General


Unless the context indicates otherwise, when we refer to "we," "us," "our" or
the "Company" in this Form 10-Q, we are referring to Guess?, Inc. ("GUESS?") and
its subsidiaries on a consolidated basis.
Important Factors Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q, including documents incorporated by
reference herein, 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 the Company's other reports filed under the
Securities Exchange Act of 1934, as amended, in its press releases and in other
documents. In addition, from time-to-time, the Company, through its management,
may make oral forward-looking statements. These statements relate 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 goals, future prospects, global cost reduction
opportunities and profitability efforts, capital allocation plans, cash needs
and current business strategies and strategic initiatives. These forward-looking
statements are identified by their use of terms and phrases such as
"anticipate," "believe," "continue," "could," "create," "estimate," "expect,"
"goal," "intend," "may," "outlook," "pending," "plan," "predict," "project,"
"see," "should," "strategy," "will," "would," and other similar terms and
phrases, including references to assumptions.
Although we believe that the expectations reflected in any of our
forward-looking statements are reasonable, actual results could differ
materially from those projected or assumed. These forward-looking statements may
include, among other things, statements or assumptions relating to: our expected
results of operations; the accuracy of data relating to, and anticipated levels
of, future inventory and gross margins; anticipated cash requirements and
sources; our convertible senior notes issued in April 2019, including our
ability to settle the liability in cash; cost containment efforts; estimated
charges; plans regarding store openings, closings, remodels and lease
negotiations; effects of doing business outside of the United States, including,
without limitations, exchange rate fluctuations, inflation, changes to import
duties, tariffs and quotas, political and economic instability and terrorism;
effects of the pending exit of the United Kingdom from the European Union; plans
to improve the efficiency and effectiveness of the Company's European
distribution centers; plans regarding business growth, international expansion
and capital allocation; plans regarding supply chain efficiencies and global
planning and allocation; e-commerce, digital and omni-channel initiatives;
business seasonality; results and risks of current and future legal proceedings;
industry trends; consumer demands and preferences; competition; currency
fluctuations and related impacts; estimated tax rates, including the impact of
the 2017 Tax Cuts and Jobs Act ("Tax Reform"), future clarifications and
legislative amendments thereto, as well as our ability to accurately interpret
and predict its impact on our cash flows and financial condition; results of tax
audits and other regulatory proceedings; the impact of recent accounting
pronouncements; raw material and other inflationary cost pressures; consumer
confidence; and general economic conditions. We do not intend, and undertake no
obligation, to update our forward-looking statements to reflect future events or
circumstances. Such statements involve risks and uncertainties, which may cause
actual results to differ materially from those set forth in these statements.
Important factors that could cause or contribute to such differences include
those discussed under "Part I, Item 1A. Risk Factors" contained in the Company's
most recent Annual Report on Form 10-K for the fiscal year ended February 2,
2019, under "Part II, Item 1A. Risk Factors" contained herein and in our other
filings made from time-to-time with the Securities and Exchange Commission
("SEC") after the date of this report.
Business Segments
The Company's businesses are grouped into five reportable segments for
management and internal financial reporting purposes: Americas Retail, Americas
Wholesale, Europe, Asia and Licensing. Management evaluates segment performance
based primarily on revenues and earnings (loss) from operations before corporate
performance-based compensation costs, asset impairment charges, net gains
(losses) on lease terminations, restructuring charges and certain non-recurring
charges, if any. The Americas Retail segment includes the Company's retail and
e-commerce operations in the Americas. The Americas Wholesale segment includes
the

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Company's wholesale operations in the Americas. The Europe segment includes the
Company's retail, e-commerce and wholesale operations in Europe and the Middle
East. The Asia segment includes the Company's retail, e-commerce and wholesale
operations in Asia and the Pacific. The Licensing segment includes the worldwide
licensing operations of the Company. The business segment operating results
exclude corporate overhead costs, which consist of shared costs of the
organization, asset impairment charges, net gains (losses) on lease
terminations, restructuring charges and certain non-recurring charges, if any.
Corporate overhead costs are presented separately and generally include, among
other things, the following unallocated corporate costs: accounting and finance,
executive compensation, corporate performance-based compensation, facilities,
global advertising and marketing, human resources, information technology and
legal. Information regarding these segments is summarized in "Part I, Item 1.
Financial Statements - Note 8 - Segment Information."
Products
We derive our net revenue from the sale of GUESS?, G by GUESS (GbG), GUESS Kids
and MARCIANO apparel 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.
Foreign Currency Volatility
Since the majority of our international operations are conducted in currencies
other than the U.S. dollar (primarily the Canadian dollar, Chinese yuan, euro,
Japanese yen, Korean won, Mexican peso, 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. dollar amounts.
Some of our transactions that occur primarily in Europe, Canada, South Korea,
China, Hong Kong 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. In addition, we
have certain real estate leases which are 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, the
Company 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. When these foreign
exchange rates weaken versus the U.S. dollar at the time of the respective U.S.
dollar denominated payment is made relative to the payments made in the
comparable period, our margins could be unfavorably impacted.
During the first nine months of fiscal 2020, the average U.S. dollar rate was
stronger against the Canadian dollar, Chinese yuan, euro, Korean won, Mexican
peso, Russian rouble and Turkish lira and weaker against the Japanese yen
compared to the average rate in the same prior-year period. This had an overall
unfavorable impact on the translation of our international revenues and earnings
from operations for the nine months ended November 2, 2019 compared to the same
prior-year period.
If the U.S. dollar strengthens relative to the respective fiscal 2019 foreign
exchange rates, foreign exchange could negatively impact our revenues and
operating results, as well as our international cash and other balance sheet
items, during the remainder of fiscal 2020, particularly in Canada, Europe
(primarily the euro, Turkish lira and Russian rouble) and Mexico. Alternatively,
if the U.S. dollar weakens relative to the respective fiscal 2019 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 2020, particularly in these regions.
The Company enters 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."

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Recent Developments
On February 20, 2019, Carlos Alberini began his service as the Company's Chief
Executive Officer and member of the Board, replacing Victor Herrero, who
separated from the Company on February 2, 2019. Mr. Alberini previously served
as President and Chief Operating Officer of the Company from 2000 to 2010. From
2010 until 2014, Mr. Alberini was Co-CEO of Restoration Hardware and at present,
remains a Director on the Board of Restoration Hardware. From 2014 until
February 2019, Mr. Alberini served as the Chairman and CEO of Lucky Brand.
Mr. Alberini has finalized his strategic vision and implementation plan for
execution with our leadership team and has identified several key priorities to
drive revenue and operating profit growth over the next five years. These
priorities are: (i) brand relevancy; (ii) customer centricity; (iii) global
footprint; (iv) product excellence; and (v) functional capabilities; each as
further described below:
Brand Relevancy. We plan to optimize our brand architecture to be relevant with
our three target consumer groups: Heritage, Millennials, and Generation Z. We
will continue to execute celebrity and influencer partnerships and
collaborations as we believe that they are critical to engage more effectively
with a younger and broader audience.
Customer Centricity. We intend to place the customer at the center of everything
we do. We plan to implement processes and platforms to provide our customers
with a seamless omni-channel experience.
Global Footprint. We will continue to expand the reach of our brands by
optimizing the productivity and profitability of our current footprint and
expanding our distribution channels.
Product Excellence. We will extend our product offering to provide our customers
with products for the different occasions of their lifestyles. We will seek to
better address local product needs.
Functional Capabilities. We expect to drive material operational improvements in
the next five years to leverage and support our global business more
effectively, primarily in the areas of logistics, sourcing, product development
and production, inventory management, and overall infrastructure.
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 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.
During the first quarter of fiscal 2020, the Company announced that its Board of
Directors reduced the future quarterly cash dividends that may be paid to
holders of the Company's common stock, when, as and if any such dividend is
declared by the Company's Board of Directors, from $0.225 per share to $0.1125
per share to redeploy capital and return incremental value to shareholders
through share repurchases. In April 2019, the Company issued $300 million
aggregate principal amount of 2.00% convertible senior notes due 2024 in a
private offering. During the first quarter of fiscal 2020, the Company used $170
million of proceeds from its convertible senior notes to enter into an
accelerated share repurchase program ("ASR"). The Company also repurchased
shares of its common stock in open market and privately negotiated transactions
totaling $110.6 million during the first nine months of fiscal 2020.
The Company's investments in capital for the full fiscal year 2020 are planned
between $63 million and $68 million. The planned investments in capital are
related primarily to retail and e-commerce expansion in Europe and Asia,
existing store remodeling programs as well as continued investments in
technology to support our long-term growth plans.
Comparable Sales
The Company reports National Retail Federation calendar 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.

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We also separately report the impact of e-commerce sales on our 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 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
months. 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 months.
E-commerce sales are considered comparable after the online site has been
operational in a country for 13 full months and exclude any related revenue from
shipping fees.
Definitions and calculations of comparable sales used by the Company may differ
from similarly-titled measures reported by other companies.
Other
The Company operates on a 52/53-week fiscal year calendar, which ends on the
Saturday nearest to January 31 of each year. The nine months ended November 2,
2019 had the same number of days as the nine months ended November 3, 2018.
Executive Summary
Overview
Net earnings attributable to Guess?, Inc. increased 192.4% to $12.4 million, or
diluted earnings of $0.18 per common share, for the quarter ended November 2,
2019, compared to net loss attributable to Guess?, Inc. of $13.4 million, or
diluted loss of $0.17 per common share, for the quarter ended November 3, 2018.
During the quarter ended November 2, 2019, the Company recognized $1.8 million
of asset impairment charges; $2.4 million of amortization of debt discount
related to the Company's convertible senior notes; and a net credit of $1.4
million of certain professional services and legal fees and related credits (or
a combined $2.5 million negative impact after considering the related tax
benefit of these adjustments of $0.4 million), or an unfavorable $0.04 per share
impact. Excluding the impact of these items, adjusted net earnings attributable
to Guess?, Inc. were $14.9 million and adjusted diluted earnings were $0.22 per
common share for the quarter ended November 2, 2019. During the quarter ended
November 3, 2018, the Company recognized charges of $42.4 million related to the
European Commission fine; $1.3 million of asset impairment charges; and $0.1
million of certain professional services and legal fees and related costs (or a
combined $24.0 million negative impact after considering the related tax benefit
of these adjustments of $0.2 million and income tax benefits of $19.6 million
related to changes in the provisional amounts recorded related to the Tax
Reform), or an unfavorable $0.30 per share impact. Excluding the impact of these
items, adjusted net earnings attributable to Guess?, Inc. were $10.6 million and
adjusted diluted earnings were $0.13 per common share for the quarter ended
November 3, 2018. References to financial results excluding the impact of these
items are non-GAAP measures and are addressed below under "Non-GAAP Measures."

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Highlights of the Company's performance for the quarter ended November 2, 2019
compared to the same prior-year period are presented below, followed by a more
comprehensive discussion under "Results of Operations":
Operations
•         Total net revenue increased 1.7% to $615.9 million for the quarter
          ended November 2, 2019, compared to $605.4 million in the same
          prior-year quarter. In constant currency, net revenue increased by
          4.2%.


•         Gross margin (gross profit as a percentage of total net revenue)
          increased 90 basis points to 37.3% for the quarter ended November 2,
          2019, compared to 36.4% in the same prior-year period.


•         Selling, general and administrative ("SG&A") expenses as a percentage
          of total net revenue ("SG&A rate") increased 50 basis points to 33.3%
          for the quarter ended November 2, 2019, compared to 32.8% in the same
          prior-year period. SG&A expenses increased 3.6% to $205.0 million for
          the quarter ended November 2, 2019, compared to $197.9 million in the
          same prior-year period.


•         During the quarter ended November 3, 2018, the Company recognized
          charges of €37.0 million ($42.4 million) related to an estimated fine
          imposed on the Company by the European Commission related to its
          inquiry concerning possible violations of certain European Union
          competition rules by the Company. In December of fiscal 2019, the
          European Commission concluded its investigation and imposed a
          cumulative fine of €39.8 million ($45.6 million), which the Company
          paid in the first quarter of fiscal 2020.


•         During the quarter ended November 2, 2019, the Company recognized asset
          impairment charges of $1.8 million, compared to $1.3 million in the
          same prior-year period.


•         Operating margin increased 730 basis points to 3.7% for the quarter
          ended November 2, 2019, compared to negative 3.6% in the same
          prior-year period. The European Commission fine unfavorably impacted
          operating margin by 700 basis points during the quarter ended November
          3, 2018. Lower expenses related to certain professional service and
          legal fees and related (credits) costs favorably impacted operating
          margin by 40 basis points during the quarter ended November 2, 2019
          compared to the same prior-year period. Higher asset impairment charges
          unfavorably impacted operating margin by 10 basis points during the
          quarter ended November 2, 2019 compared to the same prior-year period.
          Earnings from operations increased 205.3% to $22.6 million for the
          quarter ended November 2, 2019, compared to loss from operations of
          $21.5 million in the same prior-year period.


•         Other expense, net (including interest income and expense), totaled
          $4.5 million for the quarter ended November 2, 2019, compared to $5.8
          million in the same prior-year period.


•         The effective income tax rate changed to 25.1% for the quarter ended
          November 2, 2019, compared to 53.1% in the same prior-year period.
          During the quarter ended November 3, 2018, the Company revised the
          provisional amounts previously recorded related to impact of the Tax
          Reform, and recorded income tax benefits of $19.6 million.

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