Q2 Fiscal 2019 Revenues Increased 14% to
Q2 Fiscal 2019 GAAP EPS of
Mr. Herrero concluded, “Overall, I am very pleased by the momentum we
are experiencing across the globe. We are now planning for positive
comps in all regions, including the
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.
Second Quarter Fiscal 2019 Results
For the second quarter of fiscal 2019, the Company recorded GAAP net
earnings of
For the second quarter of fiscal 2019, the Company recorded adjusted net
earnings of
Net Revenue. Total net revenue for the second quarter of
fiscal 2019 increased 13.7% to
- Americas Retail revenues decreased 2.0% in U.S. dollars and constant currency. Retail comp sales including e-commerce increased 3% in U.S. dollars and constant currency.
- Americas Wholesale revenues increased 4.9% in U.S. dollars and 6.8% in constant currency.
Europe revenues increased 22.2% in U.S. dollars and 19.4% in constant currency. Retail comp sales including e-commerce increased 5% in U.S. dollars and 2% in constant currency.Asia revenues increased 32.0% in U.S. dollars and 29.0% in constant currency. Retail comp sales including e-commerce increased 17% in U.S. dollars and 14% in constant currency.- Licensing revenues increased 19.5% in U.S. dollars and constant currency.
Operating Earnings. GAAP earnings from operations for the
second quarter of fiscal 2019 increased 34.0% to
For the second quarter of fiscal 2019, adjusted earnings from operations
increased 47.4% to
- Operating margin for the Company’s Americas Retail segment improved 460 basis points to 2.8% in the second quarter of fiscal 2019, compared to negative 1.8% in the prior-year quarter, driven primarily by the favorable impact from lower markdowns and negotiated rent reductions, partially offset by higher store selling expenses.
- Operating margin for the Company’s Americas Wholesale segment decreased 50 basis points to 15.5% in the second quarter of fiscal 2019, from 16.0% in the prior-year quarter, due primarily to lower gross margins driven primarily by the liquidation of aged inventory.
-
Operating margin for the Company’s
Europe segment decreased 200 basis points to 9.8% in the second quarter of fiscal 2019, from 11.8% in the prior-year quarter, driven primarily by higher distribution costs resulting from the relocation of the Company’s European distribution center and higher retail promotions, partially offset by overall leveraging of expenses resulting from higher wholesale shipments. -
Operating margin for the Company’s
Asia segment decreased 190 basis points to 2.0% in the second quarter of fiscal 2019, from 3.9% in the prior-year quarter, driven primarily by higher expenses resulting from retail expansion inAustralia . - Operating margin for the Company’s Licensing segment increased 130 basis points to 88.5% in the second quarter of fiscal 2019, compared to 87.2% in the prior-year quarter.
Other net income was
Six-Month Period Results
For the six months ended
For the six months ended
Net Revenue. Total net revenue for the first six months of
fiscal 2019 increased 14.1% to
- Americas Retail revenues decreased 1.7% in U.S. dollars and 2.1% in constant currency. Retail comp sales including e-commerce increased 2% in U.S. dollars and constant currency.
- Americas Wholesale revenues increased 9.4% in U.S. dollars and 9.1% in constant currency.
Europe revenues increased 23.0% in U.S. dollars and 15.4% in constant currency. Retail comp sales including e-commerce increased 9% in U.S. dollars and 2% in constant currency.Asia revenues increased 32.3% in U.S. dollars and 27.1% in constant currency. Retail comp sales including e-commerce increased 20% in U.S. dollars and 15% in constant currency.- Licensing revenues increased 21.4% in U.S. dollars and constant currency.
Operating Earnings (Loss). GAAP earnings from operations
for the first six months of fiscal 2019 was
For the six months ended
- Operating margin for the Company’s Americas Retail segment improved 670 basis points to relatively breakeven in the first six months of fiscal 2019, compared to negative 6.7% in the same prior-year period, driven primarily by the favorable impact from lower markdowns and negotiated rent reductions.
- Operating margin for the Company’s Americas Wholesale segment decreased 270 basis points to 15.1% in the first six months of fiscal 2019, from 17.8% in the same prior-year period. The decrease in operating margin was due primarily to lower gross margins driven primarily by the liquidation of aged inventory.
-
Operating margin for the Company’s
Europe segment decreased 490 basis points to 2.0% in the first six months of fiscal 2019, from 6.9% in the same prior-year period. This decrease was 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 120 basis points to 3.4% in the first six months of fiscal 2019, compared to 2.2% in the same prior-year period. The improvement in operating margin was driven primarily by higher gross margins due mainly to overall leveraging of occupancy costs, partially offset by the higher expenses resulting from retail expansion inAustralia . - Operating margin for the Company’s Licensing segment increased 280 basis points to 88.4% in the first six months of fiscal 2019, compared to 85.6% in the same prior-year period.
Other net expense was
Impact from Adoption of New Revenue Recognition Standard
The Company 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
Dividends
The Company’s Board of Directors has approved a quarterly cash dividend
of
Outlook
The Company’s expectations for the third quarter ending
Outlook for Total Company1 | ||||
Third Quarter of Fiscal 2019 | Fiscal Year 2019 | |||
Consolidated net revenue in U.S. dollars | increase between 9.0% and 10.0% | increase between 9.0% and 9.5% | ||
Consolidated net revenue in constant currency2 | increase between 10.5% and 11.5% | increase between 8.0% and 8.5% | ||
GAAP operating margin | 2.5% to 3.0% | 4.0% to 4.3% | ||
Adjusted operating margin3 | 2.5% to 3.0% | 4.4% to 4.7% | ||
Currency impact included in operating margin4 | 30 basis points | 0 basis points | ||
GAAP EPS | $0.12 to $0.15 | $0.85 to $0.94 | ||
Adjusted EPS3 | $0.12 to $0.15 | $0.94 to $1.03 | ||
Currency impact included in EPS4 | $0.02 | $0.06 |
_______________ |
||
Notes: |
||
1 | The Company’s outlook for the third quarter ending November 3, 2018 and the fiscal year ending February 2, 2019 assumes that foreign currency exchange rates remain at prevailing rates. | |
2 | Eliminates the impact of expected foreign currency translation to give investors a better understanding of the underlying trends within the business. | |
3 | The 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. | |
4 | Represents 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 third quarter ending
Reconciliation of GAAP Outlook to Adjusted Outlook | ||||
Third Quarter of Fiscal 2019 | Fiscal Year 2019 | |||
GAAP operating margin | 2.5% to 3.0% | 4.0% to 4.3% | ||
Net gains on lease terminations1 | — | 0.0% | ||
Asset impairment charges2 | — | 0.2% | ||
Certain professional service and legal fees and related costs3 |
— | 0.2% | ||
Adjusted operating margin | 2.5% to 3.0% | 4.4% to 4.7% | ||
GAAP earnings per share | $0.12 to $0.15 | $0.85 to $0.94 | ||
Net gains on lease terminations1 | — | $0.00 | ||
Asset impairment charges2 | — | $0.04 | ||
Certain professional service and legal fees and related costs3 | — | $0.05 | ||
Adjusted earnings per share | $0.12 to $0.15 | $0.94 to $1.03 |
_______________ |
||
Notes: | ||
1 | Amounts for the full fiscal year include net gains on lease terminations recorded during the six months ended August 4, 2018 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. | |
2 | Amounts for the full fiscal year include asset impairment charges for certain retail locations recognized during the six months ended August 4, 2018 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. | |
3 | Amounts for the full fiscal year include certain professional service and legal fees and related costs recognized during the six months ended August 4, 2018 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 | ||||||||
Third Quarter of Fiscal 2019 | Fiscal Year 2019 | |||||||
U.S. Dollars | Constant Currency2 | U.S. Dollars | Constant Currency2 | |||||
Americas Retail: | ||||||||
Comps | __ | up LSD | __ | up LSD | ||||
Net Revenue | down LSD | down LSD | down LSD | down LSD | ||||
Americas Wholesale: | ||||||||
Net Revenue | up mid-teens | up high-teens | up HSD | up HSD | ||||
Europe: | ||||||||
Comps | __ | up MSD | __ | up LSD | ||||
Net Revenue | up low-teens | up mid-teens | up low-teens | up low-teens | ||||
Asia: | ||||||||
Comps | __ | up low-teens | __ | up mid-teens | ||||
Net Revenue | up mid-twenties | up mid-twenties | up mid-twenties | up low-twenties | ||||
Licensing: | ||||||||
Net Revenue3 | up LSD | __ | up HSD | __ |
_______________ |
||
Notes: | ||
1 | 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, “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. | |
2 | Eliminates the impact of expected foreign currency translation to give investors a better understanding of the underlying trends within the business. | |
3 | Our 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 mid-single digits in the third quarter of fiscal 2019 and down in the low-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 and six months
ended
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
About Guess?
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 third 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
Guess?, Inc. and Subsidiaries | ||||||||||||||||||||||||||||
Condensed Consolidated Statements of Income (Loss) | ||||||||||||||||||||||||||||
(amounts in thousands, except per share data) | ||||||||||||||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
August 4, 2018 | July 29, 2017 | August 4, 2018 | July 29, 2017 | |||||||||||||||||||||||||
$ | % | $ |
%1 |
$ |
% |
$ |
%1 |
|||||||||||||||||||||
Product sales | $ | 626,162 | 96.9 | % | $ | 551,794 | 97.1 | % | $ | 1,127,667 | 96.6 | % | $ | 990,114 | 96.8 | % | ||||||||||||
Net royalties1 | 19,709 | 3.1 | % | 16,498 | 2.9 | % | 39,493 | 3.4 | % | 32,523 | 3.2 | % | ||||||||||||||||
Net revenue1 | 645,871 | 100.0 | % | 568,292 | 100.0 | % | 1,167,160 | 100.0 | % | 1,022,637 | 100.0 | % | ||||||||||||||||
Cost of product sales1 | 406,440 | 62.9 | % | 370,265 | 65.2 | % | 753,791 | 64.6 | % | 679,968 | 66.5 | % | ||||||||||||||||
Gross profit | 239,431 | 37.1 | % | 198,027 | 34.8 | % | 413,369 | 35.4 | % | 342,669 | 33.5 | % | ||||||||||||||||
Selling, general and administrative expenses2 | 204,569 | 31.7 | % | 173,007 | 30.4 | % | 402,788 | 34.5 | % | 339,862 | 33.2 | % | ||||||||||||||||
Net gains on lease terminations | — | 0.0 | % | — | 0.0 | % | (152 | ) | (0.0 | %) | — | 0.0 | % | |||||||||||||||
Asset impairment charges | 2,981 | 0.5 | % | 1,233 | 0.2 | % | 3,740 | 0.3 | % | 3,995 | 0.4 | % | ||||||||||||||||
Earnings (loss) from operations2 | 31,881 | 4.9 | % | 23,787 | 4.2 | % | 6,993 | 0.6 | % | (1,188 | ) | (0.1 | %) | |||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||
Interest expense | (863 | ) | (0.1 | %) | (544 | ) | (0.1 | %) | (1,602 | ) | (0.1 | %) | (958 | ) | (0.1 | %) | ||||||||||||
Interest income | 1,132 | 0.2 | % | 1,260 | 0.2 | % | 2,109 | 0.1 | % | 2,131 | 0.2 | % | ||||||||||||||||
Other income (expense), net2 | 1,360 | 0.2 | % | (2,169 | ) | (0.4 | %) | (1,254 | ) | (0.1 | %) | (281 | ) | (0.0 | %) | |||||||||||||
Earnings (loss) before income tax expense | 33,510 | 5.2 | % | 22,334 | 3.9 | % | 6,246 | 0.5 | % | (296 | ) | (0.0 | %) | |||||||||||||||
Income tax expense | 7,776 | 1.2 | % | 6,453 | 1.1 | % | 1,499 | 0.1 | % | 5,050 | 0.5 | % | ||||||||||||||||
Net earnings (loss) | 25,734 | 4.0 | % | 15,881 | 2.8 | % | 4,747 | 0.4 | % | (5,346 | ) | (0.5 | %) | |||||||||||||||
Net earnings attributable to noncontrolling interests | 204 | 0.0 | % | 662 | 0.1 | % | 438 | 0.0 | % | 728 | 0.1 | % | ||||||||||||||||
Net earnings (loss) attributable to Guess?, Inc. | $ | 25,530 | 4.0 | % | $ | 15,219 | 2.7 | % | $ | 4,309 | 0.4 | % | $ | (6,074 | ) | (0.6 | %) | |||||||||||
Net earnings (loss) per common share attributable to common stockholders: | ||||||||||||||||||||||||||||
Basic | $ | 0.32 | $ | 0.18 | $ | 0.05 | $ | (0.08 | ) | |||||||||||||||||||
Diluted | $ | 0.31 | $ | 0.18 | $ | 0.05 | $ | (0.08 | ) | |||||||||||||||||||
Weighted average common shares outstanding attributable to common stockholders: | ||||||||||||||||||||||||||||
Basic | 80,110 | 82,396 | 80,006 | 82,703 | ||||||||||||||||||||||||
Diluted | 81,550 | 82,763 | 81,248 | 82,703 | ||||||||||||||||||||||||
Effective tax rate | 23.2 | % | 28.9 | % | 24.0 | % | (1,706.1 | %) | ||||||||||||||||||||
Adjusted selling, general and administrative expenses2,3: | $ | 202,543 | 31.4 | % | $ | 173,007 | 30.4 | % | $ | 396,953 | 34.0 | % | $ | 339,862 | 33.2 | % | ||||||||||||
Adjusted earnings from operations2,3: |
$ | 36,888 | 5.7 | % | $ | 25,020 | 4.4 | % | $ | 16,416 | 1.4 | % | $ | 2,807 | 0.3 | % | ||||||||||||
Adjusted net earnings (loss) attributable to Guess?, Inc.3: | $ | 29,454 | 4.6 | % | $ | 16,051 | 2.8 | % | $ | 11,623 | 1.0 | % | $ | (3,300 | ) | (0.3 | %) | |||||||||||
Adjusted diluted earnings (loss) per common share attributable to common stockholders3: | $ | 0.36 | $ | 0.19 | $ | 0.14 | $ | (0.04 | ) | |||||||||||||||||||
Adjusted effective tax rate3: | 23.0 | % | 29.1 | % | 23.0 | % | 169.5 | % |
_______________ |
||
Notes: | ||
1 | During 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 and six months ended July 29, 2017 have been adjusted to conform to the current period presentation. This reclassification had no impact on previously reported earnings (loss) from operations, net earnings (loss) or net earnings (loss) per share. | |
2 | 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. Accordingly, the Company reclassified approximately $0.5 million and $1.1 million, respectively, from selling, general and administrative expenses to other expense, net for the three and six months ended July 29, 2017 to conform to the current period presentation. This reclassification had no impact on previously reported net earnings (loss) or net earnings (loss) per share. | |
3 | The adjusted results for the three and six months ended August 4, 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 and six months ended July 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 earnings (loss) from operations to adjusted earnings from operations, reported GAAP net earnings (loss) attributable to Guess?, Inc. to adjusted net earnings (loss) attributable to Guess?, Inc. and reported GAAP income tax expense to adjusted income tax expense for the three and six months ended August 4, 2018 and July 29, 2017. | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
August 4, | July 29, | August 4, | July 29, | |||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Reported GAAP selling, general and administrative expenses | $ | 204,569 | $ | 173,007 | $ | 402,788 | $ | 339,862 | ||||||||
Certain professional service and legal fees and related costs1 | (2,026 | ) | — | (5,835 | ) | — | ||||||||||
Adjusted selling, general and administrative expenses | $ | 202,543 | $ | 173,007 | $ | 396,953 | $ | 339,862 | ||||||||
Reported GAAP earnings (loss) from operations | $ | 31,881 | $ | 23,787 | $ | 6,993 | $ | (1,188 | ) | |||||||
Net gains on lease terminations2 | — | — | (152 | ) | — | |||||||||||
Asset impairment charges3 | 2,981 | 1,233 | 3,740 | 3,995 | ||||||||||||
Certain professional service and legal fees and related costs1 | 2,026 | — | 5,835 | — | ||||||||||||
Adjusted earnings from operations | $ | 36,888 | $ | 25,020 | $ | 16,416 | $ | 2,807 | ||||||||
Reported GAAP net earnings (loss) attributable to Guess?, Inc. | $ | 25,530 | $ | 15,219 | $ | 4,309 | $ | (6,074 | ) | |||||||
Net gains on lease terminations2 | — | — | (152 | ) | — | |||||||||||
Asset impairment charges3 | 2,981 | 1,233 | 3,740 | 3,995 | ||||||||||||
Certain professional service and legal fees and related costs1 | 2,026 | — | 5,835 | — | ||||||||||||
Income tax adjustments4 | (1,083 | ) | (401 | ) | (2,109 | ) | (1,221 | ) | ||||||||
Total adjustments affecting net earnings (loss) attributable to Guess?, Inc. | 3,924 | 832 | 7,314 | 2,774 | ||||||||||||
Adjusted net earnings (loss) attributable to Guess?, Inc. | $ | 29,454 | $ | 16,051 | $ | 11,623 | $ | (3,300 | ) | |||||||
Reported GAAP income tax expense | $ | 7,776 | $ | 6,453 | $ | 1,499 | $ | 5,050 | ||||||||
Income tax adjustments4 | 1,083 | 401 | 2,109 | 1,221 | ||||||||||||
Adjusted income tax expense | $ | 8,859 | $ | 6,854 | $ | 3,608 | $ | 6,271 | ||||||||
Adjusted effective tax rate | 23.0 | % | 29.1 | % | 23.0 | % | 169.5 | % |
_______________ |
||
Notes: | ||
1 | During the three and six months ended August 4, 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. | |
2 | During the six months ended August 4, 2018, the Company recorded net gains on lease terminations related primarily to the early termination of certain lease agreements in North America. The net gains on lease terminations were recorded during the three months ended May 5, 2018. | |
3 | During the three and six months ended August 4, 2018 and July 29, 2017, the Company recognized asset impairment charges for certain retail locations resulting from under-performance and expected store closures. | |
4 | The 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 | Six Months Ended | |||||||||||||||||||
August 4, | July 29, | % | August 4, | July 29, | % | |||||||||||||||
2018 | 2017 | change | 2018 | 2017 | change | |||||||||||||||
Net revenue: | ||||||||||||||||||||
Americas Retail | $ | 197,125 | $ | 201,188 | (2%) | $ | 368,465 | $ | 374,882 | (2%) | ||||||||||
Americas Wholesale | 34,253 | 32,658 | 5% | 74,932 | 68,515 | 9% | ||||||||||||||
Europe | 311,998 | 255,215 | 22% | 517,433 | 420,603 | 23% | ||||||||||||||
Asia | 82,786 | 62,733 | 32% | 166,837 | 126,114 | 32% | ||||||||||||||
Licensing1 | 19,709 | 16,498 | 19% | 39,493 | 32,523 | 21% | ||||||||||||||
Total net revenue1 | $ | 645,871 | $ | 568,292 | 14% | $ | 1,167,160 | $ | 1,022,637 | 14% | ||||||||||
Earnings (loss) from operations: | ||||||||||||||||||||
Americas Retail2,3 | $ | 5,582 | $ | (3,555 | ) | 257% | $ | (98 | ) | $ | (25,136 | ) | 100% | |||||||
Americas Wholesale2,3 | 5,325 | 5,238 | 2% | 11,351 | 12,221 | (7%) | ||||||||||||||
Europe2,3,4 | 30,531 | 30,058 | 2% | 10,198 | 29,052 | (65%) | ||||||||||||||
Asia2,3 | 1,634 | 2,441 | (33%) | 5,699 | 2,780 | 105% | ||||||||||||||
Licensing2,3 | 17,437 | 14,389 | 21% | 34,923 | 27,850 | 25% | ||||||||||||||
Total segment earnings from operations2,4 | 60,509 | 48,571 | 25% | 62,073 | 46,767 | 33% | ||||||||||||||
Corporate overhead2,4 | (25,647 | ) | (23,551 | ) | 9% | (51,492 | ) | (43,960 | ) | 17% | ||||||||||
Net gains on lease terminations2 | — | — | 152 | — | ||||||||||||||||
Asset impairment charges2 | (2,981 | ) | (1,233 | ) | (3,740 | ) | (3,995 | ) | ||||||||||||
Total earnings (loss) from operations4 | $ | 31,881 | $ | 23,787 | 34% | $ | 6,993 | $ | (1,188 | ) | 689% | |||||||||
Operating margins: | ||||||||||||||||||||
Americas Retail2,3 | 2.8 | % | (1.8 | %) | (0.0 | %) | (6.7 | %) | ||||||||||||
Americas Wholesale2,3 | 15.5 | % | 16.0 | % | 15.1 | % | 17.8 | % | ||||||||||||
Europe2,3,4 | 9.8 | % | 11.8 | % | 2.0 | % | 6.9 | % | ||||||||||||
Asia2,3 | 2.0 | % | 3.9 | % | 3.4 | % | 2.2 | % | ||||||||||||
Licensing1,2,3 | 88.5 | % | 87.2 | % | 88.4 | % | 85.6 | % | ||||||||||||
GAAP operating margin for total Company1,4 | 4.9 | % | 4.2 | % | 0.6 | % | (0.1 | %) | ||||||||||||
Net gains on lease terminations2 | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||||||
Asset impairment charges2 | 0.5 | % | 0.2 | % | 0.3 | % | 0.4 | % | ||||||||||||
Certain professional service and legal fees and related costs | 0.3 | % | 0.0 | % | 0.5 | % | 0.0 | % | ||||||||||||
Adjusted operating margin for total Company1,4 | 5.7 | % | 4.4 | % | 1.4 | % | 0.3 | % |
_______________ |
||
Notes: | ||
1 | During 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 and six months ended July 29, 2017 have been adjusted to conform to the current period presentation. This reclassification had no impact on previously reported earnings (loss) from operations. | |
2 | During 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 and six months ended July 29, 2017 to conform to the current period presentation. | |
3 | 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. Accordingly, segment results for the three and six months ended July 29, 2017 have been adjusted to conform to the current period presentation. | |
4 | 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. Accordingly, earnings (loss) from operations and segment results for the three and six months ended July 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 | |||||||||||||||||
August 4, 2018 | July 29, 2017 | % change | |||||||||||||||
Foreign | |||||||||||||||||
Currency | Constant | As | Constant | ||||||||||||||
As Reported | Impact | Currency | As Reported | Reported | Currency | ||||||||||||
Net revenue: | |||||||||||||||||
Americas Retail | $ | 197,125 | $ | 24 | $ | 197,149 | $ | 201,188 | (2%) | (2%) | |||||||
Americas Wholesale | 34,253 | 628 | 34,881 | 32,658 | 5% | 7% | |||||||||||
Europe | 311,998 | (7,250 | ) | 304,748 | 255,215 | 22% | 19% | ||||||||||
Asia | 82,786 | (1,845 | ) | 80,941 | 62,733 | 32% | 29% | ||||||||||
Licensing1 | 19,709 | — | 19,709 | 16,498 | 19% | 19% | |||||||||||
Total net revenue1 | $ | 645,871 | $ | (8,443 | ) | $ | 637,428 | $ | 568,292 | 14% | 12% | ||||||
Six Months Ended | |||||||||||||||||
August 4, 2018 | July 29, 2017 | % change | |||||||||||||||
Foreign | |||||||||||||||||
Currency | Constant | As | Constant | ||||||||||||||
As Reported | Impact | Currency | As Reported | Reported | Currency | ||||||||||||
Net revenue: | |||||||||||||||||
Americas Retail | $ | 368,465 | $ | (1,356 | ) | $ | 367,109 | $ | 374,882 | (2%) | (2%) | ||||||
Americas Wholesale | 74,932 | (159 | ) | 74,773 | 68,515 | 9% | 9% | ||||||||||
Europe | 517,433 | (32,215 | ) | 485,218 | 420,603 | 23% | 15% | ||||||||||
Asia | 166,837 | (6,588 | ) | 160,249 | 126,114 | 32% | 27% | ||||||||||
Licensing1 | 39,493 | — | 39,493 | 32,523 | 21% | 21% | |||||||||||
Total net revenue1 | $ | 1,167,160 | $ | (40,318 | ) | $ | 1,126,842 | $ | 1,022,637 | 14% | 10% |
_______________ |
||
Notes: |
||
1 | During 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 and six months ended July 29, 2017 has been adjusted to conform to the current period presentation. |
Guess?, Inc. and Subsidiaries | |||||||||
Selected Condensed Consolidated Balance Sheet Data | |||||||||
(in thousands) | |||||||||
August 4, | February 3, | July 29, | |||||||
2018 | 2018 | 2017 | |||||||
ASSETS | |||||||||
Cash and cash equivalents | $ | 219,062 | $ | 367,441 | $ | 316,543 | |||
Receivables, net | 283,375 | 259,996 | 233,635 | ||||||
Inventories | 464,531 | 428,304 | 436,044 | ||||||
Other current assets | 86,030 | 52,964 | 61,208 | ||||||
Property and equipment, net | 288,740 | 294,254 | 275,417 | ||||||
Restricted cash | 372 | 241 | 1,258 | ||||||
Other assets | 247,788 | 252,434 | 253,102 | ||||||
Total Assets | $ | 1,589,898 | $ | 1,655,634 | $ | 1,577,207 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||
Current portion of capital lease obligations and borrowings | $ | 3,504 | $ | 2,845 | $ | 2,033 | |||
Other current liabilities | 466,385 | 465,000 | 374,628 | ||||||
Long-term debt and capital lease obligations | 36,945 | 39,196 | 39,214 | ||||||
Other long-term liabilities | 212,032 | 209,528 | 185,253 | ||||||
Redeemable and nonredeemable noncontrolling interests | 19,163 | 22,246 | 20,264 | ||||||
Guess?, Inc. stockholders’ equity | 851,869 | 916,819 | 955,815 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 1,589,898 | $ | 1,655,634 | $ | 1,577,207 |
Guess?, Inc. and Subsidiaries | ||||||||
Condensed Consolidated Cash Flow Data | ||||||||
(in thousands) | ||||||||
Six Months Ended | ||||||||
August 4, | July 29, | |||||||
2018 | 2017 | |||||||
Net cash used in operating activities | $ | (21,652 | ) | $ | (9,665 | ) | ||
Net cash used in investing activities | (53,223 | ) | (39,537 | ) | ||||
Net cash used in financing activities | (56,792 | ) | (55,091 | ) | ||||
Effect of exchange rates on cash, cash equivalents and restricted cash | (16,581 | ) | 24,444 | |||||
Net change in cash, cash equivalents and restricted cash | (148,248 | ) | (79,849 | ) | ||||
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 | $ | 219,434 | $ | 317,801 | ||||
Supplemental information: | ||||||||
Depreciation and amortization | $ | 33,045 | $ | 30,585 | ||||
Rent | $ | 142,805 | $ | 132,816 | ||||
Non-cash investing and financing activity: | ||||||||
Assets acquired under capital lease obligations1 | $ | 1,164 | $ | 17,522 |
_______________ |
||
Notes: | ||
1 | During the second quarter of fiscal 2019, the Company entered into a capital lease for $1.2 million related primarily to computer hardware and software. During the second quarter of fiscal 2018, the Company began the relocation of its European distribution center to the Netherlands. As a result, the Company entered into a capital lease of $16.0 million for equipment used in the new facility. During the second quarter of fiscal 2018, the Company also entered into a capital lease for $1.5 million related primarily to computer hardware and software. |
Guess?, Inc. and Subsidiaries | ||||||||
Reconciliation of Net Cash Used in Operating Activities to Free Cash Flow | ||||||||
(in thousands) | ||||||||
Six Months Ended | ||||||||
August 4, | July 29, | |||||||
2018 | 2017 | |||||||
Net cash used in operating activities | $ | (21,652 | ) | $ | (9,665 | ) | ||
Less: Purchases of property and equipment | (46,006 | ) | (39,591 | ) | ||||
Less: Payments for property and equipment under capital leases | (776 | ) | (150 | ) | ||||
Free cash flow | $ | (68,434 | ) | $ | (49,406 | ) |
Guess?, Inc. and Subsidiaries | ||||||||||||
Retail Store Data | ||||||||||||
Global Store and Concession Count | ||||||||||||
As of August 4, 2018 | ||||||||||||
Stores | Concessions | |||||||||||
Directly | Partner | Directly | Partner | |||||||||
Region | Total | Operated | Operated | Total | Operated | Operated | ||||||
United States | 295 | 293 | 2 | 1 | — | 1 | ||||||
Canada | 86 | 86 | — | — | — | — | ||||||
Central and South America | 104 | 61 | 43 | 27 | 27 | — | ||||||
Total Americas | 485 | 440 | 45 | 28 | 27 | 1 | ||||||
Europe and the Middle East | 674 | 440 | 234 | 36 | 36 | — | ||||||
Asia and the Pacific | 503 | 181 | 322 | 365 | 174 | 191 | ||||||
Total | 1,662 | 1,061 | 601 | 429 | 237 | 192 | ||||||
As of July 29, 2017 | ||||||||||||
Stores | Concessions | |||||||||||
Directly | Partner | Directly | Partner | |||||||||
Region | Total | Operated | Operated | Total | Operated | Operated | ||||||
United States | 320 | 318 | 2 | 1 | — | 1 | ||||||
Canada | 104 | 104 | — | — | — | — | ||||||
Central and South America | 94 | 51 | 43 | 27 | 27 | — | ||||||
Total Americas | 518 | 473 | 45 | 28 | 27 | 1 | ||||||
Europe and the Middle East | 646 | 363 | 283 | 30 | 30 | — | ||||||
Asia and the Pacific | 480 | 109 | 371 | 374 | 188 | 186 | ||||||
Total | 1,644 | 945 | 699 | 432 | 245 | 187 |
View source version on businesswire.com: https://www.businesswire.com/news/home/20180829005642/en/
Source:
Guess?, Inc.
Fabrice Benarouche
VP, Finance and Investor
Relations
(213) 765-5578