Q1 Fiscal 2019 Revenues Increased 15% to $521 Million; Increased 8% in Constant Currency

Q1 Fiscal 2019 GAAP Net Loss Per Share of $0.27, Compared to $0.26 in Q1 Fiscal 2018; Q1 Fiscal 2019 Adjusted Loss Per Share of $0.23, Compared to $0.24 in Q1 Fiscal 2018

LOS ANGELES--(BUSINESS WIRE)--May 30, 2018-- Guess?, Inc. (NYSE: GES) today reported financial results for its first quarter ended May 5, 2018.

Victor Herrero, Chief Executive Officer, commented, “I am pleased to report that our first quarter results finished above the high-end of our expectations for revenues, adjusted operating margin and adjusted earnings per share. Overall, the Company revenues increased 15% in U.S. dollars and 8% in constant currency, driven by continued momentum in Europe and Asia. We were also able to expand the Company’s operating margin, despite cost pressures related to our transition to our new distribution center in Europe. Operating margin in Asia improved by 430 basis points as we continue to leverage our infrastructure investments in China and Japan. Turning to the Americas, I am especially proud of the work that has been accomplished in retail where we ended the quarter with positive comps while being significantly less promotional. This translated into a 910 basis point improvement in operating margin for the Americas Retail segment.”

Mr. Herrero concluded, “Overall, I am very excited by the continued momentum, as the first quarter marks the seventh consecutive quarter of revenue growth for the Company. For me, it speaks to the global strength and potential of the Guess brand. More than ever, we remain focused on executing our strategic initiatives that have been the pillars of our revenue and profit growth.”

This press release contains certain non-GAAP, or adjusted, financial measures. References to “adjusted” results exclude the impact of (i) net gains on lease terminations, (ii) asset impairment charges, (iii) certain professional service and legal fees and related costs and (iv) the related tax effects of these adjustments, 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.

First Quarter Fiscal 2019 Results

For the first quarter of fiscal 2019, the Company recorded GAAP net loss of $21.2 million, a 0.3% improvement compared to $21.3 million for the first quarter of fiscal 2018. GAAP diluted loss per share deteriorated 3.8% to $0.27 for the first quarter of fiscal 2019, from $0.26 for the prior-year quarter. The Company estimates that currency had a negative impact on diluted loss per share of $0.03 in the first quarter of fiscal 2019.

For the first quarter of fiscal 2019, the Company recorded adjusted net loss of $17.8 million, a 7.9% improvement compared to $19.4 million for the first quarter of fiscal 2018. Adjusted diluted loss per share improved 4.2% to $0.23, compared to $0.24 for the prior-year quarter.

Net Revenue. Total net revenue for the first quarter of fiscal 2019 increased 14.7% to $521.3 million, compared to $454.3 million in the prior-year quarter. In constant currency, net revenue increased by 7.7%.

• Americas Retail revenues decreased 1.4% in U.S. dollars and 2.1% in constant currency. Retail comp sales including e-commerce increased 2% in U.S. dollars and 1% in constant currency.
• Americas Wholesale revenues increased 13.4% in U.S. dollars and 11.3% in constant currency.
• Europe revenues increased 24.2% in U.S. dollars and 9.1% in constant currency. Retail comp sales including e-commerce increased 15% in U.S. dollars and 1% in constant currency.
• Asia revenues increased 32.6% in U.S. dollars and 25.1% in constant currency. Retail comp sales including e-commerce increased 22% in U.S. dollars and 15% in constant currency.
• Licensing revenues increased 23.5% in U.S. dollars and constant currency.

Operating Loss. GAAP operating loss for the first quarter of fiscal 2019 improved 0.3% to $24.9 million (including a $4.0 million unfavorable currency translation impact), compared to $25.0 million in the prior-year quarter. GAAP operating margin in the first quarter improved 70 basis points to negative 4.8%, compared to negative 5.5% in the prior-year quarter, driven primarily by segment mix and lower markdowns in Americas Retail, partially offset by higher distribution costs resulting from the relocation of the Company’s European distribution center and certain professional service and legal fees and related costs. The negative impact of currency on operating margin for the quarter was approximately 30 basis points.

For the first quarter of fiscal 2019, adjusted operating loss improved 7.8% to $20.5 million, compared to $22.2 million in the same prior-year quarter. Adjusted operating margin was negative 3.9%, an improvement of 100 basis points compared to the same prior-year quarter, driven primarily by segment mix and lower markdowns in Americas Retail, partially offset by higher distribution costs resulting from the relocation of the Company’s European distribution center.

• Operating margin for the Company’s Americas Retail segment improved 910 basis points to negative 3.3% in the first quarter of fiscal 2019, compared to negative 12.4% in the prior-year quarter, driven primarily by the favorable impact from lower markdowns, negotiated rent reductions and higher initial markups.
• Operating margin for the Company’s Americas Wholesale segment decreased 470 basis points to 14.8% in the first quarter of fiscal 2019, from 19.5% in the prior-year quarter, due primarily to lower gross margins.
• Operating margin for the Company’s Europe segment decreased 930 basis points to negative 9.9% in the first quarter of fiscal 2019, from negative 0.6% in the prior-year quarter, driven primarily by higher distribution costs resulting from the relocation of the Company’s European distribution center.
• Operating margin for the Company’s Asia segment increased 430 basis points to 4.8% in the first quarter of fiscal 2019, compared to 0.5% in the prior-year quarter, driven primarily by higher gross margins due mainly to overall leveraging of expenses and higher overall product margins driven primarily by product mix.
• Operating margin for the Company’s Licensing segment increased 440 basis points to 88.4% in the first quarter of fiscal 2019, compared to 84.0% in the prior-year quarter.

Other net expense was $2.6 million for the first quarter of fiscal 2019, which primarily includes net unrealized mark-to-market revaluation losses on foreign currency balances and unrealized losses on non-operating assets, partially offset by net unrealized mark-to-market revaluation gains on foreign exchange currency contracts, compared to other net income of $1.9 million in the prior-year quarter.

Segment Reclassifications

During the first quarter of fiscal 2019, the Company changed the segment accountability for funds received from licensees on the Company’s purchases of its licensed products. These amounts were treated as a reduction of cost of product sales within the Licensing segment but now are considered in the results of the segments that control the respective purchases for purposes of segment performance evaluation. This change is consistent with how the management team now evaluates overall business strategy, allocates resources and assesses performance of the Company. There has been no change to total segment earnings (loss) from operations as a result of this reclassification. This reclassification increased the segment quarterly operating profits for fiscal 2018 by approximately $2 million for Americas Retail; minimal for Americas Wholesale; $2 million for Europe; minimal for Asia and reduced Licensing by approximately $5 million per quarter.

In addition, during the first quarter of fiscal 2019, the Company adopted new authoritative guidance which requires that the non-service components of net periodic defined benefit pension cost be presented outside of earnings (loss) from operations. This guidance required retrospective adoption, and as a result, the Company reclassified approximately $0.5 million in total costs from earnings (loss) from operations per quarter from within the Europe and Asia segments and corporate overhead into other income (expense).

For comparative purposes, segment earnings (loss) from operations for each of the quarters in fiscal 2018 have been restated to conform to the current presentation and are presented below (in thousands):

						Three Months Ended																Year Ended
						April 29, 2017				July 29, 2017				October 28, 2017				February 3, 2018				February 3, 2018
Earnings (loss) from operations:
	Americas Retail					$	(21,581	)		$	(3,555	)		$	(2,414	)		$	16,454			$	(11,096	)
	Americas Wholesale					6,983				5,238				8,562				5,062				25,845
	Europe					(1,006		)		30,058				9,095				56,398				94,545
	Asia					339				2,441				2,954				9,075				14,809
	Licensing					13,461				14,389				18,347				17,341				63,538
	Total segment earnings (loss) from operations					(1,804		)		48,571				36,544				104,330				187,641
	Corporate overhead					(20,409		)		(23,551		)		(23,443		)		(33,031		)		(100,434		)
	Net gains (losses) on lease terminations					—				—				(11,494		)		121				(11,373		)
	Asset impairment charges					(2,762		)		(1,233		)		(2,018		)		(2,466		)		(8,479		)
	Total earnings (loss) from operations					$	(24,975	)		$	23,787			$	(411	)		$	68,954			$	67,355

Impact from Adoption of New Revenue Recognition Standard

The Company also adopted a comprehensive new revenue recognition standard during the first quarter of fiscal 2019 under a modified retrospective method that does not restate prior periods to be comparable to the current period presentation. The adoption of this guidance primarily impacted the presentation of advertising contributions received from the Company’s licensees and the related advertising expenditures incurred by the Company. Under previous guidance, the Company recorded advertising contributions received from its licensees and the related advertising expenditures incurred by the Company on a net basis in its consolidated balance sheet. To the extent that the advertising contributions exceeded the Company’s advertising expenditures for its licensees, the excess contribution was treated as a deferred liability and was included in accrued expenses in the Company’s consolidated balance sheet. Under the new revenue recognition standard, advertising contributions and related advertising expenditures related to the Company’s licensing business are recorded on a gross basis. This resulted in an increase in net royalty revenue within the Company’s Licensing segment of approximately $2.3 million for the quarter, as well as an increase in selling, general and administrative expenses in our Licensing, Americas Retail and Americas Wholesale segments and corporate overhead of $0.2 million, $1.8 million, $0.7 million and $0.6 million, respectively during the three months ended May 5, 2018 compared to the same prior-year period. The net impact was approximately $1.0 million reduction in earnings (loss) from operations for the three months ended May 5, 2018.

Dividends

The Company’s Board of Directors has approved a quarterly cash dividend of $0.225 per share on the Company’s common stock. The dividend will be payable on June 29, 2018 to shareholders of record at the close of business on June 13, 2018.

Outlook

The Company’s expectations for the second quarter ending August 4, 2018 and its updated outlook for the fiscal year ending February 2, 2019 are as follows:

Outlook for Total Company1
		Second Quarter of Fiscal 2019		Fiscal Year 2019
Consolidated net revenue in U.S. dollars		increase between 14.0% and 15.5%		increase between 8.5% and 9.5%
Consolidated net revenue in constant currency2		increase between 11.0% and 12.5%		increase between 6.5% and 7.5%
GAAP operating margin		5.0% to 5.5%		4.1% to 4.5%
Adjusted operating margin3		5.0% to 5.5%		4.2% to 4.6%
Currency impact included in operating margin4		60 basis points		10 basis points
GAAP EPS		$0.27 to $0.30		$0.84 to $0.95
Adjusted EPS3		$0.27 to $0.30		$0.88 to $0.99
Currency impact included in EPS4		$0.08		$0.10
Notes:
1The Company’s outlook for the second quarter ending August 4, 2018 and the fiscal year ending February 2, 2019 assumes that foreign currency exchange rates remain at prevailing rates.
2Eliminates the impact of expected foreign currency translation to give investors a better understanding of the underlying trends within the business.
3The adjusted operating margin and adjusted EPS guidance for the fiscal year 2019 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.
4Represents the estimated translational and transactional gains (losses) of foreign currency rate fluctuations within operating margin and EPS measures presented.

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 second quarter ending August 4, 2018 and the fiscal year ending February 2, 2019 is as follows:

Reconciliation of GAAP Outlook to Adjusted Outlook
		Second Quarter of Fiscal 2019		Fiscal Year 2019
GAAP operating margin		5.0% to 5.5%		4.1% to 4.5%
Net gains on lease terminations1		—		0.0%
Asset impairment charges2		—		0.0%
Certain professional service and legal fees and related costs3		—		0.1%
Adjusted operating margin		5.0% to 5.5%		4.2% to 4.6%
GAAP earnings per share		$0.27 to $0.30		$0.84 to $0.95
Net gains on lease terminations1		—		$0.00
Asset impairment charges2		—		$0.01
Certain professional service and legal fees and related costs3		—		$0.03
Adjusted earnings per share		$0.27 to $0.30		$0.88 to $0.99
Notes:
1Amounts for the full fiscal year include net gains on lease terminations recorded during the first quarter of fiscal 2019 related primarily to the early termination of certain lease agreements in North America. The adjusted results do not assume any additional gains (losses) from lease terminations as the timing and exact amount of any future charges, if any, are not known.
2Amounts for the full fiscal year include asset impairment charges for certain retail locations recognized during the first quarter of fiscal 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.
3Amounts for the full fiscal year include certain professional service and legal fees and related costs recognized during the first quarter of fiscal 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.

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
		Second Quarter of Fiscal 2019				Fiscal Year 2019
		U.S. Dollars		Constant Currency2		U.S. Dollars		Constant Currency2
Americas Retail:
Comps		__		flat to up LSD		__		down LSD to up LSD
Net Revenue		down LSD		down LSD		down MSD to LSD		down MSD to LSD
Americas Wholesale:
Net Revenue		up MSD		up MSD		up MSD		up MSD
Europe:
Comps		__		up LSD		__		up LSD
Net Revenue		up mid-twenties		up low-twenties		up mid-teens		up low-teens
Asia:
Comps		__		up low-teens to mid-teens		__		up mid-teens
Net Revenue		up low thirties		up mid-twenties		up mid-twenties		up low-twenties
Licensing:
Net Revenue3		up HSD		__		up MSD		__
Notes:
1As used in the table above, “LSD” is used to refer to the range of Low-Single-Digits, “MSD” is used to refer to the range of Mid-Single-Digits, “HSD” is used to refer to the range of High-Single-Digits, and “LDD” is used to refer to the range of Low-Double-Digits.
2Eliminates the impact of expected foreign currency translation to give investors a better understanding of the underlying trends within the business.
3Our outlook includes the impacts of changes resulting from the prospective adoption of the revenue accounting standard in the first quarter of fiscal 2019. Excluding this impact, our guidance for Licensing net revenue would have been down in the low-single digits in the second quarter of fiscal 2019 and down in the mid-single digits for fiscal year 2019.

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 and free cash flow measures. For the three months ended May 5, 2018, the adjusted results exclude the impact of net gains on lease terminations, asset impairment charges, certain professional service and legal fees and related costs, and the tax effects of these adjustments, where applicable. For the three months ended April 29, 2017, the adjusted results exclude the impact of asset impairment charges and the related tax impact, 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, comparable sales 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 to 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 and 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 capital leases. Free cash flows is not intended to be an alternative to cash flows from operating activities as a measure of liquidity, but rather provides 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 capital 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.

Investor Conference Call

The Company will hold a conference call at 4:45 pm (ET) on May 30, 2018 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 May 5, 2018, the Company directly operated 1,020 retail stores in the Americas, Europe and Asia. The Company’s licensees and distributors operated 624 additional retail stores worldwide. As of May 5, 2018, the Company and its licensees 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 Company’s expectations, future prospects, business strategies and strategic initiatives; statements expressing optimism or pessimism about future operating results or events and projected sales (including comparable sales), earnings, capital expenditures, operating margins, cost savings and cash needs; and guidance for the second quarter and full year of fiscal 2019, 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,” “should,” “goal,” “strategy,” “believe,” “estimate,” “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 and adapt to changing consumer preferences and trends; our ability to manage our inventory commensurate with customer demand; risks related to the timing and costs of delivering merchandise to our stores and our wholesale customers; unexpected or unseasonable weather conditions; our ability to effectively operate our various retail concepts, including securing, renewing, modifying or terminating leases for store locations; our ability to successfully and/or timely implement our growth strategies and other strategic initiatives; our ability to expand internationally and operate in regions where we have less experience, including through joint ventures; our ability to successfully or timely implement plans for cost reductions; our ability to complete the transfer of our European distribution center without incurring additional shipment delays and/or increased costs; our ability to attract and retain key personnel; changes to our short or long-term strategic initiatives; obligations arising from new or existing litigation, tax and other regulatory proceedings (including the European Commission proceeding initiated during the second quarter of fiscal 2018 to investigate whether the Company breached certain European Union competition rules); risks related to the complexity of the Tax Reform and our ability to accurately interpret and predict its impact on our cash flows and financial condition; significant changes in our provisional estimates of the Tax Reform,changes in U.S. or foreign tax or tariff policy including with respect to apparel and other accessory merchandise; accounting adjustments identified after issuance of this release; risk of future store asset and/or goodwill impairments or restructuring charges; our ability to adapt to new regulatory compliance and disclosure obligations; 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 (including global data privacy regulations); risks associated with the acts or omissions of our third party vendors, including a failure to comply with our vendor code of conduct or other policies; risks associated with cyber attacks and other cyber security risks; and changes in economic, political, social and other conditions affecting our foreign operations and sourcing, including the impact of currency fluctuations, global tax rates and economic and market conditions in the various countries in which we operate. 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 current global economic climate and uncertainty surrounding potential changes in U.S. policies and regulations under the new administration may amplify many of these risks. 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.

Guess?, Inc. and Subsidiaries
Condensed Consolidated Statements of Loss
(amounts in thousands, except per share data)
				Three Months Ended
				May 5, 2018							April 29, 2017
				$				%			$				%1
Product sales				$	501,505			96.2	%		$	438,320			96.5	%
Net royalties1				19,784				3.8	%		16,025				3.5	%
Net revenue1				521,289				100.0	%		454,345				100.0	%
Cost of product sales1				347,351				66.6	%		309,703				68.2	%
Gross profit				173,938				33.4	%		144,642				31.8	%
Selling, general and administrative expenses2				198,219				38.0	%		166,855				36.7	%
Net gains on lease terminations				(152		)		(0.0	%)		—				0.0	%
Asset impairment charges				759				0.2	%		2,762				0.6	%
Loss from operations2				(24,888		)		(4.8	%)		(24,975		)		(5.5	%)
Other income (expense):
	Interest expense			(739		)		(0.1	%)		(414		)		(0.1	%)
	Interest income			977				0.2	%		871				0.2	%
	Other income (expense), net2			(2,614		)		(0.5	%)		1,888				0.4	%
Loss before income tax benefit				(27,264		)		(5.2	%)		(22,630		)		(5.0	%)
Income tax benefit				(6,277		)		(1.2	%)		(1,403		)		(0.3	%)
Net loss				(20,987		)		(4.0	%)		(21,227		)		(4.7	%)
Net earnings attributable to noncontrolling interests				234				0.1	%		66				0.0	%
Net loss attributable to Guess?, Inc.				$	(21,221	)		(4.1	%)		$	(21,293	)		(4.7	%)
Net loss per common share attributable to common stockholders:
	Basic			$	(0.27	)					$	(0.26	)
	Diluted			$	(0.27	)					$	(0.26	)
Weighted average common shares outstanding attributable to common stockholders:
	Basic			79,901							83,010
	Diluted			79,901							83,010
Effective tax rate				23.0		%					6.2		%
Adjusted selling, general and administrative expenses2,3:				$	194,410			37.3	%		$	166,855			36.7	%
Adjusted loss from operations2,3:				$	(20,472	)		(3.9	%)		$	(22,213	)		(4.9	%)
Adjusted net loss attributable to Guess?, Inc.3:				$	(17,831	)		(3.4	%)		$	(19,351	)		(4.3	%)
Adjusted diluted loss per common share attributable to common stockholders3:				$	(0.23	)					$	(0.24	)
Adjusted effective tax rate3:				23.0		%					2.9		%
Notes:
1During the fourth quarter of fiscal 2018, the Company reclassified net royalties received on the Company’s inventory purchases of licensed product from net revenue to cost of product sales to reflect its treatment as a reduction of the cost of such licensed product. Accordingly, amounts related to net royalties, net revenue and cost of product sales for the three months ended April 29, 2017 have been adjusted to conform to the current period presentation. This reclassification had no impact on previously reported loss from operations, net loss or net loss per share.
2During the first quarter of fiscal 2019, the Company adopted new authoritative guidance which requires that the non-service components of net periodic defined benefit pension cost be presented outside of earnings (loss) from operations. Accordingly, the Company reclassified approximately $0.5 million from selling, general and administrative expenses to other income (expense), net for the three months ended April 29, 2017 to conform to the current period presentation. This reclassification had no impact on previously reported net loss or net loss per share.
3The adjusted results for the three months ended May 5, 2018 reflect the exclusion of net gains on lease terminations, asset impairment charges, certain professional service and legal fees and related costs, and the related tax impacts that were recorded, where applicable. The adjusted results for the three months ended April 29, 2017 reflect the exclusion of asset impairment charges and the related tax impact, where applicable. A complete reconciliation of actual results to adjusted results is presented in the table entitled “Reconciliation of GAAP Results to Adjusted Results.”

Guess?, Inc. and Subsidiaries
Reconciliation of GAAP Results to Adjusted Results
(dollars in thousands)
The following table provides reconciliations of reported GAAP selling, general and administrative expenses to adjusted selling, general and administrative expenses, reported GAAP loss from operations to adjusted loss from operations, reported GAAP net loss attributable to Guess?, Inc. to adjusted net loss attributable to Guess?, Inc. and reported GAAP income tax benefit to adjusted income tax benefit for the three months ended May 5, 2018 and April 29, 2017.
					Three Months Ended
					May 5, 2018						April 29, 2017
					$			% of Net Revenue			$			% of Net Revenue1
Reported GAAP selling, general and administrative expenses					$	198,219		38.0	%		$	166,855		36.7	%
Certain professional service and legal fees and related costs2					(3,809		)				—
Adjusted selling, general and administrative expenses					$	194,410		37.3	%		$	166,855		36.7	%
Reported GAAP loss from operations					$	(24,888	)	(4.8	%)		$	(24,975	)	(5.5	%)
Net gains on lease terminations3					(152		)				—
Asset impairment charges4					759						2,762
Certain professional service and legal fees and related costs2					3,809						—
Adjusted loss from operations					$	(20,472	)	(3.9	%)		$	(22,213	)	(4.9	%)
Reported GAAP net loss attributable to Guess?, Inc.					$	(21,221	)	(4.1	%)		$	(21,293	)	(4.7	%)
Net gains on lease terminations3					(152		)				—
Asset impairment charges4					759						2,762
Certain professional service and legal fees and related costs2					3,809						—
Income tax adjustments5					(1,026		)				(820		)
Total adjustments affecting net loss attributable to Guess?, Inc.					3,390						1,942
Adjusted net loss attributable to Guess?, Inc.					$	(17,831	)	(3.4	%)		$	(19,351	)	(4.3	%)
Reported GAAP income tax benefit					$	(6,277	)				$	(1,403	)
Income tax adjustments5					1,026						820
Adjusted income tax benefit					$	(5,251	)				$	(583	)
Adjusted effective tax rate					23.0		%				2.9		%
Notes:
1During the fourth quarter of fiscal 2018, the Company reclassified net royalties received on the Company’s inventory purchases of licensed product from net revenue to cost of product sales to reflect its treatment as a reduction of the cost of such licensed product. Accordingly, operating results as a percentage of net revenue for the three months ended April 29, 2017 have been adjusted to conform to the current period presentation.
2During the three months ended May 5, 2018, the Company recorded certain professional service and legal fees and related costs, which it otherwise would not have incurred as part of its business operations.
3During the three months ended May 5, 2018, the Company recorded net gains on lease terminations related primarily to the early termination of certain lease agreements in North America.
4During the three months ended May 5, 2018 and April 29, 2017, the Company recognized asset impairment charges for certain retail locations resulting from under-performance and expected store closures.
5The income tax effect of the net gains on lease terminations, asset impairment charges and certain professional service and legal fees and related costs was based on the Company’s assessment of deductibility using the statutory tax rate (inclusive of the impact of valuation allowances) of the tax jurisdiction in which the charges were incurred.

Guess?, Inc. and Subsidiaries
Consolidated Segment Data
(dollars in thousands)
						Three Months Ended
						May 5,				April 29,				%
						2018				2017				change
Net revenue:
Americas Retail						$	171,340			$	173,694			(1%)
Americas Wholesale						40,679				35,857				13%
Europe						205,435				165,388				24%
Asia						84,051				63,381				33%
Licensing1						19,784				16,025				23%
Total net revenue1						$	521,289			$	454,345			15%
Earnings (loss) from operations:
Americas Retail2,3						$	(5,680	)		$	(21,581	)		74%
Americas Wholesale2,3						6,026				6,983				(14%)
Europe2,3,4						(20,333		)		(1,006		)		(1,921%)
Asia2,3						4,065				339				1,099%
Licensing2,3						17,486				13,461				30%
Total segment earnings (loss) from operations4						1,564				(1,804		)		187%
Corporate overhead2,4						(25,845		)		(20,409		)		27%
Net gains on lease terminations2						152				—
Asset impairment charges2						(759		)		(2,762		)
Total loss from operations4						$	(24,888	)		$	(24,975	)		0%
Operating margins:
Americas Retail2,3						(3.3		%)		(12.4		%)
Americas Wholesale2,3						14.8		%		19.5		%
Europe2,3,4						(9.9		%)		(0.6		%)
Asia2,3						4.8		%		0.5		%
Licensing1,2,3						88.4		%		84.0		%
GAAP operating margin for total Company1,4						(4.8		%)		(5.5		%)
Net gains on lease terminations2						(0.0		%)		0.0		%
Asset impairment charges2						0.2		%		0.6		%
Certain professional service and legal fees and related costs						0.7		%		0.0		%
Adjusted operating margin for total Company1,4						(3.9		%)		(4.9		%)
Notes:
1During the fourth quarter of fiscal 2018, the Company reclassified net royalties received on the Company’s inventory purchases of licensed product from net revenue to cost of product sales to reflect its treatment as a reduction of the cost of such licensed product. Accordingly, net revenue for the three months ended April 29, 2017 have been adjusted to conform to the current period presentation. This reclassification had no impact on previously reported loss from operations.
2During the third quarter of fiscal 2018, segment results were adjusted to exclude corporate performance-based compensation costs, net gains (losses) on lease terminations and asset impairment charges due the fact that these items are no longer included in the segment results provided to the Company’s chief operating decision maker in order to allocate resources and assess performance. Accordingly, segment results have been adjusted for the three months ended April 29, 2017 to conform to the current period presentation.
3During the first quarter of fiscal 2019, the Company changed the segment accountability for funds received from licensees on the Company’s purchases of its licensed products. These amounts were treated as a reduction of cost of product sales within the Licensing segment but now are considered in the results of the segments that control the respective purchases for purposes of segment performance evaluation. Accordingly, segment results for the three months ended April 29, 2017 have been adjusted to conform to the current period presentation.
4During the first quarter of fiscal 2019, the Company adopted new authoritative guidance which requires that the non-service components of net periodic defined benefit pension cost be presented outside of earnings (loss) from operations. Accordingly, loss from operations and segment results for the three months ended April 29, 2017 have been adjusted to conform to the current period presentation.

Guess?, Inc. and Subsidiaries
Constant Currency Financial Measures
(dollars in thousands)
					Three Months Ended
					May 5, 2018												April 29, 2017				% change
					As Reported				Foreign Currency Impact				Constant Currency				As Reported				As Reported		Constant Currency
Net revenue:
Americas Retail					$	171,340			$	(1,380	)		$	169,960			$	173,694			(1%)		(2%)
Americas Wholesale					40,679				(787		)		39,892				35,857				13%		11%
Europe					205,435				(24,965		)		180,470				165,388				24%		9%
Asia					84,051				(4,743		)		79,308				63,381				33%		25%
Licensing1					19,784				—				19,784				16,025				23%		23%
Total net revenue1					$	521,289			$	(31,875	)		$	489,414			$	454,345			15%		8%
Notes:
1During the fourth quarter of fiscal 2018, the Company reclassified net royalties received on the Company’s inventory purchases of licensed product from net revenue to cost of product sales to reflect its treatment as a reduction of the cost of such licensed product. Accordingly, net revenue for the three months ended April 29, 2017 has been adjusted to conform to the current period presentation.

Guess?, Inc. and Subsidiaries
Selected Condensed Consolidated Balance Sheet Data
(in thousands)
								May 5,				February 3,				April 29,
								2018				2018				2017
ASSETS
Cash and cash equivalents								$	232,492			$	367,441			$	316,395
Receivables, net								243,138				259,996				193,643
Inventories								434,922				428,304				402,673
Other current assets								73,320				52,964				66,695
Property and equipment, net								286,915				294,254				245,131
Restricted cash								232				241				1,529
Other assets								250,162				252,434				246,058
	Total Assets							$	1,521,181			$	1,655,634			$	1,472,124
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of capital lease obligations and borrowings								$	3,363			$	2,845			$	571
Other current liabilities								390,426				465,000				323,995
Long-term debt and capital lease obligations								37,217				39,196				23,322
Other long-term liabilities								210,847				209,528				179,324
Redeemable and nonredeemable noncontrolling interests								21,637				22,246				18,796
Guess?, Inc. stockholders’ equity								857,691				916,819				926,116
	Total Liabilities and Stockholders’ Equity							$	1,521,181			$	1,655,634			$	1,472,124

Guess?, Inc. and Subsidiaries
Condensed Consolidated Cash Flow Data
(in thousands)
								Three Months Ended
								May 5,				April 29,
								2018				2017
Net cash used in operating activities								$	(67,576	)		$	(29,947	)
Net cash used in investing activities								(20,877		)		(19,234		)
Net cash used in financing activities								(38,284		)		(35,960		)
Effect of exchange rates on cash, cash equivalents and restricted cash								(8,221		)		5,415
Net change in cash, cash equivalents and restricted cash								(134,958		)		(79,726		)
Cash, cash equivalents and restricted cash at the beginning of the year								367,682				397,650
Cash, cash equivalents and restricted cash at the end of the period								$	232,724			$	317,924
Supplemental information:
Depreciation and amortization								$	16,499			$	15,011
Rent								$	72,226			$	66,207

Guess?, Inc. and Subsidiaries
Reconciliation of Net Cash Used in Operating Activities to Free Cash Flow
(in thousands)
								Three Months Ended
								May 5,				April 29,
								2018				2017
Net cash used in operating activities								$	(67,576	)		$	(29,947	)
Less: Purchases of property and equipment								(19,004		)		(18,846		)
Less: Payments for property and equipment under capital leases								(386		)		—
Free cash flow								$	(86,966	)		$	(48,793	)

Guess?, Inc. and Subsidiaries
Retail Store Data
Global Store and Concession Count
				As of May 5, 2018
				Stores						Concessions
						Directly		Partner				Directly		Partner
Region				Total		Operated		Operated		Total		Operated		Operated
	United States			299		297		2		1		—		1
	Canada			86		86		—		—		—		—
	Central and South America			103		61		42		27		27		—
		Total Americas		488		444		44		28		27		1
	Europe and the Middle East			656		407		249		34		34		—
	Asia and the Pacific			500		169		331		369		175		194
		Total		1,644		1,020		624		431		236		195
				As of April 29, 2017
				Stores						Concessions
						Directly		Partner				Directly		Partner
Region				Total		Operated		Operated		Total		Operated		Operated
	United States			332		330		2		1		—		1
	Canada			108		108		—		—		—		—
	Central and South America			94		51		43		30		30		—
		Total Americas		534		489		45		31		30		1
	Europe and the Middle East			647		354		293		30		30		—
	Asia and the Pacific			489		106		383		380		190		190
		Total		1,670		949		721		441		250		191

View source version on businesswire.com: https://www.businesswire.com/news/home/20180530006316/en/

Source: Guess?, Inc.

Guess?, Inc.
Fabrice Benarouche
VP, Finance and Investor Relations
(213) 765-5578