Image source: The Motley Fool. DATEThursday, June 5, 2025 at 4:45 p.
ETCALL PARTICIPANTSChief Executive Officer — Carlos AlberiniChief Financial Officer — Alberto ToneyExecutive Vice President, Interim CFO — Dennis SecorNeed a quote from one of our analysts.
[ tected]RISKSAsia revenues declined by over 20%, with management citing "significant weakness in the Greater China market," and the company anticipates apximately $20 million in losses from this market for the year.
Licensing revenues fell 14% to $25 million, with management stating "royalties declined slightly more than we had planned" due to weak results in fragrances and footwear.
Gross margin declined by 200 basis points to 39. 9%, primarily driven by " mix, mainly lower royalty income and a higher contribution from wholesale," which are structurally lower-margin es.
Asia's adjusted operating loss margin deteriorated by 820 basis points to negative 3. 1%, mainly due to lower revenue. TAKEAWAYSTotal Revenue: $648 million, up 9% in U.
Dollars, driven by the full-quarter consolidation of Rag and Bone and 3% growth in the core Guess. Gross Margin: 39.
9%, down 200 basis points; apximately 70% of the decline was due to mix from higher wholesale and lower royalty income.
Adjusted Operating Loss: $26 million, with an adjusted operating loss margin of negative 4%; both metrics imved over internal expectations.
Americas Wholesale: Revenues surged 63% to $101 million, primarily due to the Rag and Bone acquisition and increased Guess U. Shipments; constant currency growth was 70%.
Europe Segment Revenue: $306 million, up 8% in U. Dollars and 9% in constant currency, with mid-teen growth in European wholesale offset by a 4% comp decrease in retail (constant currency).
Asia Segment Revenue: $58 million, down 20% in U. Dollars, with management citing underperformance and restructuring in Greater China and South Korea.
Americas Retail: 9% revenue growth to $157 million, but comps from U.
And Canadian stores declined 10% in constant currency; e-commerce and store traffic declines were partially offset by higher conversion rates and AUR.
Inventory: $638 million, up 15%, mainly attributed to early duct receipts in Europe ( five weeks' supply) to mitigate Red Sea supply chain risk. Adjusted EPS: Adjusted loss per was negative $0.
44, compared to an adjusted loss per of $0. 27 last year; outperformed internal expectations due to operational imvements.
Licensing: Revenue totaled $25 million, a 14% decrease, with handbag royalties growing but fragrances and footwear declining.
Rag and Bone: Added apximately nine percentage points to constant currency revenue growth; generated strong wholesale and direct-to-consumer sales. Full-Year Outlook: Management guided to 5.
4% revenue growth, adjusted operating margin of 4. 1% (non-GAAP), and adjusted EPS of $1. 64; includes less than $10 million for anticipated tariff impact. Q2 Guidance: U.
Dollar revenue expected to increase by 2. 7%; adjusted operating margin jected at 2. 3%; adjusted EPS of $0. Free Cash Flow: Full-year outlook is apximately $55 million, including $65 million in CapEx.
Board Actions: Apved regular $0. 30/ quarterly dividend. SUMMARYGuess.
62%) reported Q1 results reflecting the integration of Rag and Bone and continued wholesale momentum in Europe and the Americas, while facing nounced operating challenges in Asia and licensing.
The company increased inventory by 15% globally, primarily due to early shipments to Europe to mitigate Red Sea supply chain risks, with management expecting normalization as disruptions abate.
Strategic initiatives include a new European loyalty gram, expanded social media investment, and duct pricing adjustments to address persistent traffic declines across retail regions.
Full-year guidance incorporates the full-year performance of Rag and Bone, d currency tailwinds, and tariff costs, with management emphasizing portfolio optimization and cost efficiency amid uneven retail trends.
Alberini said, "Early indications from these initiatives have been encouraging.
In both North America and Europe, so far in Q2, we have seen sequential imvements in conversion rates, with both regions posting gains in retail comps.
"Management quantified the potential retail opportunity: "A 10% imvement in sales in our retail stores company-wide would represent roughly $140 million in incremental revenue and around $70 million in incremental operating fit.
"Secor attributed margin imvement to "currency tailwinds and imved retail execution.
"Alberto Toney has assumed the CFO role, succeeding interim CFO Dennis Secor in a phased transition through September 2025.
INDUSTRY GLOSSARYAUR: Average unit retail -- average selling price per unit of merchandise sold.
IMU: Initial markup -- the difference between cost and original selling price, used to evaluate merchandise fitability.
Full Conference Call TranscriptCarlos Alberini: Thank you, Fabrice, and thank you all for joining us for our Q1 fiscal 2026 quarterly conference call.
We are pleased to report our Q1 operating results that came in ahead of expectations across key financial metrics, reflecting the successful integration of Rag and Bone and continued momentum in our Guess' wholesale es across Europe and The Americas.
Disciplined expense management combined with a better-than-expected top line enabled us to report operating results ahead of our guidance range, narrowing our loss for the quarter.
In the period, we grew our in U. Dollars by 9%, despite a currency headwind that consumed 2. 5 points of growth.
The majority of that growth came from the acquisition of Rag and Bone, which added nine percentage points to our top line constant currency growth, reflecting a full quarter of ownership this year versus just one month in the prior year period.
Our core Guess' also contributed, adding three points of constant currency growth driven by higher shipments in our wholesale operations across Europe and The Americas.
These gains more than offset softer results in Asia and in our Americas retail channel. Licensing revenue declined versus the prior year, creating a modest headwind in the period.
For Guess', our European wholesale was the largest contributor to this growth, posting a mid-teen growth rate in the quarter.
Our ducts continue to perform well among our wholesale in that region, and we believe that we are being rewarded for ensuring reliable duct deries despite some of the recent supply chain challenges.
We d on our last call that we are mitigating the supply chain risk caused by the Red Sea crisis by bringing in ducts early. We are not buying more; we are buying earlier.
This near-term working capital investment bore fruit during the quarter, tecting our partners and our es as we were able to ship larger volumes than we had anticipated for the quarter, mainly driven by the availability of the duct.
In our European retail stores, revenues came in slightly below our expectations, posting a constant currency comp decrease of 4% as a decline in store traffic more than offset imved conversion, imved AUR, and better units per transaction.
In The Americas wholesale, the Guess' brand dered double-digit top line growth, surpassing our expectations for the quarter.
Similar to Europe, we were also able to der more duct earlier to our partners than what we had planned. And for the year, we expect this to grow modestly.
In The Americas Retail, our performance imved in the latter part of the quarter and exceeded our expectations.
While traffic headwinds remained our key ductivity challenge, we were able to offset some of that with imved conversion.
As a result, we closed the period with a net 10% constant currency comp sales decline for the quarter.
Our in Asia continues to face headwinds and fell short of our expectations this quarter, with revenues declining by over 20%, with significant weakness in the Greater China market.
Consistent with what we d with you on our last call, we are continuing to look for a partner to take on our in this market, and we have been contracting our operations here, including headcount reductions, store closings, and ceasing to purchase duct for future seasons.
Sales declined in most of our Asian es, and store traffic remains the key driver of the comp sales declines in our stores there.
And finally, in our licensing, royalties declined slightly more than we had planned. Royalties declined in fragrances and footwear, while handbags royalties grew.
Moving next to our duct performance, results varied by region and category throughout the quarter. In Europe, women's apparel sales increased, driven by strong performance in activewear and sweaters.
In accessories, fragrances and watches dered positive comps. In The Americas, the was negative across most, with women's activewear and watches performing well.
Turning to Rag and Bone, the significantly outperformed our expectations for the quarter, driven primarily by strong wholesale shipments.
Rag and Bone's performance in the retail stores and online also outperformed our expectations.
Paul has been working hard with many of our licensee partners to add new duct into our Rag and Bone asment. As we d before, we already signed a new handbag license, and that is doing well.
We also have new license deals at various stages of completion in watches, fragrances, and eyewear, and we are excited the spects for those in the future.
Moving now to the rest of the P&L, we dered a total company gross margin of 39. 9%, 200 basis points lower than last year, and also below our expectations going into the quarter.
70% of that change was driven by mix, mainly lower royalty income and a higher contribution from wholesale, which naturally carries lower duct margins.
There was a modest headwind due to increased motional activity, and that amount was fully offset by imvements in initial merchandise margin.
Currencies were also a modest headwind to our margins during the period. Total company SG&A increased 11% year over year, with the integration of Rag and Bone driving the majority of that increase.
In the quarter, we reported an adjusted operating loss of $26 million and an adjusted operating loss margin of 4%, both of which represented imvements over our expectations for the quarter.
And we dered an adjusted loss per of $0. 44, also an imvement over our expectations.
Before I you on our strategic initiatives, let me spend a few moments discussing tariffs and how we believe they may impact our and our outlook.
On last quarter's call, in our discussion of tariffs, we d a few important aspects of our.
First, roughly 75% of our stands outside of The United States, and therefore, not directly impacted by the tariffs.
Second, the remaining 25% of directly duced and distributed ducts represents roughly $200 million in annual purchases.
Both our Guess' and Rag and Bone sourcing teams have undertaken a massive effort to move a substantial amount of our duction out of China to other.
We also reworked costs with vendors and pricing with retail customers.
As a result of these efforts, we expect that the year-over-year impact of tariffs on our margins this year will be less than $10 million, and we have achieved that with very minimal price increases.
That $10 million is fully incorporated in the outlook that we are viding today. So that is the impact to our P&L based on what we know today.
The tariffs have also sparked renewed fears of inflation or recession, but we have not attempted to predict how they may affect the consumer's appetite to spend their disposable income.
Now I would to turn to our strategic direction and vide an on several key initiatives underway across the.
On our last call, I outlined the key strategic initiatives that our teams are driving to grow our, strengthen our organization, imve brand awareness and customer engagement, increase retail ductivity, build a more efficient infrastructure, and optimize our model to imve fitability and return on invested capital.
Today, I will walk you through the gress that we are making against some of these priorities, starting with one of our most immediate focus areas: retail ductivity.
One of the key challenges for our over the last several years has been the decline in customer traffic into our stores and to our website. Those trends have persisted in The U.
And Asia for some time, and we are now seeing similar patterns emerge in our European retail.
To address this, we are rolling out a range of initiatives aimed at reengaging customers and driving higher traffic across both physical and digital channels.
We continue to see a significant opportunity to increase brand awareness and customer engagement through increased marketing investment.
We are in the middle of a ject working with General Idea, which is a consulting firm, to craft a new market vision to transform our social media strategy that we believe will reignite our brand relevance and awareness with today's consumer.
Nikolay Marciano is our internal lead for this ject.
We are beginning with the implementation of several initiatives as we speak, including the reorganization of our teams, the deployment of new practices, and increased investment into social channels and relationships with influencers and other collaborations to attract a younger audience.
In addition, we recently launched a customer loyalty gram in Europe, thus far in just two, Italy and Poland, and the learnings and results from this implementation have been very, very positive.
In those, among our loyalty customers, we saw increases in revenue from those customers of roughly 36%.
We also saw that those customers returned to the stores with greater frequency and they spend more per visit.
Our plan is now to roll this gram out to more countries in the region, starting next with Germany, Austria, and Spain, with additional to come online later in the year.
As we continue to more customers into our database and we gain insights into their shopping habits, we are in imving our customer insights capabilities using AI-powered tools.
Next, there is an opportunity in how we buy. Over the past several years, we have been very successful in driving IMU imvements across our apparel lines.
In order to drive duction costs down, it necessitated a larger and earlier commitment of our duction volumes, therefore leaving less open to buy later in the year.
Undoubtedly, that resulted in missing certain trends, sacrificing a level of revenues for the extra IMU points. We think there is an opportunity to better balance that going forward.
Our team is fast-track capabilities within our supply chain to more quickly replenish best sellers and inject additional duct into the market as trends develop in the season.
We used to operate in this manner several years ago and have success primarily in North America. We are implementing this again with our spring-summer 2026 collection, with our goal ultimately to le.