10-Q: Guess? Inc. Reports Mixed Results in Q3 2025 Amidst Economic Headwinds

Guess? Inc. experienced a net loss in Q3 2025, impacted by macroeconomic conditions and fair value adjustments, despite a revenue increase driven by the rag & bone acquisition.

Summary

• Guess? Inc. reported a net loss of $23.4 million for the third quarter of fiscal year 2025, a significant downturn compared to the $55.7 million net profit in the same period last year.
• The company's diluted net loss per share was $0.47, a stark contrast to the $0.82 diluted earnings per share in the prior year's third quarter.
• Net revenue increased by 13.4% to $738.5 million, driven by the acquisition of rag & bone and higher wholesale shipments.
• Gross margin decreased by 110 basis points to 43.6%, due to unfavorable channel mix and the impact of the newly acquired business.
• Selling, general, and administrative expenses increased by 19.3% to $279.4 million, leading to a 180 basis point increase in the SG&A rate to 37.8%.
• The company experienced a significant negative impact from a $39.8 million unrealized loss on the fair value remeasurement of derivatives related to its 2028 Notes.
• The effective income tax rate was an expense of 128.9%, primarily due to the unrealized loss on derivatives, compared to a benefit of 44.5% in the same prior-year quarter.
• Inventory increased by 20.2% to $675.8 million, mainly due to the rag & bone acquisition and higher in-transit inventory.
• Accounts receivable increased by 12.5% to $383.4 million, also influenced by the rag & bone acquisition.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with revenue growth offset by significant losses and margin compression. The negative impact of derivative adjustments and macroeconomic conditions creates a cautious outlook.

Positives

• Net revenue increased by 13.4% to $738.5 million, or 13.7% in constant currency, driven by the rag & bone acquisition and higher wholesale shipments.
• The company opened 25 new stores worldwide during the quarter.

Negatives

• The company reported a net loss of $23.4 million for the third quarter of fiscal year 2025, a significant downturn compared to the $55.7 million net profit in the same period last year.
• Gross margin decreased by 110 basis points to 43.6%, due to unfavorable channel mix and the impact of the newly acquired business.
• Selling, general, and administrative expenses increased by 19.3% to $279.4 million, leading to a 180 basis point increase in the SG&A rate to 37.8%.
• The company experienced a significant negative impact from a $39.8 million unrealized loss on the fair value remeasurement of derivatives related to its 2028 Notes.
• The effective income tax rate was an expense of 128.9%, primarily due to the unrealized loss on derivatives, compared to a benefit of 44.5% in the same prior-year quarter.
• Operating margin decreased 270 basis points to 5.7% for the quarter ended November 2, 2024, compared to 8.4% in the same prior-year quarter.

Risks

• Macroeconomic conditions, including declines in consumer spending, inflation, and higher interest rates, are negatively impacting the company's business.
• The ongoing wars in Ukraine and Gaza are also contributing to the negative impact on the company's businesses.
• The company is facing supply chain disruptions, including the Red Sea crisis, which are affecting its operations.
• The company's financial results are subject to fluctuations in foreign exchange rates.
• The company's financial results are subject to inflationary pressures affecting its overall cost structure.

Future Outlook

The company expects currencies to continue to be a headwind on revenues and earnings from operations for the remainder of fiscal 2025. The company also expects inflationary pressures to persist in the near term.

Management Comments

• The company continues to carefully monitor global and regional developments and respond appropriately.
• The company also continues to strategically manage expenses in order to protect profitability and mitigate, to the extent possible, the residual effect of supply chain disruptions, including the Red Sea crisis.

Industry Context

The results reflect the challenges faced by the retail industry, including declining consumer spending, inflation, and supply chain disruptions. The acquisition of rag & bone is a strategic move to expand the company's brand portfolio and reach a new customer base, but it also introduces integration challenges and costs.

Comparison to Industry Standards

• The decrease in gross margin and operating margin is concerning, as it indicates that the company is struggling to maintain profitability despite revenue growth. This is in contrast to some competitors who have been able to maintain or improve margins through cost management and pricing strategies.
• The increase in SG&A expenses is also a concern, as it suggests that the company is not effectively controlling its operating costs. This is in contrast to some competitors who have been able to reduce their SG&A expenses through efficiency improvements and technology investments.
• The company's performance is mixed compared to other apparel retailers. Some competitors have reported stronger sales growth and better profitability, while others have faced similar challenges. The company's performance is also impacted by its international operations, which are subject to currency fluctuations and geopolitical risks.
• The company's inventory levels are higher than the previous year, which could lead to markdowns and lower profitability if sales do not improve. This is a common challenge in the retail industry, as companies try to balance inventory levels with customer demand.

Management Changes

Legal Proceedings

• The company is involved in legal proceedings, arising both in the ordinary course of business and otherwise, including various claims and other matters incidental to the company's business.
• The company has received customs tax assessment notices from the Italian Customs Agency (ICA) regarding its customs tax audit of one of the company's European subsidiaries for the period from July 2010 through December 2012.
• On July 30, 2024, the company received a letter from an individual seeking to settle certain claims against Mr. Paul Marciano, Mr. Maurice Marciano, certain current and former members of the Board, the company's former Chief Executive Officer and the company.

Related Party Transactions

• The company leases warehouse and administrative facilities from certain entities owned by or for the benefit of Paul Marciano and Maurice Marciano.
• The company periodically charters aircraft owned by certain entities owned by or for the benefit of Paul Marciano and Maurice Marciano.
• The company has a 30% ownership interest in a privately-held men's footwear company in which the Marciano Entities have a 45% ownership interest.
• The company purchases faux fur products from a privately-held fashion accessories company in which the Marciano Entities have a 16% ownership interest.
• The company entered into a co-branding collaboration arrangement with a privately-held alcoholic beverage company in which the Marciano Entities have a 15% ownership interest.
• The company has periodically made donations to Smile Project, a charitable organization of which director Elsa Michael is co-founder and president.

Stakeholder Impact

• Shareholders are negatively impacted by the net loss and decreased earnings per share.
• Employees may be affected by cost-cutting measures and potential restructuring.
• Customers may experience changes in product offerings and pricing.
• Suppliers may be affected by changes in the company's purchasing patterns.
• Creditors may be concerned about the company's financial performance and ability to repay debt.

Next Steps

• The company will continue to monitor global and regional developments and respond appropriately.
• The company will continue to strategically manage expenses in order to protect profitability and mitigate the impact of supply chain disruptions.
• The company will continue to prioritize capital allocation toward investments that support growth and infrastructure.

Key Dates

Keywords

Guess?, rag & bone, retail, apparel, fashion, wholesale, licensing, financial results, net revenue, gross margin, operating margin, net loss, derivatives, convertible notes, share repurchase, inventory, macroeconomic conditions, supply chain, inflation