10-Q: Guess? Q2 Earnings Up Amid Take-Private Deal Talks

Guess? Inc. reported increased net earnings for the second quarter of fiscal 2026, alongside ongoing discussions for a take-private transaction with Authentic Brands Group.

Summary

• Net earnings attributable to Guess?, Inc. for the second quarter ended August 2, 2025, were $6.2 million, a significant improvement from a net loss of $10.6 million in the prior-year quarter.
• Diluted net earnings per share for the second quarter were $0.12, compared to a diluted net loss per share of $0.28 in the same prior-year quarter.
• Total net revenue increased 5.5% to $772.9 million for the second quarter, or 3.0% in constant currency.
• Gross margin decreased by 120 basis points to 42.5% for the second quarter, primarily due to higher markdowns and unfavorable business mix.
• Selling, general and administrative (SG&A) expenses as a percentage of total net revenue increased 120 basis points to 39.9% for the second quarter, driven by higher Proposed Transaction Costs and increased store labor and advertising expenses.
• Operating margin decreased 420 basis points to 2.3% for the second quarter, mainly due to the absence of a gain on sale of assets from the prior year, higher expenses, unfavorable business mix, and higher markdowns.
• For the six months ended August 2, 2025, net loss attributable to Guess?, Inc. was $(26.7) million, a deterioration from net earnings of $2.4 million in the prior-year period.
• Diluted net loss per share for the six months was $(0.53), compared to diluted EPS of $0.04 in the prior-year period.
• Total net revenue for the six months increased 7.3% to $1,420.7 million, or 7% in constant currency, driven by newly acquired businesses like rag & bone and higher wholesale shipments.
• The Proposed Take-Private Transaction with Authentic Brands Group LLC was announced on August 20, 2025, offering $16.75 per share in cash to non-rolling shareholders and is expected to close in Q4 fiscal year 2026.
• Inventory increased by 10.8% to $668.4 million as of August 2, 2025, partly due to accelerated receipts to mitigate the impact of the Red Sea crisis.
• The company opened 28 new stores and closed 40 stores worldwide during the second quarter, resulting in a total of 1,589 stores and concessions globally.

Sentiment

Score: 4

Explanation: While Q2 showed a return to GAAP net earnings, the year-to-date performance is a significant net loss. Operating margins are down, and SG&A expenses are up, partly due to transaction costs for the take-private deal. Macroeconomic headwinds, including inflation and geopolitical conflicts, continue to impact the business. The take-private transaction introduces significant uncertainty and restrictions on business activities, despite offering a fixed cash payout to non-rolling shareholders.

Positives

• Net earnings attributable to Guess?, Inc. improved significantly in Q2 FY26 to $6.2 million from a net loss of $10.6 million in the prior-year quarter.
• Diluted EPS turned positive to $0.12 in Q2 FY26 from a loss of $0.28 in the prior-year quarter.
• Total net revenue increased 5.5% to $772.9 million in Q2 FY26, with a 3.0% increase in constant currency.
• Europe segment net revenue increased 14% (9% in constant currency) in Q2 FY26, driven by newly acquired businesses, positive comparable store sales, and higher wholesale revenue.
• Americas Wholesale net revenue increased 21% (24% in constant currency) for the six months ended August 2, 2025, driven by newly acquired businesses and higher Mexico wholesale shipments.
• Other income, net, improved significantly to $2.1 million in Q2 FY26 from an expense of $39.9 million in the prior-year quarter, primarily due to a net unrealized gain on derivatives.
• Cash and cash equivalents remained strong at $189.6 million as of August 2, 2025.
• Available global borrowing capacity of approximately $350 million, bringing combined cash and borrowing capacity to $540 million.
• The rag & bone acquisition is expected to leverage Guess?'s infrastructure and expand its global lifestyle brand portfolio.

Negatives

• Net loss attributable to Guess?, Inc. for the six months ended August 2, 2025, was $(26.7) million, a significant deterioration from earnings of $2.4 million in the prior-year period.
• Diluted net loss per share for the six months ended August 2, 2025, was $(0.53), compared to diluted EPS of $0.04 in the prior-year period.
• Gross margin decreased by 120 basis points in Q2 FY26 and 1.6% for the six months ended August 2, 2025, primarily due to higher markdowns and unfavorable business mix.
• SG&A expenses as a percentage of total net revenue increased in Q2 FY26 and for the six months ended August 2, 2025, driven by higher Proposed Transaction Costs and increased store labor and advertising expenses.
• Operating margin decreased significantly in Q2 FY26 (420 basis points) and for the six months ended August 2, 2025 (3.2%), primarily due to the absence of a gain on sale of assets from the prior year, higher expenses, unfavorable business mix, and higher markdowns.
• Earnings from operations decreased 62.1% in Q2 FY26 and turned into a loss of $(15.2) million for the six months ended August 2, 2025.
• Americas Retail net revenue decreased 1.5% in Q2 FY26 (1% in constant currency) due to negative comparable store sales and lower e-commerce sales.
• Asia segment net revenue decreased 10.4% (9% in constant currency) for the six months ended August 2, 2025, driven by lower retail comparable sales and e-commerce revenues.
• Licensing net royalty revenue decreased 9.8% in Q2 FY26 and 11.8% for the six months ended August 2, 2025, due to lower royalties in footwear and fragrances.
• Inventory increased 10.8% year-over-year, partly due to accelerated receipts to mitigate the Red Sea crisis, which could indicate potential overstocking or demand issues if not managed carefully.
• The company closed 40 stores worldwide in Q2 FY26, significantly more than the 28 opened.

Risks

• The fixed cash consideration of $16.75 per share in the Proposed Transaction will not adjust for changes in business, assets, liabilities, or market price, and is a taxable event for U.S. holders.
• Shareholders will forego the opportunity to realize potential long-term value as an independent company if the Proposed Transaction is completed.
• The Proposed Transaction introduces risks of disruption to business and operations, including significant diversion of management attention and resources, and potential inability to attract and retain key personnel.
• Restrictions on business activities, such as incurring additional indebtedness, making investments, repurchasing shares, or paying dividends beyond regular quarterly amounts, are in effect during the pendency of the Merger Agreement.
• There is a risk that the Proposed Transaction may not be completed within the expected timeframe (Q4 FY26) or at all, due to factors like failure to obtain stockholder or regulatory approvals, potential litigation, or the occurrence of a material adverse effect.
• A termination fee of $23.3 million may be required if the Merger Agreement is terminated under specified circumstances.
• Macroeconomic conditions, including declines in consumer spending, inflation, higher interest rates, foreign exchange rate fluctuations, and geopolitical conflicts (Ukraine, Gaza, Red Sea crisis), continue to negatively impact the business.
• New U.S. tariffs, such as the 10% universal baseline tariff plus country-specific tariffs, have the potential to significantly raise product costs and adversely impact consumer sentiment.
• Foreign currency volatility can significantly impact international revenues, earnings, and operating margins, particularly if the U.S. dollar strengthens against key foreign currencies.
• Inflationary pressures on transportation, employee compensation, and raw materials are expected to persist, potentially impacting gross margins and SG&A expenses, and could reduce consumer discretionary spending.
• While current operations in Russia are not materially impacted by the Russia-Ukraine war, the company is limited in business expansion there due to U.S. sanctions, and risks of expanded sanctions, rouble volatility, and transport disruptions remain.
• There is a risk of future non-cash asset impairments, including goodwill, right-of-use lease assets, and other store assets, if actual results do not align with management's estimates of future cash flows and asset fair values.
• The fair value of 2028 Convertible Senior Notes and equity-linked derivatives is subject to interest rate and market risk, impacting financial position and results of operations.

Future Outlook

The Proposed Take-Private Transaction with Authentic Brands Group is expected to close in the fourth quarter of fiscal year 2026. Management anticipates continued macroeconomic challenges, including inflationary pressures, which are expected to persist in the near term and could negatively impact revenues and operating results, particularly if the U.S. dollar strengthens. The company plans to prioritize capital allocation towards growth and infrastructure investments, rigorously manage inventory, and optimize working capital. It will also continue to return value to stockholders through dividends and share repurchases, subject to limitations during the Proposed Transaction, and consider opportunistic strategic acquisitions. The principal amount of the 2028 Notes is expected to be settled in cash in fiscal 2029, with any excess in shares.

Management Comments

• We plan to have a best-in-class team of highly engaged and strongly committed individuals capable to lead and take our Company to the next level of growth and value creation.
• We intend to leverage our infrastructure and capabilities, as well as the strength of our brands, to drive revenue growth.
• We will focus on increasing the productivity of our existing network, growing organically in existing and new markets, pursuing brand extensions and category expansions and considering opportunities that leverage our global infrastructure and network of licensees and wholesale partners.
• We continue to optimize our core brand architecture to be relevant with our three target consumer groups: Heritage, Millennials, and Generation Z.
• We have developed and launched one global line of product for all 25 categories we represent.
• We seek to elevate our Guess and Marciano brands and improve the quality and sustainability of our products, allowing us to realize more full-priced sales and rely less on promotional activity.
• We continue to use unique go-to-market strategies and execute celebrity and influencer partnerships and collaborations as we believe that they are critical to engage more effectively with a younger and broader audience.
• The addition of rag & bone to our brand portfolio will allow us to reach a very attractive customer base that is complementary to that of our Guess and Marciano brands.
• We continue to place the customer at the center of everything we do.
• We plan to implement processes and the necessary tools and platforms to provide our customers with a seamless omni-channel experience and expand our digital business.
• We believe product is a key factor for success in our business. We strive to design and make great products and will extend our product offering to provide our customers with products that support the different occasions of their lifestyles.
• We will seek to better address local product needs.
• We intend to operate at the highest level of efficiency and effectiveness.
• We plan to invest in our infrastructure and leverage technology and data analytics to improve our operations and decision making.
• We will always seek high margin, profitable businesses, free cash flow generation and high return on invested capital.
• We will also seek to improve profitability through business and portfolio optimization.
• We plan to continue to prioritize capital allocation toward investments that support growth and infrastructure, while remaining highly disciplined in the way we allocate capital across projects.
• We also plan to manage product buys and inventory ownership rigorously and optimize overall working capital management consistently.
• We anticipate we will be able to satisfy our ongoing cash requirements for the foreseeable future, including at least the next 12 months, primarily with cash flow from operations and existing cash balances as supplemented by borrowings under our existing credit facilities and proceeds from our term loans and other indebtedness, as needed.

Industry Context

The retail and apparel industry continues to face significant macroeconomic headwinds, including declines in consumer spending, persistent inflation, higher interest rates, and foreign exchange rate volatility. Geopolitical events, such as the wars in Ukraine and Gaza and the Red Sea crisis, are impacting global supply chains and increasing transportation costs. The introduction of new U.S. tariffs signals a shifting global trade landscape that could further elevate product costs. In response to these challenges, the industry is seeing a focus on strategic portfolio diversification, as evidenced by Guess?'s acquisition of rag & bone, and a push towards enhanced omni-channel capabilities and digital expansion to meet evolving consumer preferences. The proposed take-private transaction reflects a broader trend of brand management firms acquiring established brands to optimize value, often by separating intellectual property from operational assets.

Management Changes

Corporate Governance

Legal Proceedings

• Italian Customs Agency (ICA) Tax Assessment: The company is involved in ongoing appeals regarding customs tax assessments from the ICA for the period July 2010 through December 2012, totaling 9.8 million ($11.4 million). While many rulings have been in the company's favor, some unfavorable decisions have been appealed to the Italian Supreme Court, and there is no assurance of success or that similar assessments for subsequent periods will not occur.
• Claims against Paul Marciano and the Company: Claims relating to allegations of improper treatment of an individual by Paul Marciano were settled for an aggregate total of $290,000 in June 2025 to avoid litigation costs, without admitting liability or fault.

Related Party Transactions

• Leases with Marciano Entities: The company leases warehouse and administrative facilities from entities owned by Paul Marciano (executive and director) and Maurice Marciano (founder and former director). This includes a 12-year lease extension for the Los Angeles corporate offices (annual rent approx. $7.6 million) and a new lease for a Second Paris Location (annual rent 450,000 or $521,415).
• Aircraft Arrangements: The company periodically charters aircraft owned by Marciano Entities, with total fees paid to third-party management companies of approximately $2.1 million for the six months ended August 2, 2025.
• Minority Investment in Footwear Company: The company holds a 30% ownership interest in a privately-held men's footwear company, in which Marciano Entities hold a 45% interest. Transactions include a $2.0 million revolving credit facility, fulfillment services, office rent, a distributorship agreement, and an arrangement to sell footwear in rag & bone retail stores.
• Vendor Purchases from Fashion Company: The company purchases faux fur products from a privately-held fashion accessories company in which Marciano Entities hold a 16% interest and CEO Carlos Alberini holds a 4% interest. Total payments were approximately $0.3 million for the six months ended August 2, 2025.
• Charitable Donations to Smile Project: The company made product donations of approximately $161,000 to Smile Project, a charitable organization co-founded and presided over by director Elsa Michael, who receives no compensation for her work.
• Proposed Take-Private Transaction: The Rolling Stockholders, including Maurice Marciano, Paul Marciano, Nicolai Marciano, and Carlos Alberini, and their affiliates, are key parties in the strategic partnership with Authentic Brands Group, committing to vote in favor of the merger.

Stakeholder Impact

• Shareholders (non-Rolling): Will receive a fixed cash consideration of $16.75 per share, providing immediate liquidity but foregoing potential long-term value as an independent public company. This transaction is taxable for U.S. holders.
• Rolling Stockholders: Will acquire 49% of the company's intellectual property and 100% of its operating assets, continuing to run the business, indicating a long-term commitment and control.
• Employees: The Proposed Transaction introduces uncertainty, which could impact employee morale, productivity, and the ability to attract and retain key personnel. Outstanding and unvested equity awards for non-Rolling Stockholders will fully accelerate and be paid in cash.
• Customers, Vendors, Suppliers, Landlords, Service Providers: Relationships may be disrupted or altered due to the announcement and pendency of the Proposed Transaction, as partners may defer decisions or seek to change existing business relationships.
• Creditors: The Merger Agreement includes restrictions on incurring additional indebtedness, which could affect future financing flexibility. Holders of the 2028 Notes may have the right to require the company to purchase their notes for cash upon a fundamental change (expected from the merger).

Next Steps

• Consummation of the Proposed Take-Private Transaction with Authentic Brands Group LLC, expected in Q4 FY26, subject to stockholder and regulatory approvals.
• Continue to strategically manage expenses to protect profitability and mitigate supply chain disruptions.
• Monitor global and regional geopolitical and economic developments, including tariff regulations.
• Evaluate the impact of new FASB accounting guidance on income tax disclosures, debt with conversion options, expense disaggregation, business combinations, and expected credit losses.
• Prioritize capital allocation toward investments supporting growth and infrastructure.
• Manage product buys and inventory ownership rigorously and optimize overall working capital.
• Consider opportunistic strategic acquisitions of brands and businesses that leverage global infrastructure.
• Board of Directors to decide on future dividend distributions.
• Continue to assess operations in Russia for compliance with economic sanctions.

Key Dates

Recommendation

The announced take-private transaction at $16.75 per share provides a clear exit for non-rolling shareholders. Given this fixed price, there is limited upside potential for the stock to trade significantly above this offer, barring a superior proposal which the company is restricted from actively soliciting. The company's recent financial performance, including a year-to-date net loss and declining operating margins, suggests underlying operational challenges that would otherwise warrant caution. The macroeconomic headwinds and transaction-related uncertainties further support a 'Hold' stance for investors awaiting the completion of the deal, as the current price likely reflects the offer.

Keywords

Guess?, GES, Apparel, Fashion, Retail, Accessories, Take-Private, Authentic Brands Group, rag & bone, Quarterly Report, Earnings, Revenue, Profit, Convertible Notes, Share Repurchase, Dividends, Macroeconomic, Inflation, Tariffs, Foreign Exchange, Supply Chain, Red Sea Crisis, Europe, Americas, Asia, Licensing, Financial Performance, Stockholders, Investment