Guess (GES) Q1 2026 Earnings Call Transcript

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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

Dollars, with management citing underperformance and restructuring in Greater China and South Korea

Rag and Bone: Added apximately nine percentage points to constant currency revenue growth; generated strong wholesale and direct-to-consumer sales

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

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

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

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 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

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

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

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

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

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

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

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