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Guess CEO: Expect to See Big-Time Brand ‘Elevation’ in the Future

With a net loss and sales decline in the quarter, Guess said it was tightly managing costs and inventory to mitigate the impact of the Covid-19 crisis.

In a Nutshell: Guess Inc. noted the coronavirus pandemic’s material impact on its financial performance.

During the second quarter of fiscal 2021, the company continued to experience lower net revenue compared to the prior-year period, as it remained challenged by store closures and lower demand. Guess said it partially offset these revenue declines by reducing its sales, general and administrative (SG&A) expenses for the quarter through expense savings, including one-time actions such as furloughs and temporary salary reductions, and permanent ones, including headcount reductions and lower discretionary spending.

The company also paid back a significant portion of its previously drawn down credit facilities and reinstated salaries that had been temporarily reduced. During the quarter, Guess gradually reopened most of its global fleet of brick-and-mortar stores, resulting in stores being closed for approximately 30 percent of quarter. As of Aug. 1, approximately 95 percent of its stores were open, with the majority of closed stores within interior malls in California.

Given the current circumstances regarding the Covid-19 crisis and its uncertain impact on operations, Guess said it was not providing detailed guidance for the third quarter ending Oct. 31 or the full fiscal year ending Jan. 30. Based on current trends, Guess said it expected revenues for the third and fourth quarters of fiscal 2021 to decrease in the mid-teens range.

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Sales: Net revenue for the second quarter ended Aug. 1 declined 41.7 percent to $398.5 million from $683.2 million in the prior-year period.

Americas Retail revenues decreased 44.7 percent to $110.07 million, while Americas Wholesale revenues fell 51.6 percent to $20.29 million. Europe revenues were off 39.5 percent to $205.19 million, Asia revenues decreased 39.7 percent to $50.19 million and licensing revenues declined 34.5 percent to $12.15 million.

Earnings: The company recorded a net loss of $20.4 million in the quarter compared to net earnings of $25.3 million for year-ago period.

The diluted loss per share was 31 cents compared to diluted earnings per share of 35 cents for the prior-year quarter.

Guess saw an operating loss in the quarter of $14.3 million, including $12 million in non-cash impairment charges taken on certain long-lived store related assets. This compared to earnings from operations of $46 million in the prior-year quarter.

The operating margin decreased 10.3 percent to negative 3.6 percent from positive 6.7 percent in the same year-ago quarter, driven primarily by overall deleveraging of expenses due to the negative impact from the COVID-19 pandemic on global operations. The negative impact of currency on operating margin for the quarter was approximately 40 basis points.

CEO’s Take: Carlos Alberini, CEO, said: “The Covid-19 crisis continued to impact our business in the second quarter. We remained focused on managing what was in our control, including reducing costs and optimizing inventory management and the use of capital. I believe that our efforts paid off, as we minimized our losses in spite of a 42 percent decrease in our revenues. We increased product margins, ended the period with inventories down 13 percent compared to last year and finished the quarter with a strong balance sheet and ample liquidity.

“We are well positioned for the second half of the year,” Alberini added. “I am very excited about our product offering and our marketing plan for the Holiday season. I strongly believe our customers will see a significant elevation of the Guess brand this season and into the future. Overall, the crisis inspired our team to think differently, to challenge every aspect of the business and to architect a simpler, more efficient, capital-light and flexible model. We are building a business that will be better positioned to compete in the future and gain market share globally.”