GUESS?, Inc. Reports Fourth Quarter Results and Provides Update to Its Strategic Plan

Reaffirms Plan to Deliver 10% Operating Margin by Fiscal 2025

Q4 Fiscal 2021 Revenues Decreased 23% to $648 Million; Decreased 26% in Constant Currency

Q4 Fiscal 2021 GAAP Earnings Per Share (“EPS”) of $1.07, Compared to GAAP EPS of $1.18 in Q4 Fiscal 2020; Q4 Fiscal 2021 Adjusted EPS of $1.18, Compared to $1.22 in Q4 Fiscal 2020

Fiscal Year 2021 Revenues Decreased 30% to $1.88 Billion; Decreased 31% in Constant Currency

Fiscal Year 2021 GAAP Loss Per Share of $1.27, Compared to GAAP EPS of $1.33 in Fiscal Year 2020; Fiscal Year 2021 Adjusted Loss Per Share of $0.07, Compared to Adjusted EPS of $1.45 in Fiscal Year 2020

LOS ANGELES–(BUSINESS WIRE)–Guess?, Inc. (NYSE: GES) today reported financial results for its fourth quarter and fiscal year ended January 30, 2021.

Carlos Alberini, Chief Executive Officer, commented, “I am very pleased with our fourth quarter earnings performance, which significantly exceeded our expectations, in spite of the difficult circumstances we continued to face due to the pandemic. Our earnings per share reached $1.07 versus $1.18 last year. During the period, we expanded gross margin and managed expenses tightly, which helped us to mitigate the anticipated revenue decrease. With this performance, we conclude a challenging but rewarding year for our Company. I could not be more grateful and proud of our teams all over the world for their great work leading our Company through these unprecedented times, controlling very well what was controllable, finding opportunities to transform our business and positioning Guess for an even brighter future.”

Mr. Alberini continued, “During the year, we made great progress executing our strategic plan and were able to accelerate the implementation of several key initiatives, including those related to customer centricity, elevating our brand, improving the quality of our product and developing one global product line. Today, we are updating our strategic plan and confirming our strong belief that our opportunities for market share gains, operating margin expansion and value creation remain intact. Furthermore, we are committed to delivering net revenues of $2.9 billion by fiscal year 2025 and an operating margin of 10% by that year. I am confident that we have an opportunity to more than double our earnings per share by fiscal year 2025 to $3.00 from $1.33 in fiscal 2020 and improve our return on invested capital to 26% in fiscal 2025 from 12% in fiscal 2020.”

Mr. Alberini concluded, “Our product line looks the best I have seen in all my years with Guess. The customer is responding very well to our assortments in our stores and in our digital business, which has accelerated quite nicely in the fourth quarter and further into this year. We have a great team, a strong business model and an amazing brand with remarkable momentum to gain share and grow profitably for many years to come.”

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 modifications, (iii) certain professional service, legal fees and related net credits, (iv) certain separation charges, (v) non-cash debt discount amortization on our convertible senior notes, (vi) the related tax effects of the foregoing items as well as the impact from changes in the tax law on deferred taxes in certain tax jurisdictions, net tax settlements and adjustments to specific uncertain income tax positions and (vii) certain discrete income tax adjustments, 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.

COVID-19 Fourth Quarter Business Update

The coronavirus (or “COVID-19”) pandemic has had and is continuing to have a material impact on the Company’s financial performance. During the fourth quarter of fiscal 2021, the Company continued to experience lower net revenue compared to the same prior-year period as it remained challenged by lower demand, temporary store closures and capacity restrictions. The Company partially offset these revenue declines by reducing its SG&A expenses for the quarter through expense savings. Toward the end of the third quarter of fiscal 2021, the Company started to incur a new round of government-mandated temporary store closures, mostly in Europe. While the number of temporarily closed stores ebbed and flowed during the quarter based on local conditions, the overall impact resulted in stores being closed for over 15% of the total days during the fourth quarter of fiscal 2021, primarily in Europe and Canada. As of January 30, 2021 over 70% of our stores were open, with the majority of closed stores located primarily in Europe and Canada. As of March 27, 2021 approximately 77% of our stores were open.

Fourth Quarter Fiscal 2021 Results

For the fourth quarter of fiscal 2021, the Company recorded GAAP net earnings of $70.4 million, an 11.5% decrease from $79.6 million for the fourth quarter of fiscal 2020. GAAP diluted earnings per share decreased 9.3% to $1.07 for the fourth quarter of fiscal 2021, compared to $1.18 for the same prior-year quarter. The Company estimates a positive impact from its share buybacks and currency of $0.06 and $0.13, respectively, on GAAP diluted earnings per share in the fourth quarter of fiscal 2021.

For the fourth quarter of fiscal 2021, the Company’s adjusted net earnings were $77.7 million, a 5.7% decrease from $82.3 million for the fourth quarter of fiscal 2020. Adjusted diluted earnings per share decreased 3.3% to $1.18, compared to $1.22 for the same prior-year quarter. The Company estimates that its share buybacks had a positive impact of $0.07 on adjusted diluted earnings per share in the fourth quarter of fiscal 2021.

Net Revenue. Total net revenue for the fourth quarter of fiscal 2021 decreased 23.0% to $648.5 million, from $842.3 million in the same prior-year quarter. In constant currency, net revenue decreased by 25.9%.

• Americas Retail revenues decreased 24.2% in U.S. dollars and 24.0% in constant currency. Retail comp sales including e-commerce decreased 15% in U.S. dollars and constant currency.
• Americas Wholesale revenues decreased 15.3% in U.S. dollars and 14.1% in constant currency.
• Europe revenues decreased 26.8% in U.S. dollars and 31.8% in constant currency. Retail comp sales including e-commerce increased 2% in U.S. dollars and decreased 5% in constant currency.
• Asia revenues decreased 16.2% in U.S. dollars and 20.7% in constant currency. Retail comp sales including e-commerce decreased 18% in U.S. dollars and 22% in constant currency.
• Licensing revenues increased 12.2% in U.S. dollars.

Earnings from Operations. GAAP earnings from operations for the fourth quarter of fiscal 2021 decreased 25.5% to $71.9 million (including $5.2 million in non-cash impairment charges taken on certain long-lived store related assets and a $2.6 million favorable currency translation impact), from $96.5 million in the same prior-year quarter. GAAP operating margin in the fourth quarter decreased 40 basis points to 11.1%, from 11.5% in the same prior-year quarter, driven primarily by overall deleveraging of expenses due to the negative impact from the COVID-19 pandemic on our revenues and global operations, partially offset by lower expenses. The negative impact of currency on operating margin for the quarter was approximately 30 basis points.

For the fourth quarter of fiscal 2021, adjusted earnings from operations decreased 27.0% to $74.2 million, from $101.7 million in the same prior-year quarter. Adjusted operating margin decreased 70 basis points to 11.4%, from 12.1% in the same prior-year quarter, driven primarily by overall deleveraging of expenses due to the negative impact from the COVID-19 pandemic on our revenues and global operations, partially offset by lower expenses.

• Operating margin for the Company’s Americas Retail segment increased 640 basis points to 12.8% in the fourth quarter of fiscal 2021, compared to 6.4% in the same prior-year quarter, driven primarily by lower store occupancy costs and store selling expenses and, to a lesser extent, lower markdowns, partially offset by the deleveraging impact of negative comp sales resulting from lower traffic as a result of the COVID-19 pandemic.
• Operating margin for the Company’s Americas Wholesale segment increased 390 basis points to 23.5% in the fourth quarter of fiscal 2021, compared to 19.6% in the same prior-year quarter, due mainly to higher selling prices and reduced sales discounts and allowances.
• Operating margin for the Company’s Europe segment decreased 620 basis points to 12.7% in the fourth quarter of fiscal 2021, from 18.9% in the same prior-year quarter, driven primarily by overall deleveraging of expenses due to lower revenue as a result of the COVID-19 pandemic as well as the timing shift of wholesale shipments into the first quarter of fiscal 2022, partially offset by the favorable impact of higher initial markups, government subsidies and rent concessions.
• Operating margin for the Company’s Asia segment increased 340 basis points to 5.0% in the fourth quarter of fiscal 2021, compared to 1.6% in the same prior-year quarter, due mainly to lower expenses, partially offset by the unfavorable impact of deleverage.
• Operating margin for the Company’s Licensing segment increased 820 basis points to 95.3% in the fourth quarter of fiscal 2021, compared to 87.1% in the same prior-year quarter, due to lower expenses.

Other income, net, was $14.6 million for the fourth quarter of fiscal 2021, compared to $1.8 million in the same prior-year quarter. The change was driven primarily by market volatility which resulted in net unrealized gains on the translation of foreign currency balances, compared to net unrealized losses in the same prior-year quarter.

Full Fiscal Year Results

For the fiscal year ended January 30, 2021, the Company recorded GAAP net loss of $81.2 million, compared to GAAP net earnings of $96.0 million for the fiscal year ended February 1, 2020. GAAP diluted loss per share was $1.27 for the fiscal year ended January 30, 2021, compared to GAAP earnings per share of $1.33 during the prior year. The Company estimates a net negative impact from its share buybacks and its prior year convertible notes transaction and currency of $0.19 and $0.04, respectively, on GAAP diluted loss per share for the fiscal year ended January 30, 2021.

For the fiscal year ended January 30, 2021, the Company recorded adjusted net loss of $4.5 million, compared to adjusted net earnings of $105.0 million for the fiscal year ended February 1, 2020. Adjusted diluted loss per share was $0.07, compared to adjusted earnings per share of $1.45 during the prior year. The Company estimates that its share buybacks and its prior year convertible notes transaction had a net negative impact of $0.02 on adjusted diluted loss per share during the fiscal year ended January 30, 2021.

Net Revenue. Total net revenue for fiscal 2021 decreased 29.9% to $1.88 billion, from $2.68 billion in the prior year. In constant currency, net revenue decreased by 31.0%.

• Americas Retail revenues decreased 37.1% in U.S. dollars and 36.7% in constant currency.
• Americas Wholesale revenues decreased 36.9% in U.S. dollars and 34.8% in constant currency.
• Europe revenues decreased 24.6% in U.S. dollars and 27.2% in constant currency.
• Asia revenues decreased 32.8% in U.S. dollars and 33.8% in constant currency.
• Licensing revenues decreased 13.8% in U.S. dollars.

Earnings (Loss) from Operations. GAAP loss from operations for fiscal 2021 was $60.5 million (including $80.4 million in non-cash impairment charges taken on certain long-lived store related assets and a $9.3 million favorable currency translation impact), compared to GAAP earnings from operations of $140.7 million in the prior year. GAAP operating margin in fiscal 2021 decreased 850 basis points to negative 3.2%, from 5.3% in the prior year, driven primarily by overall deleveraging of expenses and higher asset impairment charges due to the negative impact from the COVID-19 pandemic on our revenues and global operations. The positive impact of currency on operating margin for fiscal 2021 was approximately 20 basis points.

For the fiscal year ended January 30, 2021, adjusted earnings from operations was $20.0 million, compared to $150.2 million for the fiscal year ended February 1, 2020. Adjusted operating margin decreased 460 basis points to 1.0% for the fiscal year ended January 30, 2021, from 5.6% in the prior year, driven primarily by overall deleveraging of expenses due to the negative impact from the COVID-19 pandemic on our revenues and global operations.

• Operating margin for the Company’s Americas Retail segment decreased 580 basis points to negative 3.1% in fiscal 2021, from 2.7% in the prior year, driven primarily by the deleveraging impact of temporary store closures and lower traffic as a result of the COVID-19 pandemic, partially offset by lower store selling expenses and lower occupancy costs.
• Operating margin for the Company’s Americas Wholesale segment decreased 220 basis points to 16.9% in fiscal 2021, from 19.1% in the prior year, due mainly to the negative impact from the COVID-19 pandemic on our revenues which resulted in overall deleveraging of expenses.
• Operating margin for the Company’s Europe segment decreased 360 basis points to 7.1% in fiscal 2021, from 10.7% in the prior year, driven primarily by overall deleveraging of expenses due to lower revenue as a result of the COVID-19 pandemic, partially offset by the favorable impact of higher initial markups, rent concessions and government subsidies.
• Operating margin for the Company’s Asia segment decreased 6.3% to negative 8.9% in fiscal 2021, from negative 2.6% in the prior year, due mainly to the negative impact from the COVID-19 pandemic which resulted in significantly higher inventory reserves and overall deleveraging of expenses.
• Operating margin for the Company’s Licensing segment increased 510 basis points to 91.8% in fiscal 2021, from 86.7% in the prior year, due to lower expenses.

Other expense, net, was $6.0 million for fiscal 2021, compared to $2.5 million in the prior year. The change was due primarily to net mark-to-market losses on revaluation of foreign exchange currency contracts, compared to gains in the prior year.

Outlook

Given the current circumstances regarding the COVID-19 crisis and its uncertain impact on our operations, we are not providing detailed guidance for the first quarter or the full fiscal year ending January 29, 2022. We expect revenues in the first quarter of fiscal 2022 to be down in the high-single digits versus the first quarter of fiscal 2020 as pandemic-related shutdowns and traffic declines are partially offset by continued momentum in our global e-commerce business and the favorable timing shift of European wholesale shipments from the fourth quarter of fiscal 2021 into the first quarter of fiscal 2022. For the full fiscal year 2022, assuming no COVID-related shutdowns past the first quarter, we expect revenues to be down in the high single digits versus fiscal 2020. The expectation for the full year also assumes a return to a normal cadence of product development and shipments for our European wholesale business. These comparisons are both versus the pre-pandemic periods from two fiscal years prior, in order to provide a more normalized comparison.

Fiscal 2025 Strategic Plan Update

The five-year strategic plan that the Company presented in December 2019 continues to be a solid roadmap for revenue growth, increased profitability and value creation. The six key strategic pillars the Company identified remain at the core of its strategy, and the Company has made solid progress on initiatives across each of them amid the pandemic in fiscal 2021. The key strategic pillars include organization and culture, brand relevancy, product excellence, customer centricity, global footprint and functional capabilities. The Company’s financial plan is to achieve an operating margin of 10% by fiscal 2025, with net revenues of $2.9 billion, a 2% CAGR from fiscal 2020.

Please refer to the Company’s presentation materials (to be posted concurrently with the issuance of this earnings release) available at www.guess.com via the “Investor Relations” link. Those listening to today’s investor conference call are encouraged to refer to the presentation materials during the call.

Dividend

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 April 30, 2021 to shareholders of record as of the close of business on April 14, 2021.

Presentation of Non-GAAP Information

The financial information presented in this release includes non-GAAP financial measures such as adjusted results, constant currency financial information, free cash flows and return on invested capital. For the three months and fiscal year ended January 30, 2021, the adjusted results exclude the impact of certain professional service, legal fees and related (credits) costs, certain separation charges, asset impairment charges, net gains on lease modifications, non-cash amortization of debt discount on the Company’s convertible senior notes, the related income tax impacts of these adjustments as well as certain discrete income tax adjustments, where applicable. For the three months and fiscal year ended February 1, 2020, the adjusted results exclude the impact of certain professional service, legal fees and related (credits) costs, separation charges related to the departure of our former CEO, asset impairment charges, non-cash amortization of debt discount on the Company’s convertible senior notes, and the related income tax impacts of these adjustments as well as the impact from changes in the tax law on deferred taxes in certain tax jurisdictions, net tax settlements and adjustments to specific uncertain tax positions, where applicable. These non-GAAP measures are provided in addition to, and not as alternatives for, the Company’s reported GAAP results.

The Company has excluded these items from its adjusted financial measures primarily because it believes these items are not indicative of the underlying performance of its business and that the adjusted financial information provided is useful for investors to evaluate the comparability of the Company’s operating results and its future outlook (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.

This release also includes certain constant currency financial information. Foreign currency exchange rate fluctuations affect the amount reported from translating the Company’s foreign revenue, expenses and balance sheet amounts 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 enhance the visibility of underlying business trends, excluding the effects of changes in foreign currency translation rates. To calculate net revenue and earnings (loss) from operations on a constant currency basis, actual or forecasted results for the current-year period 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 from the functional currency of that entity when exchange rates fluctuate. However, in calculating the estimated impact of currency on our earnings (loss) per share for our actual or forecasted results, the Company estimates gross margin (including the impact of merchandise-related hedges) and expenses using the appropriate prior-year rates, translates the estimated foreign earnings at the comparable prior-year rates, and excludes the year-over-year earnings impact of gains or losses arising from balance sheet remeasurement and foreign currency contracts not designated as merchandise hedges. The constant currency information presented may not be comparable to similarly titled measures reported by other companies.

The Company also includes information regarding its free cash flows in this release. The Company calculates free cash flows as cash flows from operating activities less (i) purchases of property and equipment and (ii) payments for property and equipment under finance leases. Free cash flows are not intended to be an alternative to cash flows from operating activities as a measure of liquidity, but rather to provide additional visibility to investors regarding how much cash is generated for discretionary and non-discretionary items after deducting purchases of property and equipment and payments for property and equipment under finance leases. Free cash flow information presented may not be comparable to similarly titled measures reported by other companies. A reconciliation of reported GAAP cash flows from operating activities to the comparable non-GAAP free cash flow measure is provided in the accompanying tables.

The Company also includes information regarding its return on invested capital (or “ROIC”) in this release. The Company defines ROIC as adjusted net operating profit after taxes divided by two-year average invested capital. The Company believes that ROIC is a useful financial measure for investors in evaluating how efficiently the Company deploys its capital. The Company’s method of calculating ROIC may differ from other companies’ methods and therefore might not be comparable.

Investor Conference Call

The Company will hold a conference call at 4:45 pm (ET) on March 31, 2021 to discuss the news announced in this press release and to provide an update to its strategic plan. A live webcast of the conference call and related presentation materials (to be posted concurrently with the issuance of this earnings release) will be accessible at www.guess.com via the “Investor Relations” link. The webcast and related presentation materials will also be archived on the website.

About Guess?

Guess?, Inc. designs, markets, distributes and licenses a lifestyle collection of contemporary apparel, denim, handbags, watches, eyewear, 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 January 30, 2021, the Company directly operated 1,046 retail stores in the Americas, Europe and Asia. The Company’s partners and distributors operated 524 additional retail stores worldwide. As of January 30, 2021, the Company and its partners and distributors operated in approximately 100 countries worldwide. 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 or the related conference call and webcast, including statements concerning the potential actions and impacts related to the COVID-19 pandemic; statements concerning the Company’s future outlook, including with respect to the first quarter and full year of fiscal 2022 and the Company’s fiscal 2025 strategic plan; statements concerning the Company’s expectations, goals, future prospects, global cost reduction opportunities and profitability efforts, capital allocation plans, cash needs and current business strategies and strategic initiatives; and statements expressing optimism or pessimism about future operating results, growth opportunities, earnings, and operating margins are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Contacts

Guess?, Inc.

Fabrice Benarouche

VP, Finance and Investor Relations

(213) 765-5578

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