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Guess?, Inc. Reports Third Quarter Results

Dienstag, 26.11.19 22:15
Tafel mit Kursen
Bildquelle: fotolia.com

LOS ANGELES –

Guess?, Inc. (NYSE: GES) today reported financial results for its third quarter ended November 2, 2019.

Carlos Alberini, Chief Executive Officer, commented, “I am very pleased to report that we delivered operating earnings and earnings per share above the high-end of our expectations for the period. Overall, the strength of our businesses in Europe, Americas Wholesale and Licensing, combined with a disciplined and effective approach to manage our costs, enabled us to more than offset softness in our Americas Retail and Asia businesses in the quarter. For the full year, we are maintaining the high-end of our guidance and raising the low-end. This speaks to the strength of our global brand and the power of our diversified business model which provides us with multiple levers to continue to increase revenues and improve profitability.”

Mr. Alberini concluded, “As we previously communicated, we will be hosting an Investor Day on December 3rd in New York City. During the event we will present our strategic business plan and key strategic initiatives for the next five years. I couldn’t be more excited to share our plan and provide an update on our Company’s opportunities for global growth, profit improvement and value creation.”

Adjusted Amounts

This press release contains certain non-GAAP, or adjusted, financial measures. References to “adjusted” results exclude the impact of (i) asset impairment charges, (ii) net gains on lease terminations, (iii) certain professional service and legal fees and related (credits) costs, (iv) charges related to the European Commission fine, (v) non-cash debt discount amortization on our convertible senior notes, (vi) the related tax effects of the foregoing items as well as adjustments to uncertain tax positions excluded from results in prior years and (vii) revisions to provisional amounts previously recorded related to the enactment of the 2017 Tax Cuts and Jobs Act (the “Tax Reform”), in each case 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.

Share Repurchases. The Company has used substantially all of the net proceeds from its $300 million 2% convertible senior notes due 2024 issued during the first quarter of fiscal 2020 (after the related hedge and warrant transactions) to repurchase shares of its common stock. During the three months ended May 4, 2019, the Company used $170 million of such proceeds to enter into an accelerated share repurchase program (“ASR”), pursuant to which it received up-front approximately 5.2 million shares (representing approximately $102 million (or 60%) of the $170 million notional amount of the ASR). The Company received a final delivery of an additional 5.4 million shares under the ASR on September 4, 2019. During the nine months ended November 2, 2019, the Company also repurchased approximately 5.8 million shares of its common stock in open market and privately negotiated transactions totaling $110.6 million, of which approximately 0.7 million shares of its common stock were repurchased at an aggregate cost of $11.0 million during the three months ended August 3, 2019 and approximately 5.1 million shares of its common stock were repurchased at an aggregate cost of $99.6 million during the three months ended May 4, 2019. Combined, these transactions resulted in the repurchase of approximately 16.4 million shares for $280.6 million during the nine months ended November 2, 2019.

Third Quarter Fiscal 2020 Results

For the third quarter of fiscal 2020, the Company recorded GAAP net earnings of $12.4 million, a 192.4% increase compared to GAAP net loss of $13.4 million for the third quarter of fiscal 2019. GAAP diluted earnings per share increased 205.9% to $0.18 for the third quarter of fiscal 2020, compared to GAAP diluted loss per share of $0.17 for the prior-year quarter. The Company estimates that the convert transaction offset by the share buybacks had a net negative impact of $0.01 on diluted earnings per share and currency had a positive impact of $0.04 on diluted earnings per share in the third quarter of fiscal 2020.

For the third quarter of fiscal 2020, the Company recorded adjusted net earnings of $14.9 million, a 41.2% increase compared to $10.6 million for the third quarter of fiscal 2019. Adjusted diluted earnings per share increased 69.2% to $0.22, compared to $0.13 for the prior-year quarter. The Company estimates that the share buybacks offset by the convert transaction had a net positive impact of $0.02, or 15.4%, on adjusted diluted earnings per share in the third quarter of fiscal 2020.

Net Revenue. Total net revenue for the third quarter of fiscal 2020 increased 1.7% to $615.9 million, compared to $605.4 million in the prior-year quarter. In constant currency, net revenue increased by 4.2%.

  • Americas Retail revenues decreased 4.9% in U.S. dollars and 4.5% in constant currency. Retail comp sales including e-commerce decreased 3% in U.S. dollars and constant currency.
  • Americas Wholesale revenues increased 7.0% in U.S. dollars and 8.1% in constant currency.
  • Europe revenues increased 9.1% in U.S. dollars and 13.2% in constant currency. Retail comp sales including e-commerce increased 1% in U.S. dollars and 5% in constant currency.
  • Asia revenues decreased 8.0% in U.S. dollars and 4.6% in constant currency. Retail comp sales including e-commerce decreased 21% in U.S. dollars and 19% in constant currency.
  • Licensing revenues decreased 0.3% in U.S. dollars.

Operating Earnings. GAAP earnings from operations for the third quarter of fiscal 2020 increased 205.3% to $22.6 million (including a $0.9 million unfavorable currency translation impact), compared to GAAP loss from operations of $21.5 million in the prior-year quarter. GAAP operating margin in the third quarter increased 730 basis points to 3.7%, compared to negative 3.6% in the prior-year quarter, driven primarily by the European Commission fine that was incurred in the same prior-year quarter. The negative impact of currency on operating margin for the quarter was approximately 10 basis points.

For the third quarter of fiscal 2020, adjusted earnings from operations increased 3.6% to $23.1 million, compared to $22.3 million in the same prior-year quarter. Adjusted operating margin was flat at 3.7%, compared to the same prior-year quarter.

  • Operating margin for the Company’s Americas Retail segment decreased 110 basis points to 0.9% in the third quarter of fiscal 2020, from 2.0% in the prior-year quarter, driven primarily by the unfavorable impact from higher markdowns and negative comparable sales, partially offset by higher initial markups.
  • Operating margin for the Company’s Americas Wholesale segment increased 20 basis points to 19.9% in the third quarter of fiscal 2020, compared to 19.7% in the prior-year quarter.
  • Operating margin for the Company’s Europe segment increased 410 basis points to 7.0% in the third quarter of fiscal 2020, compared to 2.9% in the prior-year quarter, driven primarily by higher initial markups, lower logistics costs, lower markdowns and overall leveraging of expenses.
  • Operating margin for the Company’s Asia segment deteriorated 520 basis points to negative 3.0% in the third quarter of fiscal 2020, from 2.2% in the prior-year quarter, driven primarily by deleveraging of expenses due mainly to negative comparable sales and higher markdowns.
  • Operating margin for the Company’s Licensing segment decreased 20 basis points to 87.2% in the third quarter of fiscal 2020, from 87.4% in the prior-year quarter.

Other expense, net, was $0.1 million for the third quarter of fiscal 2020, an improvement of $5.7 million, compared to $5.8 million in the same prior-year quarter. The improvement was driven primarily by net unrealized gains on non-operating assets as well as net unrealized mark-to-market revaluation gains on foreign currency balances compared to net unrealized and realized losses in the same prior-year quarter, partially offset by our proportionate share of net losses related to our minority investment in a privately-held apparel company.

Nine-Month Period Results

For the nine months ended November 2, 2019, the Company recorded GAAP net earnings of $16.4 million, a 279.3% increase compared to GAAP net loss of $9.1 million for the nine months ended November 3, 2018. GAAP diluted earnings per share increased 283.3% to $0.22 for the nine months ended November 2, 2019, compared to GAAP diluted loss per share of $0.12 in the same prior-year period. The Company estimates that the convert transaction offset by the share buybacks had a net negative impact on diluted earnings per share of $0.06 and currency had a negative impact of $0.01 on GAAP diluted earnings per share for the nine months ended November 2, 2019.

For the nine months ended November 2, 2019, the Company recorded adjusted net earnings of $22.7 million, a 2.4% increase compared to $22.2 million for the nine months ended November 3, 2018. Adjusted diluted earnings per share increased 14.8% to $0.31, compared to $0.27 for the same prior-year period. The Company estimates that the convert transaction offset by the share buybacks had a minimal impact on adjusted diluted earnings per share in the first nine months of fiscal 2020.

Net Revenue. Total net revenue for the first nine months of fiscal 2020 increased 3.6% to $1.84 billion, compared to $1.77 billion in the same prior-year period. In constant currency, net revenue increased by 7.1%.

  • Americas Retail revenues decreased 0.4% in U.S. dollars and increased 0.1% in constant currency. Retail comp sales including e-commerce increased 1% in U.S. dollars and constant currency.
  • Americas Wholesale revenues increased 13.2% in U.S. dollars and 14.3% in constant currency.
  • Europe revenues increased 7.3% in U.S. dollars and 13.3% in constant currency. Retail comp sales including e-commerce decreased 1% in U.S. dollars and increased 4% in constant currency.
  • Asia revenues decreased 2.2% in U.S. dollars and increased 2.2% in constant currency. Retail comp sales including e-commerce decreased 16% in U.S. dollars and 12% in constant currency.
  • Licensing revenues decreased 3.6% in U.S. dollars.

Operating Earnings. GAAP operating earnings from operations for the first nine months of fiscal 2020 increased 404.3% to $44.2 million (including a $1.0 million unfavorable currency translation impact), compared to GAAP loss from operations of $14.5 million in the same prior-year period. GAAP operating margin in the first nine months of fiscal 2020 increased 320 basis points to 2.4%, compared to negative 0.8% in the same prior-year period, driven primarily by the European Commission fine that was incurred in the same prior-year period and the favorable impact from higher initial markups in Europe and Americas Retail. The impact of currency on operating margin for the first nine months of fiscal 2020 was minimal.

For the nine months ended November 2, 2019, adjusted earnings from operations increased 25.5% to $48.6 million, compared to $38.7 million for the nine months ended November 3, 2018. Adjusted operating margin was 2.6% for the nine months ended November 2, 2019, an increase of 40 basis points compared to the same prior-year period, driven primarily by the favorable impact from higher initial markups in Europe and Americas Retail.

  • Operating margin for the Company’s Americas Retail segment increased 30 basis points to 1.0% in the first nine months of fiscal 2020, compared to 0.7% in the same prior-year period, driven primarily by the favorable impact from higher initial markups, partially offset by higher markdowns and wage pressures.
  • Operating margin for the Company’s Americas Wholesale segment increased 200 basis points to 19.0% in the first nine months of fiscal 2020, compared to 17.0% in the same prior-year period. The increase in operating margin was due primarily to higher initial markups, lower markdowns and overall leveraging of expenses.
  • Operating margin for the Company’s Europe segment increased 430 basis points to 6.6% in the first nine months of fiscal 2020, compared to 2.3% in the same prior-year period. This increase was driven primarily by higher initial markups, overall leveraging of expenses, lower markdowns and lower logistics costs.
  • Operating margin for the Company’s Asia segment deteriorated 720 basis points to negative 4.2% in the first nine months of fiscal 2020, from 3.0% in the same prior-year period, driven primarily by deleveraging of expenses due mainly to negative comparable sales and higher markdowns.
  • Operating margin for the Company’s Licensing segment decreased 150 basis points to 86.6% in the first nine months of fiscal 2020, from 88.1% in the same prior-year period.

Other expense, net, was $4.3 million for the first nine months of fiscal 2020, an improvement of $2.8 million, compared to $7.1 million in the same prior-year period. The improvement was due primarily to net unrealized gains on non-operating assets compared to unrealized losses in the same prior-year period and lower net unrealized mark-to-market revaluations losses on foreign currency balances, partially offset by our proportionate share of net losses related to our minority investment in a privately-held apparel company and lower net mark-to-market gains on revaluation of foreign exchange currency contracts.

Dividends

The Company’s Board of Directors has approved a quarterly cash dividend of $0.1125 per share on the Company’s common stock. The dividend will be payable on January 2, 2020 to shareholders of record at the close of business on December 11, 2019.

Outlook

The Company’s expectations and updated outlook for the fourth quarter and fiscal year ending February 1, 2020 are as follows:

Outlook for Total Company1

 

 

 

 

 

 

 

Fourth Quarter of Fiscal 2020

 

Fiscal Year 2020

 

 

 

 

 

Consolidated net revenue in U.S. dollars

 

increase between 1.0% and 2.0%

 

increase between 2.7% and 3.0%

 

 

 

 

 

Consolidated net revenue in constant currency2

 

increase between 2.5% and 3.5%

 

increase between 5.7% and 6.0%

 

 

 

 

 

GAAP operating margin

 

11.5% to 12.0%

 

5.2% to 5.4%

 

 

 

 

 

Adjusted operating margin3

 

11.5% to 12.0%

 

5.4% to 5.6%

 

 

 

 

 

Currency impact included in operating margin4

 

(20) basis points

 

(10) basis points

 

 

 

 

 

Cash interest expense, and amortization of debt issuance costs related to convertible senior notes

 

$1.7 million

 

$5.3 million

 

 

 

 

 

Amortization of debt discount related to convertible senior notes

 

$2.4 million

 

$7.5 million

 

 

 

 

 

Estimated diluted shares outstanding

 

66.3 million

 

71.4 million

 

 

 

 

 

GAAP EPS5

 

$1.04 to $1.09

 

$1.20 to $1.25

 

 

 

 

 

Adjusted EPS3,5

 

$1.07 to $1.12

 

$1.31 to $1.36

 

 

 

 

 

Currency impact included in EPS4

 

$(0.05)

 

$(0.06)

 

 

 

 

 

Estimated impact of convertible senior notes and share repurchases included in GAAP EPS6

 

$0.18

 

$0.05

 

 

 

 

Estimated impact of convertible senior notes and share repurchases included in adjusted EPS7

 

$0.21

 

$0.13

 
Notes:

1

The Company’s outlook for the fourth quarter and fiscal year ending February 1, 2020 assumes that foreign currency exchange rates remain at prevailing rates and includes the estimated impact of known tariffs on imports into the U.S.

2

Eliminates the impact of expected foreign currency translation to give investors a better understanding of the underlying trends within the business.

3

The guidance for adjusted operating margin and adjusted EPS for the fourth quarter and full fiscal year 2020 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.

5

EPS amounts for the sum of the quarters may not equal full year amounts due to differences in average common shares outstanding during each period as well as losses in individual quarters which are not allocated to participating security holders.

6

Represents the estimated net impact of share repurchases, cash interest expense, and amortization of debt discount and debt issuance costs (related to the $300 million convertible senior notes issued during the first quarter of fiscal 2020) on our GAAP EPS outlook.

7

Represents the estimated net impact of share repurchases, cash interest expense and amortization of debt issuance costs (related to the $300 million convertible senior notes issued during the first quarter of fiscal 2020) on our adjusted EPS outlook.

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 fourth quarter and fiscal year ending February 1, 2020 is as follows:

Reconciliation of GAAP Outlook to Adjusted Outlook

 

 

 

 

 

 

 

Fourth Quarter of
Fiscal 2020

 

Fiscal Year 2020

 

 

 

 

 

GAAP operating margin

 

11.5% to 12.0%

 

5.2% to 5.4%

Certain professional service and legal fees and related costs1

 

—%

 

0.0%

Asset impairment charges2

 

—%

 

0.2%

 

 

 

 

 

Adjusted operating margin

 

11.5% to 12.0%

 

5.4% to 5.6%

 

 

 

 

 

GAAP earnings per share

 

$1.04 to $1.09

 

$1.20 to $1.25

Certain professional service and legal fees and related costs1

 

$—

 

$(0.01)

Asset impairment charges2

 

$—

 

$0.06

Amortization of debt discount3

 

$0.03

 

$0.08

Adjustments to uncertain tax positions excluded in prior years4

 

$—

 

$(0.02)

 

 

 

 

 

Adjusted earnings per share

 

$1.07 to $1.12

 

$1.31 to $1.36

 
Notes:

1

Amounts for the full fiscal year include certain professional service and legal fees and related (credits) costs recognized during the nine months ended November 2, 2019 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.

2

Amounts for the full fiscal year include asset impairment charges for certain retail locations recognized during the nine months ended November 2, 2019 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 fourth quarter and full fiscal year represent amortization of the debt discount related to the $300 million convertible senior notes issued during the first quarter of fiscal 2020.

4

Amounts for the full fiscal year represent adjustments of uncertain tax positions during the nine months ended November 2, 2019 which related to items excluded from adjusted results in prior years. The adjusted results do not assume any other changes to specified uncertain tax positions as the Company’s current accrual reflects its best estimate of amounts that will eventually be realized.

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

 

 

 

 

 

 

 

 

 

 

 

Fourth Quarter of Fiscal 2020

 

Fiscal Year 2020

 

 

 

 

 

 

 

 

 

 

 

U.S. Dollars

 

Constant Currency2

 

U.S. Dollars

 

Constant Currency2

 

 

 

 

 

 

 

 

 

Americas Retail:

 

 

 

 

 

 

 

 

Comps

 

__

 

down MSD to LSD

 

__

 

down LSD to flat

Net Revenue

 

down MSD to LSD

 

down MSD to LSD

 

down LSD

 

down LSD

 

 

 

 

 

 

 

 

 

Americas Wholesale:

 

 

 

 

 

 

 

 

Net Revenue

 

down LSD

 

down LSD

 

up HSD

 

up HSD

 

 

 

 

 

 

 

 

 

Europe:

 

 

 

 

 

 

 

 

Comps

 

__

 

up LSD

 

__

 

up LSD

Net Revenue

 

up LDD

 

up mid-teens

 

up HSD

 

up low-teens

 

 

 

 

 

 

 

 

 

Asia:

 

 

 

 

Quelle: Business Wire



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