SEC Filing | Guess, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 1, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-11893

GUESS?, INC.

(Exact name of registrant as specified in its charter)



Delaware	95-3679695
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1444 South Alameda Street
Los Angeles,	California
90021
(Address of principal executive offices and zip code)

(213) 765-3100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading symbol(s)	Name of each exchange on which registered

Common Stock, par value $0.01 per share	GES	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of August 31, 2020, the registrant had 63,610,474 shares of Common Stock, $.01 par value per share, outstanding.

Table of Contents

GUESS?, INC.

FORM 10-Q

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	1

	Condensed Consolidated Balance Sheets as of August 1, 2020 and February 1, 2020	1

	Condensed Consolidated Statements of Income (Loss) — Three and Six Months Ended August 1, 2020 and August 3, 2019	2

	Condensed Consolidated Statements of Comprehensive Income (Loss) — Three and Six Months Ended August 1, 2020 and August 3, 2019	3

	Condensed Consolidated Statements of Cash Flows — Six Months Ended August 1, 2020 and August 3, 2019	4

	Condensed Consolidated Statements of Stockholders’ Equity — Three and Six Months Ended August 1, 2020 and August 3, 2019	5

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61

Item 4.	Controls and Procedures	65

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	66

Item 1A.	Risk Factors	66

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67

Item 6.	Exhibits	68

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements.

GUESS?, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)

	Aug 1, 2020			Feb 1, 2020
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	327,970		$	284,613
Accounts receivable, net	246,471			327,281
Inventories	419,427			393,129
Other current assets	80,069			59,212
Total current assets	1,073,937			1,064,235
Property and equipment, net	240,081			288,112
Goodwill	36,232			34,777
Deferred tax assets	62,444			63,555
Restricted cash	228			215
Operating lease right-of-use assets	766,853			851,990
Other assets	130,954			126,078
	$	2,310,729		$	2,428,962
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of borrowings and finance lease obligations	$	42,321		$	9,490
Accounts payable	259,743			232,761
Accrued expenses and other current liabilities	192,667			204,096
Current portion of operating lease liabilities	235,749			192,066
Total current liabilities	730,480			638,413
Convertible senior notes, net	252,988			247,363
Long-term debt and finance lease obligations	66,069			32,770
Long-term operating lease liabilities	659,118			714,079
Other long-term liabilities	143,225			130,259
	1,851,880			1,762,884
Redeemable noncontrolling interests	4,021			4,731

Commitments and contingencies (Note 13)

Stockholders’ equity:
Preferred stock, $.01 par value. Authorized 10,000,000 shares; no shares issued and outstanding	—			—
Common stock, $.01 par value. Authorized 150,000,000 shares; issued 142,843,839 and 142,867,947 shares, outstanding 63,614,749 and 65,848,510 shares, as of August 1, 2020 and February 1, 2020, respectively	636			658
Paid-in capital	548,602			563,004
Retained earnings	952,707			1,130,409
Accumulated other comprehensive loss	(131,609		)	(139,910		)
Treasury stock, 79,229,090 and 77,019,437 shares as of August 1, 2020 and February 1, 2020, respectively	(932,068		)	(914,447		)
Guess?, Inc. stockholders’ equity	438,268			639,714
Nonredeemable noncontrolling interests	16,560			21,633
Total stockholders’ equity	454,828			661,347
	$	2,310,729		$	2,428,962

See accompanying notes to condensed consolidated financial statements.

Table of Contents

GUESS?, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (in thousands, except per share data) (unaudited)

	Three Months Ended						Six Months Ended
	Aug 1, 2020			Aug 3, 2019			Aug 1, 2020			Aug 3, 2019
Product sales	$	386,392		$	664,678		$	633,709		$	1,182,551
Net royalties	12,147			18,542			25,081			37,360
Net revenue	398,539			683,220			658,790			1,219,911
Cost of product sales	251,511			417,554			477,533			772,296
Gross profit	147,028			265,666			181,257			447,615
Selling, general and administrative expenses	150,293			218,175			293,581			422,820
Asset impairment charges	11,969			1,504			64,941			3,279
Net gains on lease terminations	(885		)	—			(429		)	—
Earnings (loss) from operations	(14,349		)	45,987			(176,836		)	21,516
Other income (expense):
Interest expense	(5,941		)	(4,951		)	(11,403		)	(6,210		)
Interest income	436			313			1,046			674
Other income (expense), net	5,548			(6,355		)	(14,032		)	(4,284		)
	43			(10,993		)	(24,389		)	(9,820		)

Earnings (loss) before income tax expense (benefit)	(14,306		)	34,994			(201,225		)	11,696
Income tax expense (benefit)	6,386			8,818			(19,995		)	6,101
Net earnings (loss)	(20,692		)	26,176			(181,230		)	5,595
Net earnings (loss) attributable to noncontrolling interests	(334		)	854			(3,206		)	1,647
Net earnings (loss) attributable to Guess?, Inc.	$	(20,358	)	$	25,322		$	(178,024	)	$	3,948

Net earnings (loss) per common share attributable to common stockholders (Note 3):
Basic	$	(0.31	)	$	0.36		$	(2.72	)	$	0.05
Diluted	$	(0.31	)	$	0.35		$	(2.72	)	$	0.05

Weighted average common shares outstanding attributable to common stockholders (Note 3):
Basic	65,177			70,508			65,446			75,216
Diluted	65,177			71,356			65,446			76,155

See accompanying notes to condensed consolidated financial statements.

Table of Contents

GUESS?, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) (unaudited)

	Three Months Ended						Six Months Ended
	Aug 1, 2020			Aug 3, 2019			Aug 1, 2020			Aug 3, 2019
Net earnings (loss)	$	(20,692	)	$	26,176		$	(181,230	)	$	5,595
Other comprehensive income (loss) (“OCI”):
Foreign currency translation adjustment
Gains (losses) arising during the period	32,802			(5,293		)	14,303			(17,360		)
Derivative financial instruments designated as cash flow hedges
Gains (losses) arising during the period	(7,897		)	2,286			(4,361		)	6,722
Less income tax effect	885			(308		)	529			(880		)
Reclassification to net earnings (loss) for gains realized	(2,462		)	(1,801		)	(4,450		)	(2,077		)
Less income tax effect	264			229			483			324
Defined benefit plans
Foreign currency and other adjustments	(236		)	(167		)	(236		)	(60		)
Less income tax effect	25			16			24			5
Net actuarial loss amortization	97			111			193			222
Prior service credit amortization	(16		)	(9		)	(32		)	(19		)
Less income tax effect	(10		)	(12		)	(19		)	(23		)
Total comprehensive income (loss)	2,760			21,228			(174,796		)	(7,551		)
Less comprehensive income (loss) attributable to noncontrolling interests:
Net earnings (loss)	(334		)	854			(3,206		)	1,647
Foreign currency translation adjustment	1,759			(452		)	(1,867		)	(142		)
Amounts attributable to noncontrolling interests	1,425			402			(5,073		)	1,505
Comprehensive income (loss) attributable to Guess?, Inc.	$	1,335		$	20,826		$	(169,723	)	$	(9,056	)

See accompanying notes to condensed consolidated financial statements.

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GUESS?, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)

	Six Months Ended
	Aug 1, 2020			Aug 3, 2019
Cash flows from operating activities:
Net earnings (loss)	$	(181,230	)	$	5,595
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	32,250			37,225
Amortization of debt discount	5,197			2,662
Amortization of debt issuance costs	661			276
Share-based compensation expense	9,789			9,454
Forward contract gains	3,420			(34		)
Net loss on impairment and disposition of property and equipment and long-term assets	65,974			3,753
Other items, net	11,889			5,606
Changes in operating assets and liabilities:
Accounts receivable	94,373			24,492
Inventories	(16,002		)	(22,926		)
Prepaid expenses and other assets	(20,550		)	(1,596		)
Operating lease assets and liabilities, net	39,902			1,340
Accounts payable and accrued expenses	(3,923		)	(87,423		)
Other long-term liabilities	(1,065		)	(1,381		)
Net cash provided by (used in) operating activities	40,685			(22,957		)
Cash flows from investing activities:
Purchases of property and equipment	(10,099		)	(34,551		)
Proceeds from sale of long-term assets	336			—
Net cash settlement of forward contracts	(273		)	162
Purchases of investments	(1,882		)	—
Other investing activities	(52		)	521
Net cash used in investing activities	(11,970		)	(33,868		)
Cash flows from financing activities:
Proceeds from borrowings	274,594			90,136
Repayments on borrowings and finance lease obligations	(218,267		)	(63,285		)
Proceeds from issuance of convertible senior notes	—			300,000
Proceeds from issuance of warrants	—			28,080
Purchase of convertible note hedges	—			(60,990		)
Convertible debt issuance costs	—			(5,068		)
Purchase of equity forward contracts	—			(68,000		)
Dividends paid	(958		)	(26,901		)
Issuance of common stock, net of tax withholdings on vesting of stock awards	(2,908		)	43
Purchase of treasury stock	(38,876		)	(212,564		)
Net cash provided by (used in) financing activities	13,585			(18,549		)
Effect of exchange rates on cash, cash equivalents and restricted cash	1,070			(4,042		)
Net change in cash, cash equivalents and restricted cash	43,370			(79,416		)
Cash, cash equivalents and restricted cash at the beginning of the year	284,828			210,995
Cash, cash equivalents and restricted cash at the end of the period	$	328,198		$	131,579

Supplemental cash flow data:
Interest paid	$	5,277		$	1,535
Income taxes paid, net of refunds	$	2,967		$	4,201

Non-cash investing and financing activity:
Assets acquired under finance lease obligations	$	276		$	3,055
Receivable and related adjustments from sale of retail locations	$	(364	)	$	5,088

See accompanying notes to condensed consolidated financial statements.

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GUESS?, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)



	For the three and six months ended August 1, 2020
	Guess?, Inc. Stockholders’ Equity
	Common Stock														Treasury Stock
	Shares		Amount			Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Shares		Amount			Nonredeemable Noncontrolling Interests			Total
Balance at February 1, 2020	65,848,510		$	658		$	563,004		$	1,130,409		$	(139,910	)	77,019,437		$	(914,447	)	$	21,633		$	661,347
Net loss	—		—			—			(157,666		)	—			—		—			(2,872		)	(160,538		)
Other comprehensive loss, net of income tax of ($147)	—		—			—			—			(13,392		)	—		—			(3,626		)	(17,018		)
Issuance of common stock under stock compensation plans including tax effect	1,763,311		18			(24,264		)	—			—			(1,770,223	)	21,017			—			(3,229		)
Issuance of stock under Employee Stock Purchase Plan	32,427		—			(192		)	—			—			(32,427	)	385			—			193
Share-based compensation	—		—			5,771			15			—			—		—			—			5,786
Dividends, net of forfeitures on non-participating securities	—		—			—			248			—			—		—			—			248
Balance at May 2, 2020	67,644,248		$	676		$	544,319		$	973,006		$	(153,302	)	75,216,787		$	(893,045	)	$	15,135		$	486,789
Net loss	—		—			—			(20,358		)	—			—		—			(334		)	(20,692		)
Other comprehensive income, net of income tax of $1,164	—		—			—			—			21,693			—		—			1,759			23,452
Issuance of common stock under stock compensation plans including tax effect	(54,926	)	—			429			—			—			37,730		(448		)	—			(19		)
Issuance of stock under Employee Stock Purchase Plan	25,427		—			(154		)	—			—			(25,427	)	301			—			147
Share-based compensation	—		—			3,968			35			—			—		—			—			4,003
Dividends, net of forfeitures on non-participating securities	—		—			—			24			—			—		—			—			24
Share repurchases	(4,000,000	)	(40		)	40			—			—			4,000,000		(38,876		)	—			(38,876		)
Balance at August 1, 2020	63,614,749		$	636		$	548,602		$	952,707		$	(131,609	)	79,229,090		$	(932,068	)	$	16,560		$	454,828

Table of Contents

GUESS?, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)



	For the three and six months ended August 3, 2019
	Guess?, Inc. Stockholders’ Equity
	Common Stock														Treasury Stock
	Shares		Amount			Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Shares		Amount			Nonredeemable Noncontrolling Interests		Total
Balance at February 2, 2019	81,379,660		$	814		$	523,331		$	1,077,747		$	(126,179	)	61,327,640		$	(638,486	)	$	16,418	$	853,645
Cumulative adjustment from adoption of new accounting guidance	—		—			—			(1,684		)	1,981			—		—			—		297
Net earnings (loss)	—		—			—			(21,374		)	—			—		—			793		(20,581		)
Other comprehensive income (loss), net of income tax of ($499)	—		—			—			—			(8,508		)	—		—			310		(8,198		)
Issuance of common stock under stock compensation plans including tax effect	545,881		5			(3,042		)	—			—			(211,221	)	2,225			—		(812		)
Issuance of stock under Employee Stock Purchase Plan	11,377		1			69			—			—			(11,377	)	120			—		190
Share-based compensation	—		—			4,440			28			—			—		—			—		4,468
Dividends, net of forfeitures on non-participating securities	—		—			—			(18,331		)	—			—		—			—		(18,331		)
Share repurchases	(10,264,052	)	(103		)	103			—			—			10,264,052		(201,564		)	—		(201,564		)
Equity component value of convertible note issuance, net	—		—			42,324			—			—			—		—			—		42,324
Sale of common stock warrant	—		—			28,080			—			—			—		—			—		28,080
Purchase of convertible note hedge	—		—			(46,440		)	—			—			—		—			—		(46,440		)
Equity forward contract issuance	—		—			(68,000		)	—			—			—		—			—		(68,000		)
Balance at May 4, 2019	71,672,866		$	717		$	480,865		$	1,036,386		$	(132,706	)	71,369,094		$	(837,705	)	$	17,521	$	565,078
Net earnings	—		—			— </