Guess?, Inc. Reports Third Quarter Results Q3 Fiscal 2013 EPS of $0.43, Compared to EPS of $0.71 in Q3 Fiscal 2012 Provides Q4 EPS Guidance in the Range of $0.85 to $0.95 Updates Full Year EPS Guidance to a Range of $2.05 to $2.15 Declares Special Dividend of $1.20 per Share PR Newswire LOS ANGELES, Nov. 28, 2012 LOS ANGELES, Nov. 28, 2012 /PRNewswire/ --Guess?, Inc. (NYSE: GES) today reported financial results for its third quarter ended October 27, 2012. Third Quarter Fiscal 2013 Highlights oConsolidated revenues decreased 2% to $629 million; up 1% in constant dollars oAsian revenues increased 16% oNorth American Retail revenues decreased 1%; retail comp sales declined 6% oEuropean revenues increased 2% in local currency; declined 8% in U.S. dollars oOperating earnings decreased 40% and operating margin declined 590 basis points to 9.2% This press release contains certain non-GAAP, or adjusted, financial measures, which exclude a settlement charge incurred during the second quarter of fiscal 2012. 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. Third Quarter Fiscal 2013 Results For the third quarter of fiscal 2013, the Company generated net earnings of $36.6 million, a 44.7% decrease compared to net earnings of $66.3 million for the third quarter of fiscal 2012. Diluted earnings per share decreased 39.4%, to $0.43, compared to diluted earnings per share of $0.71 for the prior-year quarter. Paul Marciano, Chief Executive Officer, commented, "Third quarter earnings were consistent with our guidance but fell short of our operational goals, as economic pressures impacted consumer confidence in most of our markets. Our European business was stronger at the beginning of the quarter, though business softened toward the end of the period. We posted solid double digit growth in Asia. In North America, our key strategies remain relevant as we focus on driving traffic to the stores through enhanced customer engagement initiatives and elevating the brand with quality." Mr. Marciano continued, "We do expect that the current market conditions in the global economy will continue for some time and we are more cautious on near term customer demand trends. Accessories performance, specifically handbags and watches, have been a top priority and I am very confident of these categories going forward. Our goal is to retain our high-quality standards. Meanwhile, our team is focused on shortening the development cycle of a large portion of our products to a fast track calendar to deliver current trends at the right time, in addition to our iconic denim lines for men and women that we have offered for the last 30 years." Mr. Marciano concluded, "We have a strong financial position and will run our business proactively to adapt to the existing economic climate, manage our expenses and inventories tightly and reallocate capital in growth regions of the world, specifically Eastern and Northern Europe as well as Asia. We plan to evaluate new strategies to drive growth and profitability and improve the performance of our stores in the U.S. and in Canada. At the same time, with our strong financial position, our goal is to focus on delivering balanced returns to our shareholders, including through our dividend and share repurchase programs." Total net revenue for the third quarter of fiscal 2013 decreased 2.2% to $628.8 million, from $642.8 million in the prior-year quarter. In constant dollars, total net revenue increased 1.2%. oThe Company's retail stores in North America generated revenue of $262.1 million in the third quarter of fiscal 2013, a 1.3% decrease from $265.6 million in the same period a year ago. Comparable store sales decreased 6.0% for the third quarter of fiscal 2013, compared to the same period a year ago. The Company directly operated 513 retail stores in the United States and Canada at the end of the third quarter of fiscal 2013 versus 495 stores a year earlier. oNet revenue from the Company's Europe segment decreased 8.3% to $202.6 million in the third quarter of fiscal 2013, compared to $221.0 million in the prior-year period. In local currency, net revenue increased 1.7%. oNet revenue from the Company's Asia segment increased 15.5% to $74.8 million in the third quarter of fiscal 2013, from $64.8 million in the prior-year period. In constant dollars, net revenue increased 15.6%. oNet revenue from the Company's North American Wholesale segment increased 1.0% to $57.9 million in the third quarter of fiscal 2013, compared to $57.3 million in the prior-year period. oLicensing segment net revenue decreased 7.6% to $31.5 million in the third quarter of fiscal 2013, from $34.0 million in the prior-year period. Operating earnings for the third quarter of fiscal 2013 decreased 40.1% to $58.1 million (including a $2.4 million unfavorable currency translation impact) from operating earnings of $97.0 million in the prior-year period. Operating margin in the third quarter declined 590 basis points to 9.2%, compared to operating margin of 15.1% in the prior-year quarter. The lower operating margin primarily reflects the impact of higher occupancy and selling costs in Europe due to retail expansion, negative same store sales on the Company's fixed cost structure and increased investments in advertising. In addition, product margins were lower, primarily driven by promotions in North America and the effect of pricing parity changes in Canada. Other net expense, which primarily includes net unrealized mark-to-market losses on foreign currency contracts and balances, partially offset by net unrealized gains on non-operating assets, was $0.2 million for the third quarter of fiscal 2013. This compares to other net income of $1.9 million in the prior-year quarter. The Company's reported effective tax rate increased to 34.8% in the third quarter of fiscal 2013, from 32.3% for the third quarter of the prior year. Nine-Month Period Results Net earnings for the nine months ended October 27, 2012 were $106.2 million, a decrease of 43.3% compared to adjusted net earnings of $187.2 million for the nine months ended October 29, 2011. The prior-year adjusted net earnings excluded a settlement charge of $19.5 million ($17.6 million net of the related tax impact) associated with the settlement of the Company's relationship with one of its former European service providers. Diluted earnings per share declined 39.8% to $1.21 per share in the first nine months of the 2013 fiscal year compared to adjusted diluted earnings per share of $2.01 in the comparable nine-month period last year. On a GAAP basis, for the first nine months of fiscal 2013, net earnings decreased 37.4% and diluted earnings per share decreased 33.5%. Total net revenue for the first nine months of fiscal 2013 decreased 3.6% to $1.84 billion from $1.91 billion in the prior-year period. In constant dollars, total net revenue increased 0.6%. oThe Company's retail stores in North America generated revenue of $766.9 million in the first nine months of fiscal 2013, a 0.9% decrease from $774.1 million in the same period a year ago. Comparable store sales decreased 6.3% in local currency and 6.7% in U.S. dollars for the nine months ended October 27, 2012, compared to the nine months ended October 29, 2011. oNet revenue from the Company's Europe segment decreased 11.2% to $639.3 million in the first nine months of fiscal 2013, compared to $720.1 million in the prior-year period. In local currency, Europe segment revenues decreased 1.6%. oNet revenue from the Company's Asia segment increased 14.6% to $206.5 million in the first nine months of fiscal 2013, compared to $180.2 million in the prior-year period. In constant dollars the increase was 16.5%. oNet revenue from the Company's North American Wholesale segment decreased 2.3% to $143.4 million in the first nine months of fiscal 2013, from $146.8 million in the prior-year period. oLicensing segment net revenue decreased 4.0% to $87.4 million in the first nine months of fiscal 2013, from $91.0 million in the prior-year period. Operating earnings for the first nine months of fiscal 2013 decreased 45.0% to $154.6 million (including an $8.5 million unfavorable currency translation impact) from adjusted operating earnings of $280.9 million in the prior-year period. Operating margin for the first nine months of fiscal 2013 declined 630 basis points to 8.4% compared to adjusted operating margin of 14.7% in the prior-year period. The decline in operating margin primarily reflects the impact of higher occupancy and selling costs in Europe, negative same store sales on the Company's fixed cost structure, and increased investments in advertising and marketing. Product margins for the year-to-date period were lower compared to the prior-year period driven by lower margin in North American Retail and unfavorable currency impact in Europe. GAAP operating earnings decreased 40.9% and GAAP operating margin declined 530 basis points. Other net income, which primarily includes net unrealized mark-to-market gains on foreign currency contracts and balances, and net unrealized gains on non-operating assets, was $5.8 million for the first nine months of fiscal 2013. This compares to other net expense of $5.4 million in the prior-year period. The Company's effective tax rate was 33.0% for the first nine months of both fiscal 2013 and fiscal 2012. Outlook The Company's expectations for the fourth quarter of fiscal 2013 ending February 2, 2013, are as follows: oConsolidated net revenues are expected to range from $780 million to $800 million. oOperating margin is expected to be between 14.5% and 15.5%. oDiluted earnings per share are expected to be in the range of $0.85 to $0.95. The Company updated its outlook for the fiscal year ending February 2, 2013, which is now as follows: oConsolidated net revenues are expected to range from $2.62 billion to $2.64 billion. oOperating margin is expected to be between 10.0% and 10.5%. oDiluted earnings per share are expected to be in the range of $2.05 to $2.15. Dividends The Company also announced today that its Board of Directors has approved a quarterly cash dividend of $0.20 per share on the Company's common stock. The Board of Directors has also approved a special cash dividend of $1.20 per share to be paid with the regular quarterly dividend. The combined dividends will be payable on December 28, 2012 to shareholders of record at the close of business on December 12, 2012. Presentation of Non-GAAP Information The financial information presented in this release includes both GAAP and non-GAAP measures. The "non-GAAP" or "adjusted" financial measures exclude the impact of a settlement charge incurred during the second quarter of fiscal 2012. In July 2011, the Company experienced a temporary disruption in its European supply chain, related to one of its service providers. The Company subsequently entered into an agreement to terminate the relationship with that provider, resulting in a $19.5 million settlement charge in the second quarter of fiscal 2012. The Company has excluded this settlement charge, and related tax impact, from its adjusted financial measures primarily because it does not believe such charge reflects the Company's ongoing operating results or future outlook. The Company believes that these adjusted financial measures are useful as an additional means for investors to evaluate the comparability of the Company's operating results 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. The non-GAAP measures are provided in addition to, and not as alternatives for, the Company's reported GAAP results. This release also includes certain constant currency financial information. Foreign currency exchange rate fluctuations affect the amount reported from translating the Company's foreign revenues and expenses 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 help investors assess how our businesses performed excluding the effects of changes in foreign currency translation rates. To calculate revenues and earnings from operations on a constant currency basis, operating results for the current year period for entities reporting in currencies other than U.S. dollars 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. The constant currency information presented may not be comparable to similarly titled measures reported by other companies. Investor Conference Call The Company will hold a conference call at 4:30 pm (ET) on November 28, 2012 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 Relations" link. The webcast will be archived on the website for 30 days. About Guess? Guess?, Inc. designs, markets, distributes and licenses a lifestyle collection of contemporary apparel, denim, handbags, watches, footwear and other related consumer products. Guess? products are distributed through branded Guess? stores as well as better department and specialty stores around the world. As of October 27, 2012, the Company directly operated 513 retail stores in the United States and Canada and 312 retail stores in Europe, Asia and Latin America. The Company's licensees and distributors operated an additional 837 retail stores outside of the United States and Canada. For more information about the Company, please visit www.guess.com. Forward Looking Statements Except for historical information contained herein, certain matters discussed in this press release, including statements concerning the Company's strategies, goals, expectations and future prospects, as well as guidance for the fourth quarter and full year of fiscal 2013, 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," "goal," "strategy," "believe," "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 consumer preferences, effectively operate our various retail concepts and effectively manage inventories; our ability to successfully implement our growth strategies and to continue to expand or grow our business; unexpected obligations arising from litigation, tax and other regulatory proceedings; risks associated with our foreign operations, such as violations of laws prohibiting improper payments and the burdens of complying with a variety of foreign laws and regulations; and changes in economic, political, social and other conditions affecting our foreign operations and sourcing, including currency fluctuations, global tax rates and the current European economic crisis. In addition to these factors, the economic, technological, managerial, and other risks identified in the Company's most recent annual report on Form 10-K and other filings with the Securities and Exchange Commission, including but not limited to the risk factors discussed therein, could cause actual results to differ materially from current expectations. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Contact: Guess?, Inc. Investor Relations (213) 765-5578 Guess?, Inc. and Subsidiaries Condensed Consolidated Statements of Income (amounts in thousands, except per share data) Three Months Ended Nine Months Ended October 27, October 29, October 27, October 29, 2012 2011 ^(2) 2012 2011 ^(2) $ % $ % $ % $ % Product sales $ 95.0% $ 94.7% $ 95.3% $ 95.2% 597,374 608,777 1,756,123 1,821,198 Net royalties 31,454 5.0% 34,026 5.3% 87,364 4.7% 91,008 4.8% Net revenue 628,828 100.0% 642,803 100.0% 1,843,487 100.0% 1,912,206 100.0% Cost of 381,219 60.6% 367,202 57.1% 1,109,242 60.2% 1,091,119 57.1% product sales Gross profit 247,609 39.4% 275,601 42.9% 734,245 39.8% 821,087 42.9% Selling, general and 189,492 30.2% 178,632 27.8% 579,686 31.4% 540,193 28.3% administrative expenses Settlement - 0.0% - 0.0% - 0.0% 19,463 0.9% charge Earnings from 58,117 9.2% 96,969 15.1% 154,559 8.4% 261,431 13.7% operations Other income (expense): Interest (424) (0.1%) (775) (0.1%) (1,205) (0.0%) (1,539) (0.1%) expense Interest - 0.0% 661 0.1% 1,509 0.0% 2,433 0.1% income Other, net (245) (0.0%) 1,868 0.3% 5,765 0.3% (5,437) (0.3%) Earnings before income 57,448 9.1% 98,723 15.4% 160,628 8.7% 256,888 13.4% taxes Income taxes 19,989 3.1% 31,877 5.0% 53,007 2.9% 84,648 4.4% Net earnings 37,459 6.0% 66,846 10.4% 107,621 5.8% 172,240 9.0% Net earnings attributable to 812 0.2% 551 0.1% 1,429 0.0% 2,606 0.1% noncontrolling interests in subsidiaries Net earnings attributable $ 5.8% $ 10.3% $ 5.8% $ 8.9% to Guess?, 36,647 66,295 106,192 169,634 Inc. Net earnings per common share attributable to common stockholders: Basic $ $ $ $ 0.43 0.71 1.21 1.83 Diluted $ $ $ $ 0.43 0.71 1.21 1.82 Weighted average common shares outstanding attributable to common stockholders: Basic 84,408 92,011 86,857 91,835 Diluted 84,702 92,338 87,156 92,279 Adjusted earnings $ $ from 154,559 8.4% 280,894 14.7% operations ^(1) Adjusted net earnings $ $ attributable 106,192 5.8% 187,247 9.8% to Guess?, Inc. ^(1) Adjusted diluted earnings per common share $ $ attributable 1.21 2.01 to common stockholders ^(1) Notes: The adjusted results reflect the exclusion of the settlement charge (and related taxes where applicable) recorded during the nine month period (1) ended October 29, 2011. No adjustments have been made to the current-year period. A complete reconciliation of actual results to adjusted results is presented in the table entitled "Reconciliation of GAAP Results to Adjusted Results." For the three and nine month periods ended October 29, 2011, the Company reclassified certain distribution costs from selling, general and (2) administrative expenses to cost of product sales to conform to current period presentation. The reclassification had no impact on previously reported earnings from operations, net earnings or net earnings per share. Guess?, Inc. and Subsidiaries Reconciliation of GAAP Results to Adjusted Results (amounts in thousands, except per share data) The following table provides reconciliations of reported GAAP earnings from operations to adjusted earnings from operations and reported GAAP net earnings attributable to Guess?, Inc. to adjusted net earnings attributable to Guess?, Inc. for the nine months ended October 29, 2011. Nine Months Ended October 29, 2011 % of $ Revenues Reported GAAP earnings from operations $ 261,431 13.7% Add back settlement charge ^(1) 19,463 Adjusted earnings from operations $ 280,894 14.7% Reported GAAP net earnings attributable to Guess?, Inc. $ 169,634 8.9% Add back settlement charge ^(1) 19,463 Less income tax on settlement charge^(2) (1,850) Total adjustments affecting net earnings attributable 17,613 to Guess?, Inc. Adjusted net earnings attributable to Guess?, Inc. $ 187,247 9.8% Adjusted diluted earnings per common share attributable $ 2.01 to common stockholders: Weighted average common shares outstanding attributable to common stockholders: Basic 91,835 Diluted 92,279 Notes: In July 2011, the Company experienced a temporary disruption in its European supply chain, related to one of its service providers. The (1) Company subsequently entered into an agreement to terminate the relationship with that provider, resulting in a settlement charge in the second quarter of fiscal 2012, impacting the nine months ended October 29, 2011. No adjustments have been made to the current-year period. The income tax effect of the settlement charge is based on the Company's (2) assessment of deductibility using the statutory tax rate of the tax jurisdiction in which the charge was incurred. Guess?, Inc. and Subsidiaries Consolidated Segment Data (dollars in thousands) Three Months Ended Nine Months Ended October 27, October % October 27, October 29, % 29, 2012 2011 chg 2012 2011 chg Net revenue: Europe $ $ -8% $ $ -11% 202,594 221,041 639,326 720,068 North American 262,064 265,637 -1% 766,874 774,147 -1% Retail Asia 74,838 64,782 16% 206,499 180,152 15% North American 57,878 57,317 1% 143,424 146,831 -2% Wholesale Licensing 31,454 34,026 -8% 87,364 91,008 -4% $ $ -2% $ 1,843,487 $ 1,912,206 -4% 628,828 642,803 Earnings (loss) from operations: Europe before $ $ -57% $ $ -61% settlement charge 14,572 34,152 51,675 131,014 Europe settlement - - - (19,463) charge, pre-tax Europe including 14,572 34,152 -57% 51,675 111,551 -54% settlement charge North American 8,952 27,533 -67% 42,703 79,077 -46% Retail Asia 7,799 8,248 -5% 17,693 20,205 -12% North American 14,888 16,013 -7% 31,935 37,649 -15% Wholesale Licensing 27,103 30,698 -12% 74,558 81,188 -8% Corporate (15,197) (19,675) -23% (64,005) (68,239) -6% Overhead $ $ -40% $ $ -41% 58,117 96,969 154,559 261,431 Operating margins: Europe before 7.2% 15.5% 8.1% 18.2% settlement charge Europe including 7.2% 15.5% 8.1% 15.5% settlement charge North American 3.4% 10.4% 5.6% 10.2% Retail Asia 10.4% 12.7% 8.6% 11.2% North American 25.7% 27.9% 22.3% 25.6% Wholesale Licensing 86.2% 90.2% 85.3% 89.2% Total Company before settlement 9.2% 15.1% 8.4% 14.7% charge Total Company including 9.2% 15.1% 8.4% 13.7% settlement charge Guess?, Inc. and Subsidiaries Selected Condensed Consolidated Balance Sheet Data (in thousands) October 27, January 28, October 29, 2012 2012 2011 ASSETS Cash and cash equivalents $ 287,288 $ 491,805 $ 426,725 Short-term investments 7,348 4,060 4,082 Receivables, net 332,440 340,602 376,502 Inventories 422,304 328,602 385,399 Other current assets 76,784 96,413 84,017 Property and equipment, net 356,396 348,885 352,514 Other assets 260,508 234,108 231,961 Total Assets $ 1,743,068 $ 1,844,475 $ 1,861,200 LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of borrowings $ $ 2,030 $ 2,131 and capital lease obligations 1,776 Other current liabilities 395,044 418,006 425,596 Capital lease obligations 8,739 10,206 11,372 Other long-term liabilities 221,373 211,675 174,519 Redeemable and nonredeemable 15,892 26,928 25,588 noncontrolling interests Guess?, Inc. stockholders' 1,100,244 1,175,630 1,221,994 equity Total Liabilities and $ 1,743,068 $ 1,844,475 $ 1,861,200 Stockholders' Equity Guess?, Inc. and Subsidiaries Condensed Consolidated Cash Flow Data (in thousands) Nine Months Ended October 27, October 29, 2012 2011 Net cash provided by operating activities $ 96,002 $ 149,948 Net cash used in investing activities (96,782) (103,775) Net cash used in financing activities (200,150) (52,510) Effect of exchange rates on cash (3,587) 6,025 Net decrease in cash and cash equivalents (204,517) (312) Cash and cash equivalents at the beginning of 491,805 427,037 the year Cash and cash equivalents at the end of the $ 287,288 $ 426,725 period Supplemental information: Depreciation and amortization $ 66,280 $ 59,153 Rent $ 198,997 $ 184,798 Guess?, Inc. and Subsidiaries Retail Store Data International Store Count As of October 27, 2012 As of October 29, 2011 Total Directly Operated Total Directly Operated Region Stores Stores Stores Stores United States and Canada 513 513 495 495 Europe and the Middle 610 234 547 171 East Asia 460 49 408 39 Central and South 79 29 67 22 America 1,662 825 1,517 727 Guess?, Inc. and Subsidiaries Retail Store Data U.S. and Canada Nine Months Ended October 27, October 29, 2012 2011 Number of stores at the beginning of the year 504 481 Store openings 24 25 Store closures (15) (11) Number of stores at the end of the period 513 495 Total store square footage at the end of the 2,370,000 2,270,000 period SOURCE Guess?, Inc. Website: http://www.guess.com
Guess?, Inc. Reports Third Quarter Results
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