Guess?, Inc. Reports First Quarter Fiscal Year 2010 Results Thursday, June 04, 2009 4:00:00 PM ET Guess?, Inc. (GES ) today reported financial results for the first quarter of its 2010 fiscal year, which ended May 2, 2009. First Quarter Fiscal 2010 Results For the first quarter of fiscal 2010, the Company reported net earnings of $32.5 million, a decrease of 31.9% compared to net earnings of $47.8 million for the first quarter of fiscal 2009. Diluted earnings per share decreased 30.0% to $0.35 in the current quarter, compared to $0.50 in the prior-year quarter. The Company has reduced the current and prior year quarter’s reported diluted earnings per share by $0.01 to reflect the impact of a new accounting pronouncement related to certain participating shares. Paul Marciano, Chief Executive Officer, commented, "Our first quarter financial results exceeded our expectations. We managed our business effectively, reducing inventory levels and capital spending. We also aggressively cut costs, which resulted in an improved SG&A rate, even with lower sales. As a result, we generated solid operating cash flows, further strengthening our capital structure." Mr. Marciano continued, "We expect the challenging economic conditions to persist for some time. However, we believe that the strength of our product lines and our diversified business model position us well in this environment. We remain committed to our international expansion strategy, and continue to see opportunities in Europe and Asia where our brand is well known but underpenetrated. We will continue to run the business prudently and build the capabilities and infrastructure to support our growth objectives in the future. Through these efforts, we expect to emerge in an even stronger position when conditions ultimately improve." Total net revenue for the first quarter of fiscal 2010 decreased 9.8% to $441.2 million from $489.2 million in the prior-year quarter. In constant dollars, total net revenue was essentially flat. The Company’s retail stores in North America generated revenue of $207.6 million in the first quarter of fiscal 2010, a 2.0% decrease from $211.9 million in the same period a year ago. Comparable store sales decreased 6.0% in local currency and 10.0% in US dollars for the first quarter of fiscal 2010, compared to the same period a year ago. The Company operated 429 retail stores in the U.S. and Canada at the end of the first quarter of fiscal 2010 versus 391 stores a year earlier. Net revenue from the Company’s wholesale segment, which includes the Company’s Asian operations, decreased 12.3% to $65.9 million in the first quarter of fiscal 2010, from $75.1 million in the prior-year period. Net revenue from the Company’s European segment decreased 18.5% to $145.7 million in the first quarter of fiscal 2010, compared to $178.7 million in the prior-year period. Licensing segment net revenue decreased 6.0% to $22.1 million in the first quarter of fiscal 2010, from $23.5 million in the prior-year period. Operating earnings for the first quarter of fiscal 2010 decreased 36.7% to $48.0 million from $75.9 million in the prior-year period. Operating margin in the first quarter decreased 460 basis points to 10.9%, compared to the prior-year’s quarter. This margin contraction was due to lower European product margins, partially attributable to the impact of the stronger US dollar, lower product margins in North America and occupancy deleverage due to the negative comparable store sales, partially offset by SG&A leverage resulting from strong expense management. The Company’s effective tax rate declined to 33.0% for the first quarter of fiscal 2010, from 36.0% for the first quarter of the prior year. Share Repurchase During the first quarter of fiscal 2010, the Company repurchased approximately 400,000 shares of its common stock at an average purchase price of $13.00, totaling $5.3 million. As of May 2, 2009, the Company had remaining approval under its existing repurchase program to purchase $134.2 million of its common stock. Outlook The Company’s expectations for the second quarter of fiscal 2010 ending August 1, 2009, are as follows: -- Consolidated net revenues are expected to range from $465 million to $485 million. -- Operating margin is expected to be around 14%. -- Diluted earnings per share are expected to be in the range of $0.42 to $0.45. The continued volatility in the global economy presents a substantial challenge to forecasting future consumer behavior and future financial results. Due to its limited visibility, the Company is not providing specific revenue, operating margin or diluted earnings per share guidance for the full fiscal year 2010. Dividend The Company also announced today that its Board of Directors has approved a quarterly cash dividend of $0.10 per share on the Company’s common stock. The dividend will be payable on July 2, 2009 to shareholders of record at the close of business on June 17, 2009. The Company will hold a conference call at 4:30 pm (ET) on June 4, 2009 to discuss the news announced in this press release. A live webcast of the conference call will be accessible at www.guessinc.com via the "Investor’s Info" link. The webcast will be archived on the website for 30 days. Guess?, Inc. designs, markets, distributes and licenses a lifestyle collection of contemporary apparel, denim, handbags, watches, footwear and other related consumer products. As of May 2, 2009, the Company operated 429 retail stores in the United States and Canada and 706 retail stores outside of North America, of which 103 were directly owned. The Company also distributes its products through better department and specialty stores around the world. For more information about the Company, please visit www.guessinc.com. Except for historical information contained herein, certain matters discussed in this press release, including statements concerning the Company’s future prospects and guidance for the second quarter of fiscal 2010 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 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 other things, domestic and international economic conditions, including economic and other events leading to a reduction in consumer confidence and discretionary consumer spending; our ability to, among other things, anticipate consumer preferences, effectively operate our various retail concepts, effectively manage inventories and successfully execute our strategies, including our supply chain and international growth strategies; and risks associated with changes in economic, political, social and other conditions affecting our foreign operations, including currency fluctuations. In addition to these factors, the economic, litigation-related 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. Contact: Guess?, Inc. Investor Relations (213) 765-5578 Guess?, Inc. and Subsidiaries Condensed Consolidated Statements of Income (dollars in thousands, except per share data) Three Months Ended ---------------------------------- May 2, May 3, 2009 2008 $ % $ % ---------------------------------- Net revenue Product sales $419,127 95.0% $465,735 95.2% Net royalties 22,074 5.0% 23,485 4.8% ------ --- ------ --- 441,201 100.0% 489,220 100.0% Cost of product sales 263,698 59.8% 267,981 54.8% ------- ---- ------- ---- Gross profit 177,503 40.2% 221,239 45.2% Selling, general and administrative expenses 129,469 29.3% 145,314 29.7% ------- ---- ------- ---- Earnings from operations 48,034 10.9% 75,925 15.5% Other (income) expense: Interest expense 606 0.1% 1,025 0.2% Interest income (737) (0.2%) (1,533) (0.3%) Other, net (1,266) (0.2%) 908 0.2% ------ ---- --- --- Earnings before income taxes 49,431 11.2% 75,525 15.4% Income taxes 16,312 3.7% 27,189 5.5% ------ --- ------ --- Net earnings 33,119 7.5% 48,336 9.9% Net earnings attributable to noncontrolling interests in subsidiaries 577 0.1% 535 0.1% --- --- --- --- Net earnings attributable to Guess?, Inc. $32,542 7.4% $47,801 9.8% ======= === ======= === Earnings per common share attributable to common stockholders: Basic (1) $0.35 $0.51 Diluted (1) $0.35 $0.50 Weighted average common shares outstanding attributable to common stockholders: Basic 90,631 92,950 Diluted (1) 91,158 93,806 (1) The company adopted a new accounting pronouncement in the first quarter of fiscal 2010 that requires the company to exclude certain earnings and shares related to participating securities from the computation of earnings per common share. The net earnings attributable to participating securities were approximately $532 and $766 in the first quarter of fiscal 2010 and fiscal 2009, respectively, and the amount of participating shares for the same periods were 237 and 233, respectively. The effect of the new accounting pronouncement on diluted earnings per common share is to reduce both the current quarter and the prior year quarter by approximately $0.01 per share. The prior year’s earnings per share has been adjusted to reflect the change. Guess?, Inc. and Subsidiaries Consolidated Segment Data (dollars in thousands) Three Months Ended ------------------------ May 2, May 3, % 2009 2008 chg -------- -------- ---- Net revenue: Retail operations $207,560 $211,937 -2% Wholesale operations 65,869 75,134 -12% European operations 145,698 178,664 -18% Licensing operations 22,074 23,485 -6% ------ ------ $441,201 $489,220 -10% ======== ======== Earnings (loss) from operations: Retail operations $18,007 $22,844 -21% Wholesale operations 7,422 12,554 -41% European operations 23,139 39,961 -42% Licensing operations 19,015 20,247 -6% Corporate overhead (19,549) (19,681) -1% ------- ------- $48,034 $75,925 -37% ======= ======= Operating margins: Retail operations 8.7% 10.8% Wholesale operations 11.3% 16.7% European operations 15.9% 22.4% Licensing operations 86.1% 86.2% Total Company 10.9% 15.5% Guess?, Inc. and Subsidiaries Selected Condensed Consolidated Balance Sheet Data (in thousands) May 2, January 31, May 3, 2009 2009 2008 ---------- ---------- ---------- ASSETS Cash and cash equivalents $312,630 $294,118 $260,390 Receivables, net 277,436 262,349 315,598 Inventories 203,395 239,675 202,804 Other current assets 92,696 98,047 52,247 Property and equipment, net 235,607 221,416 237,193 Other assets 137,502 130,961 151,361 ---------- ---------- ---------- Total Assets $1,259,266 $1,246,566 $1,219,593 ========== ========== ========== LIABILITIES AND STOCKHOLDERS’ EQUITY Current portion of borrowings and capital lease obligations $30,645 $24,018 $47,562 Other current liabilities 276,531 311,866 309,083 Borrowings and capital lease obligations 14,327 14,586 18,453 Other long-term liabilities 114,979 110,592 124,946 Guess?, Inc. stockholders’ equity 808,720 777,032 711,074 Noncontrolling interests in subsidiaries 14,064 8,472 8,475 ---------- ---------- ---------- Total Liabilities and Stockholders’ Equity $1,259,266 $1,246,566 $1,219,593 ========== ========== ========== Guess?, Inc. and Subsidiaries Condensed Consolidated Cash Flow Data (in thousands) Three Months Ended ------------------ May 2, May 3, 2009 2008 ---- ---- Net cash provided by operating activities $43,067 $2,505 Net cash used in investing activities (18,265) (26,573) Net cash (used in)/ provided by financing activities (7,603) 7,626 Effect of exchange rates on cash 1,313 1,237 ----- ----- Net increase/ (decrease) in cash and cash equivalents 18,512 (15,205) Cash and cash equivalents at the beginning of the year 294,118 275,595 -------- -------- Cash and cash equivalents at the end of the period $312,630 $260,390 ======== ======== Supplemental information: Depreciation and amortization $14,547 $13,813 Rent 41,691 37,513 Guess?, Inc. and Subsidiaries Retail Store Data U.S. and Canada Three Months Ended -------------------- May 2, May 3, 2009 2008 --------- --------- Number of stores at the beginning of the year 425 373 Store openings 6 19 Store closures (2) (1) --- --- Number of stores at the end of the period 429 391 === === Total store square footage at the end of the period 1,969,000 1,817,000 ========= ========= SOURCE Guess?, Inc. http://www.guess.com
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