Second Quarter ResultsFor the second quarter ended June 29, 2002, the Company reported a net loss of $6.4 million, or a diluted loss of $0.15 per share, compared to net earnings of $1.5 million, or diluted earnings of $0.03 per share, for the second quarter of 2001.
Total net revenue declined to $119.8 million in the second quarter of 2002 from $151.7 million in the second quarter of 2001. Net revenue from product sales, including the Company's retail stores and wholesale operations, declined to $113.0 million in the second quarter of 2002 from $143.1 million in the same fiscal period last year.
Carlos Alberini, President and Chief Operating Officer, commented, "Guess?' performance for the second quarter reflects the continuing weakness in the retail marketplace. Within this environment, we are managing our inventories and costs very carefully, and, although overall results were lower, our efforts are contributing to improved gross profit margins in our retail business. In looking to the second half, while we expect conditions to remain challenging, our priority is to build top-line momentum by capitalizing on recent merchandising and marketing changes we have made to increase demand for Guess? products. We are optimistic about the repositioning of our men's line and have fine-tuned our women's assortment including our Guess Collection, which continues to do well. In addition, we have strengthened our balance sheet by reducing borrowing levels. With this foundation and the Guess? brand name, we see good opportunities for growth and margin expansion."
The Company's retail stores, including those in Canada, generated revenues of $79.9 million in the 2002 second quarter, a decrease of 4.0% from $83.2 million reported in the same period a year ago. Comparable store sales decreased 7.4% during the second quarter of 2002 versus the year-ago period.
Net revenue from the Company's wholesale business declined 44.7% to $33.1 million in the second quarter of 2002 from $59.9 million for the comparable 2001 period. Wholesale revenue in the 2001 second quarter included $7.3 million of kids' business, which was licensed out beginning in the first quarter of 2002.
Net revenue from the licensing segment declined to $6.8 million in the 2002 second quarter from $8.6 million in the second quarter last year. The decrease, which was in line with expectations, is partially attributable to the completion of certain scheduled payments by a licensee in the prior year.
Gross profit decreased to $40.4 million, or 33.7% of net revenue, in the second quarter of 2002 from $51.7 million, or 34.1% of net revenue, for the comparable 2001 period. Gross profit margins improved in the retail segment, reflecting lower markdowns as a result of the Company's improved inventory position, partially offset by increased occupancy costs. Gross profit margins in the Company's wholesale business declined due to higher allowances and increased losses on off-price sales.
Selling, general and administrative (SG&A) expenses increased to $49.8 million, or 41.6% of net revenues, in the 2002 second quarter from $46.1 million, or 30.4% of net revenues, in the 2001 second quarter. Overall SG&A expenses increased 8.0% as a result of higher marketing and advertising expenses, and increased store selling costs, primarily related to new stores.
The loss from operations was $9.4 million in the second quarter of 2002 compared to earnings from operations of $5.6 million in the second quarter of 2001. The retail segment posted a loss from operations of $3.4 million compared to a loss from operations of $1.1 million for the 2001 second quarter. The wholesale segment posted a loss from operations of $11.3 million for the second quarter of 2002 compared to a loss from operations of $0.5 million for the same period last year. Earnings from operations for the licensing segment decreased to $5.3 million from $7.2 million for the same period last year.
Six Months ResultsIn the first half of 2002, the Company reported a net loss of $10.0 million, or a diluted loss per share of $0.23. In the comparable period for 2001, the Company reported net earnings of $3.5 million, or diluted earnings per share of $0.08.
Total net revenue declined 19.8% to $258.0 million for the first six months of 2002 from $321.8 million in the same prior year period. Net revenue from product sales declined 20.5% to $241.3 million in the first half of 2002 from $303.6 million in the first half of 2001.
The Company's retail stores, including those in Canada, generated revenue of $158.8 million for the first half of 2002, a decrease of 2.3% from $162.5 million for the same period last year. Sales generated by new stores were more than offset by a comparable store sales decrease of 5.8% for the 2002 six-month period.
Net revenue from the Company's wholesale business in the first half of 2002 declined by 41.5% to $82.5 million from $141.1 million in the first half of 2001.
Net revenue from licensing declined to $16.7 million for the 2002 first half from $18.2 million for the same period in 2001.
Gross profit decreased to $85.5 million for the six-month period in 2002, or 33.2% of net revenue, from $110.4 million, or 34.3% of net revenue, for the same period in 2001. In the retail segment, lower markdowns, partially offset by increased occupancy costs due to lower sales productivity, improved gross profit margins. Higher allowances and increased losses on off-price sales in the wholesale business contributed to a decline in gross profit margins for the 2002 first half.
SG&A expenses increased 0.2% to $98.5 million in the first six months of 2002 from $98.3 million in the first six months of 2001.
The loss from operations in the first half of 2002 was $13.6 million compared with earnings from operations of $12.8 million for the 2001 period. For the retail segment, the loss from operations was $9.4 million in the first six months of 2002 compared to a loss from operations of $7.7 million in the same 2001 period. The loss from operations for the wholesale segment was $17.9 million versus earnings from operations of $5.1 million in the year-ago period. Earnings from operations for the licensing segment in the first half of 2002 were $13.7 million compared to $15.4 million in the first half of 2001.
July 2002 Retail SalesWe anticipate that, based on current trends, comparable store sales for the fiscal month of July 2002, which ends on August 3, 2002, should decline in the low to mid single digits. The Company also indicated that retail margins for the period should increase due to a lower level of sales of clearance merchandise. The Company will announce July retail sales results on August 7, 2002.
Fiscal 2002 OutlookBased on the continuing difficult environment and reduced expectations for its wholesale and retail businesses for the remainder of the year, the Company now anticipates total revenues for the second half of fiscal 2002 to decline approximately 5% from 2001 levels. The Company now expects diluted earnings per share for 2002 to be in the range of $0.04 to $0.08, including diluted earnings per share in the range of $0.08 to $0.10 for the third quarter and $0.19 to $0.21 for the fourth quarter.
As of January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," which requires that goodwill no longer be amortized to earnings, rather reviewed for impairment. Eliminating the amortization of goodwill is estimated to have a beneficial impact of $0.01 on 2002 diluted earnings per share, which is included in the above-mentioned forecast for the year.
The Company will hold a conference call at 4:30 pm (ET) on August 1, 2002 to discuss the news announced in this press release. A live webcast of the conference call will be accessible at 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 Thursday, August 8th at 8:00 pm (ET).
Guess?, Inc. designs, markets, distributes and licenses one of the world's leading lifestyle collections of contemporary apparel, accessories and related consumer products.
Except for historical information contained herein, certain matters discussed in this press release including but not limited to the Company's expected results of operations and plans to reduce costs and estimated charges, 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 are only expectations, and involve known and unknown risks and uncertainties, which may cause actual results in future periods and other future events to differ materially from what is currently anticipated. Factors which may cause actual results in future periods to differ from current expectations include, among other things, the continued availability of sufficient working capital, the successful integration of new stores into existing operations, the continued desirability and customer acceptance of existing and future product lines, possible cancellations of wholesale orders, the success of competitive products, the success of the Company's programs to strengthen its inventory cost accounting controls and procedures, and the availability of adequate sources of capital. In addition to these factors, the economic and other factors identified in the Company's most recent annual report on Form 10-K for the fiscal year ended December 31, 2001, including but not limited to the risk factors discussed therein, could affect the forward-looking statements contained herein and in the Company's other public documents.
Guess?, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
Three Months Ended
------------------
June 29, June 30,
2002 2001
$ % $ %
------- ----- ------ ----
Net revenue
Product sales $ 112,996 94.3% $ 143,113 94.3%
Net royalties 6,793 5.7% 8,606 5.7%
------- ------ ------- -----
119,789 100.0% 151,719 100.0%
Cost of sales 79,381 66.3% 100,003 65.9%
------- ------ ------- -----
Gross profit 40,408 33.7% 51,716 34.1%
Selling, general and administrative
expenses 49,847 41.6% 46,116 30.4%
Gain on disposition of property and
equipment -- --
Restructuring and severance charges -- --
------ ------ ------- ------
Earnings (loss) from operations (9,439) (7.9%) 5,600 3.7%
Other (income) expense:
Interest expense, net 2,175 1.8% 2,964 2.0%
Other, net (647) (0.5%) 72
------ ------ ------- ------
Earnings (loss) before income taxes
(benefit) (10,967) (9.2%) 2,564 1.7%
Income taxes (benefit) (4,535) (3.8%) 1,100 0.7%
------ ------ -------- -------
Net earnings (loss) $ (6,432) (5.4%) $ 1,464 1.0%
====== ====== ======== =======
Net earnings (loss) per share:
Basic $ (0.15) $ 0.03
Diluted $ (0.15) $ 0.03
Weighted number of shares outstanding:
Basic 43,629 43,836
Diluted 43,629 43,955
Six Months Ended
-------------------
June 29, June 30,
2002 2001
$ % $ %
-------- ----- ------ ------
Net revenue
Product sales $ 241,257 93.5% $ 303,634 94.3%
Net royalties 16,711 6.5% 18,201 5.7%
--------- ----- ------ -------
257,968 100.0% 321,835 100.0%
Cost of sales 172,444 66.8% 211,415 65.7%
--------- ------ ------ -------
Gross profit 85,524 33.2% 110,420 34.3%
Selling, general and administrative
expenses 98,474 38.2% 98,290 30.5%
Gain on disposition of property
and equipment -- (1,063) (0.3%)
Restructuring and severance charges 655 401
--------- ------ -------- -------
Earnings (loss) from operations (13,605) (5.3%) 12,792 4.0%
Other (income) expense:
Interest expense, net 4,439 1.7% 6,162 1.9%
Other, net (676) (0.3%) 482 0.1%
--------- ------ -------- --------
Earnings (loss) before income
taxes (benefit) (17,368) (6.7%) 6,148 1.9%
Income taxes (benefit) (7,335) (2.8%) 2,600 0.8%
--------- ----- -------- --------
Net earnings (loss) $ (10,033) (3.9%) $ 3,548 1.1%
========= ===== ======== =======
Net earnings (loss) per share:
Basic
$ (0.23) $ 0.08
Diluted
$ (0.23) $ 0.08
Weighted number of shares outstanding:
Basic 43,578 43,831
Diluted 43,578 43,992
Guess?, Inc. and Subsidiaries
Consolidated Segment Data
(in thousands)
(Unaudited)
Three Months Ended Six Months Ended
------------------- ---------------------
June 29, June 30, June 29, June 30,
2002 2001 2002 2001
--------- --------- ---------- ----------
Net revenue:
Retail operations $ 79,892 $ 83,176 $ 158,758 $ 162,552
Wholesale operations 33,104 59,937 82,499 141,082
Licensing operations 6,793 8,606 16,711 18,201
--------- --------- ---------- ----------
119,789 151,719 257,968 321,835
========= ========= ========== ==========
Earnings (loss) from operations:
Retail operations $ (3,459) $ (1,085) $ (9,392) $ (7,754)
Wholesale operations (11,261) (508) (17,937) 5,110
Licensing operations 5,281 7,193 13,724 15,436
--------- --------- ---------- ----------
$ (9,439) $ 5,600 $ (13,605) $ 12,792
========= ========= ========== ==========
Guess?, Inc. and Subsidiaries
Selected Consolidated Balance Sheet Data
(in thousands)
(Unaudited)
June 29, December 31, June 30,
2002 2001 2001
---------- ---------- ----------
ASSETS
Cash and cash equivalents $ 27,133 $ 31,870 $ 7,368
Receivables, net 33,930 40,500 42,306
Inventories, net 87,222 96,105 130,927
Other current assets 28,170 20,561 28,410
Property and equipment, net 137,378 145,385 156,446
Other assets 28,847 28,042 25,630
---------- ---------- ----------
Total Assets $ 342,680 $ 362,463 $ 391,087
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 82,625 $ 93,773 $ 86,867
Notes payable and long-term debt,
excluding current installments 79,933 80,119 114,096
Other liabilities 10,424 10,647 11,070
Stockholders' equity 169,698 177,924 179,054
---------- ---------- ----------
Total Liabilities and Stockholders'
Equity $ 342,680 $ 362,463 $ 391,087
========== ========== ==========
Guess?, Inc. and Subsidiaries
Condensed Consolidated Cash Flow Data
(in thousands)
(Unaudited)
Six Months Ended
-------------------
June 29, June 30,
2002 2001
--------- ---------
Net cash provided by (used in) operating activities $ 5,589 $ (9,670)
Net cash used in investing activities (10,683) (6,807)
Net cash provided by financing activities 280 10,511
Effect of exchange rates on cash 77 2
--------- ---------
Net decrease in cash and cash equivalents (4,737) (5,964)
Cash and cash equivalents at beginning of the year 31,870 13,332
--------- ---------
Cash and cash equivalents at end of the period $ 27,133 $ 7,368
========= =========
Supplemental information:
Depreciation and amortization $ 20,230 $ 19,979
Rent 25,591 24,375
Guess?, Inc. and Subsidiaries
Retail Store Data
Six Months Ended
---------------------
June 29, June 30,
2002 2001
---------- ----------
Number of stores at the beginning of the period 227 212
Store openings 5 10
Store closures --- (2)
---------- ----------
Number of stores at the end of the period 232 220
========== ==========
Total store square footage at the end of the
period 1,189,000 1,122,000
========== ==========
CONTACT: Guess?, Inc.
Carlos Alberini, 213/765-3582
Frederick G. Silny, 213/765-3289
or
Kekst and Company
Wendi Kopsick or Molly Morse, 212/521-4800
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