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Guess Contends With COVID-19 Right as Turnaround Caught Fire

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Guess had strong results in the fourth quarter and year, but the coronavirus pandemic has it holding back on first-quarter and full-year forecasting.

In a Nutshell: Guess Inc. said the strength of its businesses in Europe and its licensing business enabled the company to more than offset softness in the Americas retail and Asian businesses and grow earnings in the fourth quarter.

This performance capped a strong year for the company, with increased revenues, significant earnings growth and operating margin expansion. The company also generated improved cash flow, which enabled it to enter the new year with a strong financial position.

However, the outbreak of the coronavirus is having a material impact on the company’s current financial performance. To date, Guess said it has experienced temporary closures in key regions globally, along with most major retailers.

“The extent and duration of the crisis remains uncertain and may impact consumer purchasing activity throughout the year if disruptions continue,” the company said. “We are monitoring the situation closely with regards to our employees, consumers and supply chain. Given the dynamic situation, we have not provided guidance for the first quarter ending May 2 or the full fiscal year ending Jan. 30, 2021.

“Due to the developing situation, the results of the first quarter…and the full fiscal year…could be impacted in ways we are not able to predict today, including, but not limited to, non-cash write-downs and impairments, unrealized gains or losses related to investments, foreign currency fluctuations and collections of accounts receivables,” Guess said.

During March, as a precautionary measure to ensure financial flexibility and maintain maximum liquidity in response to the COVID-19 pandemic, the company has drawn down approximately $212 million under certain of its credit facilities in the U.S., Canada and Europe.

Sales: Revenues for the fourth quarter ended Feb. 1 increased 0.6 percent to $842.3 million compared to $837.1 million in the same prior-year quarter.

Americas retail revenues decreased 4.1 percent. Retail comp sales, including e-commerce, were down 3 percent and Americas wholesale revenue fell 3 percent.

Europe revenue increased 13.2 percent, while retail comp sales, including e-commerce, rose 1 percent. Asia revenue declined 27.7 percent, with retail comp sales, including e-commerce, falling 26 percent.

For the year, net revenue increased 2.6 percent to $2.68 billion, compared to $2.61 billion in the prior year. Americas retail revenues declined 1.6 percent, while retail comp sales, including e-commerce, were flat. Americas wholesale revenue increased 9.1 percent in the year.

Europe revenue rose 9.2 percent and retail comp sales, including e-commerce, were flat. Asia revenues fell 10.8 percent, with retail comp sales, including e-commerce, falling 19 percent. Licensing revenue increased 3.2 percent.

Earnings: For the fourth quarter of fiscal 2020, the company recorded net earnings of $79.6 million, a 242.6 percent increase compared to $23.2 million for the fourth quarter of fiscal 2019.

Operating earnings in the quarter increased 44.6 percent to $96.5 million, compared to $66.7 million in the same prior-year quarter. Operating margin rose 350 basis points to 11.5 percent, compared to 8 percent in the same prior-year quarter, driven primarily by lower logistics costs in Europe and higher initial markups in Europe and Americas retail. The negative impact of currency on operating margin for the quarter was approximately 20 basis points.

For the fiscal year, the company recorded net earnings of $96 million, a 580.7 percent increase compared to $14.1 million for the fiscal year ended Feb. 2, 2019.

Operating earnings for fiscal 2020 increased 169.4 percent to $140.7 million, compared to $52.2 million in the prior year. Operating margin rose 330 basis points to 5.3 percent, compared to 2 percent in the prior year, driven primarily by the European Commission fine that was incurred in the prior year and the favorable impact from higher initial markups in Europe and Americas retail.

CEO’s Take: Carlos Alberini, CEO, said: “I am very pleased to report that we had a strong fourth quarter performance, exceeding our guidance for earnings per share and delivering operating profit at the high end of our expectations. We closed the year with strong liquidity and a solid balance sheet, which positions us well to navigate through the current coronavirus crisis.

“In the near term, we are actively managing the global situation, prioritizing the health and well-being of our associates around the world. While we hope that the crisis will be temporary, we do expect it will have a significant negative impact on our financial results for the first quarter and may impact future results, including potential disruptions in our supply chain,” he said. “That said, we currently are unable to determine with any degree of accuracy the impact the crisis may have in the future on our financial results or how long it may last.”

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