Guess Inc. saw revenues decline more than 50 percent in the first quarter and said it expects more of the same in the second quarter.
In a Nutshell: Guess Inc., in reporting its first-quarter results on Wednesday, said it expects the global coronavirus crisis will continue to have a material impact on its financial position, operations and cash flows in fiscal 2021.
Based on sales data from stores that have re-opened since May 2, the company said it has seen sales productivity of roughly 75 percent in the U.S. and Canada, and 70 percent in Europe compared to last year’s levels. Guess said since the extent and duration of the global pandemic remains uncertain and may continue to impact consumer purchasing activity throughout the year, it has not provided detailed guidance for the second quarter ending Aug. 1 or the full fiscal year ending Jan. 30, 2021.
“However, based on these trends, we currently expect revenues for the second quarter of fiscal 2021 to have a decrease similar to that of the first quarter,” the company said.
During the first quarter of fiscal 2021, the pandemic’s negative impact resulted in lower net revenue, operating results that reflected asset impairment charges, and additional inventory valuation reserves and higher allowances for markdowns and doubtful accounts. These charges were partially offset by a favorable impact from European and U.S. government-assistance programs primarily related to the recovery of employee payroll costs and certain favorable tax treatments.
During the period, Guess implemented several measures to help mitigate the operating and financial impact of the pandemic, including furloughing its U.S. and Canada store associates and significant portions of its U.S. and Canada corporate and distribution center associates, and permanently reducing U.S. corporate headcount. It also implemented temporary tiered salary reductions for management-level corporate employees, including its executive officers, and deferred annual merit increases. The company also executed substantial reductions in expenses, store occupancy costs, capital expenditures and overall costs, including through reduced inventory purchases.
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Guess worked with country management teams to maximize the company’s participation in all eligible government or other initiatives available to businesses or employees impacted by the COVID-19 pandemic, drew down on certain credit facilities and entered into certain term loans to ensure financial flexibility and maintain maximum liquidity, engaged with landlords to negotiate rent deferrals or other rent concessions, worked with vendors to extend payment terms and postponed payment of its quarterly cash dividend.
The company’s e-commerce sites remain open in all regions. They have experienced lower traffic, but this has been partially offset by a strengthening in conversion. Many of the firm’s wholesale and licensing partners have also substantially reduced their operations.
Sales: Net revenue for the first quarter ended May 2 decreased 51.5 percent to $260.3 million from $536.7 million in the prior-year period.
Americas retail revenue declined 57.7 percent, while Americas wholesale revenue fell 44 percent. Europe revenue decreased 49.3 percent, Asia revenue declined 52.6 percent and licensing revenue fell 31.3 percent.
Earnings: In the quarter, Guess recorded a net loss of $157.7 million, compared to $21.4 million for the first quarter of fiscal 2020. Diluted loss per share was $2.40 for the period compared to a loss per share of 27 cents for the prior-year quarter. The company estimated that its prior-year share buybacks and convertible notes transaction had a net negative impact of 50 cents on diluted loss per share and currency had a negative impact of 9 cents on diluted loss per share in the quarter.
The loss from operations for the first quarter was $162.5 million compared to $24.5 million in the year-ago period. The operating margin decreased 57.8 percent to negative 62.4 percent from negative 4.6 percent in the prior-year quarter, driven primarily by overall deleveraging of expenses due to the negative impact from the pandemic and higher asset-impairment charges.
Operating margin for the company’s Americas retail segment decreased 48.2 percent to negative 49.2 percent in the quarter, driven mainly by the deleverage impact of temporary store closures as a result of the pandemic. Operating margin for the Americas Wholesale segment declined 10.6 percent to 6.3 percent, due mainly to higher markdowns and deleveraging of expenses.
Operating margin for the Europe segment fell 33.9 percent to negative 41.7 percent, driven primarily by lower revenue. Operating margin for the Asia segment decreased 52.6 percent to negative 56.4 percent in the first quarter on significantly higher inventory reserves, while operating margin for the licensing segment decreased 10.4 percent to 78 percent.
CEO’s Take: Carlos Alberini, CEO, said: “The COVID-19 Crisis has had a material impact on our company, including our operations and our financial results…To minimize our loss and protect our liquidity, we challenged every aspect of our business which was being significantly impacted by extensive store closures and lower customer demand. In addition to postponing our decision related to the payment of the quarterly dividend, we were able to reduce expenses, adjust inventory levels and purchases, lower capital expenditures and extend vendor payment terms to react to the crisis.
“Today, we have all stores open in Asia, over 400 stores in Europe and over 180 stores in the U.S. and Canada,” Alberini added. “We are encouraged by our initial results, which have been better than anticipated. …We remain focused on enhancing our omnichannel platform centered around the consumer and are accelerating our efforts to gain efficiencies across our global operations and rationalize our store portfolios. I fully expect to be on the other side of this crisis with a more efficient business model, a more focused and consistent global brand strategy and a more nimble and agile organization.”