Guess(GES) - 2026 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements (unaudited) This section presents the company's unaudited condensed consolidated financial statements, including balance sheets, income statements, comprehensive income statements, cash flow statements, and statements of stockholders' equity, along with detailed notes covering key accounting information Condensed Consolidated Balance Sheets as of August 2, 2025 and February 1, 2025 This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific reporting dates Condensed Consolidated Balance Sheets (USD thousands) | Indicator | August 2, 2025 (USD thousands) | February 1, 2025 (USD thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | 189,635 | 187,696 | | Inventories | 668,378 | 562,649 | | Total assets | 2,976,298 | 2,766,678 | | Liabilities and Stockholders' Equity | | | | Total liabilities | 2,435,480 | 2,215,903 | | Stockholders' equity attributable to Guess?, Inc. | 487,551 | 505,007 | | Total stockholders' equity | 540,402 | 550,407 | - As of August 2, 2025, the company's total assets were $2.976 billion, representing a 7.58% increase from February 1, 2025[12] - As of August 2, 2025, the company's inventories were $668 million, representing an 18.79% increase from February 1, 2025[12] Condensed Consolidated Statements of Income (Loss) — Three and Six Months Ended August 2, 2025 and August 3, 2024 This section presents the company's financial performance over three and six-month periods, detailing net revenue, gross profit, operating income (loss), and net income (loss) attributable to Guess?, Inc Condensed Consolidated Statements of Income (Loss) (USD thousands) | Indicator (USD thousands) | August 2, 2025 (3 months) | August 3, 2024 (3 months) | August 2, 2025 (6 months) | August 3, 2024 (6 months) | | :--- | :--- | :--- | :--- | :--- | | Net revenue | 772,937 | 732,560 | 1,420,738 | 1,324,503 | | Gross profit | 328,769 | 319,943 | 587,226 | 568,044 | | Operating income (loss) | 18,086 | 47,776 | (15,222) | 27,888 | | Net income (loss) attributable to Guess?, Inc. | 6,242 | (10,603) | (26,686) | 2,419 | | Basic earnings (loss) per share | 0.12 | (0.21) | (0.53) | 0.04 | | Diluted earnings (loss) per share | 0.12 | (0.28) | (0.53) | 0.04 | - For the three months ended August 2, 2025, net revenue increased by 5.51% year-over-year, but operating income decreased by 62.13% year-over-year, and net income attributable to Guess?, Inc. shifted from a loss to a profit[13] - For the six months ended August 2, 2025, net revenue increased by 7.27% year-over-year, but operating income shifted from a profit to a loss, and net income attributable to Guess?, Inc. shifted from a profit to a significant loss[13] Condensed Consolidated Statements of Comprehensive Income (Loss) — Three and Six Months Ended August 2, 2025 and August 3, 2024 This section outlines the company's comprehensive income (loss), including net income (loss) and other comprehensive income (loss) components, such as foreign currency translation adjustments Condensed Consolidated Statements of Comprehensive Income (Loss) (USD thousands) | Indicator (USD thousands) | August 2, 2025 (3 months) | August 3, 2024 (3 months) | August 2, 2025 (6 months) | August 3, 2024 (6 months) | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | 8,290 | (8,636) | (22,949) | 7,270 | | Foreign currency translation adjustments | 12,860 | (1,952) | 53,876 | (4,308) | | Comprehensive income (loss) attributable to Guess?, Inc. | 13,116 | (11,213) | 2,248 | 1,771 | - For the three months ended August 2, 2025, comprehensive income attributable to Guess?, Inc. was $13.116 million, a significant improvement from the $11.213 million loss in the prior-year period, primarily due to gains from foreign currency translation adjustments[15] - For the six months ended August 2, 2025, comprehensive income attributable to Guess?, Inc. was $2.248 million, which increased from $1.771 million in the prior-year period, with foreign currency translation adjustments contributing a $53.876 million gain[15] Condensed Consolidated Statements of Cash Flows — Six Months Ended August 2, 2025 and August 3, 2024 This section details the company's cash inflows and outflows from operating, investing, and financing activities over the six-month periods, reflecting changes in liquidity Condensed Consolidated Statements of Cash Flows (USD thousands) | Indicator (USD thousands) | August 2, 2025 (6 months) | August 3, 2024 (6 months) | | :--- | :--- | :--- | | Net cash provided by operating activities | 1,500 | 21,734 | | Net cash used in investing activities | (46,310) | (60,894) | | Net cash provided by (used in) financing activities | 38,164 | (95,441) | | Cash, cash equivalents, and restricted cash, end of period | 190,447 | 220,250 | - For the six months ended August 2, 2025, net cash provided by operating activities was $1.5 million, a significant decrease from $21.734 million in the prior-year period[18] - During the same period, net cash provided by financing activities was $38.164 million, compared to a net outflow of $95.441 million in the prior-year period, primarily due to increased borrowings and reduced dividend payments[18] Condensed Consolidated Statements of Stockholders' Equity — Three and Six Months Ended August 2, 2025 and August 3, 2024 This section outlines the changes in the company's stockholders' equity, including net income (loss), other comprehensive income (loss), and dividend distributions Condensed Consolidated Statements of Stockholders' Equity (USD thousands) | Indicator (USD thousands) | August 2, 2025 (End of Period) | February 1, 2025 (Beginning of Period) | | :--- | :--- | :--- | | Stockholders' equity attributable to Guess?, Inc. | 487,551 | 505,007 | | Retained earnings | 1,231,417 | 1,289,233 | | Accumulated other comprehensive loss | (130,262) | (159,196) | - As of August 2, 2025, stockholders' equity attributable to Guess?, Inc. was $487.551 million, which decreased from February 1, 2025, primarily impacted by net loss and dividend payments[21] - For the six months ended August 2, 2025, the company paid $31.641 million in dividends, a significantly reduced amount compared to $151.696 million in the prior-year period[18][21][24] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements, covering critical accounting policies and significant transactions (1) Basis of Presentation This note describes the company's business, the proposed take-private transaction, financial statement preparation, accounting periods, macroeconomic trends, and key accounting policies - The company announced a merger agreement with Authentic Brands Group LLC on August 20, 2025, for a proposed take-private transaction, where Authentic will own 51% of the company's intellectual property, and existing shareholders (Rolling Stockholders) will own 49% of the intellectual property and 100% of the company's operating assets, with other Guess? shareholders receiving $16.75 per share in cash and the company ceasing to be publicly traded[27][29] - Macroeconomic conditions, including declining consumer spending, inflation, rising interest rates, foreign currency volatility, the wars in Ukraine and Gaza, and the Red Sea crisis, continue to negatively impact the company's business, with the U.S. announcing a 10% universal baseline tariff on all U.S. imports on April 2, 2025, potentially increasing product costs[37][38] Cash, Cash Equivalents, and Restricted Cash (USD thousands) | Indicator (USD thousands) | August 2, 2025 | August 3, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | 189,635 | 218,856 | | Restricted cash | 812 | 1,394 | | Total cash, cash equivalents, and restricted cash | 190,447 | 220,250 | - As of August 2, 2025, approximately 46% of trade accounts receivable and 55% of European trade accounts receivable were covered by credit insurance, bank guarantees, or letters of credit[50] (2) Acquisition of rag & bone This note details the acquisition of rag & bone's operating assets and liabilities, including the cash consideration, supplier consideration liability, and the company's equity method investment - The company completed the acquisition of rag & bone's operating assets and liabilities on April 2, 2024, paying approximately $57.1 million in cash consideration and co-owning rag & bone's intellectual property with WHP Global[58][59] - A supplier consideration liability of $46.5 million was recorded in the acquisition, to be amortized to selling, general, and administrative expenses (SG&A) over five years, with no goodwill recognized[63] rag & bone Acquisition Fair Value (USD thousands) | Indicator (USD thousands) | April 2, 2024 | | :--- | :--- | | Cash and cash equivalents | 2,083 | | Inventories | 52,105 | | Total assets | 202,317 | | Total liabilities | 96,759 | | Fair value of net assets | 105,558 | | Cash consideration | 57,064 | | Supplier consideration | 46,454 | - The company's 50% equity interest in the joint venture owning rag & bone's intellectual property was valued at approximately $41.3 million and $45.4 million as of August 2, 2025, and February 1, 2025, respectively[67] (3) Lease Accounting This note describes the company's operating lease arrangements for various facilities, including the sale-leaseback transaction of a US distribution center and unrecorded lease commitments - The company primarily leases showrooms, offices, distribution and warehouse facilities, and retail stores, with lease agreements extending through August 2044[70] - As of August 2, 2025, the company had estimated approximately $39.8 million in additional operating lease commitments not yet recognized on the condensed consolidated balance sheets[73] Operating Lease Liabilities (USD thousands) | Indicator (USD thousands) | August 2, 2025 | February 1, 2025 | | :--- | :--- | :--- | | Operating lease right-of-use assets | 933,717 | 839,879 | | Operating lease liabilities (current) | 189,254 | 176,972 | | Operating lease liabilities (non-current) | 793,515 | 715,755 | | Total lease liabilities | 990,779 | 902,560 | - For the six months ended August 2, 2025, operating lease cash outflows were $125.919 million, compared to $108.179 million in the prior-year period[79] (4) Earnings (Loss) per Share This note details the calculation of basic and diluted earnings (loss) per share, highlighting the impact of net income (loss) and potential dilutive securities Earnings (Loss) per Share (USD thousands, per share data) | Indicator | August 2, 2025 (3 months) | August 3, 2024 (3 months) | August 2, 2025 (6 months) | August 3, 2024 (6 months) | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) attributable to Guess?, Inc. (USD thousands) | 6,242 | (10,603) | (26,686) | 2,419 | | Basic earnings (loss) per share | 0.12 | (0.21) | (0.53) | 0.04 | | Diluted earnings (loss) per share | 0.12 | (0.28) | (0.53) | 0.04 | | Basic weighted-average common shares (thousands) | 51,499 | 52,436 | 51,437 | 52,672 | | Diluted weighted-average common shares (thousands) | 52,115 | 67,092 | 51,437 | 54,118 | - For the three months ended August 2, 2025, diluted earnings per share were $0.12, compared to a diluted loss per share of $0.28 in the prior-year period, indicating improved profitability[80] - For the six months ended August 2, 2025, diluted loss per share was $0.53, compared to diluted earnings per share of $0.04 in the prior-year period, indicating decreased profitability[80] (5) Stockholders' Equity This note outlines changes in stockholders' equity, including share repurchase programs, dividend policies, and accumulated other comprehensive income (loss), with restrictions due to a proposed transaction - The company authorized a $200 million share repurchase program on March 25, 2024, but no share repurchases were made during the six months ended August 2, 2025, with $139.8 million remaining authorized as of that date[85][86] - During the proposed transaction period, the company is prohibited from repurchasing common stock without prior written consent from Authentic[87] Cash Dividends per Share | Indicator | August 2, 2025 (3 months) | August 3, 2024 (3 months) | August 2, 2025 (6 months) | August 3, 2024 (6 months) | | :--- | :--- | :--- | :--- | :--- | | Cash dividends per share | 0.30 | 0.30 | 0.60 | 2.85 | - During the proposed transaction period, the company is prohibited from declaring or paying regular quarterly dividends exceeding $0.225 per share without prior written consent from Authentic[89] (6) Accounts Receivable This note details the composition of accounts receivable, including trade, royalty, and other receivables, along with the provision for doubtful accounts Accounts Receivable (USD thousands) | Indicator (USD thousands) | August 2, 2025 | February 1, 2025 | | :--- | :--- | :--- | | Trade accounts receivable | 344,757 | 353,375 | | Royalty accounts receivable | 26,654 | 35,163 | | Other accounts receivable | 5,271 | 9,277 | | Total accounts receivable | 376,682 | 397,815 | | Less: Allowance for doubtful accounts | 8,008 | 6,654 | | Net accounts receivable | 368,674 | 391,161 | - As of August 2, 2025, net accounts receivable were $368.674 million, representing a 5.75% decrease from February 1, 2025[95] (7) Inventories This note presents the breakdown of inventories, including raw materials, work-in-process, and finished goods, along with the provision for inventory obsolescence Inventories (USD thousands) | Indicator (USD thousands) | August 2, 2025 | February 1, 2025 | | :--- | :--- | :--- | | Raw materials | 1,042 | 2,801 | | Work-in-process | 1,400 | 0 | | Finished goods | 665,936 | 559,848 | | Total inventories | 668,378 | 562,649 | | Inventory obsolescence reserve | 30,600 | 26,900 | - As of August 2, 2025, total inventories were $668.378 million, representing an 18.79% increase from February 1, 2025, primarily driven by finished goods[96] - As of August 2, 2025, the inventory obsolescence reserve was $30.6 million, representing a 13.75% increase from February 1, 2025[96] (8) Income Taxes This note discusses the company's income tax position, including effective tax rates, unrecognized tax benefits, and the impact of recent tax law changes - For the six months ended August 2, 2025, the company's effective income tax rate was -2.2%, compared to 49.4% in the prior-year period, primarily due to changes in the distribution of earnings across tax jurisdictions and a loss during the six months of 2025[97] - As of August 2, 2025, the company had accrued a cumulative reserve of $42.6 million for uncertain income tax positions, including $20.6 million related to an intercompany intellectual property transfer in fiscal 2022[99] - The company has determined that approximately $300 million of foreign undistributed earnings are no longer indefinitely reinvested, but the additional tax on repatriation is not material[102] - The 2025 Tax Act, signed into law on July 4, 2025, made several modifications to U.S. corporate income tax provisions but did not have a material impact on the company's condensed consolidated financial statements for the three months ended August 2, 2025[103] (9) Segment Information This note provides financial data for the company's five reportable segments, detailing net revenue, operating income (loss), and capital expenditures, along with geographical revenue disclosures - The company's operations are organized into five reportable segments: Europe, Americas Retail, Americas Wholesale, Asia, and Licensing, with the rag & bone acquisition integrated into existing segments[104] Segment Net Revenue and Operating Income (Loss) for the Three Months Ended August 2, 2025 (USD thousands) | Segment | Net Revenue | Operating Income (Loss) | | :--- | :--- | :--- | | Europe | 436,911 | 46,381 | | Americas Retail | 178,810 | (6,648) | | Americas Wholesale | 75,194 | 14,730 | | Asia | 55,765 | (3,803) | | Licensing | 26,257 | 25,056 | | Total Company | 772,937 | 75,716 | Segment Net Revenue and Operating Income (Loss) for the Six Months Ended August 2, 2025 (USD thousands) | Segment | Net Revenue | Operating Income (Loss) | | :--- | :--- | :--- | | Europe | 742,983 | 37,492 | | Americas Retail | 336,008 | (23,156) | | Americas Wholesale | 176,625 | 34,881 | | Asia | 113,870 | (5,596) | | Licensing | 51,252 | 48,075 | | Total Company | 1,420,738 | 91,696 | Net Revenue by Geographic Area for the Six Months Ended August 2, 2025 (USD thousands) | Region | Product Sales | Net Royalties | Total Net Revenue | | :--- | :--- | :--- | :--- | | United States | 377,052 | — | 377,052 | | Italy | 142,671 | — | 142,671 | | Germany | 97,880 | — | 97,880 | | Spain | 79,467 | — | 79,467 | | South Korea | 66,561 | — | 66,561 | | Canada | 57,837 | — | 57,837 | | Other Countries | 548,018 | — | 548,018 | | Total Product Sales | 1,369,486 | — | 1,369,486 | | Total Net Royalties | — | 51,252 | 51,252 | | Total Net Revenue | 1,369,486 | 51,252 | 1,420,738 | (10) Borrowings and Finance Lease Obligations This note details the company's outstanding borrowings and finance lease obligations, including credit arrangements and available borrowing capacity Borrowings and Finance Lease Obligations (USD thousands) | Indicator (USD thousands) | August 2, 2025 | February 1, 2025 | | :--- | :--- | :--- | | Term loan | — | 2,507 | | Finance lease obligations | 8,010 | 9,833 | | Credit arrangement borrowings | 268,075 | 170,327 | | Other | 9,405 | 8,949 | | Total debt and finance lease obligations | 285,490 | 191,616 | | Less: Current portion | 27,120 | 40,948 | | Long-term debt and finance lease obligations | 258,370 | 150,668 | - As of August 2, 2025, the company had no outstanding term loan borrowings, compared to $2.507 million as of February 1, 2025[113] - As of August 2, 2025, the company had $249.1 million in outstanding borrowings and $156.4 million in available borrowing capacity under its 2024 Credit Arrangement[123] - As of August 2, 2025, the company had no outstanding borrowings but $176.1 million in available borrowing capacity under its 2023 Credit Arrangement[116] (11) Convertible Senior Notes and Related Transactions This note describes the company's convertible senior notes, including their conversion into 2028 notes, the associated debt extinguishment losses, and the fair value measurement of related derivative instruments - The company converted its 2024 Notes into 2028 Notes through a series of exchange and subscription agreements, resulting in the recognition of debt extinguishment losses in fiscal 2024 and fiscal 2025[127][129][130] 2028 Convertible Senior Notes Net Carrying Value (USD thousands) | Indicator (USD thousands) | August 2, 2025 | February 1, 2025 | | :--- | :--- | :--- | | 2028 Initial Notes net carrying value | 269,631 | 268,710 | | 2028 Additional Notes net carrying value | 68,591 | 67,817 | | Total 2028 Notes net carrying value | 338,222 | 336,527 | - The initial conversion price for the 2028 Notes was approximately $24.70 per share, which has been adjusted to approximately $21.80 per share as of August 2, 2025, to reflect quarterly dividends[132] - The 2024 Notes matured in April 2024, with the company settling the remaining $33.5 million in principal with $33.3 million in cash and 122,313 shares of common stock, leaving no 2024 Notes outstanding as of August 2, 2025[141] - The 2028 Bond Hedge no longer qualifies for the derivative scope exception and is therefore recognized as a derivative asset and remeasured at fair value at each reporting period end[148] (12) Share-Based Compensation This note summarizes the company's share-based compensation expense, unrecognised compensation costs, and the impact of the proposed transaction on unvested equity awards Share-Based Compensation Expense (USD thousands) | Indicator (USD thousands) | August 2, 2025 (3 months) | August 3, 2024 (3 months) | August 2, 2025 (6 months) | August 3, 2024 (6 months) | | :--- | :--- | :--- | :--- | :--- | | Stock awards/units | 5,329 | 4,307 | 10,796 | 8,907 | | Employee stock purchase plan | 58 | 8 | 117 | 99 | | Total share-based compensation expense | 5,387 | 4,315 | 10,913 | 9,006 | - As of August 2, 2025, unrecognized compensation cost related to non-vested stock awards/units was approximately $43.5 million, expected to be recognized over a weighted-average period of 1.9 years[149] - Upon completion of the proposed transaction, all outstanding and unvested equity awards (except for certain awards held by Rolling Stockholders) will accelerate vesting and be paid in cash[150] (13) Related Party Transactions This note discloses various related party transactions with Marciano family entities, including lease agreements, aircraft leases, investments, and procurement, as well as the proposed take-private transaction - The company has five lease agreements with Marciano entities for warehouse and administrative facilities, with terms ranging from 2026 to 2037, including an extended lease for its Los Angeles headquarters until September 2037 with annual rent of approximately $7.6 million[157][158] - For the six months ended August 2, 2025, the company paid approximately $2.1 million for aircraft leases to a third-party management company, compared to $1.4 million in the prior-year period[165] - The company holds a 30% minority interest in a men's footwear company and has provided a $2 million revolving line of credit, along with fulfillment and distribution agreements, and sells its products in rag & bone retail stores[167][168][169][170] - The company purchases faux fur products from a fashion accessories company in which Marciano entities own a 16% interest and the company's CEO, Carlos Alberini, owns a 4% interest, with total payments of approximately $0.3 million for the six months ended August 2, 2025[171] (14) Commitments and Contingencies This note discloses the company's investment commitments, legal proceedings, and other contingent liabilities, including tax assessments and settlement agreements - As of August 2, 2025, the company had committed to invest €3.0 million ($3.5 million) in certain private equity funds[176] - The company received customs duty assessment notices from the Italian Customs Agency (ICA) for €9.8 million ($11.4 million) for the periods 2010-2012, with €8.5 million ruled in the company's favor and €1.2 million in ICA's favor, with some cases appealed to the Italian Supreme Court[178] - The company reached a settlement of $0.29 million with an individual regarding allegations of mistreatment by Mr. Paul Marciano and the company[179] - A put arrangement exists for the redeemable noncontrolling interest in Guess Brazil, with a carrying value of $0.4 million as of August 2, 2025, and February 1, 2025[180] (15) Defined Benefit Plans This note details the company's defined benefit plans, including the Supplemental Executive Retirement Plan (SERP) and overseas pension plans, outlining their obligations and assets - As of August 2, 2025, the cash surrender value of the insurance policies for the Supplemental Executive Retirement Plan (SERP) was $64.4 million, with a projected benefit obligation of $33.5 million[182] - For the six months ended August 2, 2025, SERP benefit payments were $1.1 million[182] - As of August 2, 2025, the total projected benefit obligation for overseas pension plans was $76 million, with plan assets of $62.2 million, resulting in a net liability of $13.8 million[184] Net Periodic Defined Benefit Pension Cost for the Six Months Ended August 2, 2025 (USD thousands) | Indicator | SERP | Overseas Pension Plans | Total | | :--- | :--- | :--- | :--- | | Service cost | — | 2,737 | 2,737 | | Interest cost | 878 | 325 | 1,203 | | Expected return on plan assets | — | (398) | (398) | | Net amortization of unrecognized prior service credit | — | (92) | (92) | | Net amortization of actuarial (gain) loss | (228) | 286 | 58 | | Net periodic defined benefit pension cost | 650 | 2,858 | 3,508 | (16) Fair Value Measurements This note defines fair value measurements, categorizes assets and liabilities by fair value hierarchy, and discusses impairment tests for long-lived assets and goodwill Recurring Fair Value Measurements as of August 2, 2025 (USD thousands) | Asset/Liability | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Assets: | | | | | | Foreign currency forward contracts | — | 38 | — | 38 | | 2028 Bond Hedge | — | — | 7,181 | 7,181 | | Liabilities: | | | | | | Foreign currency forward contracts | — | 16,470 | — | 16,470 | | Embedded derivative | — | — | 1,570 | 1,570 | | Deferred compensation obligations | — | 19,731 | — | 19,731 | - The fair values of the 2028 Bond Hedge and embedded derivative are measured using a binomial lattice model, which utilizes observable inputs (e.g., company stock price) and unobservable inputs (e.g., expected volatility and instrument-specific credit spread), thus classified as Level 3[189] - For the six months ended August 2, 2025, the company recorded $8.4 million in asset impairment charges, primarily related to underperforming retail stores in Europe and North America and anticipated store closures[198] - For the six months ended August 2, 2025, the company assessed qualitative factors for goodwill and determined that the fair value of its reporting units was not more likely than not to be less than their carrying value, so no goodwill impairment occurred[200] (17) Derivative Financial Instruments This note details the company's derivative financial instruments and hedging strategies, including foreign currency forward contracts and interest rate swaps, and their fair value impact on net income (loss) - The company primarily uses foreign currency forward contracts to hedge against foreign currency exchange rate fluctuations in future cash flows and previously used interest rate swap agreements to convert floating-rate debt to fixed-rate debt (now settled)[201][202] Fair Value of Derivative Instruments (USD thousands) | Asset/Liability | August 2, 2025 Fair Value | February 1, 2025 Fair Value | | :--- | :--- | :--- | | Assets: | | | | Total derivatives designated as hedging instruments | 29 | 7,456 | | Total derivatives not designated as hedging instruments | 7,190 | 14,263 | | Liabilities: | | | | Total derivatives designated as hedging instruments | 11,125 | — | | Total derivatives not designated as hedging instruments | 6,915 | 2,468 | - As of August 2, 2025, the company had $182 million in outstanding European forward contracts to hedge anticipated merchandise purchases, expected to mature within the next 15 months[204] - Fair value changes for derivative instruments not designated as hedging instruments (including embedded derivatives and the 2028 Bond Hedge) are recognized in other income (expense) in net income (loss)[207] (18) Subsequent Events This note discloses significant events occurring after the reporting period, including the declaration of a quarterly cash dividend and the proposed take-private transaction with Authentic Brands Group - The company announced a regular quarterly cash dividend of $0.225 per share on August 27, 2025, payable on September 26, 2025, to shareholders of record at the close of business on September 10, 2025[209] - The company announced on August 20, 2025, that it had entered into a proposed transaction agreement with Authentic Brands Group LLC, which would result in the company's privatization[210] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's detailed analysis of the company's financial condition and operating results, covering macroeconomic factors, segment performance, strategic initiatives, and liquidity - The company announced a merger agreement with Authentic Brands Group LLC on August 20, 2025, for a proposed take-private transaction, expected to close in the fourth quarter of fiscal 2026[221] - For the three months ended August 2, 2025, the company's net revenue increased by 5.5%, or 3.0% at constant currency, while operating margin decreased by 420 basis points to 2.3%[260] - For the six months ended August 2, 2025, the company's net revenue increased by 7.3%, or 7% at constant currency, while operating income shifted from a profit to a loss, decreasing by 154.6%[295][304] - As of August 2, 2025, the company had $189.6 million in cash and cash equivalents and approximately $350 million in global available borrowing capacity, totaling approximately $540 million in cash, cash equivalents, and borrowing capacity[342] - For the six months ended August 2, 2025, net cash provided by operating activities was $1.5 million, a significant decrease from $21.7 million in the prior-year period, primarily due to an upfront payment for a handbag license renewal received in the prior-year period and lower cash earnings in the current period[343] General This section clarifies the scope of "we," "our," or "the Company" within the quarterly report, referring to Guess?, Inc. and its consolidated subsidiaries - In this quarterly report, "we," "our," or "the Company" refers to Guess?, Inc. and its consolidated subsidiaries[211] Forward-Looking Statements This section highlights that the report contains forward-looking statements subject to known and unknown risks and uncertainties that could cause actual results to differ materially from expectations - This quarterly report contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, involving expectations, analyses, and estimates regarding future results, the proposed transaction, rag & bone business, macroeconomic conditions, war impacts, convertible senior notes, future capital expenditures, and financial condition[212][213] - These forward-looking statements involve known and unknown risks and uncertainties that could cause actual future results to differ materially from current expectations, including risks related to brand image, consumer confidence, competition, inventory management, supply chain disruptions, weather conditions, growth strategy execution, acquisition integration, foreign currency volatility, and inflation[213][214] Business Update, Market Trends and Uncertainties This section addresses ongoing macroeconomic challenges, including declining consumer spending, inflation, and geopolitical conflicts, and the company's strategies to mitigate their impact - Macroeconomic conditions, including declining consumer spending, inflation, rising interest rates, foreign currency volatility, the wars in Ukraine and Gaza, and the Red Sea crisis, continue to negatively impact the company's business[215] - The company continues to closely monitor global and regional geopolitical and economic developments, strategically managing expenses to protect profitability and mitigating residual impacts of supply chain disruptions resulting from changes in global trade policies and practices where possible[216] - The U.S. announced a 10% universal baseline tariff on all U.S. imports on April 2, 2025, along with additional country-specific tariffs on certain trading partners, which could significantly increase the cost of the company's products[216] Business Segments This section outlines the company's five reportable business segments and how the Chief Operating Decision Maker assesses their performance based on net revenue and operating income - The company's operations are organized into five reportable segments: Europe, Americas Retail, Americas Wholesale, Asia, and Licensing, with the rag & bone acquisition integrated into existing segments[217][218] - The company's Chief Operating Decision Maker (CODM) primarily evaluates segment performance based on net revenue and operating income before certain corporate costs[219] Products This section identifies the company's primary revenue sources, including sales of various apparel and accessory brands and royalty income from global licensing activities - The company's net revenue is derived from sales of GUESS?, G by GUESS (GbG), GUESS Kids, GUESS JEANS, MARCIANO, and rag & bone apparel and certain accessories, as well as royalty income from global licensing activities[220] Proposed Take-Private Transaction with Authentic Brands Group This section details the proposed merger agreement with Authentic Brands Group LLC, which would result in the company's privatization and a cash payout to shareholders - The company announced a merger agreement with Authentic Brands Group LLC on August 20, 2025, for a proposed take-private transaction, where Authentic will acquire 51% of the company's intellectual property, and existing shareholders (Rolling Stockholders) will acquire 49% of the intellectual property and 100% of the company's operating assets[221] - Upon completion of the transaction, Guess? shareholders (other than Rolling Stockholders) will receive $16.75 per share in cash, and the company's common stock will no longer be listed on any public market[221] - The proposed transaction is expected to close in the fourth quarter of fiscal 2026, subject to certain conditions, including approval by a majority of outstanding common stock shareholders and disinterested shareholders[221] rag & bone Acquisition This section describes the acquisition of rag & bone, including the cash investment, ownership of operating assets, and the exclusive licensing agreement for intellectual property - The company completed the acquisition of New York fashion brand rag & bone on April 2, 2024, investing $57.1 million to own all of rag & bone's operating assets and co-own its intellectual property with WHP Global[223] - Guess Europe Sagl, a wholly-owned subsidiary of the company, entered into an intellectual property license agreement, granting it exclusive rights to manufacture and sell licensed products using rag & bone intellectual property globally[223] Foreign Currency Volatility This section discusses the significant impact of foreign currency fluctuations on the company's international revenue and earnings, and its use of derivative instruments to mitigate some of this risk - A significant portion of the company's international operations are conducted in non-U.S. dollar currencies (primarily the Euro, British Pound, Canadian Dollar, Chinese Yuan, Korean Won, Mexican Peso, Polish Zloty, Russian Ruble, and Turkish Lira), making currency fluctuations a significant factor in the U.S. dollar translation of international revenue and earnings[225] - In the first six months of fiscal 2026, the U.S. dollar strengthened against the Canadian Dollar, Chinese Yuan, Korean Won, Mexican Peso, and Turkish Lira, and weakened against the British Pound, Euro, Japanese Yen, Polish Zloty, and Russian Ruble, which had a favorable impact on net revenue and a favorable impact on operating income for the three months, but an unfavorable impact on operating income for the six months[228] - The company enters into derivative financial instruments to offset a portion, but not all, of its foreign currency risk[230] Inflation Impacts This section addresses the ongoing inflationary pressures affecting the company's cost structure, including transportation, employee compensation, and raw material costs, and their negative impact on margins - The company's financial results continue to be impacted by inflationary pressures affecting its overall cost structure, including transportation, employee compensation, raw materials, and other costs[230] - Increased transportation costs are primarily attributable to higher inbound freight rates, employee compensation has risen due to talent shortages and retention competition, and raw material costs have increased due to inflation and product quality enhancements[230][231][232] - These cost increases have negatively impacted the company's gross margins and expenses, with inflationary pressures expected to persist in the near term[234][235] Russia-Ukraine War This section outlines the company's operations in Russia and Ukraine, noting the limited impact on overall revenue but restrictions on business expansion in Russia due to sanctions - The company currently operates in Russia through wholesale and retail channels and has minimal wholesale operations in Ukraine through local partners, with Russia representing less than 4% of total net revenue for the first six months of fiscal 2025[236][237] - The Russia-Ukraine war has had no material impact on the company's existing operations, but U.S. prohibitions on new investments in Russia have limited business expansion in the region[238][240] - While increased transportation costs and transit times have affected Russian operations, they have not had a material impact on the company's business or results of operations[238][239] Strategy This section details the company's strategic vision, focusing on organizational development, growth, brand relevance, customer-centricity, product excellence, and optimizing profitability and return on invested capital - The company's strategic vision and implementation plan include six key priorities: organization and talent, growth, brand relevance, customer-centricity and digital expansion, product excellence, and optimization, efficiency, profitability, and return on invested capital[245] - The company plans to drive revenue growth by leveraging infrastructure and brand strength, focusing on increasing productivity in its existing network, growing organically in existing and new markets, expanding brands and categories, and considering opportunities to leverage its global infrastructure and partner network[246] - The company is committed to elevating the Guess and Marciano brands, improving product quality and sustainability to achieve more full-price sales and reduce promotional activities, with the addition of the rag & bone brand helping to reach a customer base complementary to Guess and Marciano[247] Capital Allocation This section describes the company's capital allocation strategy, prioritizing investments in growth and infrastructure, returning value to shareholders, and considering opportunistic strategic acquisitions - The company plans to continue prioritizing capital allocation to investments that support growth and infrastructure, while maintaining strict discipline in project capital allocation, including new store development, store remodels, and technology and logistics investments[251] - The company plans to consistently return value to shareholders through dividends and share repurchases (subject to proposed transaction restrictions) and consider opportunistic strategic acquisitions of brands and businesses that can leverage its global infrastructure and partner network[251] Retail Comparable Sales This section explains how the company reports quarterly retail comparable sales, which include both brick-and-mortar stores and e-commerce websites after a 13-month operational period - The company reports National Retail Federation calendar retail comparable sales on a quarterly basis, which include combined results from both brick-and-mortar retail stores and e-commerce websites[252] - Store sales are considered comparable after 13 full fiscal months of operation, and e-commerce sales are considered comparable after the online website has been operational in a country for 13 full fiscal months[254] Other This section clarifies the company's fiscal year calendar, which operates on a 52/53-week basis, ending on the Saturday closest to January 31st each year - The company operates on a 52/53-week fiscal year calendar, ending on the Saturday closest to January 31st each year[255] Executive Summary This section provides a high-level overview of the company's financial performance, key balance sheet items, and global store count for the reporting period Overview This section summarizes the company's net income and diluted earnings per share for the quarter, including adjustments for non-recurring items Net Income (Loss) Attributable to Guess?, Inc. and Diluted Earnings (Loss) per Share (USD thousands, per share data) | Indicator | August 2, 2025 (Quarter) | August 3, 2024 (Quarter) | | :--- | :--- | :--- | | Net income (loss) | 6,242 | (10,603) | | Diluted earnings (loss) per share | 0.12 | (0.28) | | Adjusted net income (loss) | 13,755 | 22,950 | | Adjusted diluted earnings (loss) per share | 0.26 | 0.42 | - For the quarter ended August 2, 2025, the company recognized $2.3 million in asset impairment charges, $1.1 million in net gains from derivative fair value remeasurements, $6 million in proposed transaction costs, $0.8 million in debt discount amortization, $1.6 million in restructuring charges, and $0.5 million in professional services and legal fees[257] 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") This section highlights key financial performance metrics for the quarter, including net revenue growth, changes in gross margin, SG&A expenses, operating margin, and effective tax rate Highlights of Quarterly Performance as of August 2, 2025 (USD thousands, percentage) | Indicator | August 2, 2025 (Quarter) | August 3, 2024 (Quarter) | Change (%) | | :--- | :--- | :--- | :--- | | Total net revenue | 772,937 | 732,560 | 5.5% | | Gross margin | 42.5% | 43.7% | -120 bps | | SG&A expense as % of net revenue | 39.9% | 38.7% | +120 bps | | Operating margin | 2.3% | 6.5% | -420 bps | | Operating income | 18,086 | 47,776 | -62.1% | | Other income (expense), net | 2,091 | (39,873) | +41,964 (USD thousands) | | Effective income tax rate | 45.8% | 373.9% | -328.1 bps | - The decrease in operating margin was primarily due to a gain on asset sale recognized in the prior-year period, higher expenses (including store labor and advertising), higher proposed transaction costs, an unfavorable business mix, and higher markdowns[260] Key Balance Sheet Accounts This section summarizes critical balance sheet items, including cash, restricted cash, outstanding borrowings, inventory, and accounts receivable, highlighting significant changes and their drivers Key Balance Sheet Accounts (USD thousands) | Indicator (USD thousands) | August 2, 2025 | August 3, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | 189,635 | 218,900 | | Restricted cash | 812 | 1,400 | | Term loan outstanding | — | 7,400 | | Credit arrangement outstanding | 268,100 | 206,100 | | Inventories | 668,400 | 603,300 | | Accounts receivable | 368,700 | 332,000 | - No share repurchases were made during the six months ended August 2, 2025, compared to approximately 2.6 million shares of common stock repurchased at a total cost of $60.8 million in the prior-year period[264] - Inventories increased by 10.8% (8.0% at constant currency), primarily driven by accelerated receipts to mitigate the Red Sea crisis[264] - Accounts receivable increased by 11.0% (8.0% at constant currency), primarily driven by increased European wholesale shipments[264] Global Store Count This section provides an overview of the company's global store footprint, detailing the number of new openings, closures, and total directly operated and partner-operated stores - For the quarter ended August 2, 2025, the company and its partners opened 28 stores and closed 40 stores globally[262] Global Store and Concession Count as of August 2, 2025 | Region | Total Stores | Directly Operated Stores | Partner Operated Stores | Total Concessions | Directly Operated Concessions | Partner Operated Concessions | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | United States | 263 | 263 | — | — | — | — | | Canada | 51 | 51 | — | — | — | — | | Central & South America | 109 | 93 | 16 | 48 | 48 | — | | Total Americas | 423 | 407 | 16 | 48 | 48 | — | | Europe & Middle East | 783 | 576 | 207 | 69 | 69 | — | | Asia & Pacific | 383 | 79 | 304 | 202 | 127 | 75 | | Total | 1,589 | 1,062 | 527 | 319 | 244 | 75 | Results of Operations This section provides a detailed analysis of the company's consolidated and segment-level financial performance for the three and six-month periods, explaining key revenue and expense drivers Three Months Ended August 2, 2025 and August 3, 2024 This section analyzes the company's consolidated and segment-level performance for the three-month period, detailing changes in net revenue, margins, expenses, and operating income Consolidated Statements of Income Summary for the Three Months Ended August 2, 2025 (USD thousands, percentage) | Indicator | August 2, 2025 | August 3, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net revenue | 772,937 | 732,560 | 5.5% | | Cost of sales | 444,168 | 412,617 | 7.6% | | Gross profit | 328,769 | 319,943 | 2.8% | | SG&A expenses | 308,588 | 282,951 | 9.1% | | Operating income | 18,086 | 47,776 | -62.1% | | Net income (loss) attributable to Guess?, Inc. | 6,242 | (10,603) | -158.9% | | Effective income tax rate | 45.8% | 373.9% | -328.1 bps | - Net revenue increased by 5.5% (or 3% at constant currency), driven by $16 million from new acquired business, $8 million from new store openings, and $3 million from comparable store sales growth, partially offset by a $3 million decrease in royalty revenue and a $2 million decrease in e-commerce revenue[265] - Operating margin decreased by 420 basis points, primarily due to a 190 basis point impact from a gain on asset sale in the prior-year period, 90 basis points from increased store labor and advertising expenses, 80 basis points from increased proposed transaction costs, and 60 basis points each from unfavorable business mix and markdowns[272] - Other income, net, was $2.1 million, compared to a net expense of $39.9 million in the prior-year period, primarily due to the fair value remeasurement of derivative instruments related to the 2028 Notes and associated convertible bond hedges shifting from a net loss to a net gain[274] Consolidated Results This section details the consolidated financial performance for the three-month period, including net revenue, gross margin, SG&A expenses, operating margin, and net income (loss) Consolidated Results for the Three Months Ended August 2, 2025 (USD thousands, percentage) | Indicator | August 2, 2025 | August 3, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net revenue | 772,937 | 732,560 | 5.5% | | Gross margin | 42.5% | 43.7% | -120 bps | | SG&A expense rate | 39.9% | 38.7% | +120 bps | | Operating margin | 2.3% | 6.5% | -420 bps | | Net income (loss) attributable to Guess?, Inc. | 6,242 | (10,603) | -158.9% | - Gross margin decreased by 120 basis points, primarily driven by mark-downs (60 basis points) and an unfavorable business mix (50 basis points)[266] - The SG&A expense rate increased by 120 basis points, primarily driven by increased proposed transaction costs (80 basis points) and increased store labor and advertising expenses (70 basis points)[269] Information by Business Segment This section provides a breakdown of net revenue and operating income (loss) for each business segment, highlighting key drivers of performance changes Segment Net Revenue and Operating Income (Loss) for the Three Months Ended August 2, 2025 (USD thousands) | Segment | Net Revenue | Change (%) | Operating Income (Loss) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Europe | 436,911 | 14.0% | 46,381 | 24.0% | | Americas Retail | 178,810 | -1.5% | (6,648) | -346.9% | | Americas Wholesale | 75,194 | -10.9% | 14,730 | -7.8% | | Asia | 55,765 | 2.6% | (3,803) | 210.7% | | Licensing | 26,257 | -9.8% | 25,056 | -7.7% | | Total Company | 772,937 | 5.5% | 18,086 | -62.1% | - The Europe segment's net revenue increased by 14% (or 9% at constant currency), driven by new acquired business, comparable store sales growth, and increased wholesale revenue, with operating income increasing by 24%[280][283] - The Americas Retail segment's net revenue decreased by 1% (or 1% at constant currency), primarily due to lower comparable store sales and decreased e-commerce sales, with operating loss shifting from a profit to a $7 million loss[284][286] - The Asia segment's operating loss increased from $1 million in the prior-year period to $4 million, primarily due to lower revenue and an unfavorable business mix[292] Six months ended August 2, 2025 and August 3, 2024 This section analyzes the company's consolidated and segment-level performance for the six-month period, detailing changes in net revenue, margins, expenses, and operating income (loss) Consolidated Statements of Income Summary for the Six Months Ended August 2, 2025 (USD thousands, percentage) | Indicator | August 2, 2025 | August 3, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net revenue | 1,420,738 | 1,324,503 | 7.3% | | Cost of sales | 833,512 | 756,459 | 10.2% | | Gross profit | 587,226 | 568,044 | 3.4% | | SG&A expenses | 595,124 | 549,799 | 8.2% | | Operating income (loss) | (15,222) | 27,888 | -154.6% | | Net income (loss) attributable to Guess?, Inc. | (26,686) | 2,419 | -1203.2% | | Effective income tax rate | -2.2% | 49.4% | -51.6 bps | - Net revenue increased by 7.3% (or 7% at constant currency), driven by $92 million from new acquired business, $26 million from increased wholesale shipments, and $10 million from new store openings, partially offset by a $20 million decrease in comparable retail store sales, a $9 million decrease in e-commerce revenue, and a $7 million decrease in royalty revenue[295] - Operating margin decreased by 320 basis points, primarily due to a 100 basis point impact from a gain on asset sale in the prior-year period, 90 basis points from unfavorable business mix, 80 basis points from increased store labor and advertising expenses, and 50 basis points from markdowns[303] - Net loss attributable to Guess?, Inc. was $26.7 million, compared to net income of $2.4 million in the prior-year period, with diluted loss per share of $0.53 compared to diluted earnings per share of $0.04[308] Consolidated Results This section details the consolidated financial performance for the six-month period, including net revenue, gross margin, SG&A expenses, operating income (loss), and net income (loss) Consolidated Results for the Six Months Ended August 2, 2025 (USD thousands, percentage) | Indicator | August 2, 2025 | August 3, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net revenue | 1,420,738 | 1,324,503 | 7.3% | | Gross margin | 41.3% | 42.9% | -160 bps | | SG&A expense rate | 41.9% | 41.4% | +50 bps | | Operating income (loss) | (15,222) | 27,888 | -154.6% | | Net income (loss) attributable to Guess?, Inc. | (26,686) | 2,419 | -1203.2% | - Gross margin decreased by 160 basis points, primarily driven by an unfavorable business mix (70 basis points), mark-downs (50 basis points), and lower product gross margins (30 basis points)[296] - The SG&A expense rate increased by 50 basis points, primarily driven by increased store labor and advertising expenses (70 basis points) and increased proposed transaction costs (50 basis points)[299] - Other income, net, was $3 million, compared to a net expense of $4 million in the prior-year period, primarily due to foreign exchange exposure shifting from a net loss to a net gain, partially offset by increased net realized and unrealized losses on foreign currency forward contracts[306] Information by Business Segment This section provides a breakdown of net revenue and operating income (loss) for each business segment over the six-month period, highlighting key drivers of performance changes Segment Net Revenue and Operating Income (Loss) for the Six Months Ended August 2, 2025 (USD thousands) | Segment | Net Revenue | Change (%) | Operating Income (Loss) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Europe | 742,983 | 11.4% | 37,492 | 1.5% | | Americas Retail | 336,008 | 3.2% | (23,156) | 200.8% | | Americas Wholesale | 176,625 | 20.5% | 34,881 | 15.9% | | Asia | 113,870 | -10.4% | (5,596) | -322.3% | | Licensing | 51,252 | -11.8% | 48,075 | -10.7% | | Total Company | 1,420,738 | 7.3% | (15,222) | -154.6% | - The Europe segment's net revenue increased by 11% (or 9% at constant currency), driven by new acquired business, increased wholesale revenue, and new store openings, with operating income increasing by 1%[312][315] - The Americas Retail segment's net revenue increased by 3% (or 5% at constant currency), driven by new acquired business, but partially offset by lower comparable retail store sales and decreased e-commerce sales, with operating loss increasing from $8 million to $23 million[316][318] - The Asia segment's net revenue decreased by 10% (or 9% at constant currency), primarily due to lower comparable retail sales and decreased e-commerce revenue, with operating loss shifting from a $3 million profit to a $6 million loss[322][325] Non-GAAP Measures This section explains the company's use of non-GAAP financial measures, such as adjusted net income and diluted earnings per share, and provides reconciliations to GAAP results - The company provides non-GAAP financial measures such as adjusted net income (loss) and adjusted diluted earnings per share to exclude the impact of certain non-recurring items, thereby enhancing visibility into underlying business trends[328][329] GAAP to Non-GAAP Performance Reconciliation (USD thousands, per share data) | Indicator | August 2, 2025 (3 months) | August 3, 2024 (3 months) | August 2, 2025 (6 months) | August 3, 2024 (6 months) | | :--- | :--- | :--- | :--- | :--- | | Reported GAAP net income (loss) | 6,242 | (10,603) | (26,686) | 2,419 | | Total adjustments | 7,513 | 33,553 | 18,181 | 6,721 | | Adjusted net income (loss) | 13,755 | 22,950 | (8,505) | 9,140 | | GAAP diluted earnings (loss) per share | 0.12 | (0.28) | (0.53) | 0.04 | | Adjusted diluted earnings (loss) per share | 0.26 | 0.42 | (0.17) | 0.16 | - For the three months ended August 2, 2025, adjusted net income was $13.8 million and adjusted diluted earnings per share were $0.26, compared to $23 million and $0.42, respectively, in the prior-year period[330] - Constant currency information is calculated by translating current period financial results into U.S. dollars using the prior period's average exchange rates to exclude the impact of changes in foreign currency translation rates[332] Liquidity and Capital Resources This section discusses the company's liquidity, capital resources, and cash flow activities, including working capital, capital expenditures, dividends, and share repurchases - The company primarily relies on trade credit, available cash, real estate and other operating leases, finance leases, proceeds from credit arrangements, and internally generated funds to meet its cash requirements for working capital, capital expenditures, debt payments, lease payments, and potential acquisitions and investments[336] - As of August 2, 2025, the company had $189.6 million in cash and cash equivalents, with approximately $33.4 million held in the U.S., and approximately $350 million in global available borrowing capacity, totaling approximately $540 million in cash, cash equivalents, and borrowing capacity[342] - For the six months ended August 2, 2025, net cash provided by operating activities was $1.5 million, a significant decrease from $21.7 million in the prior-year period, with net cash provided by financing activities of $38.2 million compared to a net outflow of $95.4 million in the prior-year period[343][346](in