8-K: Guess? Inc. and WHP Global to Acquire Fashion Brand rag & bone

Guess? Inc. and WHP Global have entered into a definitive agreement to acquire the fashion brand rag & bone, aiming to expand their brand portfolio and drive growth.

Summary

• Guess? Inc. and WHP Global have agreed to acquire rag & bone, a New York-based fashion brand.
• Guess? will acquire all of rag & bone's operating assets, while Guess? and WHP Global will jointly own the brand's intellectual property.
• In 2023, rag & bone generated approximately $250 million in unaudited annual revenue and $18 million in adjusted EBITDA.
• Guess? will contribute $56.5 million to the acquisition, with a potential additional earnout of up to $12.8 million based on rag & bone's 2024 fiscal year performance.
• The acquisition is expected to close in the first quarter of Guess?'s 2025 fiscal year, subject to regulatory approval and other closing conditions.
• Guess? anticipates the transaction will be accretive to earnings per share in the first year.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to the strategic acquisition, expected earnings accretion, and the potential for growth. The management's comments are also optimistic, contributing to the high score.

Positives

• The acquisition diversifies Guess?'s portfolio with a complementary brand.
• rag & bone has a strong brand reputation and customer base.
• The transaction is expected to be accretive to Guess?'s earnings per share in the first year.
• Guess? will leverage its global infrastructure to accelerate rag & bone's growth.
• The partnership with WHP Global is expected to maximize global expansion opportunities.
• The acquisition aligns with Guess?'s long-term growth strategy.

Negatives

• The acquisition is subject to customary closing conditions, including regulatory approval, which could delay or prevent the deal.
• There is a potential earnout of up to $12.8 million, which is dependent on rag & bone's future performance.
• The integration of rag & bone into Guess?'s operations could present challenges.

Risks

• The acquisition may not close if regulatory approval is not obtained or other closing conditions are not met.
• Guess? may not realize the expected operational efficiencies and synergies from the acquisition.
• Economic conditions could negatively impact consumer spending and the performance of the acquired brand.
• There are risks associated with integrating rag & bone's operations and maintaining its brand identity.
• The company faces risks related to changing consumer preferences, inventory management, and global supply chains.

Future Outlook

The acquisition is expected to be accretive to Guess?'s earnings per share in the first year, with potential for long-term value creation. The companies anticipate leveraging their combined strengths to expand rag & bone's global reach and product offerings.

Management Comments

• Carlos Alberini, Guess? CEO, stated they are excited to add rag & bone to their portfolio and expect the transaction to deliver earnings per share accretion.
• Paul Marciano, Guess? Co-Founder, expressed his long-standing admiration for rag & bone and is thrilled to welcome them to the Guess? family.
• Yehuda Shmidman, WHP Global Chairman and CEO, highlighted the alignment of the acquisition with their portfolio growth strategy.
• Andrew Rosen, Chairman of the Board at rag & bone, is excited about the new relationship with Guess? and WHP Global and the opportunity for global expansion.

Industry Context

This acquisition reflects a trend of larger fashion companies acquiring smaller brands to expand their market reach and diversify their portfolios. It also highlights the growing importance of brand management firms like WHP Global in the fashion industry.

Comparison to Industry Standards

• The acquisition of rag & bone by Guess? is similar to other acquisitions in the fashion industry where larger companies acquire brands to expand their portfolio and reach new customer segments.
• For example, Tapestry Inc. (parent company of Coach, Kate Spade, and Stuart Weitzman) has a similar strategy of acquiring brands to diversify their portfolio.
• The revenue of $250 million and EBITDA of $18 million for rag & bone is relatively small compared to larger fashion brands, but the brand's strong reputation and potential for growth make it an attractive acquisition target.
• The acquisition price of $56.5 million plus a potential earnout is within the range of similar acquisitions in the fashion industry, but the specific terms will depend on the financial performance of rag & bone.

Stakeholder Impact

• Shareholders of Guess? are expected to benefit from the accretive nature of the acquisition and potential for long-term value creation.
• Employees of rag & bone will become part of the Guess? portfolio, with the brand operating as an independent entity.
• Customers of rag & bone will continue to receive unique and timeless collections.
• Suppliers and partners of rag & bone will be integrated into the Guess? and WHP Global networks.

Next Steps

• The acquisition is subject to customary closing conditions, including regulatory approval.
• The companies will work towards closing the transaction in the first quarter of Guess?'s 2025 fiscal year.
• Guess? and WHP Global will integrate rag & bone into their operations and begin implementing their growth strategies.

Key Dates

Keywords

acquisition, rag & bone, Guess?, WHP Global, fashion, apparel, brand management, retail, EBITDA, revenue