Guess?, Inc. reported financial results for its second quarter ended 1st August, 2020.
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Carlos Alberini, Chief Executive Officer, commented, “The COVID-19 crisis continued to impact our business in the second quarter. We remained focused on managing what was in our control including reducing costs and optimizing inventory management and the use of capital. I believe that our efforts paid off, as we minimized our losses in spite of a 42% decrease in our revenues. We increased product margins, ended the period with inventories down 13% compared to last year and finished the quarter with a strong balance sheet and ample liquidity. I am proud to say that our teams around the world rose to the challenges imposed by the crisis in an extraordinary way and the results we achieved demonstrate their strong leadership, relentless hard work and amazing dedication to our customers and our company.”
Mr. Alberini continued, “We are well positioned for the second half of the year. I am very excited about our product offering and our marketing plan for the Holiday season. I strongly believe our customers will see a significant elevation of the Guess brand this season and into the future.”
The coronavirus pandemic has had and is continuing to have a material impact on the company’s financial performance. During the second quarter of fiscal 2021, the company continued to experience lower net revenue compared to the same prior-year period as it remained challenged by store closures within the quarter and lower demand.
The company partially offset these revenue declines by reducing its SG&A expenses for the quarter through expense savings, both one-time, such as furloughs and temporary salary reductions, and permanent, such as headcount reductions and lower discretionary spending. The company also paid back a significant portion of its previously drawn down credit facilities and reinstated salaries that had been temporarily reduced.
During the second quarter of fiscal 2021, the company gradually reopened most of its global fleet of brick-and-mortar stores resulting in stores being closed for approximately 30% of the days in the quarter. As of 1st August, 2020 approximately 95% of Guess stores were open, with the majority of closed stores located primarily within interior malls in California.
For the second quarter of fiscal 2021, the company recorded GAAP net loss of $20.4 million, compared to GAAP net earnings of $25.3 million for the second quarter of fiscal 2020. GAAP diluted loss per share was $0.31 for the second quarter of fiscal 2021, compared to GAAP diluted earnings per share of $0.35 for the same prior-year quarter. The company estimates that its share buybacks had a negative impact of $0.03 on GAAP diluted loss per share and currency had a positive impact of $0.03 on diluted loss per share in the second quarter of fiscal 2021.
The company’s adjusted net loss was $0.6 million, compared to adjusted net earnings of $27.4 million for the second quarter of fiscal 2020. Adjusted diluted loss per share was $0.01, compared to adjusted diluted earnings per share of $0.38 for the same prior-year quarter. The company estimates that its share buybacks had a minimal impact on adjusted diluted loss per share in the second quarter of fiscal 2021.
Total net revenue for the second quarter of fiscal 2021 decreased 41.7% to $398.5 million, compared to $683.2 million in the same prior-year quarter. In constant currency, net revenue decreased by 41.2%.
Americas Retail revenues decreased 44.7% in U.S. dollars and 44.1% in constant currency. Americas Wholesale revenues decreased 51.6% in U.S. dollars and 48.7% in constant currency. Europe revenues decreased 39.5% in U.S. dollars and 39.6% in constant currency. Asia revenues decreased 39.7% in U.S. dollars and 38.7% in constant currency. Licensing revenues decreased 34.5% in U.S. dollars.
GAAP loss from operations for the second quarter of fiscal 2021 was $14.3 million, compared to GAAP earnings from operations of $46.0 million in the same prior-year quarter. GAAP operating margin in the second quarter decreased 10.3% to negative 3.6%, from 6.7% in the same prior-year quarter, driven primarily by overall deleveraging of expenses due to the negative impact from the COVID-19 pandemic on global operations. The negative impact of currency on operating margin for the quarter was approximately 40 basis points.
Adjusted operating loss was $0.9 million, compared to adjusted earnings from operations of $47.9 million in the same prior-year quarter. Adjusted operating margin decreased 720 basis points to negative 0.2%, from 7.0% in the same prior-year quarter, driven primarily by overall deleveraging of expenses due to the negative impact from the COVID-19 pandemic on Guess’s global operations.
Operating margin for the company’s Americas Retail segment decreased 730 basis points to negative 4.3% in the second quarter of fiscal 2021, from 3.0% in the same prior-year quarter, driven primarily by the deleverage impact of temporary store closures and lower traffic as a result of the COVID-19 pandemic.
Operating margin for the company’s Americas Wholesale segment decreased 11.8% to 8.3% in the second quarter of fiscal 2021, from 20.1% in the same prior-year quarter, due mainly to the negative impact from the COVID-19 pandemic which resulted in overall deleveraging of expenses.
Operating margin for the Company’s Europe segment decreased 510 basis points to 10.1% in the second quarter of fiscal 2021, from 15.2% in the same prior-year quarter, driven primarily by overall deleveraging of expenses due to lower revenue as a result of the COVID-19 pandemic.
Operating margin for the Company’s Asia segment decreased 90 basis points to negative 6.7% in the second quarter of fiscal 2021, from negative 5.8% in the same prior-year quarter, due mainly to the negative impact from the COVID-19 pandemic which resulted in overall deleveraging of expenses, partially offset by the favorable impact from business mix. Operating margin for the company’s Licensing segment increased 11.0% to 94.8% in the second quarter of fiscal 2021, compared to 83.8% in the same prior-year quarter.
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Other net income was $5.5 million for the second quarter of fiscal 2021, compared to other net expense of $6.4 million in the same prior-year quarter. The change was driven primarily by market volatility which resulted in net unrealized gains on the translation of foreign currency balances and net unrealized gains on SERP-related assets, compared to net unrealized losses in the same prior-year quarter. This was partially offset by net mark-to-market losses on the revaluation of foreign exchange currency contracts, compared to gains in the same prior-year quarter.