SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1996
OR
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number 33-69236
_____________________________
GUESS ?, INC.
_____________________________
(Exact name of registrant as specified in its charter)
DELAWARE 95-3679695
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
1444 South Alameda Street
Los Angeles, California 90021
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(213) 765-3100
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
As of March 31, 1996, the registrant had 1,000,525 shares of Common Stock, $.01
par value, outstanding.
GUESS ?, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) -
March 31, 1996 and December 31, 1995 . . . . . . . . . . . . . . . 2
Condensed Consolidated Statements of Earnings (Unaudited) -
First Quarter ended March 31, 1996 and April 2, 1995 . . . . . . . 3
Condensed Consolidated Statements of Cash Flows (Unaudited) -
First Quarter ended March 31, 1996 and April 2, 1995 . . . . . . . 4
Notes to Condensed Consolidated Financial Statements (Unaudited) . . 5
Item 2. Management's discussion and analysis of financial condition
and results of operation. . . . . . . . . . . . . . . . . . 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 8
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 8
1
GUESS ?, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
ASSETS
March 31, December
1996 31, 1995*
--------- ---------
Current assets:
Cash........................................ $8,583 $6,417
Receivables:
Trade receivables, net of reserves..... 43,005 22,886
Royalties.............................. 9,540 9,975
Other.................................. 3,163 4,040
--------- ---------
55,708 36,901
Inventories................................. 90,472 72,889
Prepaid expenses............................ 5,508 5,557
--------- ---------
Total current assets................... 160,271 121,764
Property and equipment, at cost, net of
accumulated depreciation and amortization... 66,528 68,199
Long-term investments............................ 3,404 3,394
Other assets, at cost, net of accumulated
amortization................................ 9,064 9,278
--------- ---------
$239,267 $202,635
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of notes payable and
long-term debt......................... $ 5,756 $4,123
Accounts payable............................ 43,739 40,701
Accrued expenses............................ 14,978 18,332
Income taxes payable........................ 1,928 1,036
--------- ---------
Total current liabilities......... 66,401 64,192
Notes payable and long-term debt, net of current
installments................................ 146,752 119,212
Minority interest................................ 417 75
Other liabilities................................ 8,227 8,159
--------- ---------
221,797 191,638
Stockholders' equity:
Common stock, $.01 par value. Authorized
2,000,000 shares; issued 1,613,750 and
issued and outstanding 1,000,525,
including 613,225 shares in Treasury.... 35 35
Paid-in capital.............................. 181 181
Retained earnings............................ 168,014 161,567
Foreign currency translation adjustment...... 16 (10)
Treasury stock, 613,225 shares repurchased... (150,776) (150,776)
--------- ---------
Net stockholders' equity 17,470 10,997
--------- ---------
$239,267 $202,635
========== ========
See accompanying notes to condensed consolidated financial statements
*Condensed from Audited Balance Sheet
2
GUESS ?, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands)
(unaudited)
First Quarter Ended
March 31, April 2,
1996 1995
--------- --------
Net revenue..................................... $123,275 $113,646
Cost of sales................................... 70,479 65,267
--------- --------
Gross profit.................................... 52,796 48,379
Royalty income, net............................. 11,623 11,257
--------- --------
64,419 59,636
Selling, general and administrative expenses.... 35,232 34,160
--------- --------
Earnings from operations.............. 29,187 25,476
--------- --------
Non-operating expense:
Interest, net.............................. (3,549) (4,041)
Other, net................................. (320) (164)
--------- --------
(3,869) (4,205)
--------- --------
Earnings before income taxes.................... 25,318 21,271
Income taxes.................................... 1,271 559
--------- --------
Net earnings........................ $24,047 $20,712
========= ========
See accompanying notes to condensed consolidated financial statements3
3
GUESS ?, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
First Quarter Ended
March 31, April 2,
1996 1995
--------- --------
Cash flows from operating activities:
Net earnings................................................ $24,047 $20,712
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization of property and
equipment......................................... 4,282 3,326
Amortization of deferred charges....................... 247 496
Loss on disposition of property and equipment.......... 16 247
Minority interest...................................... 342 31
Foreign translation adjustment......................... 15 28
Undistributed equity method earnings................... (9) (46)
(Increase) decrease in:
Receivables....................................... (18,807) (12,748)
Inventories....................................... (17,583) 10,795
Prepaid expenses.................................. 49 74
Other assets...................................... 85 112
Increase (decrease) in:
Accounts payable.................................. 3,038 (6,536)
Accrued expenses.................................. (3,416) (3,084)
Income taxes payable.............................. 892 475
--------- --------
Net cash provided by (used in) operating
activities.............................. (6,802) 13,882
Cash flows from investing activities:
Purchases of property and equipment......................... (2,629) (5,479)
Proceeds from the disposition of property and equipment..... 2 11
Lease incentives granted.................................... 11 305
Purchases of long-term investments.......................... 0 (122)
--------- --------
Net cash used by investing activities........ (2,616) (5,285)
Cash flows from financing activities:
Proceeds from notes payable and long-term debt.............. 55,857 36,743
Repayments of notes payable and long-term debt.............. (26,684) (30,169)
Distributions to stockholders............................... (17,600) (17,000)
--------- --------
Net cash used by financing activities........ 11,573 (10,426)
Effect of exchange rate changes on cash:......................... 11 (28)
Net increase (decrease) in cash.................................. 2,166 (1,857)
Cash, beginning of period........................................ 6,417 5,994
--------- --------
Cash, end of period.............................................. $8,583 $4,137
========= ========
Supplemental disclosures:
Cash paid during the period for:
Interest............................................... $5,619 $6,665
Income taxes........................................... 357 244
See accompanying notes to condensed consolidated financial statements.
4
GUESS ?, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(1) Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial
position as of March 31, 1996, and the results of operations and cash flows
for the first quarter ended March 31, 1996. Operating results for the first
quarter ended March 31, 1996, are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996. The accompanying
unaudited condensed consolidated financial statements have been prepared in
accordance with Rule 10-01 of Regulation S-X and accordingly, they have been
condensed and do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statement
presentation. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the year ended December 31, 1995.
(2) Inventories
The components of inventory consist of the following:
March 31, December 31,
1996 1995
---------- -----------
(in thousands)
Raw materials......................................... $12,695 $9,788
Work in Progress...................................... 12,687 11,264
Finished Goods........................................ 65,090 51,837
---------- -----------
$90,472 $72,889
========== ===========
(3) Reclassifications
Certain reclassifications have been made to the 1995 financial statements to
conform to the 1996 presentation.
(4) Recently Issued Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed Of" (Statement No. 121), effective for fiscal years beginning
after December 31, 1995. Statement No. 121 establishes accounting standards for
the recognition and measurement of impairment of long-lived assets, certain
identifiable intangibles, and goodwill either to be held or disposed of. The
Company has adopted the provisions of Statement No. 121 effective January 1,
1996. Management believes the adoption of Statement NO. 121 will not have a
material impact on the Company's financial position or results of operations.
5
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
The Company derives substantially all of its revenue from the sale of Guess
products through its domestic wholesale and retail operations and from royalty
income generated under the Company's licensing arrangements.
RESULTS OF OPERATIONS
NET REVENUE. Net revenue increased $9.7 million or 8.5% to $123.3 million
in the quarter ended March 31, 1996 from $113.6 million in the quarter ended
April 2, 1995. Net revenue from wholesale operations decreased $2.2 million.
Net revenue from retail operations increased $11.9 million, primarily
attributable to an increase of 18.6% from comparable stores and from volume
generated by new store openings. The increase in comparable stores was
primarily attributable to a favorable merchandise mix.
GROSS PROFIT. Gross profit increased 9.1% to $52.8 million in the quarter
ended March 31, 1996 from $48.4 million in the quarter ended April 2, 1995.
Gross profit as a percentage of net revenue improved slightly to 42.8% in the
quarter ended March 31, 1996 as compared to 42.6% in the quarter ended April 2,
1995. The increase in gross profit was achieved principally from the increase
in sales volume.
ROYALTY INCOME, NET. Net royalty income increased 2.7% in the quarter
ended March 31, 1996 to $11.6 from $11.3 million in the quarter ended April 2,
1995.
SG&A EXPENSES. Selling, general and administrative ("SG&A") expenses
increased 2.9% in the quarter ended March 31, 1996 to $35.2 million, or 28.5%
of net revenue, from $34.2 million, or 30.1% of net revenue, in the quarter
ended April 2, 1995. The increase was primarily the result of increased
store expenses related to the expansion of the retail operation, partially
offset by administrative cost containment efforts. The decrease in SG&A
expenses as a percentage of net revenue was the result of cost containment
efforts and fixed expenses being spread over a larger revenue base in the
current period.
EARNINGS FROM OPERATIONS. Earnings from operations increased 14.5% to $29.2
million, or 23.7% of net revenue in the quarter ended March 31, 1996, from
$25.5 million, or 22.4% of net revenue, in the quarter ended April 2, 1995.
This increase resulted primarily from the increase in revenue and improved
gross margins.
INTEREST, NET. Net interest expense decreased 12.5% to $3.5 million in the
quarter ended March 31, 1996 from $4.0 million in the quarter ended April 2,
1995. This decrease resulted from lower outstanding debt and lower interest
rates.
INCOME TAXES. Income taxes increased 116.7% to $1.3 million in the quarter
ended March 31, 1996 from $.6 million in the quarter ended April 2, 1995. This
increase was primarily attributable to income tax refunds received in the first
quarter of 1995.
NET EARNINGS. Net earnings increased 15.9% to $24.0 million, or 19.5% of
net revenue, in the quarter ended March 31, 1996, from $20.7 million, or 18.2%
of net revenue, in the quarter ended April 2, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has relied primarily upon internally generated funds, trade
credit and bank borrowing to finance its operations and expansion. At March
31, 1996, the Company had working capital of $93.9 million compared to $57.6
million at December 31, 1995. The $36.3 million increase in working capital
primarily resulted from a $17.6 million increase in inventories and a $18.8
million increase in receivables. The increase in inventory and accounts
receivable relate to seasonal requirements.
6
The Company's revolving credit agreement provides for a $100.0 million
revolving credit facility which includes a $20.0 million sublimit for letters
of credit. As of March 31, 1996, the Company had $40.8 million in
outstanding borrowings under the revolving credit facility and outstanding
letters of credit of $9.0 million. As of March 31, 1996, the Company had
$50.2 million available for future borrowings under such facility. The
revolving credit facility will expire in December 1997. In addition to this
revolving credit facility, the Company has a $25.0 million letter of credit
facility. As of March 31, 1996, the Company had $10.5 million outstanding
under this facility. Capital expenditures totaled $2.6 million in the first
quarter ended March 31, 1996. The Company estimates that its capital
expenditures for fiscal 1996 will be approximately $20.0 million, primarily
for the expansion of its retail operations.
The Company anticipates that it will be able to satisfy its ongoing cash
requirements for the foreseeable future, including expansion plans, interest
on the Senior Subordinated Notes and periodic distributions to stockholders,
primarily with cash flow from operations, supplemented, if necessary, by
borrowing under its revolving credit agreement.
IMPACT OF RECENTLY ISSUED PRONOUCEMENTS In March 1995, the Financial
Accounting Standards Board issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of'
(Statement No. 121), effective for fiscal years beginning after December 31,
1995. Statement No. 121 establishes accounting standards for the recognition
and measurement of impairment of long-lived assets, certain identifiable
intangibles, and goodwill either to be held or disposed of. The Company has
adopted the provisions of Statement No. 121 effective January 1, 1996.
Management believes the adoption of Statement NO. 121 will not have a
material impact on the Company's financial position or results of operations.
7
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is a party to various claims, complaints and other legal actions
that have arisen in the normal course of business from time to time.
The Company believes that the outcome of all pending legal proceedings, in the
aggregate, will not have a material adverse effect on the Company's financial
position or the results of its operations.
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits:
None
b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the first
quarter ended March 31, 1996.
8
SIGNATURES
Pursuant to the requirements of Rule 12b-15 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
GUESS ?, INC.
Date: May 12, 1996 By: /s/ Maurice Marciano
---------------------------
Maurice Marciano
Chairman of the Board, Chief
Executive Officer and Director
(Principal Executive Officer)
Date: May 12, 1996 By: /s/ Roger Williams
---------------------------
Roger Williams
Executive Vice President and Chief
Financial Officer (Principal
Financial Officer)
9
5
0000912463
GUESS ?, INC.
1,000
3-MOS
DEC-31-1996
JAN-01-1996
MAR-31-1996
8,583
0
55,708
0
90,472
160,271
122,383
55,855
239,267
66,401
154,979
0
0
35
17,435
239,267
123,275
134,898
70,479
70,479
0
0
3,549
25,318
1,271
0
0
0
0
24,047
0
0
TOTAL REVENUES INCLUDE NET ROYALTY INCOME OF $11,623
