GUESS? Inc.
09/05/2025 | Press release | Distributed by Public on 09/05/2025 15:00
Quarterly Report for Quarter Ending August 02, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations.
General
Unless the context indicates otherwise, when we refer to "we," "us," "our" or the "Company" in this Quarterly Report on Form 10-Q ("Quarterly Report"), we are referring to Guess?, Inc. ("GUESS?") and its subsidiaries on a consolidated basis.
Forward-Looking Statements
This Quarterly Report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may also be contained in our other reports filed under the Securities Exchange Act of 1934, as amended, in our press releases and in other documents.
All statements other than statements of historical or current fact are forward-looking statements. These statements include those relating to expectations, analyses and other information based on current plans, forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our expectations, goals, future prospects, and current business strategies and strategic initiatives; statements regarding the Proposed Transaction (as defined below), including statements related to expected timing and anticipated completion of the Proposed Transaction, anticipated effects of the Proposed Transaction, the treatment of outstanding equity, future dividend payments, and other characterizations of future events or circumstances; statements concerning expectations for our recently-acquired rag & bone business; statements concerning the impacts of macroeconomic conditions, including related to fluctuations in currency; statements concerning the ongoing wars in Ukraine and Gaza and the Red Sea crisis; expectations relating to our convertible senior notes and hedges; statements concerning our future capital expenditures and financial conditions; and statements expressing optimism or pessimism about future operating results and growth opportunities. These forward-looking statements are frequently indicated by terms such as "expect," "could," "will," "should," "goal," "strategy," "believe," "estimate," "continue," "outlook," "plan," "create," "see," 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; changes in consumer confidence or discretionary consumer spending; sanctions and export controls targeting Russia and other impacts related to the war in Ukraine; impacts related to the Israel-Hamas war; impacts related to public health crises; risks relating to our indebtedness; changes to estimates related to impairments, inventory and other reserves; 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; the high concentration of our Americas Wholesale business; risks related to the costs and timely delivery of merchandise to our distribution facilities, stores and wholesale customers, including risks related to the current Red Sea supply chain crisis; unexpected or unseasonable weather conditions, catastrophic events or natural disasters; our ability to effectively operate our various retail concepts; our ability to successfully and/or timely implement our growth strategies and other strategic initiatives; our ability to find a suitable partner in Greater China; risks that we may be required to incur additional restructuring charges related to our businesses in Greater China and North America; risks that costs associated with any restructuring activities may be different than expected; risks that the anticipated benefit from our business and portfolio optimization plans may not be realized in full or on the anticipated timeline; our ability to complete our restructuring plans on the anticipated timeline or at all; our ability to complete or integrate acquisitions or alliances; uncertainties regarding our ability to realize operational efficiencies and other anticipated synergies, expansion plans and other benefits from the rag & bone acquisition in the timeframe expected or at all; our ability to successfully enhance our global omni-channel capabilities; our ability to expand internationally and operate in regions where we have less experience; risks relating to our convertible senior notes, including our ability to settle the liabilities in cash and risks related to the impact of stock price volatility on our fair value remeasurement of derivatives related to our 2028 Notes and the related convertible note hedge; disruptions at our distribution facilities,
including potential challenges related to the conversion of our self-operated U.S. distribution center to a third-party provider; our ability to attract and retain management and other key personnel; obligations or changes in estimates arising from new or existing litigation, income tax and other regulatory proceedings; errors in our assumptions, estimates and judgments related to tax matters; potential changes in U.S. or foreign policies and regulations; potential changes in U.S. or foreign income tax or tariff policies, including changes to tariffs on imports into the United States; the imposition or threat of imposition of new or additional duties, tariffs or trade restrictions on the importation of our products; accounting adjustments to our unaudited financial statements; future non-cash asset impairments, including goodwill, right-of-use lease assets and/or other store asset impairments; violations of, or changes to, domestic or international laws and regulations; risks associated with the acts or omissions of our licensees and third party vendors, including a failure to comply with our vendor code of conduct or other policies; risks associated with cybersecurity incidents and other cybersecurity risks; risks associated with our ability to properly collect, use, manage and secure consumer and employee data; risks associated with our vendors' ability to maintain the strength and security of information systems; changes in economic, political, social and other conditions affecting our foreign operations and sourcing, including the impact of currency fluctuations, global income tax rates and economic and market conditions in the various countries in which we operate; impacts of inflation and further inflationary pressures; fluctuations in quarterly performance; slowing in-person customer traffic; increases in labor costs; increases in wages; risks relating to activist investor activity; and the significant voting power of our founders. In addition to these factors, the economic, technological, managerial and other risks identified in "Part I, Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended February 1, 2025 filed with the U.S. Securities and Exchange Commission ("SEC") on April 11, 2025 (our "fiscal 2025 Annual Report on Form 10-K"), Part II, Item 1A. Risk Factors of this Quarterly Report and our other filings with the SEC, including but not limited to the risk factors discussed therein, could cause actual results to differ materially from current expectations. You are cautioned not to place undue reliance on the forward-looking statements included in this report, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Business Update, Market Trends and Uncertainties
Macroeconomic conditions, including declines in consumer spending, inflation, higher interest rates, foreign exchange rate fluctuations, the impacts of the ongoing wars in Ukraine and Gaza, the Red Sea crisis and uncertainty regarding changes in trade policies, including imposition of new or expanded tariffs, are continuing to impact our business.
We continue to carefully monitor global and regional geopolitical and economic developments. We also continue to strategically manage expenses in order to protect profitability and mitigate, to the extent possible, the residual effect of supply chain disruptions stemming from changes to global trade policies and practices. The duration and scope of these conditions cannot be predicted, and therefore, any anticipated negative financial impact to our operating results cannot be reasonably estimated. Additionally, the Company continues to monitor changes in policy impacting global trade, including tariff regulation. For example, on April 2, 2025, the United States announced a new universal baseline tariff of 10%, plus an additional country-specific tariff for select trading partners, on all U.S. imports. Subsequently, there have been incremental tariffs, or previously imposed tariffs have been paused or modified, and the United States has indicated that it is actively negotiating country-specific agreements that it expects will result in changes to imposed tariff rates. Tariffs have the potential to significantly raise the cost of our products. Additionally, U.S. tariff actions and any retaliatory tariffs imposed by other countries could impact consumer sentiment and adversely impact demand for the Company's products in international markets. Recent changes in U.S. tariff legislation have also led to significant volatility in the global economy.
Business Segments
Our businesses are grouped into five reportable segments for management and internal financial reporting purposes: Europe, Americas Retail, Americas Wholesale, Asia and Licensing. Our Europe, Americas Retail, Americas Wholesale and Licensing reportable segments are the same as their respective operating segments.
Certain components of our Asia operating segment are separate operating segments based on region, which have been aggregated into the Asia reportable segment for disclosure purposes. On April 2, 2024, we completed our acquisition of rag & bone and have integrated rag & bone into our existing segments.
We evaluate segment performance based primarily on net revenues and earnings (loss) from operations before corporate performance-based compensation costs, asset impairment charges, net gains (losses) on lease modifications, separation charges, transaction costs, Proposed Transaction Costs (as defined below), restructuring charges, gain on sale of assets and certain non-recurring credits (charges), if any. We believe this segment reporting reflects how our business segments are managed and how each segment's performance is evaluated by our chief operating decision maker to assess performance and make resource allocation decisions. Information regarding these segments is summarized in Note 9 - Segment Information to the condensed consolidated financial statements included in this Quarterly Report.
Products
We derive our net revenue from the sale of GUESS?, G by GUESS (GbG), GUESS Kids, GUESS JEANS, MARCIANO and rag & bone apparel and certain accessories and our licensees' products through our worldwide network of directly-operated and licensed retail stores, wholesale customers and distributors, as well as our online sites. We also derive royalty revenue from worldwide licensing activities.
Proposed Take-Private Transaction with Authentic Brands Group
On August 20, 2025, we announced that we had entered into an Agreement and Plan of Merger (the "Merger Agreement" and together with the transactions contemplated thereby, the "Proposed Transaction") pursuant to which certain of our existing stockholders (collectively, the "Rolling Stockholders"), including Maurice Marciano, Paul Marciano, Nicolai Marciano, and Carlos Alberini and certain of their respective trusts, foundations and affiliates, will enter into a strategic partnership with Authentic Brands Group LLC ("Authentic"), under which (1) Authentic will acquire 51% and the Rolling Stockholders will acquire 49% of the rights, title and interest owned by us or any of our subsidiaries or affiliates in or to substantially all of our intellectual property (other than certain excluded assets) and (2) certain of the Rolling Stockholders will acquire 100% of our operations. Upon consummation of the Proposed Transaction, subject to the conditions set forth in the Merger Agreement and receipt of the Requisite Company Vote (as defined below), Guess? stockholders (other than the Rolling Stockholders) will receive $16.75 per share in cash and our common stock will no longer be listed on any public market. The Proposed Transaction is expected to close in the fourth quarter of fiscal year 2026, subject to certain conditions, including approval by the holders of a majority of our outstanding common stock and a majority of the votes cast by the disinterested stockholders (as such term is defined in Section 144 of the General Corporation Law of the State of Delaware) (the "Requisite Company Vote").
See Note 1 - Basis of Presentation in the notes to our condensed consolidated financial statements of this Quarterly Report for further information on the Proposed Transaction. The foregoing summary of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Merger Agreement, which is filed as Exhibit 2.1 hereto.
rag & bone Acquisition
On April 2, 2024, we and WHP Global completed the previously announced acquisition of New York-based fashion brand rag & bone. Under the terms of the agreement, we contributed $57.1 million toward the purchase of rag & bone, in addition to contributions from WHP Global. As a result, we now own all of the rag & bone operating assets, and we and WHP Global jointly own the rag & bone intellectual property. In connection with the acquisition, our wholly owned subsidiary, Guess Europe Sagl entered into an intellectual property license agreement for the exclusive right to use rag & bone intellectual property to manufacture
licensed products worldwide and to sell licensed products in specified territories. As of April 2, 2024, we integrated rag & bone into our existing segments.
Foreign Currency Volatility
Since the majority of our international operations are conducted in currencies other than the U.S. dollar (primarily the euro, British pound, Canadian dollar, Chinese yuan, Japanese yen, Korean won, Mexican peso, Polish zloty, Russian rouble and Turkish lira), currency fluctuations can have a significant impact on the translation of our international revenues and earnings (loss) into U.S. dollars.
Some of our transactions, primarily those in Europe, Canada, South Korea, China and Mexico, are denominated in U.S. dollars, Swiss francs, British pounds and Russian roubles, exposing them to exchange rate fluctuations when these transactions (such as inventory purchases or periodic lease payments) are converted to their functional currencies. As a result, fluctuations in exchange rates can impact the operating margins of our foreign operations and reported earnings (loss) and are largely dependent on the transaction timing and magnitude during the period that the currency fluctuates. When these foreign exchange rates weaken versus the U.S. dollar at the time the respective U.S. dollar denominated payment is made relative to the payments made in the comparable period, our product margins have been and could continue to be unfavorably impacted.
In addition, there are certain real estate leases denominated in a currency other than the functional currency of the respective entity that entered into the agreement (primarily Swiss francs, Russian roubles and Polish zloty). As a result, we may be exposed to volatility related to unrealized gains or losses on the translation of present value of future lease payment obligations when translated at the exchange rate as of a reporting period-end.
During the first six months of fiscal 2026, the average U.S. dollar rate was stronger against the Canadian dollar, Chinese yuan, Korean won, Mexican peso and Turkish lira and weaker against the British pound, euro, Japanese yen, Polish zloty and Russian rouble. Overall, this had a favorable impact on the translation of our international revenues for the three and six months ended August 2, 2025 and a favorable impact on earnings from operations for the three months ended August 2, 2025, but an unfavorable impact for the six months ended August 2, 2025 compared to the same prior-year period.
For the remainder of fiscal 2026, if the U.S. dollar strengthens relative to the respective fiscal 2025 foreign exchange rates, foreign exchange could negatively impact our revenues and operating results, as well as our international cash and other balance sheet items, particularly in Canada, Europe (primarily the euro, Turkish lira, British pound and Russian rouble) and Mexico. Alternatively, if the U.S. dollar weakens relative to the respective fiscal 2025 foreign exchange rates, our revenues and operating results, as well as our other cash balance sheet items, could be positively impacted by foreign currency fluctuations during the remainder of fiscal 2026, particularly in these regions.
We enter into derivative financial instruments to offset some, but not all, of the exchange risk on foreign currency transactions. For additional discussion regarding our exposure to foreign currency risk, forward contracts designated as hedging instruments and forward contracts not designated as hedging instruments, refer to "Item 3. Quantitative and Qualitative Disclosures About Market Risk."
Inflation Impacts
Our financial results have been and may continue to be impacted by inflationary pressures affecting our overall cost structure, including transportation, employee compensation, raw materials and other costs. We estimate certain of our costs are impacted by inflation and other factors as follows:
Transportation.Our inbound and outbound transportation costs vary by the method of shipping, including air, ocean and ground. Each of these methods may be impacted by various factors, including inflation and other considerations, such as an imbalance between the overall freight capacity on the marketplace and demand, as well as geopolitical conflicts. Compared to pre-pandemic levels, the increase in our transportation costs was primarily attributable to higher inbound freight costs.
Employee Compensation.We have been impacted by the ongoing shortage of available qualified candidates for employment, as well as increases in compensation to attract and retain employees. We continue to evaluate our compensation and benefit offerings to be competitive with the current market and evaluate strategies to be more effective and efficient at all levels within the organization, including how to best serve our customers.
Raw Materials.The costs of raw materials for our products have increased, both as a result of inflation and our ongoing initiatives to improve the quality and sustainability of our products. In addition, because a significant portion of our products are manufactured in other countries, declines in the relative value of local currencies versus the U.S. dollar have exacerbated many of these pricing pressures.
We seek to minimize the impact of inflation by continuously optimizing our supply chain, including logistics, as well as efficiently managing our workforce. It is difficult to determine the portion of cost increases solely attributable to inflation versus other factors, such as the cost of improvements to our products and imbalances in the supply chain.
These increased costs have negatively impacted our margins and expenses. Continued inflationary and other pressures could further impact our gross margin and selling, general and administrative expenses as a percentage of net sales if the sales price of our products does not increase with higher costs. Furthermore, prolonged inflationary conditions have had and could continue to have an adverse impact on consumer discretionary spending, which has negatively impacted our sales and results and could continue to negatively impact our sales and results in the future. In addition, inflation could materially increase the interest rates on any future debt we may incur.
We expect inflationary pressures will persist in the near term. The extent to which such pressures may impact our business depends on many factors, including our customers' ability and willingness to accept price increases, our ability to improve our margins and potential downward pricing pressures if our competitors do not also raise their prices. Please refer to "Part I, Item 1A. Risk Factors" of our fiscal 2025 Annual Report on Form 10-K for further information on the potential impacts and risk associated with inflation.
Russia-Ukraine War
We are currently operating in Russia through our wholesale and retail channels, and we have immaterial wholesale operations through local wholesale partners in Ukraine. Our operations in Russia are operated primarily through Guess? CIS, LLC ("Guess CIS"), a wholly-owned Russian subsidiary. Guess CIS currently operates 46 retail stores in Russia and acts as a distributor for our wholesale partners in Russia. We also operate in Russia through other local wholesale partners where customers can either buy directly in store or online. Prior to February 2022, we also sold directly to retail customers in Ukraine and Belarus through our European online store. The local distributor through which we operate in Ukraine does not operate in the Russian-controlled Crimea, Donetsk, Kherson, Luhansk or Zaporizhzhia regions of Ukraine.
Our operations in Russia, Belarus and Ukraine represented less than 4% of our total revenue for the six months ended August 2, 2025 and slightly less than 4% for the six months ended August 3, 2024, with our operations in Russia comprising over 95% of this total revenue. As of August 2, 2025, our total assets in Russia, all of which are held by Guess CIS, represented less than 3% of our total assets, consisting primarily of leasehold right-of-use assets, store inventory, furnishings and fixtures and receivables. We only maintain inventory in Russia in an amount sufficient for operating our Russian retail stores. We do not maintain inventory or hold any other significant assets in Belarus or Ukraine. We do not rely, directly or indirectly, on goods sourced in Russia, Belarus or Ukraine. Other than such labor and services necessary to conduct our direct operations in Russia in the ordinary course of business, we do not rely, directly or indirectly, on services sourced in Russia, Belarus or Ukraine.
There has been no material impact to our existing operations as a result of the ongoing war in Ukraine, although we are limited in our ability to expand our business in Russia due to the U.S. ban on new investments in Russia described below under "Impact of Economic Sanctions and Trade Restrictions." With respect to our supply and distribution channels, we have experienced increased costs and transit times associated with
deliveries related to our Russia operations, due in part to new procedures and economic sanctions screening implemented in response to the war in Ukraine and the imposition of related economic sanctions. These costs and delays have not materially impacted our business or results of operations. Additionally, retail deliveries for online orders to Ukraine and Belarus have been suspended since February 2022 due to increased logistics costs and other difficulties in delivering to these regions. While we intend to re-open online orders to Ukraine and Belarus when appropriate, the suspension of these shipments has not had, and is not anticipated to have, a material impact on our business or results of operations. Our wholesale partner in Ukraine partially suspended its operations at the outset of the war; however, sales were re-opened in July 2022, and our business and results of operations were not materially impacted.
Impact of Economic Sanctions and Trade Restrictions
Our Russian operations are subject to various economic sanctions and export controls targeting Russia, Belarus, and the Russian-controlled regions of Ukraine (Crimea, Donetsk, Kherson, Luhansk and Zaporizhzhia). These measures may include: (i) blocking sanctions prohibiting dealings with various Russian senior government officials and companies in various sectors important to the Russian economy, including major Russian financial institutions; (ii) expanded sectoral sanctions related to designated Russian entities' ability to raise capital; (iii) the disconnection of certain Russian and Belarusian banks from the Society for Worldwide Interbank Financial Telecommunication ("SWIFT") financial messaging network; (iv) a ban on new investment in Russia; (v) a ban on the provision of certain services in Russia in the areas of accounting, trust formation, management consulting, quantum computing, architecture, engineering and in relation to the maritime transport of Russian-origin crude oil and petroleum products; (vi) bans on the import into the United States of certain Russian origin products, including various energy products; (vii) bans or certain other restrictions on the conduct of business or investment activity in the Russian-controlled Crimea, Donetsk, Kherson, Luhansk and Zaporizhzhia regions of Ukraine; and (viii) restrictions on the export of various products to Russia and Belarus, including certain dual-use industrial and commercial products, and luxury goods. Additionally, certain logistics operators have imposed bans on direct air deliveries to Russia and restrictions on land deliveries to and from Russia, Belarus and Ukraine, none of which have had a material impact on our operations to date. We assessed the applicability of these economic sanctions and trade restrictions based on internal assessments of relevant regulations and concluded our existing operations in Russia and Belarus have not been materially affected by these economic sanctions and trade restrictions, although we are limited from further expansion of our business in Russia. All of our deliveries (both wholesale and retail) undergo economic sanctions screening, including screening for maximum product value of $300 and €300 per item and prevention of shipments to sanctioned final recipients.
Our assessment of the impact of the various sanctions and export control measures targeting Russia, Belarus and the Russian-controlled regions of Ukraine is subject to the following uncertainties and assumptions:
•The duration and extent of the war in Ukraine;
•The impact of economic sanctions and trade restrictions targeting Russia and Belarus, and the possibility that such economic sanctions or trade restrictions may be expanded, or new economic sanctions or trade restrictions may be imposed;
•The possibility of significant exchange rate volatility related to the Russian rouble;
•Potential disruptions of normal cash flow resulting from the removal of Russian and Belarusian banks from the SWIFT financial messaging network and regulations of the Russian and Belarusian governments;
•Disruptions of transport access to and from Russia, Belarus or Ukraine; and
•The suspension of our online retail shipments to Belarus and Ukraine.
We continue to assess all of our operations in Russia to ensure compliance with applicable economic sanctions, including most notably the U.S. ban on new investment in Russia.
See "Part I, Item 1A. Risk Factors-Our business may also be affected by existing or future economic sanctions and export controls targeting Russia and other responses to Russia's invasion of Ukraine"included in our fiscal 2025 Annual Report on Form 10-K for additional information.
We are actively monitoring the situation in Ukraine. While the extent to which our future operations in Russia, Belarus and Ukraine will be impacted by the ongoing war is impossible to predict, the impact is not expected to be material to our results of operations, financial condition or cash flows.
Strategy
Our strategic vision and implementation plan for execution includes several key priorities to drive revenue and operating profit growth. These priorities are: (i) organization and talent; (ii) growth; (iii) brand relevancy; (iv) customer centricity and digital expansion; (v) product excellence; and (vi) optimization, efficiency, profitability and return on invested capital; each as further described below:
Organization and Talent. We plan to have a best-in-class team of highly engaged and strongly committed individuals capable to lead and take our Company to the next level of growth and value creation.
Growth. We intend to leverage our infrastructure and capabilities, as well as the strength of our brands, to drive revenue growth. We will focus on increasing the productivity of our existing network, growing organically in existing and new markets, pursuing brand extensions and category expansions and considering opportunities that leverage our global infrastructure and network of licensees and wholesale partners.
Brand Relevancy. We continue to optimize our core brand architecture to be relevant with our three target consumer groups: Heritage, Millennials, and Generation Z. We have developed and launched one global line of product for all 25 categories we represent. We seek to elevate our Guess and Marciano brands and improve the quality and sustainability of our products, allowing us to realize more full-priced sales and rely less on promotional activity. We continue to use unique go-to-market strategies and execute celebrity and influencer partnerships and collaborations as we believe that they are critical to engage more effectively with a younger and broader audience. The addition of rag & bone to our brand portfolio will allow us to reach a very attractive customer base that is complementary to that of our Guess and Marciano brands.
Customer Centricity and Digital Expansion. We continue to place the customer at the center of everything we do. We plan to implement processes and the necessary tools and platforms to provide our customers with a seamless omni-channel experience and expand our digital business.
Product Excellence. We believe product is a key factor for success in our business. We strive to design and make great products and will extend our product offering to provide our customers with products that support the different occasions of their lifestyles. We will seek to better address local product needs.
Optimization, Efficiency, Profitability and Return on Invested Capital. We intend to operate at the highest level of efficiency and effectiveness. We plan to invest in our infrastructure and leverage technology and data analytics to improve our operations and decision making. We will always seek high margin, profitable businesses, free cash flow generation and high return on invested capital. We will also seek to improve profitability through business and portfolio optimization.
Capital Allocation
We plan to continue to prioritize capital allocation toward investments that support growth and infrastructure, while remaining highly disciplined in the way we allocate capital across projects, including new store development, store remodels, technology and logistics investments and others. When we prioritize investments, we will focus on their strategic significance and their return on invested capital expectations. We also plan to manage product buys and inventory ownership rigorously and optimize overall working capital management consistently. In addition, we plan to continue to return value to stockholders through dividends and share repurchases, as appropriate (and subject to certain limitations during the pendency of the Proposed Transaction as described in more detail under "Proposed Take-Private Transaction with Authentic Brands Group" above), and we will consider opportunistic strategic acquisitions of brands and businesses that leverage our global infrastructure and network of licensees and wholesale partners.
Retail Comparable Sales
We report National Retail Federation calendar retail comparable sales on a quarterly basis for our retail businesses which include the combined results from our brick-and-mortar retail stores and our e-commerce sites. We also separately report the impact of e-commerce sales on our retail comparable sales metric. As a result of our omni-channel strategy, our e-commerce business has become strongly intertwined with our brick-and-mortar retail store business. Therefore, we believe that the inclusion of e-commerce sales in our retail comparable sales metric provides a more meaningful representation of our retail results.
Sales from our brick-and-mortar retail stores include purchases that are initiated, paid for and fulfilled at our retail stores and directly-operated concessions as well as merchandise that is reserved online but paid for and picked up at our retail stores. Sales from our e-commerce sites include purchases that are initiated and paid for online and shipped from either our distribution centers or our retail stores as well as purchases that are initiated in a retail store, but due to inventory availability at the retail store, are ordered and paid for online and shipped from our distribution centers or picked up from a different retail store.
Store sales are considered comparable after the store has been open for 13 full fiscal months of direct operations. If a store remodel results in a square footage change of more than 15% or involves a relocation or a change in store concept, the store sales are removed from the comparable store base until the store has been opened at its new size, in its new location or under its new concept for 13 full fiscal months. Stores that are permanently closed or temporarily closed for more than seven days in any fiscal month are excluded from the calculation in the fiscal month that they are closed. E-commerce sales are considered comparable after the online site has been operational in a country for 13 full fiscal months and exclude any related revenue from shipping fees. These criteria are consistent with the metric used by management for internal reporting and analysis to measure performance of the store or online sites. Definitions and calculations of retail comparable sales used by us may differ from similarly titled measures reported by other companies.
Other
We operate on a 52/53-week fiscal year calendar which ends on the Saturday nearest to January 31 of each year. The six months ended August 2, 2025 had the same number of days as the six months ended August 3, 2024. All references herein to "fiscal 2026", "fiscal 2025" and "fiscal 2024" represent the results of the 52-week fiscal year ending January 31, 2026, the 52-week fiscal year ended February 1, 2025 and the 53-week fiscal year ended February 3, 2024, respectively.
Executive Summary
Overview
Net earnings attributable to Guess?, Inc. was $6.2 million, or diluted net earnings per share ("EPS") of $0.12, for the quarter ended August 2, 2025, compared to net loss of $10.6 million, or diluted net loss per share of $0.28, for the quarter ended August 3, 2024.
During the quarter ended August 2, 2025, we recognized $2.3 million in asset impairment charges; a net gain of $1.1 million on the fair value remeasurement of derivatives related to our 3.75% convertible senior notes due 2028 (the "2028 Notes"); $6.0 million of costs incurred in connection with the evaluation by the Special Committee of our Board of Directors of a non-binding proposal received from WHP Global to acquire our outstanding shares and subsequent evaluation and work in connection with the signing of the Merger Agreement for the Proposed Transaction (collectively, the "Proposed Transaction Costs"); $0.8 million of amortization of debt discount related to 2028 Notes; $1.6 million for restructuring charges; and $0.5 million for certain professional service and legal fees and related (credits) costs (or a combined $7.5 million, or $0.14 per share, negative impact after considering the related income tax benefit of $2.6 million of these adjustments). Excluding the impact of these items, adjusted net earnings attributable to Guess?, Inc. was $13.8 million and adjusted diluted EPS was $0.26 for the quarter ended August 2, 2025.
During the quarter ended August 3, 2024, we recognized a net loss of $40.5 million on the fair value remeasurement of derivatives; $0.1 million in transaction costs; $1.7 million in separation charges; $2.3
million in asset impairment charges; $0.8 million of amortization of debt discount related to our 2028 Notes and 2.00% convertible senior notes due 2024 (the "2024 Notes", and together with the 2028 Notes, the "Notes"); $0.3 million for certain discrete income tax adjustments; $14.6 million gain on the sale of our U.S. distribution center and settlement of related interest rate swap; and a net credit of $0.1 million for certain professional services and legal fees and related (credits) costs (or a combined $33.6 million negative impact after considering the related income tax expense of $2.6 million of these adjustments, or a $0.70 per share negative impact after also adjusting for the dilutive impact of the 2028 Notes under the if-converted method based on the bond hedge contracts in place and the effect of dilutive stock options and restricted stock units). Excluding the impact of these items, adjusted net earnings attributable to Guess?, Inc. was $23.0 million and adjusted diluted EPS was $0.42 for the quarter ended August 3, 2024. References to financial results excluding the impact of these items are non-GAAP measures and are addressed below under "Non-GAAP Measures."
Highlights of our performance for the quarter ended August 2, 2025 compared to the same prior-year quarter are presented below, followed by a more comprehensive discussion below under "Results of Operations" (references to constant currency results are non-GAAP measures and are addressed under "Non-GAAP Measures"):
Operations
•Total net revenue increased 5.5% to $772.9 million for the quarter ended August 2, 2025, compared to $732.6 million in the same prior-year quarter. In constant currency, net revenue increased by 3.0%.
•Gross margin (gross profit as a percentage of total net revenue) decreased 120 basis points to 42.5% for the quarter ended August 2, 2025, compared to 43.7% in the same prior-year quarter.
•Selling, general and administrative ("SG&A") expenses as a percentage of total net revenue ("SG&A rate") increased 120 basis points to 39.9% for the quarter ended August 2, 2025, compared to 38.7% in the same prior-year quarter. SG&A expenses increased 9.1% to $308.6 million for the quarter ended August 2, 2025, compared to $283.0 million in the same prior-year quarter.
•During each of the quarters ended August 2, 2025 and August 3, 2024, we recognized $2.3 million of asset impairment charges.
•During the quarter ended August 3, 2024, we recognized a $13.8 million gain on sale of assets related to the sale of the U.S. distribution center.
•Operating margin decreased 420 basis points to 2.3% for the quarter ended August 2, 2025, compared to 6.5% in the same prior-year quarter. The decrease in operating margin was driven primarily by a gain on sale of assets recognized in the same prior-year quarter, higher expenses, including store costs and advertising expenses, higher Proposed Transaction Costs, unfavorable business mix and higher markdowns. Earnings from operations decreased 62.1% to $18.1 million (including a $0.9 million favorable currency translation impact) for the quarter ended August 2, 2025, compared to $47.8 million in the same prior-year quarter.
•Other income, net, totaled $2.1 million for the quarter ended August 2, 2025, compared to other expense, net of $39.9 million in the same prior-year quarter. The $42.0 million increase was primarily due to a net $1.1 million unrealized gain in the quarter ended August 2, 2025, compared to a net $40.5 million unrealized loss in the change in the fair value remeasurement of derivatives related to the 2028 Notes and the related convertible note hedge in the same prior-year quarter.
•The effective income tax rate was 45.8% for the quarter ended August 2, 2025, compared to 373.9% in the same prior-year quarter. The change in the effective income tax rate was primarily due to a net $1.1 million unrealized gain during the quarter ended August 2, 2025 compared to a net $40.5 million unrealized loss during the same prior-year quarter on the fair value remeasurement of derivatives related to the 2028 Notes and the related convertible note hedge, which was disregarded for income tax purposes.
Key Balance Sheet Accounts
•We had $189.6 million in cash and cash equivalents and $0.8 million in restricted cash as of August 2, 2025 compared to $218.9 million in cash and cash equivalents and $1.4 million in restricted cash at August 3, 2024.
◦As of August 2, 2025, we had no outstanding borrowings under our term loans and $268.1 million in outstanding borrowings under our credit facilities compared to $7.4 million in outstanding borrowings under our term loans and $206.1 million in outstanding borrowings under our credit facilities as of August 3, 2024.
◦During the six months ended August 2, 2025, we had no share repurchases. During the six months ended August 3, 2024, we repurchased approximately 2.6 million shares of our common stock for $60.8 million, including excise tax, through broker-assisted and open market transactions.
•Inventory increased by $65.1 million, or 10.8%, to $668.4 million as of August 2, 2025, from $603.3 million at August 3, 2024. On a constant currency basis, inventory increased by $48.6 million, or 8.0%, when compared to August 3, 2024. The increase was partly driven by the acceleration of inventory receipts to mitigate the impact of the Red Sea crisis.
•Accounts receivable consists of trade receivables relating primarily to our wholesale business in Europe and, to a lesser extent, our wholesale businesses in the Americas and Asia, royalty receivables relating to our licensing operations, credit card and retail concession receivables related to our retail businesses and certain other receivables. Accounts receivable increased by $36.6 million, or 11.0%, to $368.7 million as of August 2, 2025 compared to $332.0 million at August 3, 2024. On a constant currency basis, accounts receivable increased by $26.6 million, or 8.0%, when compared to August 3, 2024. The increase was mainly driven by higher Europe wholesale shipments.
Global Store Count
During the quarter ended August 2, 2025, together with our partners, we opened 28 new stores worldwide, consisting of 11 stores in Europe and the Middle East, ten stores in Asia and the Pacific and seven stores in the Americas. Together with our partners, we closed 40 stores worldwide during the quarter ended August 2, 2025, consisting of 17 stores in Europe and the Middle East, 15 stores in Asia and the Pacific and eight stores in the Americas.
As of August 2, 2025, we had stores and concessions worldwide comprised as follows:
| Stores | Concessions | |||||||||||||||||||||||||||||||||||||
| Region | Total | Directly-Operated | Partner Operated | Total | Directly-Operated | Partner Operated | ||||||||||||||||||||||||||||||||
| United States | 263 | 263 | - | - | - | - | ||||||||||||||||||||||||||||||||
| Canada | 51 | 51 | - | - | - | - | ||||||||||||||||||||||||||||||||
| Central and South America | 109 | 93 | 16 | 48 | 48 | - | ||||||||||||||||||||||||||||||||
| Total Americas | 423 | 407 | 16 | 48 | 48 | - | ||||||||||||||||||||||||||||||||
| Europe and the Middle East | 783 | 576 | 207 | 69 | 69 | - | ||||||||||||||||||||||||||||||||
| Asia and the Pacific | 383 | 79 | 304 | 202 | 127 | 75 | ||||||||||||||||||||||||||||||||
| Total | 1,589 | 1,062 | 527 | 319 | 244 | 75 | ||||||||||||||||||||||||||||||||
Of our total stores, 1,257 were GUESS? stores, 190 were GUESS? Accessories stores, 62 were G by GUESS (GbG) stores, 48 were rag & bone stores, 22 were MARCIANO stores, nine were GUESS JEANS stores and one was a Babylon store.
Results of Operations
Three Months Ended August 2, 2025 and August 3, 2024
Consolidated Results
The following presents our condensed consolidated statements of income (loss) (in thousands, except per share data):
| Three Months Ended | ||||||||||||||||||||||||||||||||
| Aug 2, 2025 | Aug 3, 2024 | $ change | % change | |||||||||||||||||||||||||||||
|
Net revenue
|
$ | 772,937 | 100.0 | % | $ | 732,560 | 100.0 | % | $ | 40,377 | 5.5 | % | ||||||||||||||||||||
|
Cost of product sales
|
444,168 | 57.5 | % | 412,617 | 56.3 | % | 31,551 | 7.6 | % | |||||||||||||||||||||||
|
Gross profit
|
328,769 | 42.5 | % | 319,943 | 43.7 | % | 8,826 | 2.8 | % | |||||||||||||||||||||||
| SG&A expenses | 308,588 | 39.9 | % | 282,951 | 38.7 | % | 25,637 | 9.1 | % | |||||||||||||||||||||||
|
Asset impairment charges
|
2,266 | 0.3 | % | 2,277 | 0.3 | % | (11) | (0.5 | %) | |||||||||||||||||||||||
| Gain on sale of assets | - | - | % | (13,781) | (1.9 | %) | 13,781 | (100.0 | %) | |||||||||||||||||||||||
| Gain (loss) on equity method investment | (171) | (0.0 | %) | 720 | 0.1 | % | (891) | (123.8 | %) | |||||||||||||||||||||||
| Earnings from Operations | 18,086 | 2.3 | % | 47,776 | 6.5 | % | (29,690) | (62.1 | %) | |||||||||||||||||||||||
| Interest expense, net | (4,876) | (0.6 | %) | (4,750) | (0.7 | %) | (126) | 2.7 | % | |||||||||||||||||||||||
| Other income (expense), net | 2,091 | 0.3 | % | (39,873) | (5.4 | %) | 41,964 | (105.2 | %) | |||||||||||||||||||||||
| Earnings before income tax expense | 15,301 | 2.0 | % | 3,153 | 0.4 | % | 12,148 | 385.3 | % | |||||||||||||||||||||||
| Income tax expense | 7,011 | 0.9 | % | 11,789 | 1.6 | % | (4,778) | (40.5 | %) | |||||||||||||||||||||||
| Net earnings (loss) | 8,290 | 1.1 | % | (8,636) | (1.2 | %) | 16,926 | (196.0 | %) | |||||||||||||||||||||||
| Net earnings attributable to noncontrolling interests | 2,048 | 0.3 | % | 1,967 | 0.2 | % | 81 | 4.1 | % | |||||||||||||||||||||||
| Net earnings (loss) attributable to Guess?, Inc. | $ | 6,242 | 0.8 | % | $ | (10,603) | (1.4 | %) | 16,845 | (158.9 | %) | |||||||||||||||||||||
| Net earnings (loss) per common share attributable to common stockholders: | ||||||||||||||||||||||||||||||||
| Basic | $ | 0.12 | $ | (0.21) | $ | 0.33 | ||||||||||||||||||||||||||
| Diluted | $ | 0.12 | $ | (0.28) | $ | 0.40 | ||||||||||||||||||||||||||
|
Effective income tax rate
|
45.8 | % | 373.9 | % | ||||||||||||||||||||||||||||
Net Revenue.Net revenue increased by $40 million, or 6%, for the quarter ended August 2, 2025 compared to the same prior-year quarter. Currency translation fluctuations relating to our non-U.S.operations favorably impacted net revenue by $19 million compared to the same prior-year quarter. In constant currency, net revenue increased by 3%. The increase in constant currency was mainly driven by $16 million from the impact of newly acquired businesses, $8 million from net new store openings, including rag & bone, and $3 million from positive comparable store sales, including rag & bone, partially offset by $3 million of lower royalties and $2 million of lower e-commerce revenues.
Gross Margin.Gross margin decreased by 1.2% for the quarter ended August 2, 2025 compared to the same prior-year quarter, driven by 60 basis points from higher markdowns and 50 basis points from unfavorable business mix.
Gross Profit. Gross profit increased $9 million for the quarter ended August 2, 2025 compared to the same prior-year quarter. The increase in gross profit was driven by $9 million from favorable currency impact, $6 million from the impact of newly acquired businesses and $2 million from positive comparable retail store sales, partially offset by $4 million from higher markdowns and $3 million from lower royalties.
Distribution costs, including labor, inbound freight charges, purchasing costs and related overhead, related to supplying inventory to store locations within our retail business are included in cost of product sales. We also include net royalties received on our inventory purchases of licensed product as a reduction to cost of product sales. We generally exclude wholesale-related distribution costs from gross margin, including them instead in SG&A expenses. Additionally, we include retail store occupancy costs in cost of product sales. As a result, our gross margin may not be comparable to that of other entities. To ensure expenses are separated appropriately, we track activities at each distribution center location and record the costs associated with our shipments of goods either as cost of sales or as selling, general and administrative expenses, accordingly.
SG&A Rate.Our SG&A rate increased 1.2% for the quarter ended August 2, 2025 from the same prior-year quarter. The unfavorable change in SG&A rate was mainly driven by 80 basis points of higher Proposed Transaction Costs and 70 basis points from higher expenses, including store labor costs and advertising expenses, partially offset by 50 basis points from the impact of newly acquired businesses.
SG&A Expenses.SG&A expenses increased $26 million for the quarter ended August 2, 2025 from the same prior-year quarter. The increase in SG&A expenses was mainly driven by $7 million from unfavorable currency translation, $6 million for each of higher Proposed Transaction Costs and higher expenses, including store labor costs and advertising expenses, and $4 million from the impact of newly acquired businesses.
Asset Impairment Charges.During both quarters ended August 2, 2025 and August 3, 2024, we recognized $2 million of asset impairment charges related primarily to impairment of property and equipment related to certain retail locations resulting from under-performance and expected store closures.
Gain on Sale of Assets. There was a $14 million gain on the sale of assets resulting from the sale of the U.S. distribution center during the quarter ended August 3, 2024.
Operating Margin. Operating margin decreased 4.2% for the quarter ended August 2, 2025 compared to the same prior-year quarter. The decrease in operating margin was driven primarily by 190 basis points from the gain on sale of assets in the same prior-year quarter, 90 basis points of higher expenses, including store costs and advertising expenses, 80 basis points of higher Proposed Transaction Costs and 60 basis points each from the unfavorable impact of business mix and higher markdowns.
Earnings from Operations. As a result of the foregoing, earnings from operations decreased by $30 million for the quarter ended August 2, 2025 compared to the same prior-year quarter. Currency fluctuations relating to our foreign operations favorably impacted earnings from operations by $2 million of which $1 million was due to favorable translational impact.
Other Income (Expense), Net.Other income, net, for the quarter ended August 2, 2025 was $2 million compared to other expense, net of $40 million in the same prior-year quarter. The change was primarily due to the fair value remeasurement of derivatives related to our 2028 Notes and the related convertible note hedge resulting in a net unrealized gain of$1 millionduring the second quarter of fiscal 2026, compared to a net unrealized loss of $40 millionin the same prior-year quarter.
Income Tax Expense.Income tax expense for the quarter ended August 2, 2025 was $7 million, with an effective income tax rate of 45.8%, compared to $12 million, with a 373.9% effective income tax rate in the same prior-year quarter. Income tax expense (benefit) for the interim periods is computed using the income tax rate estimated to be applicable for the full fiscal year, adjusted for discrete items, which is subject to ongoing review and evaluation by management. The change in the effective income tax rate was primarily due to a net $1 millionunrealized gain during the quarter ended August 2, 2025 compared to a net $40 millionunrealized loss during the same prior-year quarter on the fair value remeasurement of derivatives related to the 2028 Notes and the related convertible note hedge, which was disregarded for income tax purposes.
Net Earnings (Loss) Attributable to Guess?, Inc.Net earnings attributable to Guess?, Inc. was $6 million for the quarter ended August 2, 2025, compared to net loss of $11 million in the same prior-year quarter. Diluted net EPS was $0.12 for the quarter ended August 2, 2025 compared to diluted net loss per share of $0.28 in the same prior-year quarter. We estimate a positive impact from our share buybacks of $0.01 and a positive impact
from currency of $0.04 on diluted net EPS in the quarter ended August 2, 2025 when compared to the same prior-year quarter.
Refer to "Non-GAAP Measures" for an overview of our non-GAAP, or adjusted, financial results for the quarters ended August 2, 2025 and August 3, 2024. Excluding the impact of these non-GAAP items, adjusted net earnings attributable to Guess?, Inc. decreased $9 million and adjusted diluted EPS decreased $0.16 for the quarter ended August 2, 2025 compared to the same prior-year quarter. We estimate a positive impact from our share buybacks of $0.01 and a positive impact from currency of $0.04 on adjusted diluted EPS in the quarter ended August 2, 2025 when compared to the same prior-year quarter.
Information by Business Segment
The following presents our net revenue and earnings (loss) from operations by segment (in thousands):
| Three Months Ended | |||||||||||||||||||||||
| Aug 2, 2025 | Aug 3, 2024 | $ change | % change | ||||||||||||||||||||
| Net revenue: | |||||||||||||||||||||||
| Europe | $ | 436,911 | $ | 383,230 | $ | 53,681 | 14.0 | % | |||||||||||||||
| Americas Retail | 178,810 | 181,494 | (2,684) | (1.5 | %) | ||||||||||||||||||
| Americas Wholesale | 75,194 | 84,404 | (9,210) | (10.9 | %) | ||||||||||||||||||
| Asia | 55,765 | 54,332 | 1,433 | 2.6 | % | ||||||||||||||||||
| Licensing | 26,257 | 29,100 | (2,843) | (9.8 | %) | ||||||||||||||||||
| Total net revenue | $ | 772,937 | $ | 732,560 | 40,377 | 5.5 | % | ||||||||||||||||
| Earnings (loss) from operations: | |||||||||||||||||||||||
| Europe | $ | 46,381 | $ | 37,394 | $ | 8,987 | 24.0 | % | |||||||||||||||
| Americas Retail | (6,648) | 2,693 | (9,341) | (346.9 | %) | ||||||||||||||||||
| Americas Wholesale | 14,730 | 15,980 | (1,250) | (7.8 | %) | ||||||||||||||||||
| Asia | (3,803) | (1,224) | (2,579) | 210.7 | % | ||||||||||||||||||
| Licensing | 25,056 | 27,136 | (2,080) | (7.7 | %) | ||||||||||||||||||
| Reconciliation to total earnings from operations: | |||||||||||||||||||||||
| Corporate overhead | (55,364) | (45,707) | (9,657) | 21.1 | % | ||||||||||||||||||
| Asset impairment charges | (2,266) | (2,277) | 11 | (0.5 | %) | ||||||||||||||||||
| Net gains on lease modifications | - | - | - | ||||||||||||||||||||
| Gain on sale of assets | - | 13,781 | (13,781) | (100.0 | %) | ||||||||||||||||||
| Total earnings from operations | $ | 18,086 | $ | 47,776 | (29,690) | (62.1 | %) | ||||||||||||||||
| Operating margins: | |||||||||||||||||||||||
| Europe | 10.6 | % | 9.8 | % | |||||||||||||||||||
| Americas Retail | (3.7 | %) | 1.5 | % | |||||||||||||||||||
| Americas Wholesale | 19.6 | % | 18.9 | % | |||||||||||||||||||
| Asia | (6.8 | %) | (2.3 | %) | |||||||||||||||||||
| Licensing | 95.4 | % | 93.3 | % | |||||||||||||||||||
| Total Company | 2.3 | % | 6.5 | % | |||||||||||||||||||
Europe
Net revenue from our Europe segment increased by $54 million, or 14%, for the quarter ended August 2, 2025 from the same prior-year quarter. Currency translation fluctuations favorably impacted net revenue by $21 million. In constant currency, net revenue increased by 9%. The increase in net revenue in constant currency was driven mainly by $11 million due to newly acquired businesses, $9 million due to positive comparable store sales, $7 million from higher wholesale revenue, $5 million from net new store openings, and $1 million from higher ecommerce sales. Retail comparable sales, including e-commerce, increased 11% in U.S. dollars and 5% in constant currency compared to the same prior-year quarter. The inclusion of our e-
commerce sales had a minimal impact in U.S. dollars on the retail comparable sales percentage and a negative impact of 1% in constant currency. As of August 2, 2025, we directly operated 576 stores in Europe compared to 555 stores at August 3, 2024, excluding concessions, which represents a 4% increase from the same prior-year quarter.
Operating margin increased 0.8% for the quarter ended August 2, 2025 compared to the same prior-year quarter.The increasein operating margin was driven primarily by 140 basis points due to the favorable impact of higher revenues and 30 basis points from favorable currency impact, partially offset by 70 basis points of higher expenses, including store costs and advertising expenses, and 40 basis points from higher markdowns.
Earnings from operations from our Europe segment increased by $9 million, or 24%, for the quarter ended August 2, 2025 compared to the same prior-year quarter. The increase was mainly driven by $8 million from higher revenues and $4 million from favorable currency impact, partially offset by $3 million from higher expenses, including store costs and advertising expenses.
Americas Retail
Net revenue from our Americas Retail segment decreased by $3 million, or 1%, for the quarter ended August 2, 2025 from the same prior-year quarter. Currency translation fluctuations relating to our non-U.S. retail stores and e-commerce sites unfavorably impacted net revenue by $1 million. In constant currency, net revenue decreased by 1% compared to the same prior-year quarter. The net revenue decrease in constant currency was driven by $6 million due to negative comparable store sales and $2 million due to lower e-commerce sales, including rag & bone, partially offset by $5 million due to newly acquired businesses and $2 million due to net new store openings. Retail comparable sales, including e-commerce, decreased 5% in U.S. dollars and 5% in constant currency compared to the same prior-year quarter. The inclusion of our e-commerce sales had a minimal impact on the retail comparable sales percentage in both U.S. dollars and constant currency. As of August 2, 2025, we directly operated 407 stores in the Americas compared to 406 stores at August 3, 2024, excluding concessions.
Operating margin decreased 5.2% for the quarter ended August 2, 2025 from the same prior-year quarter. Approximately 220 basis points of the decrease was due to higher expenses, including store costs and advertising expenses, 160 basis points due to negative comparable store sales, 150 basis points due to higher markdowns and 70 basis points due to lower initial markups, partially offset by 110 basis points due to the positive impact of newly acquired businesses.
Loss from operations from our Americas Retail segment was $7 million for the quarter ended August 2, 2025, compared to earnings of $3 million in the same prior-year quarter. The deterioration was primarily driven by $4 million for each of higher expenses and lower revenues, $3 million due to higher markdowns and $1 million due to lower initial markups, partially offset by $2 million from the positive impact of newly acquired businesses.
Americas Wholesale
Net revenue from our Americas Wholesale segment decreased by $9 million, or 11%, for the quarter ended August 2, 2025 from the same prior-year quarter. Currency translation fluctuations relating to our non-U.S. wholesale businesses unfavorably impacted net revenue by $1 million. In constant currency, net revenue decreased by 10%. The decrease in net revenues in constant currency was mainly driven by $13 million due to lower wholesale shipments in the United States, partially offset by $2 million due to higher wholesale shipments in the rag & bone business.
Operating margin increased 0.7% for the quarter ended August 2, 2025 compared to the same prior-year quarter. The increase in operating margin was mainly driven by 310 basis points from higher product margin, partially offset by 170 basis points of unfavorable impact of lower revenues.
Earnings from operations from our Americas Wholesale segment decreased by $1 million, or 8%, for the quarter ended August 2, 2025 from the same prior-year quarter, mainly driven by $3 million due to lower revenues, partially offset by $2 million due to higher product margin.
Asia
Net revenue from our Asia segment increased by $1 million, or 3%, for the quarter ended August 2, 2025 from the same prior-year quarter. Currency translation fluctuations had a less than $1 million favorable impact on net revenue. In constant currency, net revenue increased by 2%, mainly driven by $1 million from net new store openings and $1 million from higher rag & bone wholesale shipments, partially offset by $1 million of lower e-commerce sales. Retail comparable sales (including e-commerce) decreased 2% in both U.S. dollars and constant currency compared to the same prior-year quarter. The inclusion of our e-commerce sales had a negative impact on the retail comparable sales percentage of 2% in both U.S. dollars and constant currency.
Operating margin decreased 4.5% for the quarter ended August 2, 2025 from the same prior-year quarter, driven primarily by 430 basis points due to unfavorable business mix, 360 basis points from lower product margin, partially offset by 290 basis points from lower expenses.
Loss from operations from our Asia segment was $4 million for the quarter ended August 2, 2025, compared to $1 million in the same prior-year quarter. The increase in the loss was primarily driven by $2 million for each of lower product margin and unfavorable business mix, partially offset by $2 million of lower expenses. Currency translation fluctuations relating to our Asia operations had a minimal impact on loss from operations.
Licensing
Net royalty revenue from our Licensing segment decreased by $3 million, or 10%, for the quarter ended August 2, 2025 from the same prior-year quarter, driven by lower royalties in our footwear and fragrances categories.
Earnings from operations from our Licensing segment decreased by $2 million, or 8%, for the quarter ended August 2, 2025 from the same prior-year quarter, primarily driven by lower royalties in our footwear and fragrances categories.
Corporate Overhead
Unallocated corporate overhead increased by $10 million, or 21%, for the quarter ended August 2, 2025 compared to the same prior-year quarter, primarily due to $6 million from costs incurred in connection with the evaluation of and entry into the Proposed Transaction during the quarter ended August 2, 2025, $2 million from higher expenses and $1 million from unfavorable currency impact.
Six months ended August 2, 2025 and August 3, 2024
Consolidated Results
The following presents our condensed consolidated statements of income (loss) (in thousands, except per share data):
| Six Months Ended | ||||||||||||||||||||||||||||||||
| Aug 2, 2025 | Aug 3, 2024 | $ change | % change | |||||||||||||||||||||||||||||
|
Net revenue
|
$ | 1,420,738 | 100.0 | % | $ | 1,324,503 | 100.0 | % | $ | 96,235 | 7.3 | % | ||||||||||||||||||||
|
Cost of product sales
|
833,512 | 58.7 | % | 756,459 | 57.1 | % | 77,053 | 10.2 | % | |||||||||||||||||||||||
|
Gross profit
|
587,226 | 41.3 | % | 568,044 | 42.9 | % | 19,182 | 3.4 | % | |||||||||||||||||||||||
| SG&A | 595,124 | 41.9 | % | 549,799 | 41.4 | % | 45,325 | 8.2 | % | |||||||||||||||||||||||
|
Asset impairment charges
|
8,355 | 0.6 | % | 3,418 | 0.3 | % | 4,937 | 144.4 | % | |||||||||||||||||||||||
| Net gains on lease modifications | (236) | (0.0 | %) | - | - | % | (236) | |||||||||||||||||||||||||
| Gain on sale of assets | - | - | % | (13,781) | (1.0 | %) | 13,781 | (100.0 | %) | |||||||||||||||||||||||
| (Gain) loss on equity method investment | (795) | (0.1 | %) | 720 | 0.1 | % | (1,515) | (210.4 | %) | |||||||||||||||||||||||
| Earnings (loss) from operations | (15,222) | (1.1 | %) | 27,888 | 2.1 | % | (43,110) | (154.6 | %) | |||||||||||||||||||||||
| Interest expense, net | (10,687) | (0.7 | %) | (7,476) | (0.6 | %) | (3,211) | 43.0 | % | |||||||||||||||||||||||
| Loss on extinguishment of debt | - | - | % | (1,952) | (0.1 | %) | 1,952 | (100.0 | %) | |||||||||||||||||||||||
| Other income (expense), net | 3,455 | 0.2 | % | (4,106) | (0.3 | %) | 7,561 | (184.1 | %) | |||||||||||||||||||||||
| Earnings (loss) before income tax expense | (22,454) | (1.6 | %) | 14,354 | 1.1 | % | (36,808) | (256.4 | %) | |||||||||||||||||||||||
| Income tax expense | 495 | 0.0 | % | 7,084 | 0.6 | % | (6,589) | (93.0 | %) | |||||||||||||||||||||||
| Net earnings (loss) | (22,949) | (1.6 | %) | 7,270 | 0.5 | % | (30,219) | (415.7 | %) | |||||||||||||||||||||||
| Net earnings attributable to noncontrolling interests | 3,737 | 0.3 | % | 4,851 | 0.3 | % | (1,114) | (23.0 | %) | |||||||||||||||||||||||
| Net earnings (loss) attributable to Guess?, Inc. | $ | (26,686) | (1.9 | %) | $ | 2,419 | 0.2 | % | (29,105) | (1203.2 | %) | |||||||||||||||||||||
| Net earnings (loss) per common share attributable to common stockholders: | ||||||||||||||||||||||||||||||||
| Basic | $ | (0.53) | $ | 0.04 | $ | (0.57) | ||||||||||||||||||||||||||
| Diluted | $ | (0.53) | $ | 0.04 | $ | (0.57) | ||||||||||||||||||||||||||
| Effective income tax rate | (2.2 | %) | 49.4 | % | ||||||||||||||||||||||||||||
Net Revenue.Net revenue increased by $96 million for the six months ended August 2, 2025 compared to the same prior-year period. Currency translation fluctuations relating to our non-U.S.operations favorably impacted net revenue by $4 million compared to the same prior-year period.In constant currency, net revenue increased by 7%.The increase in constant currency was mainly driven by $92 million from the impact of newly acquired businesses, including rag & bone, $26 million due to higher wholesale shipments and $10 million from net new store openings, partially offset by $20 million due to negative comparable retail store sales, $9 million of lower e-commerce revenues and $7 million of lower royalties.
Gross Margin.Gross margin decreased 1.6% for the six months ended August 2, 2025 compared to the same prior-year period,driven by 70 basis points from unfavorable business mix, 50 basis points from higher markdowns and 30 basis points from lower product margins.
Gross Profit. Gross profit increased by $19 million for the six months ended August 2, 2025 compared to the same prior-year period. The increase in gross profit was driven by $37 million due to the impact of newly acquired businesses, including rag & bone, $14 million from higher wholesale shipments and $2 million of favorable currency impact, partially offset by $10 million from lower comparable retail sales, $7 million from higher markdowns, $7 million from lower royalties, $5 million from lower e-commerce sales and $5 million from lower product margins.
Distribution costs, including labor, inbound freight charges, purchasing costs and related overhead, related to supplying inventory to store locations within our retail business are included in cost of product sales. We also include net royalties received on our inventory purchases of licensed product as a reduction to cost of product sales. We generally exclude wholesale-related distribution costs from gross margin, including them instead in SG&A expenses. Additionally, we include retail store occupancy costs in cost of product sales. As a result, our gross margin may not be comparable to that of other entities. To ensure expenses are separated appropriately, we track activities at each distribution center location and record the costs associated with our shipments of goods either as cost of sales or as selling, general and administrative expenses, accordingly.
SG&A Rate.Our SG&A rate increased 0.5% for the six months ended August 2, 2025 from the same prior-year period. The unfavorable change in SG&A rate was mainly driven by 70 basis points due to higher expenses, including store labor costs and advertising expenses, 50 basis points due to higher Proposed Transaction Costs, and 20 basis points of unfavorable currency impact, partially offset by 40 basis points each from lower transaction costs and separation charges.
SG&A Expenses.SG&A expenses increased by $45 million for the six months ended August 2, 2025 from the same prior-year period. The increase in SG&A expenses was mainly driven by $31 million due to the impact of newly acquired businesses, including rag & bone, and $8 million of higher expenses, including store labor costs and advertising expenses. Currency translation fluctuations relating to our foreign operations unfavorably impacted SG&A expenses by $4 million.
Asset Impairment Charges.During the six months ended August 2, 2025 and August 3, 2024, we recognized $8 million and $3 million, respectively, of asset impairment charges related primarily to impairment of property and equipment related to certain retail locations resulting from under-performance and expected store closures.
Net Gains on Lease Modifications.During the six months ended August 2, 2025, we recorded net gains on lease modifications of $0.2 million. There were no net gains on lease modifications during the six months ended August 3, 2024.
Gain on Sale of Assets.There was no gain on the sale of assets during the six months ended August 2, 2025. During the six months ended August 3, 2024, we recorded a $14 million gain on the sale of assets resulting from the sale of the U.S. distribution center.
Operating Margin. Operating margin decreased 3.2% for the six months ended August 2, 2025 compared to the same prior-year period. The decrease in operating margin was driven primarily by 100 basis points from the gain on the sale of assets in the prior-year same period, 90 basis points from unfavorable business mix, 80 basis points from higher expenses, including store labor costs and advertising expenses,and 50 basis points from higher markdowns.
Earnings (Loss) from Operations. As a result of the foregoing, earnings (loss) from operations decreased by $43 million for the six months ended August 2, 2025 compared to the same prior-year period. Currency fluctuations relating to our foreign operations unfavorably impacted earnings (loss) from operations by $3 million primarily due to unfavorable translational impact.
Loss on Extinguishment of Debt.There was no loss on extinguishment of debt during the six months ended August 2, 2025. During the six months ended August 3, 2024, we recorded a loss of $2 million related to the partial extinguishment of our 2024 Notes.
Other Income (Expense), Net.Other income, net, for the six months ended August 2, 2025 was $3 million compared to other expense, net of $4 million in the same prior-year period. The change was primarily due to net realized and unrealized gains from foreign currency exposures compared to the net losses for the same prior-year period, partially offset by higher net realized and unrealized losses on foreign exchange currency contracts compared to the same prior-year period.
Income Tax Expense.Income tax expense for the six months ended August 2, 2025 was $0.5 million, or a negative 2.2% effective income tax rate, compared to $7 million, or a 49.4% effective income tax rate in the same prior-year period. Income tax expense (benefit) for the interim periods is computed using the income tax rate estimated to be applicable for the full fiscal year, adjusted for discrete items, which is subject to ongoing review and evaluation by management. The change in the effective income tax rate was primarily due to a shift in the distribution of earnings among the Company's tax jurisdictions compared to the same prior-year period and losses during the six months ended August 2, 2025 compared to the income for the six months ended August 3, 2024.
Net Earnings (Loss) Attributable to Guess?, Inc.Net loss attributable to Guess?, Inc. was $27 million for the six months ended August 2, 2025, compared to earnings of $2 million in the same prior-year period. Diluted net loss per share was $0.53 for the six months ended August 2, 2025 compared to diluted EPS of $0.04 in the same prior-year period. We estimate a negative impact from share buybacks of $0.02 and a positive impact from currency of $0.12 on diluted net loss per share in the six months ended August 2, 2025 when compared to the same prior-year period.
Refer to "Non-GAAP Measures" for an overview of our non-GAAP, or adjusted, financial results for the six months ended August 2, 2025 and August 3, 2024. Excluding the impact of these non-GAAP items, adjusted net earnings attributable to Guess?, Inc. decreased $18 million and adjusted diluted EPS decreased $0.33 for the six months ended August 2, 2025 compared to the same prior-year period. We estimate a minimal impact from our share buybacks and a positive impact from currency of $0.12 on adjusted diluted EPS in the six months ended August 2, 2025 when compared to the same prior-year period.
Information by Business Segment
The following presents our net revenue and earnings (loss) from operations by segment (in thousands):
| Six Months Ended | |||||||||||||||||||||||
| Aug 2, 2025 | Aug 3, 2024 | $ change | % change | ||||||||||||||||||||
| Net revenue: | |||||||||||||||||||||||
| Europe | $ | 742,983 | $ | 667,103 | $ | 75,880 | 11.4 | % | |||||||||||||||
| Americas Retail | 336,008 | 325,690 | 10,318 | 3.2 | % | ||||||||||||||||||
| Americas Wholesale | 176,625 | 146,532 | 30,093 | 20.5 | % | ||||||||||||||||||
| Asia | 113,870 | 127,088 | (13,218) | (10.4 | %) | ||||||||||||||||||
| Licensing | 51,252 | 58,090 | (6,838) | (11.8 | %) | ||||||||||||||||||
| Total net revenue | $ | 1,420,738 | $ | 1,324,503 | 96,235 | 7.3 | % | ||||||||||||||||
| Earnings (loss) from operations: | |||||||||||||||||||||||
| Europe | $ | 37,492 | $ | 36,955 | $ | 537 | 1.5 | % | |||||||||||||||
| Americas Retail | (23,156) | (7,698) | (15,458) | 200.8 | % | ||||||||||||||||||
| Americas Wholesale | 34,881 | 30,107 | 4,774 | 15.9 | % | ||||||||||||||||||
| Asia | (5,596) | 2,517 | (8,113) | (322.3 | %) | ||||||||||||||||||
| Licensing | 48,075 | 53,814 | (5,739) | (10.7 | %) | ||||||||||||||||||
| Reconciliation to total earnings (loss) from operations: | |||||||||||||||||||||||
| Corporate overhead | (98,799) | (98,170) | (629) | 0.6 | % | ||||||||||||||||||
| Asset impairment charges | (8,355) | (3,418) | (4,937) | 144.4 | % | ||||||||||||||||||
| Net gains on lease modifications | 236 | - | 236 | ||||||||||||||||||||
| Gain on sale of assets | - | 13,781 | (13,781) | (100.0 | %) | ||||||||||||||||||
| Total earnings (loss) from operations | $ | (15,222) | $ | 27,888 | (43,110) | (154.6 | %) | ||||||||||||||||
| Operating margins: | |||||||||||||||||||||||
| Europe | 5.0 | % | 5.5 | % | |||||||||||||||||||
| Americas Retail | (6.9 | %) | (2.4 | %) | |||||||||||||||||||
| Americas Wholesale | 19.7 | % | 20.5 | % | |||||||||||||||||||
| Asia | (4.9 | %) | 2.0 | % | |||||||||||||||||||
| Licensing | 93.8 | % | 92.6 | % | |||||||||||||||||||
| Total Company | (1.1 | %) | 2.1 | % | |||||||||||||||||||
Europe
Net revenue from our Europe segment increased by $76 million, or 11%, for the six months ended August 2, 2025 from the same prior-year period. Currency translation fluctuations had a favorable impact on net revenue of $17 million. In constant currency, net revenue increased by 9%. The increase in net revenue in constant currency was mainly driven by $26 million from newly acquired businesses, including rag & bone, $21 million due to higher wholesale revenue and $9 million from net new store openings. Retail comparable sales (including e-commerce) increased 4% in U.S. dollars and 1% in constant currency compared to the same prior-year period. The inclusion of our e-commerce sales had a minimal impact on the retail comparable sales percentage in both U.S. dollars and constant currency. As of August 2, 2025, we directly operated 576 stores in Europe compared to 555 stores at August 3, 2024, excluding concessions, which represents a 4% increase from the same prior-year period.
Operating margin decreased 0.5% for the six months ended August 2, 2025 compared to the same prior-year period. The decrease in operating margin wasdriven primarily by110 basis points of higher expenses, including store selling costs and advertising expenses, and 40 basis points from the unfavorable impact of newly acquired businesses, partially offset by 90 basis points due to higher wholesale shipments.
Earnings from operations from our Europe segment increased by $1 million, or 1%, for the six months ended August 2, 2025 compared to the same prior-year period. The increase in operating profit was mainly driven by $7 million due to higher wholesale revenue, $1 million of favorable currency impact and $1 million in higher initial markups, partially offset $8 million from higher expenses, including store selling costs and advertising expenses.
Americas Retail
Net revenue from our Americas Retail segment increased by $10 million, or 3%, for the six months ended August 2, 2025 compared to the same prior-year period. Currency translation fluctuations relating to our non-U.S. retail stores and e-commerce sites had an unfavorable impact on net revenue of $5 million. In constant currency, net revenue increased by 5% compared to the same prior-year period. The increase in net revenue in constant currency was primarily driven by $34 million due to newly acquired businesses, including rag & bone, partially offset by $15 million due to negative comparable retail store sales and $4 million of lower e-commerce sales. Retail comparable sales (including e-commerce) decreased 8% in U.S. dollars and 6% in constant currency compared to the same prior-year period. The inclusion of our e-commerce sales had a negative impact of 1% on the retail comparable sales percentage in both U.S. dollars and constant currency. As of August 2, 2025, we directly operated 407 stores in the Americas compared to 406 stores at August 3, 2024, excluding concessions, which represents a less than 1% increase from the same prior-year period.
Operating margin decreased 5% for the six months ended August 2, 2025 compared to the same prior-year period. The decrease wasdriven primarily by 260 basis points from the impact of negative comparable store sales, 200 basis points from higher markdowns and 140 basis points from higher expenses, including store costs and advertising expenses, partially offset by 130 basis points due to the positive impact of newly acquired businesses.
Loss from operations from our Americas Retail segment was $23 million for the six months ended August 2, 2025 compared to loss of $8 million in the same prior-year period. The change was primarily driven by $8 million due to negative store comparable sales, $7 million in higher markdowns and $5 million of higher expenses, including higher store costs and advertising expenses, partially offset by $2 million of positive impact from newly acquired businesses, including rag & bone.
Americas Wholesale
Net revenue from our Americas Wholesale segment increased by $30 million, or 21%, for the six months ended August 2, 2025 from the same prior-year period. Currency translation fluctuations relating to our non-U.S. wholesale businesses impacted net revenues unfavorably by $5 million. In constant currency, net revenue increased by 24%. The increase in net revenues in constant currency was driven by $30 million due to newly acquired businesses, including rag & bone, and $7 million of higher shipments from our Mexico wholesale business.
Operating margin decreased 0.8% for the six months ended August 2, 2025 from the same prior-year period. The decrease in operating margin was driven primarily by 160 basis points in higher expenses and 90 basis points from lower product margin, partially offset by 150 basis points from higher wholesale shipments and 40 basis points from the impact of newly acquired businesses, including rag & bone.
Earnings from operations from our Americas Wholesale segment increased by $5 million, or 16%, for the six months ended August 2, 2025 from the same prior-year period, mainly driven by $7 million from newly acquired businesses, including rag & bone, and a $3 million favorable impact of higher shipments from our Mexico wholesale business, partially offset by $3 million of higher expenses, $2 million from lower product margins and a $1 million unfavorable impact from foreign currency translations.
Asia
Net revenue from our Asia segment decreased by $13 million, or 10%, for the six months ended August 2, 2025 compared to the same prior-year period. Currency translation fluctuations had an unfavorable impact on net revenue of $2 million. In constant currency, net revenue decreased by 9%. The decrease in net revenue in
constant currency was mainly driven by $7 million in lower retail comparable sales and $6 million lower e-commerce revenues, partially offset by a $3 million positive impact from newly acquired businesses. Retail comparable sales (including e-commerce) decreased 14% in U.S. dollars and 12% in constant currency compared to the same prior-year period. The inclusion of our e-commerce sales had a 2% negative impact on the retail comparable sales percentage in both U.S. dollars and constant currency.
Operating margin decreased 7% for the six months ended August 2, 2025 from the same prior-year period, primarily driven by the unfavorable impact of lower revenues.
Loss from operations from our Asia segment was $6 million, a decline of $8 million, or 322%, for the six months ended August 2, 2025 from earnings of $3 million during the same prior-year period. The decrease was primarily driven by the unfavorable impact of lower revenues. Currency translation fluctuations relating to our Asia operations had a minimal impact on loss from operations.
Licensing
Net royalty revenue from our Licensing segment decreased by $7 million, or 12%, for the six months ended August 2, 2025 compared to the same prior-year period, mainly driven by lower royalties in our fragrances and footwear categories.
Earnings from operations from our Licensing segment decreased by $6 million, or 11%, for the six months ended August 2, 2025 from the same prior-year period, primarily driven by lower royalties in our fragrances and footwear categories.
Corporate Overhead
Unallocated corporate overhead increased by $1 million, or 1%, for the six months ended August 2, 2025 from the same prior-year period.
Non-GAAP Measures
The financial information presented in this Quarterly Report includes non-GAAP financial measures, such as adjusted net earnings (loss) attributable to GUESS?, adjusted diluted net earnings (loss) per share attributable to common stockholders and constant currency information. For the three and six months ended August 2, 2025 and August 3, 2024, the adjusted results exclude the impact of certain professional service and legal fees and related (credits) costs, Proposed Transaction Costs, transaction costs in connection with our acquisition of rag & bone, separation charges related to the transition of the operations of our U.S. distribution center, restructuring costs and charges incurred in connection with the planned exit of certain retail stores in North America and Greater China (consisting of mainland China, Hong Kong, Macau and Taiwan), gain on the sale of our U.S. distribution center and settlement of the related interest rate swap, asset impairment charges, net gains on lease modifications, loss on extinguishment of debt, non-cash amortization of debt discount of our convertible senior notes, fair value remeasurement of derivatives related to the 2028 Notes and the related convertible note hedge, the related income tax effects of the foregoing items and the impact from certain discrete income tax adjustments related primarily to the impact from changes in the income tax law in certain tax jurisdictions, in each case where applicable. The weighted average diluted shares outstanding used for adjusted diluted EPS also excludes the dilutive impact of the Notes, based on the bond hedge contracts in place. These non-GAAP measures are provided in addition to, and not as an alternative for, our reported U.S. Generally Accepted Accounting Principles ("GAAP") results.
These items affect the comparability of our reported results. The financial results are also presented on a non-GAAP basis, as defined in Section 10(e) of Regulation S-K of the SEC, to exclude the effect of these items. We have excluded these items from our adjusted financial measures primarily because we believe these items are not indicative of the underlying performance of our business and the adjusted financial information provided is useful for investors to evaluate the comparability of our operating results and our future outlook (when reviewed in conjunction with our GAAP financial statements).
A reconciliation of reported GAAP results to comparable non-GAAP results follows (in thousands, except per share data):
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| Aug 2, 2025 | Aug 3, 2024 | Aug 2, 2025 | Aug 3, 2024 | ||||||||||||||||||||
| Reported GAAP net earnings (loss) attributable to Guess?, Inc. | $ | 6,242 | $ | (10,603) | $ | (26,686) | $ | 2,419 | |||||||||||||||
|
Certain professional service and legal fees and related (credits) costs1
|
486 | (127) | 328 | (67) | |||||||||||||||||||
|
Proposed Transaction Costs2
|
5,986 | - | 7,820 | - | |||||||||||||||||||
|
Transaction costs3
|
- | 142 | - | 5,726 | |||||||||||||||||||
|
Separation charges4
|
- | 1,656 | - | 7,075 | |||||||||||||||||||
|
Restructuring charges5
|
1,632 | - | 1,632 | - | |||||||||||||||||||
|
Asset impairment charges6
|
2,266 | 2,277 | 8,355 | 3,418 | |||||||||||||||||||
|
Net gains on lease modifications7
|
- | - | (236) | - | |||||||||||||||||||
|
Loss on extinguishment of debt8
|
- | - | - | 1,952 | |||||||||||||||||||
|
Amortization of debt discount9
|
844 | 775 | 1,692 | 1,475 | |||||||||||||||||||
|
Fair value remeasurement of derivatives10
|
(1,072) | 40,492 | 3,181 | 1,982 | |||||||||||||||||||
|
Gain on sale of assets11
|
- | (14,569) | - | (14,569) | |||||||||||||||||||
|
Discrete income tax adjustments12
|
- | 280 | - | 561 | |||||||||||||||||||
|
Income tax impact from adjustments13
|
(2,629) | 2,627 | (4,591) | (832) | |||||||||||||||||||
| Total adjustments affecting net earnings (loss) attributable to Guess?, Inc. | 7,513 | 33,553 | 18,181 | 6,721 | |||||||||||||||||||
| Adjusted net earnings (loss) attributable to Guess?, Inc. | $ | 13,755 | $ | 22,950 | $ | (8,505) | $ | 9,140 | |||||||||||||||
| Net earnings (loss) per common share attributable to common stockholders: | |||||||||||||||||||||||
| GAAP diluted | $ | 0.12 | $ | (0.28) | $ | (0.53) | $ | 0.04 | |||||||||||||||
|
Certain professional service and legal fees and related (credits) costs1,16
|
0.01 | (0.00) | 0.00 | (0.00) | |||||||||||||||||||
|
Proposed Transaction Costs2,16
|
0.09 | - | 0.12 | - | |||||||||||||||||||
|
Transaction costs3,16
|
- | 0.01 | - | 0.08 | |||||||||||||||||||
|
Separation charges4,16
|
- | 0.02 | - | 0.10 | |||||||||||||||||||
|
Restructuring charges5,16
|
0.02 | - | 0.02 | - | |||||||||||||||||||
|
Asset impairment charges6,16
|
0.03 | 0.03 | 0.13 | 0.05 | |||||||||||||||||||
|
Net gains on lease modifications7,16
|
- | - | (0.00) | - | |||||||||||||||||||
|
Loss on extinguishment of debt8,16
|
- | - | - | 0.03 | |||||||||||||||||||
|
Amortization of debt discount9,16
|
0.01 | 0.01 | 0.03 | 0.02 | |||||||||||||||||||
|
Fair value remeasurement of derivatives10
|
(0.02) | 0.60 | 0.06 | 0.04 | |||||||||||||||||||
|
Gain on sale of assets11,16
|
- | (0.17) | - | (0.21) | |||||||||||||||||||
|
Discrete income tax adjustments12
|
- | 0.00 | - | 0.01 | |||||||||||||||||||
|
Convertible notes if-converted method14
|
- | 0.21 | - | 0.00 | |||||||||||||||||||
|
Effect of dilutive stock options and restricted stock units15
|
- | (0.01) | - | 0.00 | |||||||||||||||||||
|
Adjusted diluted16
|
$ | 0.26 | $ | 0.42 | $ | (0.17) | $ | 0.16 | |||||||||||||||
| Weighted average common shares outstanding attributable to common stockholders: | |||||||||||||||||||||||
| GAAP diluted | 52,115 | 67,092 | 51,437 | 54,118 | |||||||||||||||||||
|
Adjusted diluted16
|
52,115 | 53,835 | 51,437 | 54,118 | |||||||||||||||||||
Notes:
1Adjustments represent certain professional service and legal fees and related (credits) costs which we otherwise would not have incurred as part of our business operations.
2Adjustments represent Proposed Transaction Costs incurred which we otherwise would not have incurred as part of our business operations.
3Adjustments represent transaction costs in connection with the rag & bone acquisition which we otherwise would not have incurred as part of our business operations.
4Adjustments represent separation charges related to the transition of the operation of our U.S. distribution center, which was formerly owner-operated, to a third-party logistics provider.
5Adjustments represent restructuring costs and charges incurred in connection with the planned exit of certain retail stores in North America and Greater China.
6Adjustments represent asset impairment charges related primarily to impairment of property and equipment related to certain retail locations resulting from under-performance and expected store closures.
7Adjustments represent net gains on lease modifications related primarily to the early termination of certain lease agreements.
8Adjustments represent loss on extinguishment of debt from a portion of the exchanged 2024 Notes in March 2024.
9In April 2023, January 2024 and March 2024, we issued $275 million, $65 million and $12 million principal amount of the 2028 Notes, respectively. The debt discount resulted from: (1) the modification accounting for a portion of the exchanged 2024 Notes in April 2023, and (2) recognized embedded derivative liability for the issuances of the Additional 2028 Notes (as defined and described in Note 11 - Convertible Senior Notes and Related Transactions to our condensed consolidated financial statements included in this Quarterly Report). The debt discount will be amortized as non-cash interest expense over the term of the 2028 Notes.
10Adjustments represent changes in fair value of the equity-linked derivatives associated with the 2028 Notes.
11Adjustments represent the gain on the sale of assets related to the U.S. distribution center within earnings from operations and the settlement of the related interest rate swap within other income (expense).
12Adjustments represent discrete income tax items related primarily to the impact from changes in the income tax law in certain jurisdictions.
13The income tax effect of certain professional service and legal fees and related (credits) costs, Proposed Transaction Costs, transaction costs in connection with the acquisition of rag & bone, separation charges related to the transition of the operation of our U.S. distribution center, restructuring costs and charges incurred in connection with the planned exit of certain retail stores in North America and Greater China, asset impairment charges, net gains on lease modifications, loss on extinguishment of debt, amortization of debt discount and gain on the sale of assets related to U.S. distribution center and the settlement of the related interest rate swap was based on our assessment of deductibility using the statutory income tax rate (inclusive of the impact of valuation allowances) of the tax jurisdiction in which the charges were incurred.
14We exclude the dilutive impact of the Notes at stock prices below $40.65 and $36.89 for the 2024 Notes and 2028 Notes, respectively, based on the bond hedge contracts in place that will deliver shares to offset dilution. At stock prices in excess of $36.89 for the 2028 Notes, we would have an obligation to deliver additional shares in excess of the dilution protection provided by the bond hedges.
15Adjustments represent the potentially dilutive impact of outstanding stock options and restricted stock units which are not included in the computation of diluted net loss per share as the impact would be antidilutive.
16Adjustments include the related income tax effect based on our assessment of deductibility using the statutory income tax rate (inclusive of the impact of valuation allowances) of the tax jurisdiction in which the charges were incurred.
Our discussion and analysis herein also includes certain constant currency financial information. Foreign currency exchange rate fluctuations affect the amount reported from translating our 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. We provide 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, retail comparable sales and earnings (loss) from operations on a constant currency basis, operating 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. To calculate balance sheet amounts on a constant currency basis, the current period balance sheet amount is translated into U.S. dollars at the exchange rate in effect at the comparable prior-year period end. The constant currency calculations do not adjust for the impact of revaluing specific transactions denominated in a currency that is different from the functional currency of that entity when exchange rates fluctuate.
In calculating the estimated impact of currency fluctuations (including translational and transactional impacts) on other measures such as earnings (loss) per share, we estimate gross margin (including the impact of foreign exchange currency contracts designated as cash flow hedges for anticipated merchandise purchases) and expenses using the appropriate prior-year rates, translate the estimated foreign earnings (loss) at the comparable prior-year rates and consider the year-over-year earnings impact of gains or losses arising from balance sheet remeasurement and foreign exchange currency contracts not designated as cash flow hedges for merchandise purchases. The constant currency information presented may not be comparable to similarly titled measures reported by other companies.
Liquidity and Capital Resources
We use our liquidity globally primarily to fund our working capital, occupancy costs, interest and principal payments on our debt, remodeling and rationalization of our retail stores, shop-in-shop programs, concessions, systems, infrastructure, compensation expenses, other existing operations, expansion plans, international growth and potential acquisitions and investments. Generally, our working capital needs are highest during the late summer and fall as our inventories increase before the holiday selling period. In addition, in the United States, we need liquidity for payment of dividends to our stockholders and to fund share repurchases, if any.
During the six months ended August 2, 2025, we relied primarily on trade credit, available cash, real estate and other operating leases, finance leases, proceeds from our credit facilities and internally generated funds to finance our operations. We anticipate we will be able to satisfy our ongoing cash requirements for the foreseeable future, including at least the next 12 months, for working capital, capital expenditures, payments on our debt, finance leases and operating leases, as well as lease modification payments, potential acquisitions and investments, expected income tax payments, dividend payments to stockholders and share repurchases, if any, primarily with cash flow from operations and existing cash balances as supplemented by borrowings under our existing credit facilities and proceeds from our term loans and other indebtedness, as needed.
The Merger Agreement contains customary covenants regarding the conduct of our business prior to the closing of the Proposed Transaction, including restrictions on our ability to incur additional indebtedness and to make certain capital expenditures. We do not believe that the restrictions in the Merger Agreement will prevent us from meeting our debt obligations, ongoing costs of operations, working capital needs, or capital expenditure requirements. See "Risk Factors-While the Merger Agreement is in effect, we are subject to restrictions on our business activities."
In May 2022, we entered into a €250 million revolving credit facility through a European subsidiary, which replaced certain European short-term borrowing arrangements. In June 2024, we amended the revolving credit facility to, among other things, expand the borrowing capacity under the credit agreement by €100 million to €350 million. As of August 2, 2025, we had approximately $156.4 million of remaining borrowing capacity on this facility. In December 2022, we entered into an amendment of our senior secured asset-based revolving credit facility, which increased borrowing capacity from $120 million to $150 million and extended the maturity date of the credit facility to December 20, 2027. In March 2024, we amended the senior secured asset-based revolving credit facility to increase the total borrowing capacity under the facility by $50 million to $200 million. As of August 2, 2025, we had approximately $176.1 million of borrowing capacity on this facility.
Due to the seasonality of our business and cash needs, we may increase borrowings under our established credit facilities or enter new credit facilities from time-to-time during the next 12 months and beyond. If we experience a sustained decrease in consumer demand, we may require access to additional credit, which may not be available to us on commercially acceptable terms or at all.
Our outstanding 2028 Notes may be converted at the option of the holders as described in Note 11 - Convertible Senior Notes and Related Transactions of the notes to our condensed consolidated financial statements included in this Quarterly Report and in "Part I, Item 1. Financial Statements - Note 11 - Convertible Senior Notes and Related Transactions" of the consolidated financial statements included in our
fiscal 2025 Annual Report on Form 10-K. As of August 2, 2025, none of the conditions allowing holders of the 2028 Notes to convert had been met. Pursuant to the terms of the 2028 Notes, if our stock trading price exceeds 130% of the conversion price of the 2028 Notes (approximately $21.80 per share as of August 2, 2025) for at least 20 trading days during the 30 consecutive trading-day period ending on, and including, the last trading day of any calendar quarter, holders of the 2028 Notes would have the right to convert their convertible notes during the next calendar quarter. In accordance with the terms of the indentures governing the 2028 Notes, we are required to adjust the conversion rate and the conversion price of the 2028 Notes for quarterly dividends exceeding $0.225 per share. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, in the manner and subject to the terms and conditions provided in the indenture governing the 2028 Notes, and in the event of any conversion we expect to settle the principal amount of our 2028 Notes in cash and any excess in shares. Additionally, if completed, the Merger is expected to constitute a "fundamental change" under the 2028 Indenture. The 2028 Indenture provides that if the Company undergoes a "fundamental change," subject to certain conditions, holders of the 2028 Notes may require the Company to purchase for cash all or any portion of their 2028 Notes for a price of 100% of the principal amount of the 2028 Notes to be purchased plus any accrued and unpaid interest up to but excluding the fundamental change purchase date. The convertible note hedge transaction we entered into in connection with our issuance of the 2028 Notes is expected generally to reduce the potential dilution upon conversion of the 2028 Notes and/or offset any cash payments we are required to make in excess of the principal amount of the 2028 Notes that are converted, as the case may be.
We have historically considered the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested. As a result of the 2017 Tax Cuts and Jobs Act, we had a substantial amount of previously taxed earnings that could be distributed to the United States without additional U.S. taxation. As of August 2, 2025, we determined that approximately $300.0 million of such foreign earnings are not indefinitely reinvested. The incremental tax cost to repatriate these earnings to the United States is immaterial. We intend to indefinitely reinvest the remaining earnings from our foreign subsidiaries for which a deferred income tax liability has not already been recorded. We continue to evaluate our plans for reinvestment or repatriation of unremitted foreign earnings and regularly review our cash positions and determination of indefinite reinvestment of foreign earnings. If we determine that all or a portion of such foreign earnings are no longer indefinitely reinvested, we may be subject to additional foreign withholding taxes and U.S. state income taxes beyond the one-time transition tax.
As of August 2, 2025, we had cash and cash equivalents of $189.6 million, of which approximately $33.4 million was held in the United States. Excess cash and cash equivalents, which represent the majority of our outstanding balance, are held primarily in overnight deposit, short-term time deposit accounts and money market accounts. As of August 2, 2025, we had roughly $350 million of available global borrowing capacity, bringing our combined cash, cash equivalents and borrowing capacity to approximately $540 million. Please refer to "Forward-Looking Statements" discussed above and "Part I, Item 1A. Risk Factors" contained in our fiscal 2025 Annual Report on Form 10-K and Part II, Item 1A. Risk Factors in this Quarterly Report for a discussion of risk factors which could reasonably be likely to result in a decrease of internally generated funds available to finance capital expenditures and working capital requirements.
Six Months Ended August 2, 2025 and August 3, 2024
Operating Activities
Net cash provided by operating activities was $1.5 million for the six months ended August 2, 2025, compared to net cash provided by operating activities of $21.7 million for the same prior-year period, or a deterioration of $20.2 million. This deterioration was driven primarily by the receipt in the prior year period of an upfront cash payment related to the handbag license renewal and lower cash earnings in the current six months period.
Investing Activities
Net cash used in investing activities was $46.3 million for the six months ended August 2, 2025, compared to $60.9 million for the same prior-year period. Net cash used in investing activities for the six months ended August 2, 2025 relatedprimarily to investments in existing store remodeling programs and retail expansion and, to a lesser extent, technology and other infrastructure.
The decrease in cash used in investing activities was driven primarily by our rag & bone acquisition, partially offset by the proceeds from the sale of our U.S. distribution center during the six months ended August 3, 2024. During the six months ended August 2, 2025, we opened 35 directly-operated stores compared to 26 directly-operated stores that were opened in the same prior-year period.
Financing Activities
Net cash provided by financing activities was $38.2 million for the six months ended August 2, 2025, compared to net cash used in financing activities of $95.4 million for the same prior-year period. The improvement of$133.6 million was primarily due to lower cash dividend payments,no purchase of treasury stock or repayments of convertible senior notes and related transactions, partially offset by lower net borrowings during the six months ended August 2, 2025 compared to the same prior-year period.
Effect of Exchange Rates on Cash and Cash Equivalents and Restricted Cash
During the six months ended August 2, 2025, changes in foreign currency translation rates increased our reported cash, cash equivalents and restricted cash balance by $8.6 million compared to a decrease of $5.4 million during the same prior-year period. Refer to "Foreign Currency Volatility" above for further information on fluctuations in exchange rates.
Working Capital
As of August 2, 2025, we had net working capital (including cash and cash equivalents) of $456.4 million compared to $418.0 million at February 1, 2025 and $400.3 million at August 3, 2024. Our primary working capital needs are for payments for inventories, salaries and wages, and the current portion of lease liabilities.
The accounts receivable balance consists of trade receivables relating primarily to our wholesale business in Europe and, to a lesser extent, to our wholesale businesses in the Americas and Asia, royalty receivables relating to our licensing operations, credit card and retail concession receivables related to our retail businesses and certain other receivables. Accounts receivable increased by $36.6 million, or 11.0%, to $368.7 million as of August 2, 2025, from $332.0 million at August 3, 2024. On a constant currency basis, accounts receivable increased by $26.6 million, or 8.0%, when compared to August 3, 2024. As of August 2, 2025, approximately 46% of our total net trade receivables and 55% of our European net trade receivables were subject to credit insurance coverage, certain bank guarantees or letters of credit for collection purposes. Our credit insurance coverage contains certain terms and conditions specifying deductibles and annual claim limits.
Inventory increased by $65.1 million, or 10.8%, to $668.4 million as of August 2, 2025, from $603.3 million at August 3, 2024. On a constant currency basis, inventory increased by $48.6 million, or 8.0%, when compared to August 3, 2024, driven primarily by the acceleration of inventory receipts to mitigate the impact of the Red Sea crisis.
Capital Expenditures
Gross capital expenditures totaled $43.4 million, before deducting lease incentives of $0.9 million, for the six months ended August 2, 2025. This compares to gross capital expenditures of $41.5 million, before deducting lease incentives of $1.5 million, for the same prior-year period.
When we prioritize investments, we will focus on their strategic significance and their return on invested capital expectations. We will consider opportunistic strategic acquisitions of brands and businesses that leverage our global infrastructure and network of licensees and wholesale partners.
Dividends
On August 27, 2025, we announced a regular quarterly cash dividend of $0.225 per share on our common stock. The cash dividend will be paid on September 26, 2025 to stockholders of record as of the close of business on September 10, 2025.
Decisions on whether, when and in what amounts to continue making any future dividend distributions will remain at all times entirely at the discretion of our Board of Directors, which reserves the right, in its sole discretion, to change or terminate our dividend practices at any time and for any reason without prior notice. The payment of cash dividends in the future will be based upon a number of business, legal and other considerations, including changes in our financial position, capital allocation plans (including a desire to retain or accumulate cash), capital spending plans, stock purchase plans, acquisition strategies, strategic initiatives, debt payment plans (including a desire to maintain or improve credit ratings on our debt securities), debt covenant requirements, pension funding or other benefits payments. See "Risk Factors-While the Merger Agreement is in effect, we are subject to restrictions on our business activities" for information regarding restrictions on our business during the pendency of the Proposed Transaction.
Share Repurchases
On March 25, 2024, the Board of Directors authorized a $200 million share repurchase program (the "2024 Share Repurchase Program"). Repurchases may be made on the open market or in privately negotiated transactions, pursuant to Rule 10b5-1 trading plans or other available means. There is no minimum or maximum number of shares to be repurchased under the program and the program may be discontinued at any time without prior notice.
During the six months ended August 2, 2025, we did not make any share repurchases. During the six months ended August 3, 2024, we repurchased 2.6 million shares under our 2024 Share Repurchase Program at an aggregate cost of $60.8 million, including excise tax. These shares were repurchased through broker assisted market transactions in connection with the exchange and subscription offering related to the 2024 Notes and the March Additional 2028 Notes (as defined and described in Note 11 - Convertible Senior Notes and Related Transactions to our condensed consolidated financial statements included in this Quarterly Report). As of August 2, 2025, we had remaining authority under the 2024 Share Repurchase Program to purchase $139.8 million of our common stock.
See "Risk Factors-While the Merger Agreement is in effect, we are subject to restrictions on our business activities" for information regarding restrictions on our business during the pendency of the Proposed Transaction.
Borrowings and Finance Lease Obligations and Convertible Senior Notes
Refer to Note 11 - Convertible Senior Notes and Related Transactions in the notes to our condensed consolidated financial statements in this Quarterly Report for disclosures about our convertible senior notes and related transactions. In addition, refer to Note 10 - Borrowings and Finance Lease Obligations in the notes to our condensed consolidated financial statements included in this Quarterly Report for disclosures about our borrowings and finance lease obligations.
Supplemental Executive Retirement Plan
As a non-qualified pension plan, no dedicated funding of our Supplemental Executive Retirement Plan ("SERP") is required; however, we have made periodic payments into insurance policies held in a rabbi trust to fund the expected obligations arising under the non-qualified SERP.
The cash surrender values of the insurance policies were $64.4 million and $63.8 million as of August 2, 2025 and February 1, 2025, respectively, and were included in other assets in our condensed consolidated balance sheets. As a result of changes in the value of the insurance policy investments, we recorded unrealized gains of $1.5 million and $1.7 million in other income (expense) during the three and six months ended August 2, 2025, respectively, and unrealized gains of $2.5 million and $2.2 million in other income (expense) during the three and six months ended August 3, 2024, respectively. The projected benefit obligation was $33.5
million and $33.8 million as of August 2, 2025 and February 1, 2025, respectively, and was included in accrued expenses and other current liabilities and other long-term liabilities in our condensed consolidated balance sheets depending on the expected timing of payments. SERP benefit payments of $0.5 million were made during each of the three months ended August 2, 2025 and August 3, 2024. SERP benefit payments of $1.1 million and $1.0 million were made during the six months ended August 2, 2025 and August 3, 2024, respectively.
Material Cash Requirements
As of August 2, 2025, except as disclosed above, there were no material changes to our material cash requirements from known contractual and other obligations, including commitments for capital expenditures, outside the ordinary course of business compared to the disclosures included in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Material Cash Requirements" in Part II, Item 7 in our fiscal 2025 Annual Report on Form 10-K. Refer to Note 10 - Borrowings and Finance Lease Obligations and Note 11 - Convertible Senior Notes and Related Transactions in the notes to our condensed consolidated financial statements included in this Quarterly Report for further information.
Application of Critical Accounting Policies and Estimates
Our critical accounting policies reflecting our estimates and judgments are described in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our fiscal 2025 Annual Report on Form 10-K. There have been no significant changes to our critical accounting policies since the filing of our fiscal 2025 Annual Report on Form 10-K.
Recently Issued Accounting Guidance
Refer to Note 1 - Basis of Presentation in the notes to our condensed consolidated financial statements included in this Quarterly Report for disclosures about recently issued and adopted accounting guidance.
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