10-Q: Guess? Q3 Earnings Surge Amid Take-Private Deal Progress

Guess? Inc. reported a significant turnaround in Q3 net earnings, driven by derivative fair value gains, as its take-private transaction with Authentic Brands Group advances.

Summary

• Net earnings attributable to Guess?, Inc. for the quarter ended November 1, 2025, was $25.6 million, or diluted EPS of $0.48, a significant improvement from a net loss of $23.4 million, or diluted EPS of $(0.47), in the same prior-year quarter.
• Total net revenue increased 7.2% to $791.4 million for the quarter ended November 1, 2025, and 5.2% in constant currency.
• Gross margin decreased 110 basis points to 42.5% for the quarter ended November 1, 2025, compared to 43.6% in the same prior-year quarter.
• Selling, general and administrative (SG&A) expenses as a percentage of total net revenue increased 140 basis points to 39.2% for the quarter ended November 1, 2025.
• Operating margin decreased 280 basis points to 2.9% for the quarter ended November 1, 2025.
• Earnings from operations decreased 45.2% to $23.2 million for the quarter ended November 1, 2025.
• Other income, net, totaled $21.2 million for the quarter ended November 1, 2025, compared to other expense, net of $45.8 million in the same prior-year quarter, primarily due to a net $17.9 million unrealized gain on derivative remeasurement.
• For the nine months ended November 1, 2025, net loss attributable to Guess?, Inc. was $1.0 million, or diluted EPS of $(0.03), compared to a net loss of $21.0 million, or diluted EPS of $(0.42), in the prior-year period.
• The proposed take-private transaction with Authentic Brands Group LLC advanced, with stockholders adopting the Merger Agreement and approving the Disposition on November 21, 2025; certain Required Regulatory Approvals remain pending.
• Inventory increased by $16.5 million, or 2.4%, to $692.3 million as of November 1, 2025, from $675.8 million at November 2, 2024.
• Accounts receivable increased by $24.4 million, or 6.4%, to $407.8 million as of November 1, 2025, from $383.4 million at November 2, 2024.

Sentiment

Score: 7

Explanation: The company reported a strong rebound in Q3 net earnings and overall revenue growth, with significant progress on its take-private transaction. While operating margins faced pressure from higher costs and markdowns, and asset impairment charges increased, the substantial gain from derivative remeasurement and improved cash flow from operations contribute to a positive sentiment.

Positives

• Net earnings attributable to Guess?, Inc. for Q3 FY26 significantly improved to $25.6 million (EPS $0.48) from a net loss of $23.4 million (EPS $(0.47)) in the prior year.
• Total net revenue increased 7.2% to $791.4 million in Q3, and 7.2% to $2,212.2 million for the nine months, demonstrating overall growth.
• The Europe segment's net revenue increased 9.7% in Q3 and 10.8% for the nine months, with retail comparable sales up 7% (2% constant currency) in Q3.
• Americas Wholesale net revenue increased 27.6% in Q3 and 23.4% for the nine months, driven by the rag & bone business and Mexico wholesale shipments.
• Other income, net, saw a $67.1 million increase in Q3, primarily due to a $17.9 million unrealized gain on derivative remeasurement, compared to a $39.8 million unrealized loss in the prior year.
• Net cash used in operating activities improved by $23.6 million for the nine months, from $61.6 million to $38.0 million.
• Stockholders approved the take-private Merger Agreement and Disposition on November 21, 2025, indicating progress towards the transaction.
• The company had $154.2 million in cash and cash equivalents and $326 million of available global borrowing capacity as of November 1, 2025.

Negatives

• Gross margin decreased 110 basis points to 42.5% in Q3, primarily due to higher markdowns and unfavorable business mix.
• SG&A expenses as a percentage of total net revenue increased 140 basis points to 39.2% in Q3, driven by higher expenses including store labor costs, Proposed Transaction Costs, and restructuring charges.
• Operating margin decreased 280 basis points to 2.9% in Q3, and 3.0% for the nine months, due to higher expenses, markdowns, and asset impairment charges.
• Earnings from operations decreased 45.2% to $23.2 million in Q3 and 88.7% to $7.96 million for the nine months.
• Asset impairment charges increased significantly to $4.8 million in Q3 (from $1.1 million) and $13.2 million for the nine months (from $4.5 million), primarily due to underperforming retail locations and expected store closures.
• Americas Retail net revenue decreased 1.6% in Q3 and operating margin decreased 1.0%, primarily due to lower e-commerce sales and higher markdowns.
• Asia segment net revenue decreased 8.3% in Q3 and 9.7% for the nine months, with operating loss increasing significantly.
• Licensing net royalty revenue decreased 5.8% in Q3 and 9.6% for the nine months, mainly due to lower royalties in the fragrances and footwear categories.
• Corporate overhead increased by $14 million in Q3 and $15 million for the nine months, largely due to Proposed Transaction Costs.
• Net loss attributable to Guess?, Inc. for the nine months ended November 1, 2025, was $1.0 million.
• The company is prohibited from repurchasing shares or declaring dividends exceeding $0.225 per share without Authentic's prior written consent during the pendency of the Proposed Transaction.

Risks

• The Proposed Take-Private Transaction with Authentic Brands Group may not be completed in a timely manner or at all, due to pending regulatory approvals or other conditions.
• The announcement and pendency of the Proposed Transaction could disrupt business relationships, divert management attention, impact employee retention, and limit the company's ability to pursue alternative opportunities.
• The fixed cash consideration of $16.75 per share will not be adjusted for changes in the company's business, financial condition, or market price of common stock.
• Receipt of the all-cash merger consideration is taxable to stockholders treated as U.S. holders for U.S. federal income tax purposes.
• Stockholders will forego the opportunity to realize the potential long-term value of the successful execution of the company's current strategy as an independent company if the transaction completes.
• The company may be required to pay Authentic a termination fee of $23.3 million if the Merger Agreement is terminated under specified circumstances.
• Ongoing and potential future stockholder complaints and legal proceedings related to the Proposed Transaction could delay or prevent completion and incur significant costs.
• During the pendency of the Merger Agreement, the company is restricted from certain actions (e.g., incurring additional indebtedness, making certain capital expenditures, share repurchases, dividends exceeding $0.225/share) without Authentic's prior written consent.
• 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.
• Ongoing changes in U.S. tariff policy could significantly raise product costs and create global economic volatility.
• Fluctuations in foreign exchange rates can impact revenues, operating margins, and balance sheet items, particularly in Europe, Canada, South Korea, China, and Mexico.
• Inflationary pressures are affecting the overall cost structure (transportation, employee compensation, raw materials), potentially impacting gross margin and SG&A if price increases do not keep pace.
• Operations in Russia are subject to various economic sanctions and export controls, limiting business expansion and potentially causing supply/distribution disruptions.
• The company's ability to manage inventory commensurate with customer demand is a risk.
• Risks related to the impact of stock price volatility on the fair value remeasurement of derivatives related to the 2028 Notes and the related convertible note hedge.
• Potential challenges related to the conversion of the self-operated U.S. distribution center to a third-party provider could disrupt distribution facilities.
• The ability to attract and retain management and other key personnel is critical, especially during the Proposed Transaction.
• Cybersecurity incidents and risks associated with properly collecting, using, managing, and securing consumer and employee data pose a threat.

Future Outlook

The Proposed Transaction with Authentic Brands Group is expected to close in the fourth quarter of fiscal year 2026, subject to remaining regulatory approvals. The company anticipates satisfying ongoing cash requirements for the foreseeable future through cash flow from operations, existing cash balances, and credit facilities. Inflationary pressures are expected to persist in the near term, potentially impacting margins and expenses, and consumer discretionary spending. The extent of impact from the Russia-Ukraine war is not expected to be material.

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 continue to optimize our core brand architecture to be relevant with our three target consumer groups: Heritage, Millennials, and Generation Z.
• 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 intend to operate at the highest level of efficiency and effectiveness.
• We plan to continue to prioritize capital allocation toward investments that support growth and infrastructure, while remaining highly disciplined.
• We will consider opportunistic strategic acquisitions of brands and businesses that leverage our global infrastructure and network of licensees and wholesale partners.
• We expect inflationary pressures will persist in the near term.
• We continue to assess all of our operations in Russia to ensure compliance with applicable economic sanctions, including most notably the U.S. ban on new investment in Russia.
• We do not believe the allegations in the stockholder letters, the Williams Complaint or the Clark Complaint are material to us, our business or the outcome of the Proposed Transaction.

Industry Context

The company's performance reflects broader macroeconomic challenges, including inflation, higher interest rates, and geopolitical conflicts (Ukraine, Gaza, Red Sea crisis) impacting consumer spending and supply chains, consistent with trends observed across the global retail and apparel industry. The acquisition of rag & bone and the proposed take-private transaction with Authentic Brands Group indicate a strategic shift towards brand portfolio optimization and private ownership, a trend seen in the fashion industry for leveraging brand value and infrastructure.

Management Changes

Corporate Governance

Legal Proceedings

• Italian Customs Agency (ICA) Tax Assessments: Appeals are ongoing regarding customs tax audits for July 2010-December 2012, totaling €9.8 million ($11.3 million). While most Milan First Degree Tax Court rulings favored the company, some Appeals Court rulings favored ICA (€1.2 million, $1.4 million), which the company appealed to the Italian Supreme Court. ICA also appealed most of the favorable Appeals Court rulings to the Italian Supreme Court.
• Claims against Paul Marciano and the Company: Settled claims from an individual alleging improper treatment by Mr. Paul Marciano for an aggregate total of $290,000 in June 2025, without admitting liability.
• Stockholder Complaints related to Merger: Received 15 demand letters and 8 demands for books and records from purported stockholders alleging deficiencies in the proxy statement and investigating the Merger.
• Williams v. Guess?, Inc. et al.: Shareholder complaint filed November 4, 2025, in New York Supreme Court, alleging insufficient disclosure of internal projections and financial/conflict information related to the Merger, seeking injunctive relief.
• Clark v. Guess?, Inc. et al.: Shareholder complaint filed November 5, 2025, in New York Supreme Court, making substantially similar allegations and seeking similar relief as the Williams Complaint.
• Appraisal Demand: One demand for appraisal pursuant to Section 262 of the DGCL received.

Related Party Transactions

• Leases with Marciano Entities: The company leases warehouse and administrative facilities from entities owned by Paul Marciano and Maurice Marciano. This includes a 12-year lease extension for the Los Angeles Location (annual rent approx. $7.6 million for the first year of renewal), and a new lease for the Second Paris Location (annual rent €450,000 or $519,165). Aggregate lease costs for the nine months ended November 1, 2025, were $6.9 million for Los Angeles, $0.3 million for Montreal, $1.0 million for Paris, and $0.4 million for Second Paris.
• Aircraft Arrangements: The company periodically charters aircraft owned 50% by Maurice Marciano and 50% by Paul Marciano. Total fees paid to independent third-party management companies for the nine months ended November 1, 2025, were approximately $2.5 million.
• Minority Investment in Footwear Company: The company has approximately 44% ownership in a privately-held men's footwear company (increased from 30% in October 2025), while Marciano Entities have approximately 36% ownership (decreased from 45%). The company provided a $2.0 million revolving credit facility to the Footwear Company (note receivable of $2.0 million as of November 1, 2025). The company received approximately $9,000 in fees for U.S. fulfillment services and $11,000 for office rent, and paid approximately $187,000 related to a distributorship agreement for the nine months ended November 1, 2025. Additionally, the company paid approximately $227,000 in fees related to an arrangement to sell footwear products in rag & bone retail stores.
• Vendor Purchases from Fashion Company: The company purchases faux fur products from a privately-held fashion accessories company, 16% owned by Marciano Entities (8% each for Maurice and Paul Marciano) and 4% by Carlos Alberini (CEO). Total payments for the nine months ended November 1, 2025, were approximately $1.1 million.
• Charitable Donations to Smile Project: The company made donations totaling approximately $184,000 (product donations valued at $161,000 and monetary donations of $23,000) to Smile Project, a charitable organization co-founded and presided over by director Elsa Michael, for the nine months ended November 1, 2025.
• Proposed Take-Private Transaction with Authentic Brands Group: Rolling Stockholders, including Maurice Marciano, Paul Marciano, Nicolai Marciano, and Carlos Alberini, and certain of their respective trusts, foundations, and affiliates, will acquire 49% of the company's intellectual property and 100% of its operating assets.

Stakeholder Impact

• Shareholders (Non-Rolling): Will receive $16.75 per share in cash upon completion of the Proposed Transaction, but will forego future potential long-term value as an independent company. The transaction is taxable.
• Rolling Stockholders: Will acquire 49% of the company's intellectual property and 100% of its operating assets, maintaining a significant stake in the business post-transaction.
• Employees: Outstanding and unvested equity awards (except for certain Rolling Stockholders' awards) will fully accelerate and be paid out in cash upon closing of the Proposed Transaction. Uncertainty surrounding the transaction could impact employee retention and productivity.
• Customers: Potential for disruption to business relationships with customers due to the pendency of the Proposed Transaction. The rag & bone acquisition aims to expand the global lifestyle brand portfolio and reach a complementary customer base.
• Suppliers/Vendors: Potential for difficulties maintaining relationships with vendors and suppliers, who may defer decisions or seek to change existing business relationships due to transaction uncertainty.
• Creditors: The company's ability to meet debt obligations is expected to be satisfied by cash flow and existing credit facilities. The Merger Agreement restricts incurring additional indebtedness. The fundamental change clause in the 2028 Notes indenture could require the company to purchase notes for cash.
• Regulatory Authorities: The Proposed Transaction is subject to Required Regulatory Approvals, which are still pending.

Next Steps

• Complete the Proposed Take-Private Transaction with Authentic Brands Group, expected in Q4 fiscal year 2026, pending remaining Required Regulatory Approvals.
• Continue to monitor global and regional geopolitical and economic developments.
• Strategically manage expenses to protect profitability and mitigate supply chain disruptions.
• Evaluate the impact of recently issued accounting guidance (Income Tax Disclosures, Debt with Conversion and Other Options, Expense Disaggregation, Business Combinations and Consolidations, Estimation of Expected Credit Losses, Accounting for Internal-Use Software).
• Continue to prioritize capital allocation toward investments supporting growth and infrastructure.
• Manage product buys and inventory ownership rigorously and optimize overall working capital.
• Continue to return value to stockholders through dividends (subject to transaction restrictions).
• Defend against ongoing and potential future litigation related to the Proposed Transaction.
• Pay a regular quarterly cash dividend of $0.225 per share on December 26, 2025, to stockholders of record as of December 10, 2025.

Key Dates

Recommendation

The company is in the midst of a take-private transaction at a fixed price of $16.75 per share, which has been approved by stockholders but is still pending regulatory approvals. For non-rolling shareholders, the upside is capped at the offer price, while the downside risk exists if the deal falls through or is delayed significantly, especially given the ongoing litigation. The Q3 earnings show a strong rebound in reported net earnings, largely due to non-operating derivative gains, while operating margins and earnings from operations declined. Given the fixed offer price and pending conditions, a "hold" recommendation is appropriate for existing shareholders awaiting the transaction's completion, as the current stock price likely reflects the offer. New investors would find limited upside and potential risk if the deal is not consummated.

Keywords

Guess?, GES, Apparel, Accessories, Fashion, Retail, Wholesale, Licensing, SEC Filing, 10-Q, Quarterly Report, Earnings, Revenue, Profit, Take-Private, Merger, Acquisition, Authentic Brands Group, rag & bone, Convertible Notes, Share Repurchase, Dividends, Corporate Governance, Risk Factors, Macroeconomic, Inflation, Foreign Currency, Geopolitical, Supply Chain, Europe, Americas, Asia