
down 100bp |
|
~ flat |
|
|||||
Notes: |
|
|
|
|
|
(1) The Company’s outlook for the fiscal years ending February 1, 2020 and February 1, 2025 assumes that foreign currency exchange rates remain at prevailing rates. As used in the table above, “LSD” is used to refer to the range of Low-Single-Digits, “MSD” is used to refer to the range of Mid-Single-Digits, and “HSD” is used to refer to the range of High-Single-Digits. CAGR represents the average annual growth rate vs. prior year for each of the years from fiscal 2021 to fiscal 2025. |
|||||
(2) For Net Revenue, represents the average annual growth rate vs. prior year for each of the years from fiscal 2021 to fiscal 2025. For Operating Margin, represents the total basis point change between fiscal years 2020 and 2025. |
Presentation of Non-GAAP Information
The financial information presented in this release includes non-GAAP financial measures such as adjusted results and free cash flow measures. References to non-GAAP or “adjusted” results exclude the impact of (i) asset impairment charges, (ii) net gains on lease terminations, (iii) certain professional service and legal fees and related (credits) costs, (iv) charges related to the
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 and outlook to comparable non-GAAP measures is provided in the schedules below.
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 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 schedules below.
Guess?, Inc. and Subsidiaries |
Reconciliation of GAAP Measures to Adjusted Measures |
(dollars in thousands) |
The following tables provide reconciliations of GAAP earnings from operations to adjusted earnings from operations, GAAP operating margin to adjusted operating margin, GAAP selling, general and administrative (“SG&A”) expenses to adjusted SG&A expenses, GAAP SG&A rate to adjusted SG&A rate, GAAP net earnings attributable to
|
FY2019 |
|
FY2020E1 |
|
FY2025E1 |
||||||||
|
|
|
|
|
|
|
|
|
|
||||
GAAP earnings from operations |
$ |
52,212 |
|
|
|
|
|
||||||
Certain professional service and legal fees and related (credits) costs2 |
6,079 |
|
|
|
|
|
|||||||
Europe Commission fine3 |
45,637 |
|
|
|
|
|
|||||||
Asset impairment charges4 |
6,939 |
|
|
|
|
|
|||||||
Net gains on lease terminations5 |
(477 |
) |
|
|
|
|
|||||||
CEO severance charges6 |
5,226 |
|
|
|
|
|
|||||||
|
|
|
|
|
|
||||||||
Adjusted earnings from operations |
$ |
115,616 |
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
||||
GAAP operating margin |
2.0 |
% |
|
5.2% to 5.4% |
|
10.0% |
|||||||
Certain professional service and legal fees and related (credits) costs2 |
0.2 |
% |
|
0.0% |
|
— |
|||||||
Europe Commission fine3 |
1.7 |
% |
|
— |
|
— |
|||||||
Asset impairment charges4 |
0.3 |
% |
|
0.2% |
|
— |
|||||||
Net gains on lease terminations5 |
(0.0 |
%) |
|
— |
|
— |
|||||||
CEO severance charges3 |
0.2 |
% |
|
— |
|
— |
|||||||
|
|
|
|
|
|
||||||||
Adjusted operating margin |
4.4 |
% |
|
5.4% to 5.6% |
|
10.0% |
|||||||
|
|
|
|
|
|
|
|
|
|
||||
GAAP SG&A expenses |
$ |
835,293 |
|
|
|
|
|
||||||
Certain professional service and legal fees and related credits (costs)2 |
(6,079 |
) |
|
|
|
|
|||||||
CEO severance charges6 |
(5,226 |
) |
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
||||
Adjusted SG&A expenses |
$ |
823,988 |
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
||||
GAAP SG&A rate |
32.0 |
% |
|
32.2% to 32.4% |
|
31.3% |
|||||||
Certain professional service and legal fees and related credits (costs)2 |
(0.2 |
%) |
|
0.0% |
|
— |
|||||||
CEO severance charges6 |
(0.2 |
%) |
|
— |
|
— |
|||||||
|
|
|
|
|
|
||||||||
Adjusted SG&A rate |
31.6 |
% |
|
32.2% to 32.4% |
|
31.3% |
|||||||
|
|||||||||||||
Notes: |
|
|
|
|
|||||||||
1 The estimates of fiscal year 2020 include amounts for items excluded for non-GAAP that were recognized during the nine months ended November 2, 2019. The Company is unable to predict future amounts for the remainder of fiscal year 2020 and fiscal year 2025 as these expenditures and credits 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. |
|||||||||||||
2 During the full fiscal year 2019 and the nine months ended November 2, 2019 of fiscal year 2020, the Company recorded certain professional service and legal fees and related (credits) costs which the Company otherwise would not have incurred as part of its business operations. |
|||||||||||||
3 During fiscal year 2019, the Company recognized a charge of €39.8 million ($45.6 million) related to a fine imposed on the Company by the European Commission related to its inquiry concerning potential violations of European Union competition rules by the Company. |
|||||||||||||
4 During the full fiscal year 2019 and the nine months ended November 2, 2019 of fiscal year 2020, the Company recorded asset impairment charges for certain retail locations resulting from under-performance and expected store closures. |
|||||||||||||
5 During fiscal year 2019, the Company recorded net gains on lease terminations related primarily to the early termination of certain lease agreements. |
|||||||||||||
6 In fiscal year 2019, the Company announced the departure of its Chief Executive Officer and the terms of his separation. As a result, the Company recorded $5.2 million in severance-related charges. These charges were comprised of $2.4 million in future cash severance payments and $2.8 million in non-cash stock-based compensation expenses resulting from the vesting terms of certain previously granted stock awards. |
|
FY2019 |
|
FY2020E1 |
|
FY2025E1 |
|||||||||
|
|
|
|
|
|
|
|
|
|
|||||
GAAP net earnings attributable to Guess?, Inc. |
$ |
14,099 |
|
|
|
|
|
|||||||
Certain professional service and legal fees and related (credits) costs2 |
6,079 |
|
|
|
|
|
||||||||
Europe Commission fine3 |
45,637 |
|
|
|
|
|
||||||||
Asset impairment charges4 |
6,939 |
|
|
|
|
|
||||||||
Net gains on lease terminations5 |
(477 |
) |
|
|
|
|
||||||||
CEO severance charges6 |
5,226 |
|
|
|
|
|
||||||||
Income tax adjustments7 |
(3,378 |
) |
|
|
|
|
||||||||
Amounts recorded related to Tax Reform8 |
6,286 |
|
|
|
|
|
||||||||
|
|
|
|
|
|
|||||||||
Total adjustments affecting net earnings attributable to Guess?, Inc. |
66,312 |
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|||||
Adjusted net earnings attributable to Guess?, Inc. |
$ |
80,411 |
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|||||
GAAP earnings per share |
$ |
0.16 |
|
|
$1.20 to $1.25 |
|
|
$ |
2.97 |
|
||||
Certain professional service and legal fees and related (credits) costs2 |
0.06 |
|
|
(0.01 |
) |
|
— |
|
||||||
Europe Commission fine3 |
0.56 |
|
|
— |
|
|
— |
|
||||||
Asset impairment charges4 |
0.07 |
|
|
0.06 |
|
|
— |
|
||||||
Net gains on lease terminations5 |
(0.00 |
) |
|
— |
|
|
— |
|
||||||
CEO severance charges6 |
0.05 |
|
|
— |
|
|
— |
|
||||||
Amounts recorded related to Tax Reform8 |
0.08 |
|
|
— |
|
|
— |
|
||||||
Amounts to uncertain tax positions excluded in prior years9 |
— |
|
|
(0.02 |
) |
|
— |
|
||||||
Amortization of debt discount on Convertible Debt10 |
— |
|
0.08 |
|
|
0.03 |
|
|||||||
|
|
|
|
|
|
|||||||||
Adjusted GAAP earnings per share |
$ |
0.98 |
|
|
$1.31 to $1.36 |
|
|
$ |
3.00 |
|
||||
Notes: |
|
|
|
|
||||||||||
1 The estimates of fiscal year 2020 include amounts for items excluded for non-GAAP that were recognized during the nine months ended November 2, 2019. The Company is unable to predict future amounts for the remainder of fiscal year 2020 and fiscal year 2025 as these expenditures and credits 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. |
||||||||||||||
2 During the full fiscal year 2019 and the nine months ended November 2, 2019 of fiscal year 2020, the Company recorded certain professional service and legal fees and related (credits) costs which the Company otherwise would not have incurred as part of its business operations. |
||||||||||||||
3 During fiscal year 2019, the Company recognized a charge of €39.8 million ($45.6 million) related to a fine imposed on the Company by the European Commission related to its inquiry concerning potential violations of European Union competition rules by the Company. |
||||||||||||||
4 During the full fiscal year 2019 and the nine months ended November 2, 2019 of fiscal year 2020, the Company recorded asset impairment charges for certain retail locations resulting from under-performance and expected store closures. |
||||||||||||||
5 During fiscal year 2019, the Company recorded net gains on lease terminations related primarily to the early termination of certain lease agreements. |
||||||||||||||
6 In fiscal year 2019, the Company announced the departure of its Chief Executive Officer and the terms of his separation. As a result, the Company recorded $5.2 million in severance-related charges. These charges were comprised of $2.4 million in future cash severance payments and $2.8 million in non-cash stock-based compensation expenses resulting from the vesting terms of certain previously granted stock awards. |
||||||||||||||
7 Amounts represent the income tax effect of the non-income tax adjustments excluded for non-GAAP in fiscal year 2019. Such amounts are 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. |
||||||||||||||
8 During fiscal 2019, the Company revised the provisional amounts recorded in fiscal 2018 related to the estimated amounts due under the Tax Reform and recorded income tax charges of $6.3 million. |
||||||||||||||
9 During the first nine months of fiscal year 2020 ending November 2, 2019, the Company recorded adjustments to uncertain tax positions that were excluded from results in prior years. |
||||||||||||||
10 In April 2019, the Company issued $300 million principal amount of 2.00% convertible notes due 2024 (the “Notes”) in a private offering. The Company has separated the Notes into liability (debt) and equity (conversion option) components. The debt discount, which represents an amount equal to the fair value of the equity component, is amortized as non-cash interest expense over the term of the Notes. Outlook for adjusted earnings per share for the full fiscal years 2020 and 2025 exclude the amortization anticipated to be recorded in those years as such amounts are known. The Company has not assumed any potential share dilution related to the convert or related warrants. |
Guess?, Inc. and Subsidiaries |
|||||||||
Reconciliation of Net Cash Used in Operating Activities to Free Cash Flow |
|||||||||
(in thousands) |
|||||||||
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
FY2019 |
||
|
|
|
|
|
|
|
|
||
Net cash used in operating activities |
|
$ |
81,679 |
|
|||||
|
|
|
|
|
|
|
|
||
Less: Purchases of property and equipment |
|
(108,117 |
) |
||||||
|
|
|
|
|
|
|
|
||
Less: Payments for property and equipment under finance leases |
|
(1,387 |
) |
||||||
|
|
|
|
|
|
|
|
||
Free cash flow |
|
$ |
(27,825 |
) |
Investor Conference Call
The meeting with investors is being broadcast live via the internet and will be accessible at investors.guess.com from approximately
About Guess?
Forward-Looking Statements
Except for historical information contained herein, certain matters discussed in this press release or the related investor day meeting 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, growth opportunities and projected sales (including comparable sales), earnings, capital expenditures, operating margins, cost reduction opportunities and cash needs; and growth rates and outlook for the full year of fiscal 2020 and the period between fiscal 2020 and fiscal 2025, 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,” “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; 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; risks related to our convertible senior notes issued in
View source version on businesswire.com: https://www.businesswire.com/news/home/20191203005327/en/
Source:
Guess?, Inc.
Fabrice Benarouche
VP, Finance and Investor Relations
(213) 765-5578