UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August ~~4, 2018~~3, 2019

o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-11893

GUESS?, INC.

(Exact name of registrant as specified in its charter)



Delaware	95-3679695
(State or other jurisdiction of	~~(I.R.S. Employer~~
incorporation or organization)	(I.R.S. Employer Identification No.)

1444 South Alameda Street
Los Angeles,	California
90021
(Address of principal executive ~~offices)~~		~~(Zip Code)~~offices and zip code)

~~(213)~~ (213) 765-3100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading symbol(s)	Name of each exchange on which registered

Common Stock, par value $0.01 per share	GES	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No o

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yesx No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filerx	☒	Accelerated filero	☐

Non-accelerated filero ~~(Do not check if a smaller reporting company)~~	☐	Smaller reporting companyo	☐

		Emerging growth companyo	☐



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x

As of September 4, ~~2018,~~2019, the registrant had ~~81,025,423~~65,612,359 shares of Common Stock, $.01 par value per share, outstanding.

GUESS?, INC.

FORM 10-Q

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	1

	Condensed Consolidated Balance Sheets as of August ~~4, 2018~~3, 2019 and February ~~3, 2018~~2, 2019	1

	Condensed Consolidated Statements of Income ~~(Loss)~~ — Three and Six Months Ended August 3, 2019 and August 4, 2018 ~~and July 29, 2017~~	2

	Condensed Consolidated Statements of Comprehensive Income (Loss) — Three and Six Months Ended August 3, 2019 and August 4, 2018 ~~and July 29, 2017~~	3

	Condensed Consolidated Statements of Cash Flows — Six Months Ended August 3, 2019 and August 4, 2018 ~~and July 29, 2017~~	4

	~~Notes to~~ Condensed Consolidated ~~Financial~~ Statements of Stockholders’ Equity — Three and Six Months Ended August 3, 2019 and August 4, 2018	5

	~~Item 2.~~Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3335

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	57

Item 4.	Controls and Procedures	60
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	60

Item 1A.	Risk Factors	6260

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6266

Item 6.	Exhibits	6367

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements.

GUESS?, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)	GUESS?, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)						GUESS?, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)

	Aug 4, 2018			Feb 3, 2018			Aug 3, 2019			Feb 2, 2019
	(unaudited)						(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	219,062		$	367,441		$	131,060		$	210,460
Accounts receivable, net	283,375			259,996			292,985			321,995
Inventories	464,531			428,304			484,236			468,897
Other current assets	86,030			52,964			59,226			87,343
Total current assets	1,052,998			1,108,705			967,507			1,088,695
Property and equipment, net	288,740			294,254			302,906			315,558
Goodwill	37,299			38,481			36,279			37,072
Other intangible assets, net	7,642			5,977			5,750			6,934
Deferred tax assets	63,277			68,386			57,374			57,224
Restricted cash	372			241			519			535
Operating lease right-of-use assets							900,062			—
Other assets	139,570			139,590			131,807			143,187
	$	1,589,898		$	1,655,634		$	2,402,204		$	1,649,205
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of capital lease obligations and borrowings	$	3,504		$	2,845
Current portion of borrowings and finance lease obligations							$	32,554		$	4,315
Accounts payable	279,053			264,438			246,492			286,657
Accrued expenses	187,332			200,562
Accrued expenses and other current liabilities							180,394			252,392
Current portion of operating lease liabilities							213,912			—
Total current liabilities	469,889			467,845			673,352			543,364
Long-term debt and capital lease obligations	36,945			39,196
Convertible senior notes, net							242,055			—
Long-term debt and finance lease obligations, net							35,512			35,012
Deferred rent and lease incentives	81,652			81,564			—			84,893
Long-term operating lease liabilities							747,791			—
Other long-term liabilities	130,380			127,964			125,915			127,438
	718,866			716,569			1,824,625			790,707
Redeemable noncontrolling interests	4,951			5,590			4,784			4,853

Commitments and contingencies (Note 12)
Commitments and contingencies (Note 13)

Stockholders’ equity:
Preferred stock, $.01 par value. Authorized 10,000,000 shares; no shares issued and outstanding	—			—			—			—
Common stock, $.01 par value. Authorized 150,000,000 shares; issued 142,373,036 and 141,623,687 shares, outstanding 81,030,202 and 81,371,118 shares, as of August 4, 2018 and February 3, 2018, respectively	810			813
Common stock, $.01 par value. Authorized 150,000,000 shares; issued 143,000,001 and 142,707,300 shares, outstanding 71,007,232 and 81,379,660 shares, as of August 3, 2019 and February 2, 2019, respectively							710			814
Paid-in capital	510,550			498,249			484,986			523,331
Retained earnings	1,105,173			1,132,173			1,053,604			1,077,747
Accumulated other comprehensive loss	(126,020		)	(93,062		)	(137,202		)	(126,179		)
Treasury stock, 61,342,834 and 60,252,569 shares as of August 4, 2018 and February 3, 2018, respectively	(638,644		)	(621,354		)
Treasury stock, 71,992,769 and 61,327,640 shares as of August 3, 2019 and February 2, 2019, respectively							(847,226		)	(638,486		)
Guess?, Inc. stockholders’ equity	851,869			916,819			554,872			837,227
Nonredeemable noncontrolling interests	14,212			16,656			17,923			16,418
Total stockholders’ equity	866,081			933,475			572,795			853,645
	$	1,589,898		$	1,655,634		$	2,402,204		$	1,649,205

See accompanying notes to condensed consolidated financial statements.

GUESS?, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (in thousands, except per share data) (unaudited)
GUESS?, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) (unaudited)													GUESS?, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) (unaudited)

	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	Aug 4, 2018			Jul 29, 2017			Aug 4, 2018			Jul 29, 2017			Aug 3, 2019			Aug 4, 2018			Aug 3, 2019			Aug 4, 2018
Product sales	$	626,162		$	551,794		$	1,127,667		$	990,114		$	664,678		$	626,162		$	1,182,551		$	1,127,667
Net royalties	19,709			16,498			39,493			32,523			18,542			19,709			37,360			39,493
Net revenue	645,871			568,292			1,167,160			1,022,637			683,220			645,871			1,219,911			1,167,160
Cost of product sales	406,440			370,265			753,791			679,968			417,554			406,440			772,296			753,791
Gross profit	239,431			198,027			413,369			342,669			265,666			239,431			447,615			413,369
Selling, general and administrative expenses	204,569			173,007			402,788			339,862			218,175			204,569			422,820			402,788
Asset impairment charges													1,504			2,981			3,279			3,740
Net gains on lease terminations	—			—			(152		)	—			—			—			—			(152		)
Asset impairment charges	2,981			1,233			3,740			3,995
Earnings (loss) from operations	31,881			23,787			6,993			(1,188		)
Earnings from operations													45,987			31,881			21,516			6,993
Other income (expense):
Interest expense	(863		)	(544		)	(1,602		)	(958		)	(4,951		)	(863		)	(6,210		)	(1,602		)
Interest income	1,132			1,260			2,109			2,131			313			1,132			674			2,109
Other income (expense), net	1,360			(2,169		)	(1,254		)	(281		)	(6,355		)	1,360			(4,284		)	(1,254		)
	1,629			(1,453		)	(747		)	892			(10,993		)	1,629			(9,820		)	(747		)

Earnings (loss) before income tax expense	33,510			22,334			6,246			(296		)
Earnings before income tax expense													34,994			33,510			11,696			6,246
Income tax expense	7,776			6,453			1,499			5,050			8,818			7,776			6,101			1,499
Net earnings (loss)	25,734			15,881			4,747			(5,346		)
Net earnings													26,176			25,734			5,595			4,747
Net earnings attributable to noncontrolling interests	204			662			438			728			854			204			1,647			438
Net earnings (loss) attributable to Guess?, Inc.	$	25,530		$	15,219		$	4,309		$	(6,074	)
Net earnings attributable to Guess?, Inc.													$	25,322		$	25,530		$	3,948		$	4,309

Net earnings (loss) per common share attributable to common stockholders (Note 3):
Net earnings per common share attributable to common stockholders (Note 3):													Net earnings per common share attributable to common stockholders (Note 3):
Basic	$	0.32		$	0.18		$	0.05		$	(0.08	)	$	0.36		$	0.32		$	0.05		$	0.05
Diluted	$	0.31		$	0.18		$	0.05		$	(0.08	)	$	0.35		$	0.31		$	0.05		$	0.05

Weighted average common shares outstanding attributable to common stockholders (Note 3):
Basic	80,110			82,396			80,006			82,703			70,508			80,110			75,216			80,006
Diluted	81,550			82,763			81,248			82,703			71,356			81,550			76,155			81,248

Dividends declared per common share	$	0.225		$	0.225		$	0.450		$	0.450

See accompanying notes to condensed consolidated financial statements.

GUESS?, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) (unaudited)	GUESS?, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) (unaudited)												GUESS?, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) (unaudited)

	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	Aug 4, 2018			Jul 29, 2017			Aug 4, 2018			Jul 29, 2017			Aug 3, 2019			Aug 4, 2018			Aug 3, 2019			Aug 4, 2018
Net earnings (loss)	$	25,734		$	15,881		$	4,747		$	(5,346	)
Net earnings													$	26,176		$	25,734		$	5,595		$	4,747
Other comprehensive income (loss) (“OCI”):
Foreign currency translation adjustment
Gains (losses) arising during the period	(22,953		)	44,037			(47,525		)	56,872
Losses arising during the period													(5,293		)	(22,953		)	(17,360		)	(47,525		)
Derivative financial instruments designated as cash flow hedges
Gains (losses) arising during the period	4,675			(15,535		)	12,167			(15,089		)
Gains arising during the period													2,286			4,675			6,722			12,167
Less income tax effect	(564		)	2,442			(1,588		)	2,120			(308		)	(564		)	(880		)	(1,588		)
Reclassification to net earnings (loss) for (gains) losses realized	2,311			(649		)	4,190			(1,310		)
Reclassification to net earnings for (gains) losses realized													(1,801		)	2,311			(2,077		)	4,190
Less income tax effect	(279		)	43			(542		)	128			229			(279		)	324			(542		)
Defined benefit plans
Foreign currency and other adjustments	(40		)	(90		)	303			(104		)	(167		)	(40		)	(60		)	303
Less income tax effect	6			8			(26		)	9			16			6			5			(26		)
Net actuarial loss amortization	151			111			303			228			111			151			222			303
Prior service credit amortization	(7		)	(6		)	(14		)	(13		)	(9		)	(7		)	(19		)	(14		)
Less income tax effect	(19		)	(20		)	(39		)	(41		)	(12		)	(19		)	(23		)	(39		)
Total comprehensive income (loss)	9,015			46,222			(28,024		)	37,454			21,228			9,015			(7,551		)	(28,024		)
Less comprehensive income attributable to noncontrolling interests:
Less comprehensive income (loss) attributable to noncontrolling interests:
Net earnings	204			662			438			728			854			204			1,647			438
Foreign currency translation adjustment	511			958			187			2,320			(452		)	511			(142		)	187
Amounts attributable to noncontrolling interests	715			1,620			625			3,048			402			715			1,505			625
Comprehensive income (loss) attributable to Guess?, Inc.	$	8,300		$	44,602		$	(28,649	)	$	34,406		$	20,826		$	8,300		$	(9,056	)	$	(28,649	)

See accompanying notes to condensed consolidated financial statements.

GUESS?, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)	GUESS?, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)						GUESS?, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)

	Six Months Ended						Six Months Ended
	Aug 4, 2018			Jul 29, 2017			Aug 3, 2019			Aug 4, 2018
Cash flows from operating activities:
Net earnings (loss)	$	4,747		$	(5,346	)
Adjustments to reconcile net earnings (loss) to net cash used in operating activities:
Net earnings							$	5,595		$	4,747
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization of property and equipment	31,195			29,802			35,665			31,195
Amortization of other long-term and intangible assets	1,850			783			1,560			1,850
Amortization of debt discount							2,662			—
Amortization of debt issuance costs							276			—
Share-based compensation expense	7,989			8,150			9,454			7,989
Unrealized forward contract (gains) losses	(2,365		)	5,063
Unrealized forward contract gains							(34		)	(2,365		)
Net loss on disposition of property and equipment and long-term assets	4,125			3,717			3,753			4,125
Other items, net	10,467			(5,734		)	5,606			10,467
Changes in operating assets and liabilities:
Accounts receivable	(967		)	4,246			24,492			(967		)
Inventories	(71,044		)	(47,419		)	(22,926		)	(71,044		)
Prepaid expenses and other assets	(20,971		)	(2,606		)	(1,596		)	(20,971		)
Operating lease assets and liabilities, net							1,340			—
Accounts payable and accrued expenses	6,210			3,158			(87,423		)	6,210
Deferred rent and lease incentives	2,396			1,657
Other long-term liabilities	4,716			(5,136		)	(1,381		)	7,112
Net cash used in operating activities	(21,652		)	(9,665		)	(22,957		)	(21,652		)
Cash flows from investing activities:
Purchases of property and equipment	(46,006		)	(39,591		)	(34,551		)	(46,006		)
Changes in other assets	—			(553		)	521			—
Acquisition of businesses, net of cash acquired	(6,321		)	(175		)	—			(6,321		)
Net cash settlement of forward contracts	685			1,279			162			685
Purchases of investments	(1,581		)	(497		)	—			(1,581		)
Net cash used in investing activities	(53,223		)	(39,537		)	(33,868		)	(53,223		)
Cash flows from financing activities:
Proceeds from borrowings	—			166
Repayment of capital lease obligations and borrowings	(1,181		)	(453		)
Proceeds from short-term borrowings							90,136			—
Repayments of short-term borrowings							(61,724		)	—
Proceeds from issuance of convertible senior notes							300,000			—
Proceeds from issuance of warrants							28,080			—
Purchase of convertible note hedges							(60,990		)	—
Convertible debt issuance costs							(5,068		)	—
Purchase of equity forward contracts							(68,000		)	—
Repayment of finance lease obligations and borrowings							(1,561		)	(1,181		)
Dividends paid	(36,625		)	(37,790		)	(26,901		)	(36,625		)
Noncontrolling interest capital contribution	—			962
Issuance of common stock, net of tax withholdings on vesting of stock awards	4,634			(149		)	43			4,634
Purchase of treasury stock	(23,620		)	(17,827		)	(212,564		)	(23,620		)
Net cash used in financing activities	(56,792		)	(55,091		)	(18,549		)	(56,792		)
Effect of exchange rates on cash, cash equivalents and restricted cash	(16,581		)	24,444			(4,042		)	(16,581		)
Net change in cash, cash equivalents and restricted cash	(148,248		)	(79,849		)	(79,416		)	(148,248		)
Cash, cash equivalents and restricted cash at the beginning of the year	367,682			397,650			210,995			367,682
Cash, cash equivalents and restricted cash at the end of the period	$	219,434		$	317,801		$	131,579		$	219,434

Supplemental cash flow data:
Interest paid	$	683		$	536		$	1,535		$	683
Income taxes paid	$	21,436		$	13,222
Income taxes paid, net of refunds							$	4,201		$	21,436

Non-cash investing and financing activity:
Assets acquired under capital lease obligations	$	1,164		$	17,522
Assets acquired under finance lease obligations							$	3,055		$	1,164
Noncontrolling interest capital distributions	$	3,069		$	—		$	—		$	3,069
Sale of retail locations							$	5,088		$	—

See accompanying notes to condensed consolidated financial statements.

GUESS?, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)



	For the three and six months ended August 3, 2019
	Guess?, Inc. Stockholders’ Equity
	Common Stock														Treasury Stock
	Shares		Amount			Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Shares		Amount			Nonredeemable Noncontrolling Interests			Total
Balance at February 2, 2019	81,379,660		$	814		$	523,331		$	1,077,747		$	(126,179	)	61,327,640		$	(638,486	)	$	16,418		$	853,645
Cumulative adjustment from adoption of new accounting guidance	—		—			—			(1,684		)	1,981			—		—			—			297
Net earnings (loss)	—		—			—			(21,374		)	—			—		—			793			(20,581		)
Other comprehensive income (loss), net of income tax of ($499)	—		—			—			—			(8,508		)	—		—			310			(8,198		)
Issuance of common stock under stock compensation plans including tax effect	545,881		5			(3,042		)	—			—			(211,221	)	2,225			—			(812		)
Issuance of stock under Employee Stock Purchase Plan	11,377		1			69			—			—			(11,377	)	120			—			190
Share-based compensation	—		—			4,440			28			—			—		—			—			4,468
Dividends	—		—			—			(18,331		)	—			—		—			—			(18,331		)
Share repurchases	(10,264,052	)	(103		)	103			—			—			10,264,052		(201,564		)	—			(201,564		)
Equity component value of convertible note issuance, net	—		—			42,324			—			—			—		—			—			42,324
Sale of common stock warrant	—		—			28,080			—			—			—		—			—			28,080
Purchase of convertible note hedge	—		—			(46,440		)	—			—			—		—			—			(46,440		)
Equity forward contract issuance	—		—			(68,000		)	—			—			—		—			—			(68,000		)
Balance at May 4, 2019	71,672,866		$	717		$	480,865		$	1,036,386		$	(132,706	)	71,369,094		$	(837,705	)	$	17,521		$	565,078
Net earnings (loss)	—		—			—			25,322			—			—		—			854			26,176
Other comprehensive loss, net of income tax of ($75)	—		—			—			—			(4,496		)	—		—			(452		)	(4,948		)
Issuance of common stock under stock compensation plans including tax effect	64,080		—			(852		)	—			—			(106,039	)	1,249			—			397
Issuance of stock under Employee Stock Purchase Plan	19,538		—			38			—			—			(19,538	)	230			—			268
Share-based compensation	—		—			4,928			58			—			—		—			—			4,986
Dividends	—		—			—			(8,162		)	—			—		—			—			(8,162		)
Share repurchases	(749,252	)	(7		)	7			—			—			749,252		(11,000		)	—			(11,000		)
Balance at August 3, 2019	71,007,232		$	710		$	484,986		$	1,053,604		$	(137,202	)	71,992,769		$	(847,226	)	$	17,923		$	572,795

GUESS?, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)



	For the three and six months ended August 4, 2018
	Guess?, Inc. Stockholders’ Equity
	Common Stock													Treasury Stock
	Shares		Amount			Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Shares		Amount			Nonredeemable Noncontrolling Interests			Total
Balance at February 3, 2018	81,371,118		$	813		$	498,249	$	1,132,173		$	(93,062	)	60,252,569		$	(621,354	)	$	16,656		$	933,475
Cumulative adjustment from adoption of new accounting guidance	—		—			—		5,829			—			—		—			—			5,829
Net earnings (loss)	—		—			—		(21,221		)	—			—		—			234			(20,987		)
Other comprehensive loss, net of income tax of ($1,339)	—		—			—		—			(15,728		)	—		—			(324		)	(16,052		)
Issuance of common stock under stock compensation plans including tax effect	689,341		8			3,882		—			—			—		—			—			3,890
Issuance of stock under Employee Stock Purchase Plan	15,313		—			71		—			—			(15,313	)	159			—			230
Share-based compensation	—		—			3,949		9			—			—		—			—			3,958
Dividends	—		—			—		(18,499		)	—			—		—			—			(18,499		)
Share repurchases	(1,118,808	)	(11		)	11		—			—			1,118,808		(17,587		)	—			(17,587		)
Balance at May 5, 2018	80,956,964		$	810		$	506,162	$	1,098,291		$	(108,790	)	61,356,064		$	(638,782	)	$	16,566		$	874,257
Net earnings	—		—			—		25,530			—			—		—			204			25,734
Other comprehensive income (loss), net of income tax of ($856)	—		—			—		—			(17,230		)	—		—			511			(16,719		)
Issuance of common stock under stock compensation plans including tax effect	60,008		—			279		—			—			—		—			—			279
Issuance of stock under Employee Stock Purchase Plan	13,230		—			97		—			—			(13,230	)	138			—			235
Share-based compensation	—		—			4,012		19			—			—		—			—			4,031
Dividends	—		—			—		(18,667		)	—			—		—			—			(18,667		)
Noncontrolling interest capital distribution	—		—			—		—			—			—					(3,069		)	(3,069		)
Balance at August 4, 2018	81,030,202		$	810		$	510,550	$	1,105,173		$	(126,020	)	61,342,834		$	(638,644	)	$	14,212		$	866,081

See accompanying notes to condensed consolidated financial statements.

GUESS?, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

August ~~4, 2018~~3, 2019

(unaudited)


(1)	Basis of Presentation and New Accounting Guidance

Description of the Business

Guess?, Inc. (the “Company” or “GUESS?”) designs, markets, distributes and licenses a leading lifestyle collection of contemporary apparel and accessories for men, women and children that reflect the American lifestyle and European fashion sensibilities. The Company’s designs are sold in GUESS? owned stores, to a network of wholesale accounts that includes better department stores, selected specialty retailers and upscale boutiques and through the Internet. GUESS? branded products, some of which are produced under license, are also sold internationally through a series of retail store licensees and wholesale distributors.

Basis of Presentation

In the opinion of management, the accompanying unaudited condensed consolidated financial statements of the Company contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the condensed consolidated balance sheets as of August ~~4, 2018~~3, 2019 and February ~~3, 2018,~~2, 2019, the condensed consolidated statements of income, ~~(loss) and~~ comprehensive income (loss) and stockholders’ equity for the three and six months ended August 3, 2019 and August 4, 2018 ~~and July 29, 2017~~ and the condensed consolidated statements of cash flows for the six months ended August 3, 2019 and August 4, ~~2018 and July 29, 2017.~~2018. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and the instructions to Rule 10-01 of Regulation S-X of the Securities and Exchange ~~Commission.~~Commission (the “SEC”). Accordingly, they have been condensed and do not include all of the information and footnotes required by GAAP for complete financial statements. The results of operations for the three and six months ended August ~~4, 2018~~3, 2019 are not necessarily indicative of the results of operations to be expected for the full fiscal year. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended February ~~3, 2018.~~2, 2019.

The three and six months ended August ~~4, 2018~~3, 2019 had the same number of days as the three and six months ended ~~July 29, 2017.~~August 4, 2018. All references herein to “fiscal ~~2019,~~2020,” “fiscal ~~2018”~~2019” and “fiscal ~~2017”~~2018” represent the results of the 52-week fiscal year ending February 1, 2020, the 52-week fiscal year ended February 2, 2019 and the 53-week fiscal year ended February 3, 2018, ~~and the 52-week fiscal year ended January 28, 2017,~~ respectively.

Reclassifications

The Company has made certain reclassifications to prior ~~year~~period amounts to conform to the current period presentation within the accompanying notes to the condensed consolidated financial statements.

~~Net Gains~~Revenue Recognition

The Company recognizes the majority of its revenue from its direct-to-consumer (brick-and-mortar retail stores and concessions as well as e-commerce) and wholesale distribution channels at a point in time when it satisfies a performance obligation and transfers control of the product to the respective customer.

The Company also recognizes royalty revenue from its trademark license agreements. The Company’s trademark license agreements represent symbolic licenses that are dependent on ~~Lease Terminations~~the Company’s continued support over the term of the license agreement. The amount of revenue that is recognized from the licensing arrangements is based on sales-based royalty and advertising fund contributions as well as specific fixed payments, where applicable. The Company’s trademark license agreements customarily provide for a multi-year initial term ranging from three to ten years, and may contain options to renew prior to expiration for an additional multi-year period. The unrecognized portion of upfront payments is included in deferred royalties in accrued expenses and other long-term liabilities depending on the short or long-term nature of the payments to be recognized. As of August 3, 2019, the Company had $6.7 million and $12.6 million of deferred royalties related to these upfront payments included in accrued expenses and other long-term liabilities, respectively. This compares

to $6.4 million and $15.5 million of deferred royalties related to these upfront payments included in accrued expenses and other long-term liabilities, respectively, at February 2, 2019. During the three and six months ended August 3, 2019, the Company recognized $3.1 million and $6.1 million in net royalties related to the amortization of the deferred royalties, respectively. During the three and six months ended August 4, 2018, the Company ~~recorded~~recognized $3.6 million and $6.9 million in net ~~gains on lease terminations of approximately $0.2 million~~royalties related ~~primarily~~ to the ~~early termination~~amortization of ~~certain lease agreements~~the deferred royalties, respectively.

Refer to Note 8 for further information on disaggregation of revenue by segment and country.

Other Assets

During fiscal 2019, the Company invested $8.3 million in ~~North America.~~a privately-held apparel company and holds a 30% minority interest. The Company’s ownership in this company is accounted for under the equity method of accounting. The Company recognized its proportionate share of net ~~gains on lease terminations were recorded~~losses of $2.9 million in other income (expense) in its condensed consolidated statements of income during the three ~~months ended May 5, 2018. There were no net gains on lease terminations during the three or~~and six months ended ~~July 29, 2017.~~August 3, 2019.

Sale of Australian Stores

During the second quarter of fiscal 2020, the Company entered into a definitive agreement to sell its Australian retail locations to the Company’s wholesale distributor in the region for approximately AUD$7.3 million (US$5.1 million), subject to certain adjustments, and recognized a loss on the sale of approximately AUD$1.1 million (US$0.8 million). As per the terms of the agreement, the wholesale distributor entered into a promissory note with the Company to make periodic payments on the sale through August 2021. As of August 3, 2019, the Company included AUD$2.0 million (US$1.4 million) and AUD$5.3 million (US$3.7 million) in accounts receivable, net and other assets, respectively, in its condensed consolidated balance sheet based on the timing of the payments.

New Accounting Guidance

Changes in Accounting Policies

In May 2014, the Financial Accounting Standards Board (“FASB”) issued a comprehensive new revenue recognition standard which superseded previous existing revenue recognition guidance. The standard is intended to clarify the principles of recognizing revenue and create common revenue recognition guidance between GAAP and International Financial Reporting Standards. The standard also requires expanded disclosures surrounding revenue recognition. During fiscal 2017, the FASB issued additional clarification guidance on the new revenue recognition standard which also included certain scope improvements and practical expedients. The Company

adopted this guidance (including clarification guidance issued) effective February 4, 2018 using the modified retrospective method and, as a result, recorded a cumulative adjustment to increase retained earnings by approximately $5.8 million, net of taxes. The adjustment related primarily to changes in the presentation of advertising contributions received from the Company’s licensees and the related advertising expenditures incurred by the Company. Under previous guidance, the Company recorded advertising contributions received from its licensees and the related advertising expenditures incurred by the Company on a net basis in its consolidated balance sheet. To the extent that the advertising contributions exceeded the Company’s advertising expenditures for its licensees, the excess contribution was treated as a deferred liability and was included in accrued expenses in the Company’s consolidated balance sheet. Under the new revenue recognition standard, advertising contributions and related advertising expenditures related to the Company’s licensing business are recorded on a gross basis in the Company’s condensed consolidated statements of income (loss). This change resulted in an increase to net revenue and selling, general, and administrative (“SG&A”) expenses of $2.1 million and $1.5 million, respectively, during the three months ended August 4, 2018 compared to the same prior-year period. During the six months ended August 4, 2018, this change resulted in an increase to net revenue and SG&A expenses of $4.4 million and $4.8 million, respectively, compared to the same prior-year period. Other minor differences related to the timing of revenue recognition from the Company’s e-commerce operations, which are now recognized when merchandise is transferred to a common carrier rather than upon receipt by the customer, and a minimal change in the valuation of the amount that is deferred related to points earned under the Company’s loyalty programs. Additionally, allowances for wholesale sales returns and wholesale markdowns are now presented as accrued expenses rather than as reductions to accounts receivable and the estimated cost associated with the allowance for sales returns is presented within other current assets rather than included in inventories in the Company’s consolidated balance sheet. Refer to Note 2 for the Company’s expanded disclosures on revenue recognition.

In January 2016, the FASB issued authoritative guidance which requires equity investments not accounted for under the equity method of accounting or consolidation accounting to be measured at fair value, with subsequent changes in fair value recognized in net income. In February 2018, the FASB issued additional clarification guidance which made targeted improvements to address certain aspects of recognition, measurement, presentation and disclosure requirements for financial instruments. The Company adopted this guidance (including the clarification guidance) effective February 4, 2018. The adoption of this guidance did not result in a cumulative-effect adjustment as of the beginning of the current year and did not have a material impact on the Company’s consolidated financial statements or related disclosures.

In October 2016, the FASB issued authoritative guidance which amends the accounting for income taxes on intra-entity transfers of assets other than inventory. This guidance requires that entities recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The income tax consequences on intra-entity transfers of inventory will continue to be deferred until the inventory has been sold to a third party. The Company adopted this guidance effective February 4, 2018. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements or related disclosures.

In March 2017, the FASB issued authoritative guidance related to the presentation of net periodic pension cost in the income statement. This guidance requires that the service cost component of net periodic pension cost be presented in the same line as other compensation costs arising from services rendered by the employees during the period. The other non-service components of net periodic pension cost are required to be presented in the income statement separately from the service cost component and outside of earnings from operations. This guidance also allows for the service cost component to be eligible for capitalization when applicable. The Company adopted this guidance effective February 4, 2018 on a retrospective basis for the presentation of the service cost component and other non-service components of net periodic pension cost in the income statement and on a prospective basis for capitalization of the service cost component. As a result, the Company reclassified $0.5 million and $1.1 million from SG&A expenses to other income (expense) during the three and six months ended July 29, 2017, respectively, which resulted in a related improvement in operating earnings (loss) during each of the respective periods. Other than the change in presentation of other non-service components of net periodic

pension cost within the Company’s consolidated statements of income (loss), the adoption of this guidance did not have an impact on the Company’s consolidated financial statements and related disclosures.

In May 2017, the FASB issued authoritative guidance that provides clarification on accounting for modifications in share-based payment awards. The Company adopted this guidance effective February 4, 2018. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements or related disclosures.

~~In June 2018, the FASB issued authoritative guidance that expanded the scope of ASC Topic 718,~~ ~~Compensation - Stock Compensation~~, to include nonemployee share-based payment transactions. The Company early adopted this guidance during the second quarter of fiscal 2019. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements or related disclosures.

~~Recently Issued Accounting Guidance~~

In February 2016, the FASB issued a comprehensive new lease standard which ~~will supersede~~superseded previous lease guidance. The standard requires a lessee to recognize ~~assets and liabilities related to long-term leases that were classified as operating leases under previous guidance in its balance sheet. An~~an asset ~~would be recognized~~ related to the right to use the underlying asset and a liability ~~would be recognized related to~~that approximates the ~~obligation to make~~present value of the lease payments over the term of contracts that qualify as leases under the ~~lease.~~new guidance. The standard also requires expanded disclosures surrounding leases. The Company adopted this guidance as of February 3, 2019 using the modified retrospective approach and recorded a cumulative adjustment to increase retained earnings by approximately $0.3 million, net taxes, with no restatement of prior periods. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, ~~(including clarification guidance issued during fiscal 2019) is effective for fiscal periods beginning after December 15, 2018,~~ which ~~will be~~among other things, allows the Company to carry forward historical lease classification. As of the adoption date, the Company recorded operating lease right-of-use (“ROU”) assets and operating lease liabilities of approximately $1.0 billion. The standard did not materially impact the Company’s ~~first quarter~~condensed consolidated statements of ~~fiscal 2020,~~income or cash flows. Refer to Note 2 for the Company’s expanded disclosures on leases.

In August 2017, the FASB issued authoritative guidance to better align the results of hedge accounting with ~~early adoption permitted.~~an entity’s risk management activities. This guidance eliminated the requirement to separately measure and report ineffectiveness for instruments that qualify for hedge accounting and generally requires that the entire change in the fair value of such instruments ultimately be presented in the same line as the respective hedge item. As a result, there is no interest component recognized for the ineffective portion of instruments that qualify for hedge accounting, but rather all changes in the fair value of such instruments are included in other comprehensive income (loss). The guidance also reduced the overall complexity of the hedge accounting model, including broadening the scope of risks eligible to qualify for hedge accounting, easing documentation and effectiveness assessment requirements, modifying the treatment of components excluded from the assessment of hedge effectiveness and updating disclosure requirements. In October 2018, the FASB clarified the new hedge accounting guidance by allowing the Secured Overnight Financing Rate to be eligible as a U.S. benchmark interest rate for purposes of applying hedge accounting. The Company has completed the design phase of its selected lease management system and is in the process of completing its inventory of its lease contracts as well as implementing processes and controls to enable the preparation of the required financial information for this standard. The Company will applyadopted this guidance ~~retrospectively at the beginning~~as of ~~the period~~February 3, 2019. The adoption of ~~adoption through~~this guidance resulted in a ~~cumulative-effect adjustment to~~decrease in retained earnings and ~~expects that~~a decrease in accumulated other comprehensive loss of

approximately $2.0 million. Approximately $1.4 million of this ~~guidance~~gain will ~~result~~be recognized in ~~material increases in assets and liabilities in its consolidated balance sheet as well as enhanced disclosures.~~cost of product sales during fiscal 2020, on a pre-tax basis.

Recently Issued Accounting Guidance

In June 2016, the FASB issued authoritative guidance related to the measurement of credit losses on financial instruments. This guidance is effective for fiscal years beginning after December 15, 2019, which will be the Company’s first quarter of fiscal 2021. Early adoption is permitted for fiscal periods beginning after December 15, 2018, which ~~will be~~was the Company’s first quarter of fiscal 2020. The Company is currently evaluating the impact of the adoption of this standard on its condensed consolidated financial statements and related disclosures.

In January 2017, the FASB issued authoritative guidance to simplify the testing for goodwill impairment by removing step two from the goodwill testing. Under current guidance, if the fair value of a reporting unit is lower than its carrying amount (step one), an entity would calculate an impairment charge by comparing the implied fair value of goodwill with its carrying amount (step two). The implied fair value of goodwill was calculated by deducting the fair value of the assets and liabilities of the respective reporting unit from the reporting unit’s fair value as determined under step one. This guidance instead provides that an impairment charge should be recognized based on the difference between a reporting unit’s fair value and its carrying value. This guidance also does not require a qualitative test to be performed on reporting units with zero or negative carrying amounts. However, entities need to disclose any reporting units with zero or negative carrying amounts that have goodwill and the amount of goodwill allocated to each. This guidance is effective for fiscal years beginning after December 15, 2019, which will be the Company’s first quarter of fiscal 2021, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this guidance is not expected to have a material impact on the Company’s condensed consolidated financial statements or related disclosures.

In August 2017, the FASB issued authoritative guidance to better align the results of hedge accounting with an entity’s risk management activities. This guidance updates the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in the financial statements. This guidance is effective for fiscal years beginning after December 15, 2018, which will be the Company’s first quarter of fiscal 2020, and requires a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption, with early adoption permitted. The updated presentation and disclosure guidance is required only on a

~~prospective basis. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements or related disclosures.~~

In August 2018, the FASB issued authoritative guidance to modify the disclosure requirements on fair value ~~measurements in ASC 820,~~ ~~Fair Value Measurement~~.measurements. This guidance is effective for fiscal years beginning after December 15, 2019, which will be the Company’s first quarter of fiscal 2021 with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its related disclosures.

In August 2018, the FASB issued authoritative guidance to modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This guidance is effective for fiscal years beginning after December 15, 2020, which will be the Company’s first quarter of fiscal 2022, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its related disclosures.

In August 2018, the FASB issued authoritative guidance to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The guidance provides criteria for determining which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The capitalized implementation costs are required to be expensed over the term of the hosting arrangement. The guidance also clarifies the presentation requirements for reporting such costs in the entity’s financial statements. This guidance is effective for fiscal years beginning after December 15, 2019, which will be the Company’s first quarter of fiscal 2021, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its condensed consolidated financial statements and related disclosures.


~~(2)~~	~~Revenue Recognition~~

~~Significant Accounting Policies and Practices~~

~~Products Transferred at a Point in Time~~(2) Lease Accounting

The Company ~~recognizes the majority~~primarily leases its showrooms, advertising, licensing, sales and merchandising offices, remote distribution and warehousing facilities and retail and factory outlet store locations under operating lease agreements expiring on various dates through January 2039. The Company also leases some of its ~~revenue from its direct-to-consumer (brick-and-mortar retail stores and concessions~~equipment as well as ~~e-commerce)~~computer hardware and ~~wholesale distribution channels at a point in time when it satisfies a performance obligation~~software under operating and transfers control of the product to the respective customer. For the Company’s brick-and-mortar retail stores and concessions, revenue is typically recognized at the point of sale. Revenue generated from the Company’s e-commerce sites is recognized when merchandise is transferred to a common carrier. This is a change compared to the Company’s treatment under previous guidance where revenue from the Company’s e-commerce sites was recognized basedfinance lease agreements expiring on the estimated customer receipt date. This change had an immaterial impact on revenue for the three and six months ended August 4, 2018. Revenue generated from the Company’s wholesale distribution channel is recognized when control transfers to the customer, which generally occurs upon shipment. The amount of revenue that is recognized is based on the transaction price, which represents the invoiced amount and includes estimates of variable consideration such as allowances for sales returns, markdowns and loyalty award obligations, where applicable. The amount of variable consideration included in the transaction price may be constrained and is included only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period.various dates through May 2027.

The Company ~~accepts payments~~determines whether an arrangement is a lease at its brick-and-mortar retail locations and its e-commerce sites in the form of cash, credit cards, gift cards and loyalty points, where applicable. Payment terms, typically less than one year, are offered to the Company’s wholesale customers and do not include a significant financing component. The Company extends credit to wholesale customers based upon an evaluationinception of the ~~customer’s financial condition~~agreement and ~~credit history and generally requires no collateral but does obtain credit insurance when considered appropriate. As of August 4, 2018, approximately 52%~~reassesses that conclusion if the agreement is modified. The term of the Company’s ~~total net trade receivables~~leases represents the non-cancelable period of the lease, including any rent-free periods and ~~62% of its European net trade receivables were subject~~any options to ~~credit insurance coverage,~~renew, extend or terminate the lease that the Company is reasonably certain ~~bank guarantees or letters of credit for collection purposes. The Company’s credit insurance coverage contains certain terms and conditions specifying~~

~~deductibles and annual claim limits.~~to exercise. The Company ~~maintains allowances for doubtful accounts for estimated losses~~determines the term of each lease at lease commencement and revisits that ~~result from the inability~~term in subsequent periods if a triggering event occurs which would require reassessment.

Leases with an initial contractual term in excess of its wholesale customers to make their required payments. The Company bases its allowances on analysis of the aging of accounts receivable at the date of the financial statements, assessments of historical and current collection trends, an evaluation of the impact of current economic conditions and whether the Company has obtained credit insurance or other guarantees. Management performs regular evaluations concerning the ability of its customers to satisfy their obligations and records a provision for doubtful accounts based on these evaluations. The Company’s credit losses for the periods presented were immaterial and did not significantly exceed management’s estimates. Refer to Note 5 for further information regarding the Company’s allowance for doubtful accounts.

~~Shipping and handling costs associated with outbound freight incurred to transfer a product to a customer~~12 months are accounted for as fulfillment costs and are included in SG&A expenses. Sales and usage-based taxes collected from customers and remitted directly to governmental authorities are excluded from net revenues. This is consistent with the presentation of such amounts in previous years.

~~The Company does not have significant contract balances related to its direct-to-consumer~~either an operating or wholesale distribution channels other than the allowance for sales returns and markdowns as well as liabilities related to its gift cards and loyalty programs. The Company also does not have significant contract acquisition costs related to its direct-to-consumer or wholesale distribution channels.

~~Sales Return Allowances~~

~~The Company accrues for estimated sales returns in the period in which the related revenue is recognized. To recognize the financial impact of sales returns,~~finance lease based on certain criteria. Under this new guidance, leases the Company estimates the amount of goods that will be returned based on historical experience and current trends and reduces sales and cost of sales accordingly. The Company’s policy allows retail customers in certain regions a grace periodpreviously referred to ~~return merchandise following the date of sale. Substantially all of these returns~~as “capital leases” are ~~considered~~now referred to ~~be resalable at a price that exceeds the cost of the merchandise. The Company adopted the new revenue recognition standard effective~~ as ~~of the first quarter of fiscal 2019, and accordingly, has included the allowance for sales returns in accrued expenses and the estimated cost associated~~“finance leases.” In connection with ~~such sales returns within other current assets in its condensed consolidated balance sheet. Prior to~~ the adoption of the new ~~revenue recognition~~lease standard, the Company ~~recorded~~elected to apply the ~~allowance for wholesale sales returns against accounts receivable and the estimated cost~~group of ~~inventory associated with the allowance for sales returns in inventories. The allowance for retail sales returns was included in accrued expenses~~practical expedients which ~~is consistent with the current presentation. As of August 4, 2018,~~allows the Company ~~included $27.0 million in accrued expenses related~~ to ~~the allowance~~carry forward its identification of existing contracts that are or contain leases, its historical lease classification and its initial direct costs for sales returns and $11.6 million in other current assets related to the estimated cost of such sales returns. As of February 3, 2018, the Company included $25.0 million and $2.9 million in accounts receivable and accrued expenses, respectively, related to the allowance for sales returns and $11.9 million in inventories related to the estimated cost of such sales returns.

~~Markdown Allowances~~

~~Costs associated with customer markdowns are recorded as a reduction to revenues and any amounts unapplied to~~ existing receivables are included in accrued expenses. These markdown allowances resulted from seasonal negotiations with the Company’s wholesale customers, as well as historical trends and the evaluation of the impact of current economic conditions. The Company adopted the new revenue recognition standard effective as of the first quarter of fiscal 2019, and accordingly, has included the allowance for markdowns in accrued expenses in its condensed consolidated balance sheet. As of August 4, 2018, the Company included $10.8 million in accrued expenses related to the allowance for markdowns. As of February 3, 2018, the Company included $10.8 million in accounts receivable related to the allowance for markdowns.

~~Gift Cards~~

Gift card breakage is income recognized due to the non-redemption of a portion of gift cards sold by the Company for which a liability was recorded in prior periods. Gifts cards are mainly used in the U.S. and Canada. The Company issues its gift cards in the U.S. and Canada through one of its subsidiaries and is not required by law to escheat the value of unredeemed gift cards to the state in which the subsidiary is domiciled. Estimated

breakage amounts are accounted for under the redemption recognition method and are classified as additional net revenues as the gift cards are redeemed. The Company’s gift card breakage rate is approximately 6.1% and 5.1% for the U.S. retail business and Canadian retail business, respectively, based upon historical redemption patterns, which represents the cumulative estimated amount of gift card breakage from the inception of the electronic gift card program in late 2002. Based upon historical redemption trends, the Company recognizes estimated gift card breakage as a component of net revenue in proportion to actual gift card redemptions, over the period that remaining gift card values are redeemed. Any future revisions to the estimated breakage rate may result in changes in the amount of breakage income recognized in future periods. There have been no changes to the Company’s accounting for gift card breakage upon adoption of the new revenue recognition standard effective as of the first quarter of fiscal 2019. During the three and six months ended August 4, 2018, the Company recognized $0.1 million and $0.2 million, respectively, of gift card breakage to revenue. During the three and six months ended July 29, 2017, the Company recognized $0.1 million and $0.2 million, respectively, of gift card breakage to revenue. As of August 4, 2018 and February 3, 2018, the Company included $4.6 million and $5.2 million in accrued expenses related to its gift card liability, respectively.

~~Loyalty Programs~~

leases. The Company has ~~customer loyalty programs in North America, Europe~~also elected to recognize leases with an initial term of 12 months or less on a straight-line basis without recognizing a ROU asset or operating lease liability.

The Company’s lease agreements primarily provide for lease payments based on a minimum annual rental amount, a percentage of annual sales volume, periodic adjustments related to inflation or a combination of such lease payments. Certain retail store leases provide for rents based upon the minimum annual rental amount and ~~Asia~~a percentage of annual sales volume, generally ranging from 3% to 23%, when specific sales volumes are exceeded. The Company’s retail concession leases also provide for rents primarily based upon a percentage of annual sales volume which ~~cover all~~average approximately 35% of ~~its brands. Under certain~~annual sales volume. Some of these leases require the ~~programs, primarily~~Company to make periodic payments for insurance, property taxes, sales promotion and common area maintenance charges. The Company has elected the practical expedient to not separate non-lease components from lease components in the ~~U.S. and Canada, customers accumulate points based on purchase activity. Once a loyalty program member achieves a certain point level,~~measurement of liabilities for its directly operated real estate leases. Lease liabilities are recognized at the member earns awards that may only be redeemed for merchandise. Unredeemed points generally expire after six months without additional purchase activity and unredeemed awards generally expire after two months. Where applicable, the Company allocates a portion of the transaction price from sales in its direct-to-consumer channel to its loyalty program by using historical redemption rates to estimate the value of future award redemptions. This amount is accrued in current liabilities and recorded as a reduction of net revenue in the period which the related revenue is recognized. During the three months ended August 4, 2018, activity related to the Company’s loyalty programs had a minimal impact on net revenue. During the six months ended August 4, 2018, activity related to the Company’s loyalty programs decreased net revenue by $0.4 million. During the three and six months ended July 29, 2017, activity related to the Company’s loyalty programs increased net revenue by $0.2 million and $0.5 million, respectively. The aggregate dollarpresent value of the ~~loyalty program accruals included accrued expense was $4.4~~fixed lease payments, reduced by landlord incentives using a discount rate based on similarly secured borrowings available to the Company. Lease ROU assets are recognized based on the initial present value of the fixed lease payments, reduced by landlord incentives, plus any direct costs from executing the leases. Variable lease payments are expensed as incurred and do not factor into the measurement of the applicable lease liability or lease ROU asset. Lease ROU assets are amortized over the life of the lease and tested for impairment in the same manner as long-lived assets used in operations. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the lease term.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. In addition to the amounts as disclosed below, the Company has estimated additional operating lease commitments of approximately $9.6 million ~~and $3.8 million~~for leases where the Company has not yet taken possession of the underlying asset as of August ~~4, 2018 and February~~ 3, ~~2018, respectively. Future revisions to the estimated liability may result in changes to net revenue.~~

~~Intellectual Property Transferred Over Time~~

The Company’s trademark license agreements represent symbolic licenses that are dependent on the Company’s continued support over the term of the license agreement. The amount of revenue that is recognized from the licensing arrangements is based on sales-based royalty and advertising fund contributions as well as specific fixed payments, where applicable.

The typical license agreement requires that the licensee pay the Company the greater of a royalty based on a percentage of the licensee’s net sales of licensed products or a guaranteed annual minimum royalty that typically increases over the term of the license agreement. Generally, licensees are also required to make contributions to advertising funds, as a percentage of their sales, over the term of the licensing agreement, and may elect to make additional contributions to support specific brand-building initiatives. The Company recognizes revenue from sales-based royalty and advertising fund contributions when2019. As such, the related sales occur which is consistent with the timing of when the performance obligation is satisfied. The Company adopted the new revenue recognition standard effective as of the first quarter of fiscal 2019,operating lease ROU assets and accordingly, has recorded advertising contributions in revenue on a gross basis separate from any related advertising expenditures made by the Company which are recorded in SG&A expenses in the Company’s condensed consolidated statements of income (loss). Prior to the adoption of the new revenue recognition standard, the Company recorded advertising contributions received from its licensees and the related advertising expenditures incurred by the Company on a net basis in its consolidated balance sheet. Under previous guidance, to the extent that the advertising contributions exceed the Company’s advertising expenditures for its licensees, the excess contribution was treated as a deferred liability and was

~~included in accrued expenses~~operating lease liabilities have not been recognized in the Company’s condensed consolidated balance ~~sheet. Refer to Note 1 for detail regarding~~sheet as of August 3, 2019.

As of August 3, 2019, the ~~impact~~components of ~~this change on the Company’s condensed consolidated balance sheet~~leases and ~~its condensed consolidated statements of income (loss)~~lease costs are as a result of the adoption of the new revenue recognition standard. The Company records royalty and advertising payments received on the Company’s purchases of licensed product as a reduction of the cost of the licensed product.follows (in thousands):

The Company’s trademark license agreements customarily provide for a multi-year initial term ranging from three to ten years, and may contain options to renew prior to expiration for an additional multi-year period. Several



	Balance Sheet Location	Aug 3, 2019
Assets
Operating	Operating lease right-of-use assets	$	900,062
Finance	Property and equipment, net	17,402
Total lease assets		$	917,464

Liabilities
Current:
Operating	Current portion of operating lease liabilities	$	213,912
Finance	Current portion of borrowings and finance lease obligations	2,465
Noncurrent:
Operating	Long-term operating lease liabilities	747,791
Finance	Long-term debt and finance lease obligations, net	15,618
Total lease liabilities		$	979,786



	Income Statement Location	Three Months Ended Aug 3, 2019		Six Months Ended Aug 3, 2019
Operating lease costs¹	Cost of product sales	$	58,749	$	117,565
Operating lease costs¹	Selling, general and administrative expenses	5,720		10,984
Finance lease costs
Amortization of leased assets²	Cost of product sales	44		87
Amortization of leased assets²	Selling, general and administrative expenses	637		1,180
Interest on lease liabilities	Interest expense	286		573
Variable lease costs¹	Cost of product sales	25,083		49,908
Variable lease costs¹	Selling, general and administrative expenses	628		1,455
Short-term lease costs¹	Selling, general and administrative expenses	183		395
Total lease costs		$	91,330	$	182,147

Notes:

Rental expense for all property and equipment operating leases during the three and six months ended August 4, 2018 aggregated $70.6 million and $142.8 million, respectively, including percentage rent of $15.5 million and $31.9 million, respectively. During the three and six months ended August 4, 2018, the Company also recognized insurance, taxes, sales promotion and common area maintenance charges totaling $16.4 million and $31.3 million, respectively, related to its operating leases.


²	Amortization of leased assets related to finance leases are included in depreciation expense in the Company’s condensed consolidated statements of income.

Maturities of the Company’s ~~key license agreements provide for specified, fixed payments over~~operating and ~~above the normal, ongoing royalty payments in consideration of the grant of the license rights. These payments are recognized ratably~~finance lease liabilities as revenue over the term of the license agreement and do not include a significant financing component. The unrecognized portion of upfront payments is included in deferred royalties in accrued expenses and other long-term liabilities depending on the short or long-term nature of the payments to be recognized. As of August ~~4, 2018, the Company had $7.3 million and $16.5 million~~3, 2019 are as follows (in thousands):



Maturity of Lease Liabilities	Operating Leases		Finance Leases		Total
2020¹	$	131,202	$	1,825	$	133,027
2021	201,770		3,342		205,112
2022	189,492		3,646		193,138
2023	158,132		3,255		161,387
2024	132,342		3,092		135,434
After 2024	255,194		7,577		262,771
Total lease payments	1,068,132		22,737		1,090,869
Less: Interest	106,429		4,654		111,083
Present value of lease liabilities	$	961,703	$	18,083	$	979,786

Notes:


¹	Represents the maturity of lease liabilities for the remainder of fiscal 2020 and does not include payments made during the six months ended August 3, 2019.

Other supplemental information as of ~~deferred royalties related to these upfront payments included~~August 3, 2019 is as follows (dollars in accrued expenses and other long-term liabilities, respectively. This compares to $6.8 million and $12.8 million of deferred royalties related to these upfront payments included in accrued expenses and other long-term liabilities, respectively, at February 3, 2018. During the three and six months ended August 4, 2018, the Company recognized $3.6 million and $6.9 million in net royalties related to the amortization of the deferred royalties, respectively. During the three and six months ended July 29, 2017, the Company recognized $3.0 million and $6.0 million in net royalties related to the amortization of the deferred royalties, respectively.thousands):

Contract balances related to the Company’s licensing distribution channel consist primarily of royalty receivables and liabilities related to deferred royalties. Refer to Note 5 for further information on royalty receivables. The Company does not have significant contract acquisition costs related to its licensing operations.

~~Refer to Note 8 for further information on disaggregation of revenue by segment and country.~~



Lease Term and Discount Rate	Aug 3, 2019
Weighted-average remaining lease term (years)
Operating leases	6.0 years
Finance leases	6.8 years
Weighted-average discount rate
Operating leases	3.6%
Finance leases	7.1%



Supplemental Cash Flow Information	Six Months Ended Aug 3, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	124,687
New operating ROU assets obtained in exchange for lease liabilities	$	99,951


(3)	Earnings ~~(Loss) Per~~per Share

Basic earnings (loss) per share represents net earnings (loss) attributable to common stockholders divided by the weighted average number of common shares outstanding during the period. The Company considers any restricted stock units with forfeitable dividend rights that are issued and outstanding, but considered contingently returnable if certain service conditions are not met, as common equivalent shares outstanding. These restricted stock units are excluded from the weighted average number of common shares outstanding and basic earnings (loss) per share calculation until the respective service conditions have been met. Diluted earnings per share ~~represent~~represents net earnings attributable to common stockholders divided by the weighted average number of common shares outstanding, inclusive of the dilutive impact of common equivalent shares outstanding during the period, and the dilutive impact of the Company’s convertible senior notes, related warrants and equity forward contract related to its accelerated share repurchase agreement, as applicable.

The Company expects to settle the principal amount of its outstanding convertible senior notes in cash and any excess in shares. As a result, upon conversion of the convertible senior notes, only the amounts in excess of the principal amount are considered in diluted earnings per share under the treasury stock method, if applicable. In April 2019, the Company entered into an equity forward contract related to its accelerated share repurchase agreement. Based on the terms of the equity forward contract, the Company may be required to issue shares upon settlement if the Company’s stock price rises above a certain threshold during the agreement period. The Company has included the dilutive impact from any shares it may be obligated to issue in the computation of diluted earnings per share using the contingently issuable share guidance, as applicable. See Note 10 and Note 4 for more information regarding the Company’s convertible senior notes and its accelerated share repurchase agreement.

In periods when there is a net loss, the potentially dilutive impact of common equivalent shares outstanding is not included in the computation of diluted net loss per share as the impact of the shares would be ~~antidilutive due to the net loss incurred for the period.~~antidilutive. Nonvested restricted stock awards (referred to as participating securities) are excluded from the dilutive impact of common equivalent shares outstanding in accordance with authoritative guidance under the two-class method since the nonvested restricted stockholders are entitled to participate in dividends declared on common stock as if the shares were fully vested and hence are deemed to be participating securities. Under the two-class method, distributed and undistributed earnings attributable to nonvested restricted stockholders are excluded from net earnings (loss) attributable to common stockholders for purposes of calculating basic and diluted earnings (loss) per common share. However, net losses are not allocated to nonvested restricted stockholders because they are not contractually obligated to share in the losses of the Company.

In addition, the Company has granted certain nonvested stock units that are subject to certain performance-based or market-based vesting conditions as well as continued service requirements through the respective vesting periods. These nonvested stock units are included in the computation of diluted net earnings per common share attributable to common stockholders only to the extent that the underlying performance-based or market-based vesting conditions are satisfied as of the end of the reporting period, or would be considered satisfied if the end

of the reporting period ~~were~~was the end of the related contingency period, and the results would be dilutive under the treasury stock method.

The computation of basic and diluted net earnings ~~(loss)~~ per common share attributable to common stockholders is as follows (in thousands, except per share data):


	Three Months Ended				Six Months Ended					Three Months Ended				Six Months Ended
	Aug 4, 2018		Jul 29, 2017		Aug 4, 2018		Jul 29, 2017			Aug 3, 2019		Aug 4, 2018		Aug 3, 2019		Aug 4, 2018
Net earnings (loss) attributable to Guess?, Inc.	$	25,530	$	15,219	$	4,309	$	(6,074	)
Net earnings attributable to Guess?, Inc.										$	25,322	$	25,530	$	3,948	$	4,309
Less net earnings attributable to nonvested restricted stockholders	268		196		390		395			233		268		235		390
Net earnings (loss) attributable to common stockholders	$	25,262	$	15,023	$	3,919	$	(6,469	)
Net earnings attributable to common stockholders										$	25,089	$	25,262	$	3,713	$	3,919

Weighted average common shares used in basic computations	80,110		82,396		80,006		82,703			70,508		80,110		75,216		80,006
Effect of dilutive securities:
Stock options and restricted stock units ~~(1)~~	1,440		367		1,242		—			848		1,440		939		1,242
Weighted average common shares used in diluted computations	81,550		82,763		81,248		82,703			71,356		81,550		76,155		81,248

Net earnings (loss) per common share attributable to common stockholders:
Net earnings per common share attributable to common stockholders:										Net earnings per common share attributable to common stockholders:
Basic	$	0.32	$	0.18	$	0.05	$	(0.08	)	$	0.36	$	0.32	$	0.05	$	0.05
Diluted	$	0.31	$	0.18	$	0.05	$	(0.08	)	$	0.35	$	0.31	$	0.05	$	0.05


~~(1)~~	For the six months ended July 29, 2017, there were 192,438 of potentially dilutive shares that were not included in the computation of diluted weighted average common shares and common equivalent shares outstanding because their effect would have been antidilutive given the Company’s net loss.

For the three months ended August 3, 2019 and August 4, 2018, ~~and July 29, 2017,~~ equity awards granted for ~~1,385,422~~3,258,910 and ~~4,522,618,~~1,385,422, respectively, of the Company’s common shares and for the six months ended August 3, 2019 and August 4, 2018, ~~and July 29, 2017,~~ equity awards granted for ~~2,116,751~~2,899,760 and ~~4,310,197,~~2,116,751, respectively, of the Company’s common shares were outstanding but were excluded from the computation of diluted weighted average common shares and common equivalent shares outstanding because the assumed proceeds, as calculated under the treasury stock method, resulted in these awards being antidilutive. For the three and six months ended August ~~4, 2018,~~3, 2019, the Company also excluded ~~1,361,550~~1,228,017 nonvested stock units which are subject to the achievement of performance-based vesting conditions from the computation of diluted weighted average common shares and common equivalent shares outstanding because these conditions were not achieved as of August ~~4, 2018.~~3, 2019. For the three and six months ended ~~July 29, 2017,~~August 4, 2018, the Company excluded ~~1,140,080~~1,361,550 nonvested stock units which were subject to the achievement of performance-based vesting conditions from the computation of diluted weighted average common shares and common equivalent shares outstanding because these conditions were not achieved as of ~~July 29, 2017.~~August 4, 2018.

The conversion spread on the Company’s convertible senior notes will have a dilutive impact on diluted earnings per share when the average market price of the Company’s common stock for a given period exceeds the conversion price of $25.78 per share of common stock. For the three and six months ended August 3, 2019, the convertible senior notes have been excluded from the computation of diluted earnings per share as the effect would be antidilutive since the conversion price of the convertible senior notes exceeded the average market price of the Company’s common stock. Warrants to purchase 11.6 million shares of the Company’s common shares at $46.88 per share were outstanding as of August 3, 2019 but were excluded from the computation of diluted earnings per share since the warrants’ strike price was greater than the average market price of the Company’s common stock during the period. There was no dilutive impact from the Company’s equity forward contact related to its accelerated share repurchase program as of August 3, 2019. See Note 10 and Note 4 for more information regarding the Company’s convertible senior notes and its accelerated share repurchase agreement.


(4)	Stockholders’ Equity

Share Repurchase Program

On June 26, 2012, the Company’s Board of Directors authorized a program to repurchase, from time-to-time and as market and business conditions warrant, up to $500 million of the Company’s common stock. Repurchases under the program may be made on the open market or in privately negotiated transactions, pursuant to Rule 10b5-1 trading plans or other available means. There is no minimum or maximum number of shares to be repurchased under the program, which may be discontinued at any time, without prior notice. During the six months ended August 3, 2019, the Company repurchased 11,013,304 shares under the program at an aggregate cost of $212.5 million, which is inclusive of the shares repurchased under the accelerated share repurchase agreement (the “ASR Contract”) as described below. The Company repurchased 10,264,052 shares at an aggregate cost of $201.5 million during the three months ended May 4, 2019 and an additional 749,252 shares at an aggregate cost of $11.0 million during the three months ended August 3, 2019. During the six months ended August 4, 2018, the Company repurchased 1,118,808 shares under the program at an aggregate cost of $17.6 million. The shares were repurchased during the three months ended May 5, 2018. ~~During the six months ended August 4, 2018, the~~The Company also paid an additional $6.0 million for shares that were repurchased during the fourth quarter of fiscal 2018 but were settled during the first quarter of fiscal 2019. During the six months ended July 29, 2017, the Company repurchased 1,485,195 shares under the program at an aggregate cost of $17.8 million. The shares were repurchased during the three months ended April 29, 2017. As of August ~~4, 2018,~~3, 2019, the Company had remaining authority under the program to purchase ~~$374.6~~$94.1 million of its common stock.


~~(4)~~	~~Stockholders’ Equity and Redeemable Noncontrolling Interests~~

~~A reconciliation~~On April 26, 2019, pursuant to existing stock repurchase authorizations, the Company entered into an ASR Contract with JPMorgan Chase Bank, National Association (in such capacity, the “ASR Counterparty”), to repurchase an aggregate of $170 million of the Company’s common stock. Under the ASR Contract, the Company made an initial payment of $170 million to the ASR Counterparty and received an initial delivery of approximately 5.2 million shares of common stock, which represented approximately $102 million (or 60%) of the ASR Contract. The remaining balance of $68 million was classified as an equity forward contract and recorded in paid-in capital within shareholders’ equity as of August 3, 2019.

On September 4, 2019 (subsequent to the second quarter of fiscal 2020), the Company received a final delivery of 5.4 million shares under its ASR Contract entered into in April 2019, which amount was determined based on the daily volume-weighted average price since the effective date of the ASR Contract, less the applicable contractual discount. When combined with the 5.2 million upfront shares received at the inception of the ASR in April 2019, the Company repurchased approximately 10.6 million of its shares under the ASR at an average repurchase price of $16.09 per share. All shares were repurchased in accordance with the Company’s publicly announced ASR program, which is now complete. The shares delivered under the ASR Contract reduced the Company’s outstanding ~~treasury stock~~shares, and going forward that will have the ~~total carrying amount~~effect of ~~total stockholders’ equity, Guess?, Inc. stockholders’ equity~~reducing its weighted average number of common shares outstanding for purposes of calculating basic and ~~stockholders’ equity attributable to nonredeemable and redeemable noncontrolling interests~~diluted earnings per share.

Dividends

The following table sets forth the cash dividend declared per share for the ~~fiscal year ended~~ ~~February 3, 2018~~three and six months ended August 3, 2019 and August 4, ~~2018~~ ~~is as follows (in thousands, except share data):~~2018:



	Three Months Ended				Six Months Ended
	Aug 3, 2019		Aug 4, 2018		Aug 3, 2019		Aug 4, 2018
Cash dividend declared per share	$	0.1125	$	0.2250	$	0.3375	$	0.4500

Shares Stockholders’ Equity
Common Stock Treasury Stock
Guess?, Inc.
Stockholders’
Equity

Nonredeemable
Noncontrolling
Interests
Total
Redeemable
Noncontrolling
Interests
Balance at January 28, 2017 84,069,492
56,440,482
$ 969,222
$ 11,772
$ 980,994
$ 4,452
Net earnings (loss) —
—
(7,894 ) 3,993
(3,901 ) —
Foreign currency translation adjustment —
—
91,178
2,238
93,416
187
Loss on derivative financial instruments designated as cash flow hedges, net of income tax of $2,738 —
—
(19,994 ) —
(19,994 ) —
Actuarial valuation loss and related amortization, prior service credit amortization and foreign currency and other adjustments on defined benefit plans, net of income tax of $435 —
—
(1,647 ) —
(1,647 ) —
Issuance of common stock under stock compensation plans, net of tax effect 1,113,713
—
(1,257 ) —
(1,257 ) —
Issuance of stock under Employee Stock Purchase Plan 54,300
(54,300 ) 566
—
566
—
Share-based compensation —
—
18,852
—
18,852
—
Dividends —
—
(76,048 ) —
(76,048 ) —
Share repurchases (3,866,387 ) 3,866,387
(56,159 ) —
(56,159 ) —
Noncontrolling interest capital contribution —
—
—
11
11
951
Noncontrolling interest capital distribution —
—
—
(1,358 ) (1,358 ) —
Balance at February 3, 2018 81,371,118
60,252,569
$ 916,819
$ 16,656
$ 933,475
$ 5,590
Cumulative adjustment from adoption of new accounting guidance —
—
5,829
—
5,829
—
Net earnings —
—
4,309
438
4,747
—
Foreign currency translation adjustment —
—
(47,712 ) 187
(47,525 ) (639 )
Gain on derivative financial instruments designated as cash flow hedges, net of income tax of ($2,130) —
—
14,227
—
14,227
—
Actuarial valuation and prior service credit amortization and foreign currency and other adjustments on defined benefit plans, net of income tax of ($65) —
—
527
—
527
—
Issuance of common stock under stock compensation plans, net of tax effect 749,349
—
4,169
—
4,169
—
Issuance of stock under Employee Stock Purchase Plan 28,543
(28,543 ) 465
—
465
—
Share-based compensation —
—
7,989
—
7,989
—
Dividends —
—
(37,166 ) —
(37,166 ) —
Share repurchases (1,118,808 ) 1,118,808
(17,587 ) —
(17,587 ) —
Noncontrolling interest capital distribution —
—
—
(3,069 ) (3,069 ) —
Balance at August 4, 2018 81,030,202
61,342,834
$ 851,869
$ 14,212
$ 866,081
$ 4,951
During the first quarter of fiscal 2020, the Company announced that its Board of Directors reduced the future quarterly cash dividends that may be paid to holders of the Company’s common stock, when, as and if any such dividend is declared by the Company’s Board of Directors, from $0.225 per share to $0.1125 per share to redeploy capital and return incremental value to shareholders through share repurchases. Decisions on whether, when and in what amounts to continue making any future dividend distributions will remain at all times entirely at the discretion of the Company’s Board of Directors, which reserves the right to change or terminate the Company’s dividend practices at any time and for any reason without prior notice. The payment of cash dividends in the future will be based upon a number of business, legal and other considerations, including our cash flow from operations, capital expenditures, debt service and covenant requirements, cash paid for income taxes, earnings, share repurchases, economic conditions and U.S. and global liquidity.

Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss), net of related income taxes, for the three and six months ended August 3, 2019 and August 4, 2018 ~~and July 29, 2017~~ are as follows (in thousands):



	Three Months Ended Aug 3, 2019
	Foreign Currency Translation Adjustment			Derivative Financial Instruments Designated as Cash Flow Hedges			Defined Benefit Plans			Total
Balance at May 4, 2019	$	(131,923	)	$	8,663		$	(9,446	)	$	(132,706	)
Gains (losses) arising during the period	(4,841		)	1,978			(151		)	(3,014		)
Reclassification to net earnings for (gains) losses realized	—			(1,572		)	90			(1,482		)
Net other comprehensive income (loss)	(4,841		)	406			(61		)	(4,496		)
Balance at August 3, 2019	$	(136,764	)	$	9,069		$	(9,507	)	$	(137,202	)



	Six Months Ended Aug 3, 2019
	Foreign Currency Translation Adjustment			Derivative Financial Instruments Designated as Cash Flow Hedges			Defined Benefit Plans			Total
Balance at February 2, 2019	$	(119,546	)	$	2,999		$	(9,632	)	$	(126,179	)
Cumulative adjustment reclassified from retained earnings due to adoption of new accounting guidance¹	—			1,981			—			1,981
Gains (losses) arising during the period	(17,218		)	5,842			(55		)	(11,431		)
Reclassification to net earnings for (gains) losses realized	—			(1,753		)	180			(1,573		)
Net other comprehensive income (loss)	(17,218		)	4,089			125			(13,004		)
Balance at August 3, 2019	$	(136,764	)	$	9,069		$	(9,507	)	$	(137,202	)

______________________________________________________________________

Notes:

During the first quarter of fiscal 2020, the Company adopted new authoritative guidance which eliminated the requirement to separately measure and report ineffectiveness for instruments that qualify for hedge accounting and generally requires that the entire change in the fair value of such instruments ultimately be presented in the same line as the respective hedge item. As a result, there is no interest component recognized for the ineffective portion of instruments that qualify for hedge accounting, but rather all changes in the fair value of such instruments are included in other comprehensive income (loss) during the three and six months ended August 3, 2019. Upon adoption of this guidance, the Company reclassified approximately $2.0 million in gains from retained earnings to accumulated other comprehensive loss related to the previously recorded interest component on outstanding instruments that qualified for hedge accounting.



	Three Months Ended Aug 4, 2018
	Foreign Currency Translation Adjustment			Derivative Financial Instruments Designated as Cash Flow Hedges			Defined Benefit Plans			Total
Balance at May 5, 2018	$	(91,297	)	$	(6,285	)	$	(11,208	)	$	(108,790	)
Gains (losses) arising during the period	(23,464		)	4,111			(34		)	(19,387		)
Reclassification to net earnings for losses realized	—			2,032			125			2,157
Net other comprehensive income (loss)	(23,464		)	6,143			91			(17,230		)
Balance at August 4, 2018	$	(114,761	)	$	(142	)	$	(11,117	)	$	(126,020	)



	Six Months Ended Aug 4, 2018
	Foreign Currency Translation Adjustment			Derivative Financial Instruments Designated as Cash Flow Hedges			Defined Benefit Plans			Total
Balance at February 3, 2018	$	(67,049	)	$	(14,369	)	$	(11,644	)	$	(93,062	)
Gains (losses) arising during the period	(47,712		)	10,579			277			(36,856		)
Reclassification to net earnings for losses realized	—			3,648			250			3,898
Net other comprehensive income (loss)	(47,712		)	14,227			527			(32,958		)
Balance at August 4, 2018	$	(114,761	)	$	(142	)	$	(11,117	)	$	(126,020	)

Three Months Ended Jul 29, 2017
Foreign Currency Translation Adjustment Derivative Financial Instruments Designated as Cash Flow Hedges Defined Benefit Plans Total
Balance at April 29, 2017 $ (146,754 ) $ 4,948
$ (8,486 ) $ (150,292 )
Gains (losses) arising during the period 43,079
(13,093 ) (82 ) 29,904
Reclassification to net loss for (gains) losses realized —
(606 ) 85
(521 )
Net other comprehensive income (loss) 43,079
(13,699 ) 3
29,383
Balance at July 29, 2017 $ (103,675 ) $ (8,751 ) $ (8,483 ) $ (120,909 )

Six Months Ended Jul 29, 2017
Foreign Currency Translation Adjustment Derivative Financial Instruments Designated as Cash Flow Hedges Defined Benefit Plans Total
Balance at January 28, 2017 $ (158,227 ) $ 5,400
$ (8,562 ) $ (161,389 )
Gains (losses) arising during the period 54,552
(12,969 ) (95 ) 41,488
Reclassification to net loss for (gains) losses realized —
(1,182 ) 174
(1,008 )
Net other comprehensive income (loss) 54,552
(14,151 ) 79
40,480
Balance at July 29, 2017 $ (103,675 ) $ (8,751 ) $ (8,483 ) $ (120,909 )

Details on reclassifications out of accumulated other comprehensive income (loss) to net earnings ~~(loss)~~ during the three and six months ended August 3, 2019 and August 4, 2018 ~~and July 29, 2017~~ are as follows (in thousands):


	Three Months Ended						Six Months Ended						Location of (Gain) Loss Reclassified from Accumulated OCI into Earnings (Loss)	Three Months Ended						Six Months Ended						Location of (Gain) Loss Reclassified from Accumulated OCI into Earnings
	Aug 4, 2018			Jul 29, 2017			Aug 4, 2018			Jul 29, 2017				Aug 3, 2019			Aug 4, 2018			Aug 3, 2019			Aug 4, 2018
Derivative financial instruments designated as cash flow hedges:														Derivative financial instruments designated as cash flow hedges:
Foreign exchange currency contracts	$	2,342		$	(661	)	$	4,028		$	(1,279	)	Cost of product sales	$	(1,757	)	$	2,342		$	(1,987	)	$	4,028		Cost of product sales
Foreign exchange currency contracts	—			(14		)	201			(93		)	Other income (expense)	—			—			—			201			Other income (expense)
Interest rate swap	(31		)	26			(39		)	62			Interest expense	(44		)	(31		)	(90		)	(39		)	Interest expense
Less income tax effect	(279		)	43			(542		)	128			Income tax expense	229			(279		)	324			(542		)	Income tax expense
	2,032			(606		)	3,648			(1,182		)		(1,572		)	2,032			(1,753		)	3,648
Defined benefit plans:
Net actuarial loss amortization ~~(1)~~	151			111			303			228			Other income (expense)	111			151			222			303			Other income (expense)
Prior service credit amortization ~~(1)~~	(7		)	(6		)	(14		)	(13		)	Other income (expense)	(9		)	(7		)	(19		)	(14		)	Other income (expense)
Less income tax effect	(19		)	(20		)	(39		)	(41		)	Income tax expense	(12		)	(19		)	(23		)	(39		)	Income tax expense
	125			85			250			174				90			125			180			250
Total reclassifications during the period	$	2,157		$	(521	)	$	3,898		$	(1,008	)		$	(1,482	)	$	2,157		$	(1,573	)	$	3,898

~~(1)~~

These accumulated other comprehensive income (loss) components are included in the computation of net periodic defined benefit pension cost. During the first quarter of fiscal 2019, the Company adopted new authoritative guidance which requires that the non-service components of net periodic defined benefit pension cost be presented outside of earnings (loss) from operations. The Company adopted this guidance on a retrospective basis and, as a result, reclassified these components from SG&A expenses to other income (expense) for the three and six months ended July 29, 2017. Refer to Note 13 for further information.

~~Redeemable Noncontrolling Interests~~

The Company is party to a put arrangement with respect to the common securities that represent the remaining noncontrolling interest for its majority-owned subsidiary, Guess Brasil Comércio e Distribuição S.A. (“Guess Brazil”), which was established through a majority-owned joint venture during fiscal 2014. The put arrangement for Guess Brazil, representing 40% of the total outstanding equity interest of that subsidiary, may be exercised at the discretion of the noncontrolling interest holder by providing written notice to the Company beginning in the sixth year of the agreement, or sooner in certain limited circumstances, and every third anniversary from the end of the sixth year thereafter subject to certain time restrictions. The redemption value of the Guess Brazil put arrangement is based on a multiple of Guess Brazil’s earnings before interest, taxes, depreciation and amortization subject to certain adjustments and is classified as a redeemable noncontrolling interest outside of permanent equity in the Company’s condensed consolidated balance sheet. The carrying value of the redeemable noncontrolling interest related to Guess Brazil was ~~$1.4 million~~ ~~and $1.6 million as of August 4, 2018 and February 3, 2018, respectively.~~

The Company is also party to a put arrangement with respect to the common securities that represent the remaining noncontrolling interest for its majority-owned subsidiary, Guess? CIS, LLC (“Guess CIS”), which was established through a majority-owned joint venture during fiscal 2016. The put arrangement for Guess CIS, representing 30% of the total outstanding equity interest of that subsidiary, may be exercised at the discretion of the noncontrolling interest holder by providing written notice to the Company during the period beginning after the fifth anniversary of the agreement through December 31, 2025, or sooner in certain limited circumstances. The redemption value of the Guess CIS put arrangement is based on a multiple of Guess CIS’s earnings before interest, taxes, depreciation and amortization subject to certain adjustments and is classified as a redeemable noncontrolling interest outside of permanent equity in the Company’s condensed consolidated balance sheet. During fiscal 2018, the Company and the noncontrolling interest holder made additional capital contribution totaling $3.2 million, of which $2.2 million was paid by the Company and the remaining amount was paid by the noncontrolling interest holder to retain the same pro-rata interest in Guess CIS. The carrying value of the

~~redeemable noncontrolling interest related to Guess CIS was $3.6 million and $4.0 million as of August 4, 2018 and February 3, 2018, respectively.~~


(5)	Accounts Receivable

Accounts receivable is summarized as follows (in thousands):


	Aug 4, 2018		Feb 3, 2018		Aug 3, 2019		Feb 2, 2019
Trade	$	280,739	$	290,478	$	284,543	$	314,651
Royalty	6,859		5,504		6,399		5,992
Other	7,360		13,233		10,968		9,892
	294,958		309,215		301,910		330,535
Less allowances ~~(1)~~	11,583		49,219		8,925		8,540
	$	283,375	$	259,996	$	292,985	$	321,995

~~(1)~~

~~As of February 3, 2018, the accounts receivable allowance included allowances for doubtful accounts, wholesale sales returns and wholesale markdowns.~~ During the first quarter of fiscal 2019, the Company adopted a new revenue recognition standard on a modified retrospective basis which changed the presentation of allowances for wholesale sales returns and wholesale markdowns to be classified within accrued expenses rather than as a reduction to accounts receivable. Accordingly, the Company has included allowances of ~~$27.0 million~~ ~~and~~ ~~$10.8 million~~ ~~related to wholesale sales returns and wholesale markdowns, respectively, in accrued expenses as of~~ August 4, 2018. As of August 4, 2018, the accounts receivable allowance was only related to allowances for doubtful accounts. Refer to Notes 1 and 2 for further information regarding the impact from the adoption of the new revenue recognition standard on the Company’s condensed consolidated financial statements and related disclosures during the second quarter of fiscal 2019.

Accounts receivable consists of trade receivables relating primarily to the Company’s wholesale business in Europe and, to a lesser extent, to its wholesale businesses in the Americas and Asia, royalty receivables relating to its licensing operations, credit card and retail concession receivables related to its retail businesses and certain other receivables. Other receivables generally relate to amounts due to the Company that result from activities that are not related to the direct sale of the Company’s products or collection of royalties.


(6)	Inventories

Inventories consist of the following (in thousands):


	Aug 4, 2018		Feb 3, 2018		Aug 3, 2019		Feb 2, 2019
Raw materials	$	697	$	604	$	2,669	$	881
Work in progress	21		16		69		162
Finished goods ~~(1)~~	463,813		427,684		481,498		467,854
	$	464,531	$	428,304	$	484,236	$	468,897

~~(1)~~

~~During the first quarter of fiscal 2019, the Company adopted a new revenue recognition standard on a modified retrospective basis which changed the~~ ~~presentation of the estimated cost associated with the allowance for sales returns to be included within other current assets rather than included in inventories. Accordingly, the Company has included~~ ~~$11.6 million~~ ~~related to the estimated cost associated with the allowance for sales returns in other current assets as of~~ August 4, 2018. Refer to Notes 1 and 2 for further information regarding the impact from the adoption of the new revenue recognition standard on the Company’s condensed consolidated financial statements and related disclosures during the second quarter of fiscal 2019.

The above balances include an allowance to write down inventories to the lower of cost or net realizable value of ~~$27.5~~$27.1 million and $~~29.9~~$30.9 million as of August ~~4, 2018~~3, 2019 and February ~~3, 2018,~~2, 2019, respectively.


(7)	Income Taxes

Income tax expense for the interim periods was computed using the tax rate estimated to be applicable for the full fiscal year, adjusted for discrete items. The Company’s effective income tax rate was 52.2% for the six months ended August 3, 2019, compared to 24.0% for the six months ended August 4, ~~2018, compared to negative 1,706.1% for the six months ended July 29, 2017.~~2018. The

~~improvement~~ deterioration in the effective income tax rate during the six months ended August ~~4, 2018~~3, 2019 was due primarily to ~~lower losses~~the impact of

discrete non-deductible expenses as compared to the same prior-year period and a shift in the distribution of earnings among the Company’s tax jurisdictions ~~which~~within the ~~Company has valuation allowances and, to a lesser extent, the reversal of a valuation allowance on certain deferred taxes and the favorable impact from the enactment~~quarters of the ~~2017 Tax Cuts and Jobs Act in the U.S. (referred to herein as the “Tax Reform”).~~current fiscal year.

In December 2017, the U.S. government enacted the 2017 Tax ~~Reform,~~Cuts and Jobs Act (“Tax Reform”), which significantly changed the U.S. corporate income tax laws, including lowering the U.S. federal corporate income tax rate from 35% to 21% and requiring a one-time mandatory transition tax on accumulated foreign earnings. The Tax Reform also ~~establishes~~established new tax laws that ~~are~~were effective for calendar 2018, including but not limited to (i) a new provision designed to tax global intangible low-taxed income (“GILTI”), (ii) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries, (iii) a limitation on deductible interest expense and (iv) limitations on the deductibility of certain executive compensation. ~~The~~Any income tax payable related to the transition tax is due over an eight-year period beginning in calendar 2018. The Company included $0.4 million and $17.7 million related to the transition tax in accrued expenses and other long-term liabilities in its condensed consolidated balance sheets as of August 4, 2018, respectively. The Company included $1.9 million and $17.7 million related to the transition tax in accrued expenses and other long-term liabilities in its condensed consolidated balance sheets as of February 3, 2018, respectively.

The Securities and Exchange Commission (“SEC”) issued authoritative guidance which addresses accounting for the impact of the Tax Reform. This guidance provides a measurement period, which should not extend beyond one year from the enactment date, during which the Company may finalize the accounting for the impacts of the Tax Reform, and allows for the Company to record provisional estimates of such amounts. Based on the Company’s interpretation of the Tax Reform, reasonable estimates were made to record provisional adjustments during the fourth quarter of fiscal 2018. ~~These estimates may change, and~~During the third quarter of fiscal 2019, the Company ~~will continue~~completed the preparation of its U.S. federal tax return for fiscal 2018 and concluded, based on the additional information that had become available, that no transition tax was due with respect to ~~refine such~~the Tax Reform. As a result, during the third quarter of fiscal 2019, the Company reversed a portion of provisional amounts ~~within~~initially recorded during the ~~measurement period allowed. The Company continues~~three months ended February 3, 2018 and recorded a benefit of $19.6 million. On November 28, 2018, the U.S. Internal Revenue Service (“IRS”) announced a proposed regulation to ~~analyze~~revise the ~~provisions~~section of the ~~Tax Reform, including but not limited~~underlying IRS code which gave rise to the ~~creation~~Company’s change in the provisional calculation. As a result, during the fourth quarter of ~~a new minimum~~fiscal 2019, the Company determined that in the event such proposed legislation is passed in the future, the Company could have tax ~~called~~liabilities of approximately $25.8 million. Therefore, the ~~base erosion anti-abuse tax; a new provision that taxes U.S. allocated expenses (e.g. interest~~Company accrued such amount in the fourth quarter of fiscal 2019. During the second quarter of fiscal 2020, the Company revised its tax liability estimation and ~~general administrative expenses)~~related accrual to $23.2 million. The balance related to this transition tax included in other long-term liabilities was $23.2 million and $25.8 million as ~~well as certain GILTI from foreign operations; a general elimination~~ of ~~U.S. federal income taxes on dividends from foreign subsidiaries; a new limitation on deductible interest expense;~~August 3, 2019 and limitations on the deductibility of certain employee compensation. Under GAAP, companies are allowed to make an accounting policy election to either treat taxes resulting from GILTI as a current-period expense when they are incurred or factor such amounts into the measurement of deferred taxes. The Company has not completed its analysis of the effects of the GILTI provisions and will further consider the accounting policy election within the measurement period allowed.February 2, 2019, respectively.

From time-to-time, the Company is subject to routine income and other tax audits on various tax matters around the world in the ordinary course of business. As of August ~~4, 2018,~~3, 2019, several ~~income~~ tax audits were ~~underway~~ongoing for various periods in multiple jurisdictions. These audits could conclude with an assessment of additional tax liability for the Company. These assessments could arise as the result of timing or permanent differences and could be material to the Company’s net income or future cash flows. In the event the Company disagrees with an assessment from a taxing authority, the Company may elect to appeal, litigate, pursue settlement or take other actions. The Company accrues an amount for its estimate of additional ~~income~~ tax liability which the Company, more likely than not, will incur as a result of the ultimate resolution of ~~income~~ tax audits (“uncertain tax positions”). The Company reviews and updates the estimates used in the accrual for uncertain tax positions, as appropriate, as more definitive information ~~becomes~~or interpretations become available from taxing authorities, upon completion of tax audits, upon receipt of assessments, upon expiration of statutes of limitation, or upon occurrence of other events.

The Company had aggregate accruals for uncertain tax positions, including penalties and interest, of ~~$18.9~~$40.1 million and ~~$19.0~~$41.4 million as of August ~~4, 2018~~3, 2019 and February ~~3, 2018,~~2, 2019, respectively.


(8)	Segment Information

The Company’s businesses are grouped into ~~five~~5 reportable segments for management and internal financial reporting purposes: Americas Retail, Americas Wholesale, Europe, Asia and Licensing. The Company’s Americas Retail, Americas Wholesale, Europe and Licensing reportable segments are the same as their respective operating segments. Certain components of the Company’s Asia operating segment are separate operating segments based on region, which have been aggregated into the Asia reportable segment for disclosure purposes. Management evaluates segment performance based primarily on revenues and earnings (loss) from operations before corporate performance-based compensation costs, net gains (losses) ~~from~~on lease terminations, asset impairment charges, restructuring charges, and

~~restructuring~~ certain non-recurring charges, if any. The Company believes this segment reporting reflects how its business segments are managed and how each segment’s performance is evaluated by the Company’s chief operating decision maker to assess performance and make resource allocation decisions. The Americas Retail segment includes the Company’s retail and e-commerce operations in ~~North and Central America and~~ the ~~Company’s retail operations in South America.~~Americas. The Americas

Wholesale segment includes the Company’s wholesale operations in the Americas. The Europe segment includes the Company’s retail, e-commerce and wholesale operations in Europe and the Middle East. The Asia segment includes the Company’s retail, e-commerce and wholesale operations in Asia and the Pacific. The Licensing segment includes the worldwide licensing operations of the Company. The business segment operating results exclude corporate overhead costs, which consist of shared costs of the organization, net gains (losses) on lease terminations, asset impairment charges and restructuring ~~charges.~~charges and certain non-recurring charges, if any. Corporate overhead costs are presented separately and generally include, among other things, the following unallocated corporate costs: accounting and finance, executive compensation, corporate performance-based compensation, facilities, global advertising and marketing, human resources, information technology and legal.

Net revenue and earnings (loss)from operations are summarized as follows for the three and six months ended August 3, 2019 and August 4, 2018 ~~and~~ ~~July 29, 2017~~ (in thousands):

Three Months Ended Six Months Ended
Aug 4, 2018 Jul 29, 2017 Aug 4, 2018 Jul 29, 2017
Net revenue:

Americas Retail $ 197,125
$ 201,188
$ 368,465
$ 374,882
Americas Wholesale 34,253
32,658
74,932
68,515
Europe 311,998
255,215
517,433
420,603
Asia 82,786
62,733
166,837
126,114
Licensing (1) (2) 19,709
16,498
39,493
32,523
Total net revenue (1) (2) $ 645,871
$ 568,292
$ 1,167,160
$ 1,022,637
Earnings (loss) from operations:

Americas Retail (2) (3) (4) $ 5,582
$ (3,555 ) $ (98 ) $ (25,136 )
Americas Wholesale (2) (3) (4) 5,325
5,238
11,351
12,221
Europe (3) (4) (5) 30,531
30,058
10,198
29,052
Asia (3) (4) 1,634
2,441
5,699
2,780
Licensing (2) (3) (4) 17,437
14,389
34,923
27,850
Total segment earnings from operations (2) (3) (5) 60,509

48,571

62,073
46,767
Corporate overhead (2) (3) (5) (25,647 ) (23,551 ) (51,492 ) (43,960 )
Net gains on lease terminations (3) (6) —
—
152
—
Asset impairment charges (3) (7) (2,981 ) (1,233 ) (3,740 ) (3,995 )
Total earnings (loss) from operations (2) (5) $ 31,881

$ 23,787

$ 6,993
$ (1,188 )



	Three Months Ended						Six Months Ended
	Aug 3, 2019			Aug 4, 2018			Aug 3, 2019			Aug 4, 2018
Net revenue:
Americas Retail	$	198,966		$	197,125		$	375,389		$	368,465
Americas Wholesale	41,902			34,253			88,107			74,932
Europe	340,509			311,998			550,564			517,433
Asia	83,301			82,786			168,491			166,837
Licensing	18,542			19,709			37,360			39,493
Total net revenue	$	683,220		$	645,871		$	1,219,911		$	1,167,160
Earnings (loss) from operations:
Americas Retail	$	5,957		$	5,582		$	4,145		$	(98	)
Americas Wholesale	8,422			5,325			16,236			11,351
Europe	51,594			30,531			35,267			10,198
Asia	(4,800		)	1,634			(8,003		)	5,699
Licensing	15,547			17,437			32,191			34,923
Total segment earnings from operations	76,720			60,509			79,836			62,073
Corporate overhead	(29,229		)	(25,647		)	(55,041		)	(51,492		)
Asset impairment charges¹	(1,504		)	(2,981		)	(3,279		)	(3,740		)
Net gains on lease terminations²	—			—			—			152
Total earnings from operations	$	45,987		$	31,881		$	21,516		$	6,993

______________________________________________________________________

Notes:

~~(1)~~

During each of the ~~fourth quarter of fiscal 2018,~~periods presented, the Company ~~reclassified net royalties received on the Company’s inventory purchases of licensed product~~recognized asset impairment charges for certain retail locations resulting from ~~net revenue~~under-performance and expected store closures. Refer to ~~cost of product sales to reflect its treatment as a reduction of the cost of such licensed product. Accordingly, net revenue~~Note 15 for ~~the~~ ~~three and six months ended July 29, 2017~~ ~~has been adjusted to conform to the current period presentation. This reclassification had no impact on previously reported earnings (loss) from operations~~.more information regarding these asset impairment charges.

~~(2)~~

During the first quarter of fiscal 2019, the Company adopted a comprehensive new revenue recognition standard using a modified retrospective method that does not restate prior periods to be comparable to the current period presentation. The adoption of this guidance primarily impacted the presentation of advertising contributions received from the Company’s licensees and the related advertising expenditures incurred by the Company. The adoption of this guidance resulted in an increase in net royalty revenue within the Company’s Licensing segment of $2.1 million, as well as an increase in SG&A expenses in our Americas Retail, Americas Wholesale and Licensing segments as well as corporate overhead of $0.5 million, $0.2 million, $0.2 million and $0.5 million, respectively, during the three months ended August 4, 2018 compared to the same prior-year period. The net favorable impact on earnings from operations was approximately $0.6 million during the three months ended August 4, 2018 compared to the same prior-year period. During the six months ended August 4, 2018, the adoption of this guidance resulted in an increase in net royalty revenue within the Company’s Licensing segment of $4.4 million, as well as an increase in SG&A expenses in our Americas Retail, Americas Wholesale and Licensing segments as well as corporate overhead of $2.3 million, $0.9 million, $0.4 million and $1.1 million,

respectively, during the six months ended August 4, 2018 compared to the same prior-year period. The net unfavorable impact on earnings from operations was approximately $0.4 million during the six months ended August 4, 2018 compared to the same prior-year period. Refer to Note 1 for more information regarding the impact from the adoption of this new standard.

~~(3)~~

During the third quarter of fiscal 2018, segment results were adjusted to exclude corporate performance-based compensation costs, net gains (losses) on lease terminations and asset impairment charges due to the fact that these items are no longer included in the segment results provided to the Company’s chief operating decision maker in order to allocate resources and assess performance~~. Accordingly, segment results have been adjusted for the three and six months ended July 29, 2017 to conform to the current period presentation.~~

~~(4)~~

During the first quarter of fiscal 2019, the Company changed the segment accountability for funds received from licensees on the Company’s purchases of its licensed products. These amounts were treated as a reduction of cost of product sales within the Licensing segment but now are considered in the results of the segments that control the respective purchases for purposes of segment performance evaluation. Accordingly, segment results for the ~~three and six months ended July 29, 2017~~ ~~have been adjusted to conform to the current period presentation~~.

~~(5)~~

During the first quarter of fiscal 2019, the Company adopted new authoritative guidance which requires that the non-service components of net periodic defined benefit pension cost be presented outside of earnings (loss) from operations. Accordingly, earnings (loss) from operations and segment results for the ~~three and six months ended July 29, 2017~~ ~~have been adjusted to conform to the current period presentation~~.


~~(6)~~	During the six months ended August 4, 2018, the Company recorded net gains on lease terminations related primarily to the early termination of certain lease agreements in North America. The net gains on lease terminations were recorded during the three months ended May 5, 2018. ~~Refer to Note 1 for more information regarding the net gains on lease terminations.~~


~~(7)~~	During each of the periods presented, the Company recognized asset impairment charges for certain retail locations resulting from under-performance and expected store closures. Refer to Note 14 for more information regarding these asset impairment charges.

The table below presents information regarding geographic areas in which the Company operated. Net revenue is classified primarily based on the country where the Company’s customer is located (in thousands):



	Three Months Ended				Six Months Ended
	Aug 3, 2019		Aug 4, 2018		Aug 3, 2019		Aug 4, 2018
Net revenue:
U.S.	$	176,557	$	171,802	$	340,928	$	325,112
Italy	86,497		84,663		136,932		142,334
Canada	44,001		45,059		82,582		84,579
Spain	39,900		39,954		67,897		66,351
South Korea	32,898		35,624		66,815		73,256
Other foreign countries	284,825		249,060		487,397		436,035
Total product sales	664,678		626,162		1,182,551		1,127,667
Net royalties	18,542		19,709		37,360		39,493
Net revenue	$	683,220	$	645,871	$	1,219,911	$	1,167,160

Three Months Ended Six Months Ended
Aug 4, 2018 Jul 29, 2017 Aug 4, 2018 Jul 29, 2017
Net revenue:

U.S. $ 176,064
$ 174,991
$ 338,434
$ 337,171
Italy 89,380
81,196
148,286
128,394
Canada 45,822
49,130
86,335
89,524
South Korea 35,996
34,283
74,083
72,838
Other foreign countries 298,609
228,692
520,022
394,710
Total net revenue $ 645,871
$ 568,292
$ 1,167,160
$ 1,022,637

Due to the seasonal nature of the Company’s business segments, the above net revenue and operating results are not necessarily indicative of the results that may be expected for the full fiscal year.


(9)	Borrowings and ~~Capital~~Finance Lease Obligations

Borrowings and ~~capital~~finance lease obligations are summarized as follows (in thousands):



	Aug 3, 2019		Feb 2, 2019
Mortgage debt, maturing monthly through January 2026	$	19,384	$	19,738
Finance lease obligations	18,083		16,702
Borrowings under credit facilities	27,770		—
Other	2,829		2,887
	68,066		39,327
Less current installments	32,554		4,315
Long-term debt and finance lease obligations	$	35,512	$	35,012

Aug 4, 2018 Feb 3, 2018
Mortgage debt, maturing monthly through January 2026 $ 19,982
$ 20,323
Capital lease obligations 17,671
18,589
Other 2,796
3,129
40,449
42,041
Less current installments 3,504
2,845
Long-term debt and capital lease obligations $ 36,945
$ 39,196

Mortgage Debt

On February 16, 2016, the Company entered into a ten-year $21.5 million real estate secured loan (the “Mortgage Debt”). The Mortgage Debt is secured by the Company’s U.S. distribution center based in Louisville, Kentucky and provides for monthly principal and interest payments based on a 25-year amortization schedule, with the remaining principal balance and any accrued and unpaid interest due at maturity. Outstanding principal balances under the Mortgage Debt bear interest at the one-month LIBOR rate plus 1.5%. As of August ~~4, 2018,~~3, 2019, outstanding borrowings under the Mortgage Debt, net of debt issuance costs of $0.1 million, were ~~$20.0~~$19.4 million. At February ~~3, 2018,~~2, 2019, outstanding borrowings under the Mortgage Debt, net of debt issuance costs of $0.1 million, were ~~$20.3~~$19.7 million.

The Mortgage Debt requires the Company to comply with a fixed charge coverage ratio on a trailing four-quarter basis if consolidated cash, cash equivalents, ~~and short term~~short-term investment balances and availability under borrowing arrangements fall below certain levels. In addition, the Mortgage Debt contains customary covenants, including covenants that limit or restrict the Company’s ability to incur liens on the mortgaged property and enter into certain contractual obligations. Upon the occurrence of an event of default under the Mortgage Debt, the lender may terminate the Mortgage Debt and declare all amounts outstanding to be immediately due and payable. The Mortgage Debt specifies a number of events of default (some of which are subject to applicable grace or cure periods), including, among other things, non-payment defaults, covenant defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency defaults and material judgment defaults.

On February 16, 2016, the Company also entered into a separate interest rate swap agreement, designated as a cash flow hedge, that resulted in a swap fixed rate of approximately 3.06%. This interest rate swap agreement matures in January 2026 and converts the nature of the Mortgage Debt from LIBOR floating-rate debt to fixed-rate debt. The fair value of the interest rate swap asset ~~for each~~(liability) was approximately $(0.1) million and $1.0 million as of ~~the periods ended~~ August ~~4, 2018~~3, 2019 and February ~~3, 2018 was approximately $1.5 million.~~2, 2019, respectively.

~~Capital~~Finance Lease Obligations

During fiscal 2018, the Company began the relocation of its primary European distribution center to the Netherlands. As a result, the Company entered into a ~~capital~~finance lease of $17.0 million for equipment used in the new facility. The ~~capital~~finance lease primarily provides for monthly minimum lease payments through May 2027 with an effective interest rate of approximately 6%. As of August ~~4, 2018~~3, 2019 and February ~~3, 2018,~~2, 2019, the ~~capital~~finance lease obligation was ~~$15.4~~$13.6 million and ~~$17.3~~$14.7 million, respectively.

The Company also has smaller ~~capital~~finance leases related primarily to computer hardware and software. During the six months ended August 3, 2019, the Company entered into additional finance leases of approximately $3.1 million related primarily to computer hardware and software. As of August ~~4, 2018~~3, 2019 and February ~~3, 2018,~~2, 2019, these ~~capital~~finance lease obligations totaled ~~$2.3~~$4.5 million and ~~$1.3~~$2.0 million, respectively.

Credit Facilities

On June 23, 2015, the Company entered into a five-year senior secured asset-based revolving credit facility with Bank of America, N.A. and the other lenders party thereto, ~~(the~~and on April 22, 2019, the credit facility was amended to permit, among other things, the offering and sale of convertible senior notes and certain transactions related thereto (as amended, the “Credit Facility”). See Note 10 for more information regarding the Company’s convertible senior notes. The Credit Facility provides for a borrowing capacity in an amount up to $150 million, including a Canadian sub-facility up to $50 million, subject to a borrowing base. Based on applicable accounts receivable ~~inventory, eligible cash balances~~ and ~~relevant covenant restrictions~~inventory as of August ~~4, 2018,~~3, 2019, the Company could have borrowed up to ~~$104~~$134 million under the Credit Facility. The Credit Facility has an option to expand the borrowing capacity by up to $150 million subject to certain terms and conditions, including the willingness of existing or new lenders to assume such increased amount. The Credit Facility is available for direct borrowings and the issuance of letters of credit, subject to certain letters of credit sublimits, and may be used for working capital and other general corporate purposes.

All obligations under the Credit Facility are unconditionally guaranteed by the Company and the Company’s existing and future domestic and Canadian subsidiaries, subject to certain exceptions, and are secured by a first priority lien on substantially all of the assets of the Company and such domestic and Canadian subsidiaries, as applicable.

Direct borrowings under the Credit Facility made by the Company and its domestic subsidiaries shall bear interest at the U.S. base rate plus an applicable margin (varying from 0.25% to 0.75%) or at LIBOR plus an applicable margin (varying from 1.25% to 1.75%). The U.S. base rate is based on the greater of (i) the U.S. prime rate, (ii) the federal funds rate, plus 0.5%, and (iii) LIBOR for a ~~30 day~~30-day interest period, plus 1.0%. Direct borrowings under the Credit Facility made by the Company’s Canadian subsidiaries shall bear interest at the Canadian prime rate plus an applicable margin (varying from 0.25% to 0.75%) or at the Canadian BA rate plus an applicable margin (varying from 1.25% to 1.75%). The Canadian prime rate is based on the greater of (i) the Canadian prime rate, (ii) the Bank of Canada overnight rate, plus 0.5%, and (iii) the Canadian BA rate for a ~~one month~~one-month interest period, plus 1.0%. The applicable margins are calculated quarterly and vary based on the average daily availability of the aggregate borrowing base. The Company is also obligated to pay certain commitment, letter of credit and other fees customary for a credit facility of this size and type. As of August ~~4, 2018,~~3, 2019, the Company had ~~$1.6~~$2.3 million in outstanding standby letters of credit, no0 outstanding documentary letters of credit and no0 outstanding borrowings under the Credit Facility.

The Credit Facility requires the Company to comply with a fixed charge coverage ratio on a trailing four-quarter basis if a default or an event of default occurs under the Credit Facility or generally if borrowings exceed 80% of the borrowing base. In addition, the Credit Facility contains customary covenants, including covenants that limit or restrict the Company and certain of its subsidiaries’ ability to: incur liens, incur indebtedness, make investments, dispose of assets, make certain restricted payments, merge or consolidate and enter into certain transactions with affiliates. Upon the occurrence of an event of default under the Credit Facility, the lenders may cease making loans, terminate the Credit Facility and declare all amounts outstanding to be immediately due and payable. The Credit Facility specifies a number of events of default (some of which are subject to applicable grace or cure periods), including, among other things, non-payment defaults, covenant defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency defaults and material judgment defaults. The Credit Facility allows for both secured and unsecured borrowings outside of the Credit Facility up to specified amounts.

The Company, through its European subsidiaries, maintains short-term committed and uncommitted borrowing agreements, primarily for working capital purposes, with various banks in Europe. ~~The majority~~Some of ~~the borrowings under~~ these agreements ~~are secured by specific accounts receivable balances. Based on the applicable accounts receivable balances as~~include certain equity-based financial covenants. As of August ~~4, 2018,~~3, 2019, the Company ~~could have borrowed or entered into~~had $27.8 million in outstanding borrowings, 0 outstanding documentary letters of credit ~~totaling up to $83.7~~and $126.5 million ~~under these agreements. As of August 4, 2018, the Company had no outstanding~~available for future borrowings ~~or outstanding documentary letters of credit~~ under these agreements. The agreements are denominated primarily in euros and provide for annual interest rates ranging from 0.5% to 4.6%.

In March 2019, the Company, through its China subsidiary, entered into a short-term uncommitted bank borrowing agreement, primarily for working capital purposes. The maturities of any short-term borrowings under these arrangements are generally linked to the credit terms of the underlying accounts receivable that secure the borrowings. With the exception of one facilitymulticurrency borrowing agreement provides for borrowing up to ~~$40.5 million that has a minimum net equity requirement,~~$20.0 million. As of August 3, 2019, there ~~are no other financial ratio covenants.~~were 0 outstanding borrowings or outstanding letters of credit under this borrowing agreement.

Other

From time-to-time, the Company will obtain other financing in foreign countries for working capital to finance its local operations.


(10)	Convertible Senior Notes and Related Transactions

2.00% Convertible Senior Notes due 2024

In April 2019, the Company issued $300 million principal amount of 2.00% convertible senior notes due 2024 (the “Notes”) in a private offering. In connection with the issuance of the Notes, the Company entered into an indenture (the “Indenture”) with respect to the Notes with U.S. Bank N.A., as trustee (the “Trustee”). The Notes are senior unsecured obligations of the Company and bear interest at an annual rate of 2.00% payable semi-annually in arrears on April 15 and October 15 of each year, beginning on October 15, 2019. The Notes will mature on April 15, 2024, unless earlier repurchased or converted in accordance with their terms.

The Notes are convertible in certain circumstances into cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at the Company’s election, at an initial conversion rate of 38.7879 shares of common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $25.78 per share, subject to adjustment upon the occurrence of certain events. Prior to November 15, 2023, the Notes are convertible only upon the occurrence of certain events and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date of the Notes. Following certain corporate events described in the Indenture that occur prior to the maturity date, the conversion rate will be increased for a holder who elects to convert its Notes in connection with such corporate event in certain circumstances. The Notes are not redeemable prior to maturity, and no sinking fund is provided for the Notes.

If the Company undergoes a “fundamental change,” as defined in the Indenture, subject to certain conditions, holders of the Notes may require the Company to purchase for cash all or any portion of their Notes. The fundamental change purchase price will be 100% of the principal amount of the Notes to be purchased plus any accrued and unpaid interest up to but excluding the fundamental change purchase date.

The Indenture contains certain other customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of at least 25% in principal amount of the outstanding Notes may declare 100% of the principal of, and accrued and unpaid interest on, all the Notes to be due and payable.

Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability and equity components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. Accordingly, in accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component, which is recognized as a debt discount, represents the difference between the proceeds from the issuance of the Notes and the fair value of the liability component of the Notes. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) will be amortized to interest expense using an effective interest rate of 6.8% over the term of the Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. During the three and six months ended August 3, 2019, the Company recorded $2.4 million and $2.7 million of interest expense related to the amortization of the debt discount, respectively.

Debt issuance costs related to the Notes were comprised of discounts and commissions payable to the initial purchasers of $3.8 million and third-party offering costs of approximately $1.5 million. As of August 3, 2019,

approximately $0.2 million of the total $5.3 million in debt issuance costs was included in accrued expenses in the Company’s condensed consolidated balance sheet.

In accounting for the debt issuance costs related to the issuance of the Notes, the Company allocated the total amount incurred to the liability and equity components based on their relative values. Debt issuance costs attributable to the liability component were recorded as a contra-liability and are presented net against the convertible senior notes balance on the Company’s condensed consolidated balance sheets. These costs are amortized to interest expense using the effective interest method over the term of the Notes. During the three and six months ended August 3, 2019, the Company recorded $0.2 million related to the amortization of debt issuance costs. Debt issuance costs attributable to the equity component are netted with the equity component in stockholders’ equity.

The Notes consist of the following components as of August 3, 2019 (in thousands):



Liability component:
Principal	$	300,000
Unamortized debt discount	(53,913		)
Unamortized issuance costs	(4,032		)
Net carrying amount	$	242,055

Equity component, net¹	$	42,324

Notes:


¹	Included in paid-in capital within stockholders’ equity on the condensed consolidated balance sheets and is net of debt issuance costs and deferred taxes.

As of August 3, 2019, the fair value of the Notes was approximately $226.6 million. The fair value of the Notes is determined based on inputs that are observable in the market and have been classified as Level 2 in the fair value hierarchy.

Convertible Bond Hedge and Warrant Transactions

In connection with the offering of the Notes, the Company entered into convertible note hedge transactions whereby the Company has the option to purchase a total of approximately 11.6 million shares of its common stock at a price of approximately $25.78 per share, in each case subject to adjustment in certain circumstances. The total cost of the convertible note hedge transactions was $61.0 million. In addition, the Company sold warrants whereby the holders of the warrants have the option to purchase a total of approximately 11.6 million shares of the Company’s common stock at a price of $46.88 per share. The Company received $28.1 million in cash proceeds from the sale of these warrants. Taken together, the purchase of the convertible note hedges and sale of the warrants are intended to offset dilution from the conversion of the Notes by effectively increasing the overall conversion price from $25.78 per share to $46.88 per share. The warrant transaction may have a dilutive effect with respect to the Company’s common stock to the extent the market price per share of the Company’s common stock exceeds the strike price of the warrants. As these transactions meet certain accounting criteria, the convertible note hedges and warrants are recorded in stockholders’ equity, are not accounted for as derivatives and are not remeasured each reporting period.

The Company recorded a net deferred tax liability of $13.3 million in connection with the debt discount associated with the Notes and recorded a deferred tax asset of $14.5 million in connection with the convertible note hedge transactions. The total deferred tax impact is included in noncurrent deferred tax assets on the Company’s condensed consolidated balance sheets.


(11)	Share-Based Compensation

The following table summarizes the share-based compensation expense recognized under all of the Company’s stock plans during the three and six months ended August 3, 2019 and August 4, 2018 ~~and~~ ~~July 29, 2017~~ (in thousands):



	Three Months Ended				Six Months Ended
	Aug 3, 2019		Aug 4, 2018		Aug 3, 2019		Aug 4, 2018
Stock options	$	697	$	672	$	1,287	$	1,367
Stock awards/units	4,205		3,292		8,020		6,462
Employee Stock Purchase Plan	84		67		147		160
Total share-based compensation expense	$	4,986	$	4,031	$	9,454	$	7,989

Three Months Ended Six Months Ended
Aug 4, 2018 Jul 29, 2017 Aug 4, 2018 Jul 29, 2017
Stock options $ 672
$ 581
$ 1,367
$ 1,190
Stock awards/units 3,292
3,563
6,462
6,881
Employee Stock Purchase Plan 67
43
160
79
Total share-based compensation expense $ 4,031
$ 4,187
$ 7,989
$ 8,150

Unrecognized compensation cost related to nonvested stock options and nonvested stock awards/units totaled approximately ~~$4.8~~$10.4 million and ~~$44.5~~$23.8 million, respectively, as of August ~~4, 2018.~~3, 2019. This cost is expected to be

recognized over a weighted average period of ~~1.7~~1.8 years. The weighted average grant date fair value of stock options granted was ~~$5.89~~$5.41 and ~~$1.57~~$5.89 during the six months ended August 3, 2019 and August 4, 2018, ~~and July 29, 2017,~~ respectively.

Grants

In connection with a new employment agreement entered into between the Company and Carlos Alberini (the “Alberini Employment Agreement”), who became the Company’s Chief Executive Officer on February 20, 2019, the Company granted Mr. Alberini 600,000 stock options and 250,000 nonvested stock units which are subject to the achievement of certain performance-based vesting conditions. Mr. Alberini was also granted 150,000 restricted stock units which are considered contingently returnable as a result of certain service conditions set forth in the Alberini Employment Agreement.

On June 10, 2019, the Company made a special grant of 1,077,700 stock options to certain of its employees.

On June 20, 2019, the Company granted select key management 205,339 nonvested stock units which are subject to certain performance-based vesting conditions. On June 25, 2018, the Company granted select key management 619,578 nonvested stock units which are subject to certain performance-based vesting or market-based vesting conditions. ~~On April 28, 2017, the Company granted select key management 1,056,042 nonvested stock units which are subject to certain performance-based vesting or market-based vesting conditions.~~

Annual Grants

On March 29, 2019, the Company made an annual grant of 5,100 stock options and 280,700 nonvested stock awards/units to its employees. On March 30, 2018, the Company made an annual grant of 431,371 stock options and 490,528 ~~nonvested stock awards/units to its employees. On March 29, 2017, the Company made an annual grant of 1,283,175 stock options and 707,675~~ nonvested stock awards/units to its employees.

Performance-Based Awards

The Company has granted certain nonvested stock units subject to performance-based vesting conditions to select executive officers. Each award of nonvested stock units generally has an initial vesting period from the date of the grant through either (i) the end of the first fiscal year or (ii) the first anniversary of the date of grant, followed by annual vesting periods which may range from two-to-three years.

The Company has also granted a target number of nonvested stock units to select key management, including certain executive officers. The number of shares that may ultimately vest with respect to each award may range from 0% up to 200% of the target number of shares, subject to the achievement of certain performance-based vesting conditions. Any shares that are ultimately issued are scheduled to vest at the end of the third fiscal year following the grant date.

The following table summarizes the activity for nonvested performance-based units during the six months ended August ~~4, 2018:~~3, 2019:



	Number of Units	Weighted Average Grant Date Fair Value
Nonvested at February 2, 2019	1,371,230	$	16.44
Granted	455,339	18.33
Vested	103,369	20.70
Forfeited	334,526	18.01
Nonvested at August 3, 2019	1,388,674	$	16.37

Number of
Units

Weighted
Average
Grant Date
Fair Value
Nonvested at February 3, 2018 1,300,921
$ 14.01
Granted 489,646
21.83
Vested (141,625 ) 15.07
Forfeited (27,441 ) 11.16
Nonvested at August 4, 2018 1,621,501
$ 16.33

Market-Based Awards

The Company has granted certain nonvested stock units subject to market-based vesting conditions to select executive officers. The number of shares that may ultimately vest will equal 0% to 150% of the target number of shares, subject to the performance of the Company’s total stockholder return (“TSR”) relative to the TSR of a select group of peer companies over a three-year period. Vesting is also subject to continued service requirements through the vesting date.

The following table summarizes the activity for nonvested market-based units during the six months ended August ~~4, 2018:~~3, 2019:



	Number of Units	Weighted Average Grant Date Fair Value
Nonvested at February 2, 2019	518,409	$	14.28
Granted¹	17,557	15.20
Vested¹	158,014	15.20
Forfeited	89,750	15.58
Nonvested at August 3, 2019	288,202	$	13.43

Number of
Units
Weighted
Average
Grant Date
Fair Value
Nonvested at February 3, 2018 388,477
$ 12.28
Granted 129,932
20.28
Vested —
—
Forfeited —
—
Nonvested at August 4, 2018 518,409
$ 14.28
Notes:


¹	As a result of the achievement of certain market-based vesting conditions, there were 17,557 shares that vested in addition to the original target number of shares granted in fiscal 2017.


~~(11)~~(12)	Related Party Transactions

The Company and its subsidiaries periodically enter into transactions with other entities or individuals that are considered related parties, including certain transactions with entities affiliated with trusts for the respective benefit of Paul Marciano, who is an executive and member of the Board of the Company, and Maurice Marciano, Chairman of the Board, and certain of their children (the “Marciano Trusts”).

Leases

The Company leases warehouse and administrative facilities, including the Company’s corporate headquarters in Los Angeles, California, from partnerships affiliated with the Marciano Trusts and certain of their affiliates. There were ~~four~~4 of these leases in effect as of August ~~4, 2018~~3, 2019 with expiration or option exercise dates ranging from calendar years ~~2018~~2020 to ~~2020~~.2021.

Aggregate rent, common area maintenance charges and property tax expense recorded under these ~~four~~4 related party leases were approximately $2.6 million and $2.5 million for ~~each of~~ the six months ended August 3, 2019 and August 4, 2018, ~~and July 29, 2017.~~respectively. The Company believes that the terms of the related party leases have not been significantly affected by the fact that the Company and the lessors are related.

Aircraft Arrangements

The Company periodically charters aircraft owned by entities affiliated with the Marciano Trusts (the “Aircraft Entities”), through informal arrangements with the Aircraft Entities and independent ~~third party~~third-party management companies contracted by the Aircraft Entities to manage their aircraft. There were 0 fees paid under these arrangements for the six months ended August 3, 2019. The total fees paid under these arrangements for the six months ended August 4, 2018 ~~and July 29, 2017~~ were approximately $0.8 ~~million and $0.4 million, respectively.~~million.

These related party disclosures should be read in conjunction with the disclosure concerning related party transactions in the Company’s Annual Report on Form 10-K for the year ended February ~~3, 2018~~.2, 2019.


~~(12)~~(13)	Commitments and Contingencies

~~Leases~~

The Company leases its showrooms, advertising, licensing, sales and merchandising offices, remote distribution and warehousing facilities and retail and factory outlet store locations under operating lease agreements expiring on various dates through October 2037. Some of these leases require the Company to make periodic payments for property taxes, utilities and common area operating expenses. Certain retail store leases provide for rents based upon the minimum annual rental amount and a percentage of annual sales volume, generally ranging from 4% to 20%, when specific sales volumes are exceeded. The Company’s retail concession leases also provide for rents primarily based upon a percentage of annual sales volume which average approximately 35% of annual sales volume. Some leases include lease incentives, rent abatements and fixed rent escalations, which are amortized and recorded over the initial lease term on a straight-line basis. The Company also leases some of its equipment under operating lease agreements expiring at various dates through June 2023.

~~As discussed in further detail in Note 9, the Company leases equipment as well as computer hardware and software under capital lease obligations.~~

Investment Commitments

As of August ~~4, 2018,~~3, 2019, the Company had an unfunded commitment to invest €3.6 million ($~~4.2~~4.0 million) in a private equity fund. Refer to Note 1415 for further information.

Legal and Other Proceedings

The Company is involved in legal proceedings, arising both in the ordinary course of business and otherwise, including the proceedings described below as well as various other claims and other matters incidental to the Company’s business. Unless otherwise stated, the resolution of any particular proceeding is not currently expected to have a material adverse impact on the Company’s financial position or results of operations. Even if such an impact could be material, we may not be able to estimate the reasonably possible loss or range of loss until developments in the proceedings have provided sufficient information to support an assessment.

On May 6, 2009, Gucci America, Inc. filed a complaint in the U.S. District Court for the Southern District of New York against Guess?, Inc. and certain third party licensees for the Company asserting, among other things, trademark and trade dress law violations and unfair competition. The complaint sought injunctive relief, compensatory damages, including treble damages, and certain other relief. Complaints similar to those in the above action were subsequently filed by Gucci entities against the Company and certain of its subsidiaries in the Court of Milan, Italy, the Intermediate People’s Court of Nanjing, China and the Court of Paris, France. The three-week bench trial in the U.S. matter concluded on April 19, 2012, with the court issuing a preliminary ruling on May 21, 2012 and a final ruling on July 19, 2012. Although the plaintiff was seeking compensation in the U.S. matter in the form of damages of $26 million and an accounting of profits of $99 million, the final ruling provided for monetary damages of $2.3 million against the Company and $2.3 million against certain of its licensees. The court also granted narrow injunctions in favor of the plaintiff for certain of the claimed infringements. On August 20, 2012, the appeal period expired without any party having filed an appeal, rendering the judgment final. On May 2, 2013, the Court of Milan ruled in favor of the Company in the Milan, Italy matter. In the ruling, the Court rejected all of the plaintiff’s claims and ordered the cancellation of three of the plaintiff’s Italian and four of the plaintiff’s European Community trademark registrations. On June 10, 2013, the plaintiff appealed the Court’s ruling in the Milan matter. On September 15, 2014, the Court of Appeal of Milan affirmed the majority of the lower Court’s ruling in favor of the Company, but overturned the lower Court’s finding with respect to an unfair competition claim. That portion of the matter moved to a damages phase based on the ruling. On October 16, 2015, the plaintiff appealed the remainder of the Court of Appeal of Milan’s ruling in favor of the Company to the Italian Supreme Court of Cassation. In the China matter, the Intermediate People’s Court of Nanjing, China issued a ruling on November 8, 2013 granting an injunction in favor of the plaintiff for certain of the claimed infringements on handbags and small leather goods and awarding the plaintiff statutory damages in the amount of approximately $80,000. The Company strongly disagreed with the Court’s decision and appealed the ruling. On August 31, 2016, the Court of Appeal for the China matter issued a decision in favor of the Company, rejecting all of the plaintiff’s claims. In March 2017, the plaintiff petitioned the China Supreme Court for a retrial of the matter. On January 30, 2015, the Court of Paris ruled in favor of the Company in the France matter, rejecting all of the plaintiff’s claims and partially canceling two of the plaintiff’s community trademark registrations and one of the plaintiff’s international trademark registrations. On February 17, 2015, the plaintiff appealed the Court of Paris’ ruling. In April 2018, the parties entered into an agreement to settle all pending worldwide intellectual property litigation and trademark office matters between the parties and their subsidiaries, including the previously active litigation matters in Italy, China and France. As part of the settlement, the parties agreed on the use of various design elements by each party on a go-forward basis. The settlement did not have a significant impact on the Company’s financial results, and the terms of the settlement are not expected to have a negative impact on the Company’s business operations going forward.

The Company has received customs tax assessment notices from the Italian Customs Agency (“ICA”) regarding its customs tax audit of ~~one~~1 of the Company’s European subsidiaries for the period from July 2010 through December 2012. Such assessments totaled €9.8 million ($~~11.4~~10.9 million), including potential penalties and

interest. The Company strongly ~~disagrees~~disagreed with the ICA’s positions ~~that the ICA has taken~~ and therefore filed appeals with the Milan First Degree Tax Court (“MFDTC”). ~~In May 2015, the MFDTC issued~~Those appeals were split into a ~~judgment in favor~~number of different cases that were then heard by different sections of the ~~Company in relation to the first set of appeals (covering the period through September 2010) and canceled the related assessments totaling €1.7 million ($2.0 million~~).~~In November 2015, the ICA notified the Company of its intent to appeal this first~~MFDTC. The MFDTC ~~judgment. During fiscal 2017, the Appeals Court~~ ruled in favor of the Company ~~and rejected the appeal by the ICA~~ on ~~the first MFDTC judgment.~~all of these appeals. The ICA ~~has~~subsequently appealed ~~the majority~~€9.7 million ($10.8 million) of these tofavorable MFDTC judgments with the ~~Italian Supreme~~Appeals Court. ~~During fiscal 2017, the MFDTC also issued judgments~~To date, €8.5 million($9.4 million) have been decided in favor of the Company ~~in relation to the second through seventh set of appeals (covering the period from October 2010~~ ~~through December 2012)~~ and ~~canceled the related assessments totaling €8.1~~€1.2 million ($~~9.4~~1.4 million). Subsequently, the Italian Customs Agency has appealed the majority of these favorable MFDTC judgments, as well as certain of the Appeals Court judgments. In April 2018, a different judge within the Appeals Court ruled have been decided in favor of the ~~ICA with respect to a portion of the outstanding appeals (covering the period from October through December 2010) totaling~~ ~~€1.2 million~~ ~~($1.4 million).~~ICA. The Company believes that ~~this recent~~the unfavorable Appeals Court ruling is incorrect and inconsistent with the prior rulings on similar matters by both the MFDTC and other judges within the Appeals Court, and plans to appeal the ~~decision. In July 2018, a different section~~decision to the Supreme Court. The ICA has appealed most of the favorable Appeals Court ~~ruled in favor of~~rulings to the Company and rejected the appeals by the ICA with respect to a portion of the outstanding appeals (covering the periods from January through June 2012 and August through December 2012) totaling €3.0 million ($3.4 million).Supreme Court. There can be no assurances the Company will be successful in the remaining appeals. It also continues to be possible that the Company will receive similar or even larger assessments for periods subsequent to December 2012 or other claims or charges related to the matter in the future.Although the Company believes that it has a strong position and will continue to vigorously defend this matter, it is unable to predict with certainty whether or not these efforts will ultimately be successful or whether the outcome will have a material impact on the Company’s financial position or results of operations.

~~On June 6, 2017,~~Redeemable Noncontrolling Interests

The Company is party to a put arrangement with respect to the ~~European Commission notified~~common securities that represent the remaining noncontrolling interest for its majority-owned subsidiary, Guess Brasil Comércio e Distribuição S.A. (“Guess Brazil”), which was established through a majority-owned joint venture during fiscal 2014. The put arrangement for Guess Brazil, representing 40% of the total outstanding equity interest of that subsidiary, may be exercised at the discretion of the noncontrolling interest holder by providing written notice to the Company ~~that it had initiated proceedings~~every third anniversary beginning in March 2019, subject to ~~investigate whether~~ certain time restrictions. The redemption value of the Guess Brazil put arrangement is based on a multiple of Guess Brazil’s earnings before interest, taxes, depreciation and amortization subject to certain adjustments and is classified as a redeemable noncontrolling interest outside of permanent equity in the Company’s ~~practices and agreements concerning~~condensed consolidated balance sheet. The carrying value of the ~~distribution of apparel and accessories within the European Union breach European Union competition rules~~redeemable

noncontrolling interest related to ~~cross-border transactions, internet sales limitations~~Guess Brazil was $1.3 million and ~~resale price restrictions.~~ $1.4 million as of August 3, 2019 and February 2, 2019, respectively.

The Company ~~has cooperated~~is also party to a put arrangement with respect to the common securities that represent the remaining noncontrolling interest for its majority-owned subsidiary, Guess? CIS, LLC (“Guess CIS”), which was established through a majority-owned joint venture during fiscal 2016. The put arrangement for Guess CIS, representing 30% of the total outstanding equity interest of that subsidiary, may be exercised at the discretion of the noncontrolling interest holder by providing written notice to the Company during the period beginning after the fifth anniversary of the agreement through December 31, 2025, or sooner in certain limited circumstances. The redemption value of the Guess CIS put arrangement is based on a multiple of Guess CIS’s earnings before interest, taxes, depreciation and ~~plans to continue to cooperate with the European Commission, including through responses to requests for information and through changes~~amortization subject to certain ~~business practices~~adjustments and ~~agreements,~~is classified as ~~appropriate. Depending on~~a redeemable noncontrolling interest outside of permanent equity in the outcome of the proceedings, a broad range of remedies is potentially available to the European Commission, including imposing a fine and/or injunctive relief prohibiting or restricting certain business practices. However, the Company does not currently believe that any changes to its business practices or agreements made in connection with these proceedings will have a material impact on its ongoing business operations within the European Union. As of November 6, 2017,Company’s condensed consolidated balance sheet. During fiscal 2018, the Company and the ~~European Commission agreed to begin a settlement discussion process to determine if the parties can mutually agree on an outcome~~noncontrolling interest holder made additional capital contributions totaling $3.2 million, of ~~the proceedings. Those discussions are still ongoing. To the extent~~which $2.2 million was paid by the Company and the ~~European Commission are able~~remaining amount was paid by the noncontrolling interest holder to ~~reach an agreement, such agreement could occur as early as during fiscal 2019, although any resolution may be delayed due to~~retain the ~~inherent unpredictability~~same pro-rata interest in Guess CIS. The carrying value of the ~~proceedings. Although it~~redeemable noncontrolling interest related to Guess CIS was $3.5 million as of August 3, 2019 and February 2, 2019.

A reconciliation of the total carrying amount of redeemable noncontrolling interests for the six months ended August 3, 2019 and August 4, 2018 is currently not possible to assess the impact any settlement or other conclusion may have on our consolidated financial statements because the process is still ongoing, it is possible that the result could have a material adverse effect on our financial statements in the applicable reporting period.as follows (in thousands):



	Six Months Ended
	Aug 3, 2019			Aug 4, 2018
Beginning balance	$	4,853		$	5,590
Foreign currency translation adjustment	(69		)	(639		)
Ending balance	$	4,784		$	4,951


~~(13)~~(14)	Defined Benefit Plans

Supplemental Executive Retirement Plan

On August 23, 2005, the Board of Directors of the Company adopted a Supplemental Executive Retirement Plan (“SERP”) which became effective January 1, 2006. The SERP provides select employees who satisfy certain eligibility requirements with certain benefits upon retirement, termination of employment, death, disability or a change in control of the Company, in certain prescribed circumstances.

the non-qualified SERP. The amount of any future payments into the insurance policies, if any, may vary depending on investment performance of the trust. The cash surrender values of the insurance policies were ~~$64.3~~$63.9 million and ~~$64.5~~$61.7 million as of August ~~4, 2018~~3, 2019 and February ~~3, 2018,~~2, 2019, respectively, and were included in other assets in the Company’s condensed consolidated balance sheets. As a result of changes in the value of the insurance policy investments, the Company recorded unrealized gains (losses) of $(0.2) million and $3.0 million in other income (expense) during the three and six months ended August 3, 2019, respectively, and unrealized gains of $1.7 million and $0.7 million in other income (expense) during the three and six months ended August 4, 2018, ~~respectively, and unrealized gains of $1.9 million and $3.8 million in other income during the three and six months ended July 29, 2017,~~ respectively. The projected benefit obligation was ~~$54.9~~$52.3 million and ~~$54.8~~$52.2 million as of August ~~4, 2018~~3, 2019 and February ~~3, 2018,~~2, 2019, respectively, and was included in accrued expenses and other long-term liabilities in the Company’s condensed consolidated balance sheets depending on the expected timing of payments. SERP benefit payments of $0.4 million and $0.8 million were made during the three and six months ended August ~~4, 2018,~~3, 2019, respectively. SERP benefit payments of $0.4 million and $0.8 million were made during the three and six months ended ~~July 29, 2017,~~August 4, 2018, respectively.

Foreign Pension Plans

In certain foreign jurisdictions, primarily in Switzerland, the Company is required to guarantee the returns on Company-sponsored defined contribution plans in accordance with local regulations. These plans are typically

government-mandated defined contribution plans that provide employees with a minimum investment return, and as such, are treated under pension accounting in accordance with authoritative guidance. Under the Swiss plan, both the Company and certain of its employees with annual earnings in excess of government determined amounts are required to make contributions into a fund managed by an independent investment fiduciary. The Company’s contributions must be made in an amount at least equal to the employee’s contribution. Minimum employee contributions are based on the respective employee’s age, salary and gender.

As of August ~~4, 2018~~3, 2019 and February ~~3, 2018,~~2, 2019, the foreign pension plans had a total projected benefit obligation of ~~$27.5~~$33.6 million and ~~$26.4~~$31.1 million, respectively, and plan assets held in independent investment fiduciaries of ~~$22.2~~$27.4 million and ~~$21.4~~$25.4 million, respectively. The net liability of ~~$5.3~~$6.2 million and ~~$5.0~~$5.7 million was included in other long-term liabilities in the Company’s condensed consolidated balance sheets as of August ~~4, 2018~~3, 2019 and February ~~3, 2018,~~2, 2019, respectively.

The components of net periodic defined benefit pension cost for the three and six months ended August 3, 2019 and August 4, 2018 ~~and July 29, 2017~~ related to the Company’s defined benefit plans are as follows (in thousands):


	Three Months Ended August 4, 2018								Three Months Ended Aug 3, 2019
	SERP		Foreign Pension Plans			Total			SERP		Foreign Pension Plans			Total
Service cost	$	—	$	754		$	754		$	—	$	808		$	808
Interest cost	472		55			527			481		67			548
Expected return on plan assets	—		(75		)	(75		)	—		(78		)	(78		)
Net amortization of unrecognized prior service credit	—		(7		)	(7		)	—		(9		)	(9		)
Net amortization of actuarial losses	46		105			151			15		96			111
Net periodic defined benefit pension cost	$	518	$	832		$	1,350		$	496	$	884		$	1,380


	Six Months Ended August 4, 2018								Six Months Ended Aug 3, 2019
	SERP		Foreign Pension Plans			Total			SERP		Foreign Pension Plans			Total
Service cost	$	—	$	1,494		$	1,494		$	—	$	1,615		$	1,615
Interest cost	944		110			1,054			962		135			1,097
Expected return on plan assets	—		(149		)	(149		)	—		(155		)	(155		)
Net amortization of unrecognized prior service credit	—		(14		)	(14		)	—		(19		)	(19		)
Net amortization of actuarial losses	93		210			303			31		191			222
Net periodic defined benefit pension cost	$	1,037	$	1,651		$	2,688		$	993	$	1,767		$	2,760



	Three Months Ended Aug 4, 2018
	SERP		Foreign Pension Plans			Total
Service cost	$	—	$	754		$	754
Interest cost	472		55			527
Expected return on plan assets	—		(75		)	(75		)
Net amortization of unrecognized prior service credit	—		(7		)	(7		)
Net amortization of actuarial losses	46		105			151
Net periodic defined benefit pension cost	$	518	$	832		$	1,350

Three Months Ended July 29, 2017
SERP Foreign Pension Plans Total
Service cost $ —
$ 606
$ 606
Interest cost 460
20
480
Expected return on plan assets —
(46 ) (46 )
Net amortization of unrecognized prior service credit —
(6 ) (6 )
Net amortization of actuarial losses 38
73
111
Net periodic defined benefit pension cost $ 498
$ 647
$ 1,145



	Six Months Ended Aug 4, 2018
	SERP		Foreign Pension Plans			Total
Service cost	$	—	$	1,494		$	1,494
Interest cost	944		110			1,054
Expected return on plan assets	—		(149		)	(149		)
Net amortization of unrecognized prior service credit	—		(14		)	(14		)
Net amortization of actuarial losses	93		210			303
Net periodic defined benefit pension cost	$	1,037	$	1,651		$	2,688

Six Months Ended July 29, 2017
SERP Foreign Pension Plans Total
Service cost $ —
$ 1,232
$ 1,232
Interest cost 921
42
963
Expected return on plan assets —
(95 ) (95 )
Net amortization of unrecognized prior service credit —
(13 ) (13 )
Net amortization of actuarial losses 76
152
228
Net periodic defined benefit pension cost $ 997
$ 1,318
$ 2,315

During the first quarter of fiscal 2019, the Company adopted new authoritative guidance which requires that the non-service components of net periodic defined benefit pension cost be presented outside of earnings (loss) from operations. The Company adopted this guidance on a retrospective basis and, as a result, reclassified approximately $0.5 million and $1.1 million from SG&A expenses to other income (expense) for the three and six months ended July 29, 2017, respectively.


~~(14)~~(15)	Fair Value Measurements

Authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels as follows:

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that can be accessed at the measurement date.

Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e. interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3—Unobservable inputs that reflect assumptions about what market participants would use in pricing the asset or liability. These inputs would be based on the best information available, including the Company’s own data.

The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of August ~~4, 2018~~3, 2019 and February ~~3, 2018~~2, 2019 (in thousands):


																	Fair Value Measurements								Fair Value Measurements
	Fair Value Measurements at Aug 4, 2018								Fair Value Measurements at Feb 3, 2018								at Aug 3, 2019								at Feb 2, 2019
Recurring Fair Value Measures	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Foreign exchange currency contracts	$	—	$	5,950	$	—	$	5,950	$	—	$	51	$	—	$	51	$	—	$	6,912	$	—	$	6,912	$	—	$	4,690	$	—	$	4,690
Interest rate swap	—		1,525		—		1,525		—		1,460		—		1,460		—		—		—		—		—		1,033		—		1,033
Total	$	—	$	7,475	$	—	$	7,475	$	—	$	1,511	$	—	$	1,511	$	—	$	6,912	$	—	$	6,912	$	—	$	5,723	$	—	$	5,723
Liabilities:
Foreign exchange currency contracts	$	—	$	1,011	$	—	$	1,011	$	—	$	18,089	$	—	$	18,089	$	—	$	—	$	—	$	—	$	—	$	77	$	—	$	77
Interest rate swaps																	—		53		—		53		—		—		—		—
Deferred compensation obligations	—		14,484		—		14,484		—		13,476		—		13,476		—		15,554		—		15,554		—		14,405		—		14,405
Total	$	—	$	15,495	$	—	$	15,495	$	—	$	31,565	$	—	$	31,565	$	—	$	15,607	$	—	$	15,607	$	—	$	14,482	$	—	$	14,482

There were no transfers of financial instruments between the three levels of fair value hierarchy during the six months ended August ~~4, 2018~~3, 2019 or during the year ended February ~~3, 2018~~.2, 2019.

Foreign exchange currency contracts are entered into by the Company ~~principally~~ to hedge the future payment of inventory and intercompany transactions by non-U.S. subsidiaries. Periodically, the Company may also use foreign exchange currency contracts to hedge the translation and economic exposures related to its net investments in certain of its international subsidiaries. The fair values of the Company’s foreign exchange currency contracts are based on quoted foreign exchange forward rates at the reporting date. The fair values of the Company’s interest rate swaps are based upon inputs corroborated by observable market data. Deferred compensation obligations to employees are adjusted based on changes in the fair value of the underlying employee-directed investments. Fair value of these obligations is based upon inputs corroborated by observable market data.

~~During fiscal 2018,~~As of August 3, 2019 and February 2, 2019, the Company ~~invested €0.5~~included €1.2 million ($~~0.5~~1.3 million) and €1.2 million ($1.4 million), respectively, in other assets in the Company’s condensed consolidated balance sheet related to its investment in a private equity fund. ~~During the~~ ~~six months ended August 4, 2018, the Company made additional investments totaling €0.9 million ($1.1 million).~~ As permitted in accordance with authoritative guidance, the Company uses net asset value per share as a practical expedient to measure the fair value of this investment and has not included this investment in the fair value hierarchy as disclosed above. ~~During the three months ended~~ ~~August 4, 2018, the Company recorded an immaterial unrealized gain as~~As a result of changes in the value of the private equity ~~investment. During the~~ ~~six months ended August 4, 2018~~,investment, the Company recorded an unrealized ~~loss~~losses of €0.1 million ($0.1 million) and €0.1 million ($0.2 million) in other ~~expense. As of~~ expense during the six months ended August 3, 2019 and August 4, 2018, ~~and~~ ~~February 3, 2018~~, respectively. During fiscal 2019, the Company ~~included €1.2~~funded contributions of €0.9 million ($~~1.4~~1.1 million) ~~and €0.5 million ($0.6 million), respectively,~~ in ~~other assets in the Company’s condensed consolidated balance sheet related to~~ this investment. As of August ~~4, 2018~~3, 2019, the Company had an unfunded commitment to invest an additional €3.6 million ($~~4.2~~4.0 million) in the private equity fund.

The fair values of the Company’s debt instruments (see Note 9) are based on the amount of future cash flows associated with each instrument discounted using the Company’s incremental borrowing rate. As of August 3, 2019 and February 2, 2019, the carrying value was not materially different from fair value, as the interest rates on the Company’s debt approximated rates currently available to the Company. The fair value of the Company’s convertible senior notes (see Note 10) is determined based on inputs that are observable in the market and have been classified as Level 2 in the fair value hierarchy.

The carrying amount of the Company’s remaining financial instruments, which principally include cash and cash equivalents, trade receivables, accounts payable and accrued expenses, approximates fair value due to the relatively short maturity of such instruments. The fair values of the Company’s debt instruments (see Note 9) are based on the amount of future cash flows associated with each instrument discounted using the Company’s incremental borrowing rate. As of ~~August 4, 2018~~ ~~and~~ ~~February 3, 2018, the carrying value of all financial instruments was not materially different from fair value, as the interest rates on the Company’s debt approximated rates currently available to the Company.~~

Long-Lived Assets

Long-lived assets, such as property and equipment, operating lease ROU assets and purchased intangibles subject to amortization, are reviewed for impairment quarterly or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The majority of the Company’s long-lived assets relate to its retail operations which consist primarily of regular retail and flagship locations. The Company considers each individual regular retail location as an asset group for impairment testing, which is the lowest level at which individual cash flows can be identified. The asset group includes leasehold improvements, furniture, fixtures and equipment, computer hardware and software, ~~and~~operating lease ROU assets, certain long-term security deposits ~~and~~as well as lease acquisition ~~costs.~~costs, and excludes operating lease liabilities. The Company reviews regular retail locations in penetrated markets for impairment risk once the locations have been opened for at least one year in their current condition, or sooner as changes in circumstances require. The Company believes that waiting at least one year allows a location to reach a maturity level where a more comprehensive analysis of financial performance can be performed. The Company evaluates impairment risk for regular retail locations in new markets, where the Company is in the early stages of establishing its presence, once brand awareness has been established. The Company also evaluates impairment risk for retail locations that are expected to be closed in the foreseeable future. The Company has flagship locations which are used as a regional marketing tool to build brand awareness and promote the Company’s current product. Impairment for these locations is tested at a reporting unit level similar to goodwill since they do not have separately identifiable cash flows.

An asset is considered to be impaired if the Company determines that the carrying value may not be recoverable based upon its assessment of the asset’s ability to continue to generate earnings from operations and positive cash flow in future periods or if significant changes in the Company’s strategic business objectives and utilization of the assets occurred. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows adjusted for lease payments, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the estimated fair value. The Company uses market participant rents to calculate fair value ~~which is determined based on~~of ROU assets and discounted future cash ~~flows.~~flows of the asset group to quantify fair value for other long-lived assets. These nonrecurring fair value measurements are considered Level 3 inputs as defined above. The impairment loss calculations require management to apply judgment in estimating future cash flows and the discount rates that reflect the risk inherent in future cash flows. Future expected cash flows for assets in regular retail locations are based on management’s estimates of future cash flows over the remaining lease period or expected life, if shorter. For expected location closures, the Company will evaluate whether it is necessary to shorten the useful life for any of the assets within the respective asset group. The Company will use this revised useful life when estimating the asset group’s future cash flows. The Company considers historical trends, expected future business trends and other factors when estimating the future cash flow for each regular retail location. The Company also considers factors such as: the local environment for each regular retail location, including mall traffic and competition; the Company’s ability to successfully implement strategic initiatives; and the ability to control variable costs such as cost of sales and payroll and, in some cases, renegotiate lease costs. ~~The estimated cash flows used for this nonrecurring fair value measurement are considered a Level 3 input as defined above.~~ If actual results are not consistent with the assumptions and judgments used in estimating future cash flows and asset fair values, there may be additional exposure to future impairment losses that could be material to the Company’s results of operations.

The Company recorded asset impairment charges of $1.5 million and $3.3 million during the three and six months ended August 3, 2019, respectively, and $3.0 million and $3.7 million during the three and six months ended August 4, 2018, ~~respectively, and $1.2 million and $4.0 million during the three and six months ended July 29, 2017,~~ respectively. The asset impairment charges related primarily to the impairment of certain retail locations in Europe and North America resulting from under-performance and expected store closures.


~~(15)~~(16)	Derivative Financial Instruments

Hedging Strategy

Foreign Exchange Currency Contracts

The Company operates in foreign countries, which exposes it to market risk associated with foreign currency exchange rate fluctuations. The Company has entered into certain forward contracts to hedge the risk of foreign currency rate fluctuations. The Company has elected to apply the hedge accounting rules in accordance with authoritative guidance for certain of these hedges.

The Company’s primary objective is to hedge the variability in forecasted cash flows due to the foreign currency risk. Various transactions that occur primarily in Europe, Canada, South Korea, China, Hong Kong and Mexico are denominated in U.S. dollars, British pounds and Russian roubles and thus are exposed to earnings risk as a result of exchange rate fluctuations when converted to their functional currencies. These types of transactions include U.S. ~~dollar denominated~~dollar-denominated purchases of merchandise and U.S. ~~dollar~~dollar- and British ~~pound denominated~~pound-denominated intercompany liabilities. In addition, certain operating expenses, tax liabilities and pension-related liabilities are denominated in Swiss francs and are exposed to earnings risk as a result of exchange rate fluctuations when converted to the functional currency.The Company enters into derivative financial instruments, including forward exchange currency contracts, to offset some, but not all, of the exchange risk on certain of these anticipated foreign currency transactions.

Periodically, the Company may also use foreign exchange currency contracts to hedge the translation and economic exposures related to its net investments in certain of its international subsidiaries.

Interest Rate Swap Agreements

The Company is exposed to interest rate risk on its floating-rate debt. The Company has entered into interest rate swap agreements to effectively convert its floating-rate debt to a fixed-rate basis. The principal objective of these contracts is to eliminate or reduce the variability of the cash flows in interest payments associated with the Company’s floating-rate debt, thus reducing the impact of interest rate changes on future interest payment cash flows. The Company has elected to apply the hedge accounting rules in accordance with authoritative guidance for certain of these contracts. Refer to Note 9 for further information.

The impact of the credit risk of the counterparties to the derivative contracts is considered in determining the fair value of the foreign exchange currency contracts and interest rate swap agreements. As of August ~~4, 2018,~~3, 2019, credit risk has not had a significant effect on the fair value of the Company’s foreign exchange currency contracts and interest rate swap agreements.

Hedge Accounting Policy

Foreign Exchange Currency Contracts

U.S. dollar forward contracts are used to hedge forecasted merchandise purchases over specific months. Changes in the fair value of these U.S. dollar forward contracts, designated as cash flow hedges, are recorded as a component of accumulated other comprehensive income (loss) within stockholders’ equity and are recognized in cost of product sales in the period that approximates the time the hedged merchandise inventory is sold. The Company ~~also hedges~~may hedge forecasted intercompany royalties over specific months. Changes in the fair value of these U.S. dollar forward contracts, designated as cash flow hedges, are recorded as a component of accumulated other comprehensive income (loss) within stockholders’ equity and are recognized in other income (expense) in the period in which the royalty expense is incurred.

The Company has also used U.S. dollar forward contracts to hedge the net investments of certain of the Company’s international subsidiaries over specific months. Changes in the fair value of these U.S. dollar forward

contracts, designated as net investment hedges, are recorded in foreign currency translation adjustment as a component of accumulated other comprehensive income (loss) within stockholders’ equity and are not recognized in earnings (loss) until the sale or liquidation of the hedged net investment.

Interest Rate Swap Agreements

Interest rate swap agreements are used to hedge the variability of the cash flows in interest payments associated with the Company’s floating-rate debt. Changes in the fair value of interest rate swap agreements designated as cash flow hedges are recorded as a component of accumulated other comprehensive income (loss) within stockholders’ equity and are amortized to interest expense over the term of the related debt.

Periodically, the Company may also enter into interest rate swap agreements that are not designated as hedging instruments for accounting purposes. Changes in the fair value of interest rate swap agreements not designated as hedging instruments are reported in net earnings (loss) as part of other income (expense).

Summary of Derivative Instruments

The fair value of derivative instruments in the condensed consolidated balance sheets as of August ~~4, 2018~~3, 2019 and February ~~3, 2018~~2, 2019 is as follows (in thousands):



	Derivative Balance Sheet Location	Fair Value at Aug 3, 2019		Fair Value at Feb 2, 2019
ASSETS:
Derivatives designated as hedging instruments:
Cash flow hedges:
Foreign exchange currency contracts	Other current assets/ Other assets	$	5,894	$	4,058
Interest rate swap	Other assets	—		1,033
Total derivatives designated as hedging instruments		5,894		5,091
Derivatives not designated as hedging instruments:
Foreign exchange currency contracts	Other current assets	1,018		632
Total		$	6,912	$	5,723
LIABILITIES:
Derivatives designated as hedging instruments:
Cash flow hedges:
Foreign exchange currency contracts	Accrued expenses and other current liabilities	$	—	$	77
Interest rate swap	Other long-term liabilities	53		—
Total		$	53	$	77

Derivative
Balance Sheet
Location
Fair Value at
Aug 4, 2018 Fair Value at
Feb 3, 2018
ASSETS:

Derivatives designated as hedging instruments:

Cash flow hedges:
   Foreign exchange currency contracts
Other current assets/
Other assets
$ 4,224
$ 41
   Interest rate swap Other assets 1,525
1,460
Total derivatives designated as hedging instruments 5,749
1,501
Derivatives not designated as hedging instruments:
Foreign exchange currency contracts Other current assets 1,726
10
Total $ 7,475
$ 1,511
LIABILITIES:

Derivatives designated as hedging instruments:

Cash flow hedges:
   Foreign exchange currency contracts
Accrued expenses/
Other long-term liabilities
$ 528
$ 13,789
Derivatives not designated as hedging instruments:

Foreign exchange currency contracts Accrued expenses 483
4,300
Total $ 1,011
$ 18,089

Derivatives Designated as Hedging Instruments

Foreign Exchange Currency Contracts Designated as Cash Flow Hedges

During the six months ended August ~~4, 2018~~3, 2019, the Company purchased U.S. dollar forward contracts in Europe totaling US$~~21.6~~68.6 million that were designated as cash flow hedges. As ofAugust ~~4, 2018,~~3, 2019, the Company had forward contracts outstanding for its European ~~and Canadian~~ operations of US$~~103.7~~151.8 million ~~and US$17.4 million, respectively,~~ to hedge forecasted merchandise purchases, which are expected to mature over the next 1213 months. There were 0 outstanding foreign exchange currency contracts for the Company’s Canadian operations as of August 3, 2019.

As of August ~~4, 2018,~~3, 2019, accumulated other comprehensive income (loss) related to foreign exchange currency contracts included a net unrealized ~~loss~~gain of approximately ~~$1.3~~$9.1 million, net of tax, of which ~~$2.5~~$7.5 million will be recognized in cost of product sales over the following 12 months, at the then current values on a pre-tax basis, which can be different than the current quarter-end values.

Interest Rate Swap Agreement Designated as Cash Flow Hedge

The following table summarizes the gains (losses) before taxes recognized on the derivative instruments designated as cash flow hedges in OCI and net earnings ~~(loss)~~ for the three and six months ended August 3, 2019 and August 4, 2018 ~~and~~ ~~July 29, 2017~~ (in thousands):


	Gain (Loss) Recognized in OCI					Location of Gain (Loss) Reclassified from Accumulated OCI into Earnings (Loss) (1)		Gain (Loss) Reclassified from Accumulated OCI into Earnings (Loss)							Gains (Losses) Recognized in OCI¹							Location of Gains (Losses) Reclassified from Accumulated OCI into Earnings¹		Gains (Losses) Reclassified from Accumulated OCI into Earnings
	Three Months Ended						Three Months Ended							Three Months Ended									Three Months Ended
	Aug 4, 2018		Jul 29, 2017				Aug 4, 2018				Jul 29, 2017			Aug 3, 2019				Aug 4, 2018					Aug 3, 2019				Aug 4, 2018
Derivatives designated as cash flow hedges:
Foreign exchange currency contracts	$	4,638	$	(14,673	)		Cost of product sales		$	(2,342	)		$	661		$	3,063			$	4,638		Cost of product sales		$	1,757			$	(2,342	)
Foreign exchange currency contracts	$	—	$	(785	)	Other income (expense)		$	—			$	14
Interest rate swap	$	37	$	(77	)	Interest expense		$	31			$	(26	)	(777		)		37			Interest expense		44				31


	Gain (Loss) Recognized in OCI					Location of Gain (Loss) Reclassified from Accumulated OCI into Earnings (Loss) (1)		Gain (Loss) Reclassified from Accumulated OCI into Earnings (Loss)							Gains (Losses) Recognized in OCI¹							Location of Gain (Loss) Reclassified from Accumulated OCI into Earnings¹		Gains (Losses) Reclassified from Accumulated OCI into Earnings
	Six Months Ended						Six Months Ended							Six Months Ended									Six Months Ended
	Aug 4, 2018		Jul 29, 2017				Aug 4, 2018				Jul 29, 2017			Aug 3, 2019				Aug 4, 2018					Aug 3, 2019				Aug 4, 2018
Derivatives designated as cash flow hedges:
Foreign exchange currency contracts	$	12,060	$	(13,816	)		Cost of product sales		$	(4,028	)		$	1,279		$	7,718			$	12,060		Cost of product sales		$	1,987			$	(4,028	)
Foreign exchange currency contracts	$	2	$	(996	)	Other income (expense)		$	(201	)		$	93		—				2			Other income (expense)		—				(201		)
Interest rate swap	$	105	$	(277	)	Interest expense		$	39			$	(62	)	(996		)		105			Interest expense		90				39

Notes:

~~(1)~~

~~The~~During the first quarter of fiscal 2020, the Company adopted new authoritative guidance which eliminated the requirement to separately measure and report ineffectiveness for instruments that qualify for hedge accounting and generally requires that the entire change in the fair value of such instruments ultimately be presented in the same line as the respective hedge item. As a result, there is no interest component recognized for the ineffective portion of instruments that qualify for hedge accounting, but rather all changes in the fair value of such instruments are included in other comprehensive income (loss) during the three and six months ended August 3, 2019. Upon adoption of this guidance, the Company reclassified $2.0 million in gains from retained earnings to accumulated other comprehensive loss related to the previously recorded interest component on outstanding instruments that qualified for hedge accounting. During the three and six months ended August 4, 2018, the Company recognized gains of $0.8 million and $1.4 million, respectively, resulting from the ineffective portion related to foreign exchange currency contracts in interest income during the three and six months ended August 4, 2018, respectively. The Company recognized gains of $0.9 million and $1.5 million resulting from the ineffective portion related to foreign exchange currency contracts in interest income during the three and six months ended July 29, 2017, respectively.income. There was no0 ineffectiveness recognized related to the interest rate swap during the three and six months ended August 4, ~~2018 and July 29, 2017.~~2018.

The following table summarizes net after-tax derivative activity recorded in accumulated other comprehensive income (loss) (in thousands):



	Three Months Ended						Six Months Ended
	Aug 3, 2019			Aug 4, 2018			Aug 3, 2019			Aug 4, 2018
Beginning balance gain (loss)	$	8,663		$	(6,285	)	$	2,999		$	(14,369	)
Cumulative adjustment from adoption of new accounting guidance¹	—			—			1,981			—
Net gains from changes in cash flow hedges	1,978			4,111			5,842			10,579
Net (gains) losses reclassified into earnings	(1,572		)	2,032			(1,753		)	3,648
Ending balance gain (loss)	$	9,069		$	(142	)	$	9,069		$	(142	)

______________________________________________________________________

Three Months Ended Six Months Ended
Aug 4, 2018 Jul 29, 2017 Aug 4, 2018 Jul 29, 2017
Beginning balance gain (loss) $ (6,285 ) $ 4,948
$ (14,369 ) $ 5,400
Net gains (losses) from changes in cash flow hedges 4,111
(13,093 ) 10,579
(12,969 )
Net (gains) losses reclassified into earnings (loss)
2,032
(606 ) 3,648
(1,182 )
Ending balance loss $ (142 ) $ (8,751 ) $ (142 ) $ (8,751 )
Notes:

During the first quarter of fiscal 2020, the Company adopted new authoritative guidance which eliminated the requirement to separately measure and report ineffectiveness for instruments that qualify for hedge accounting and generally requires that the entire change in the fair value of such instruments ultimately be presented in the same line as the respective hedge item. As a result, there is no interest component recognized for the ineffective portion of instruments that qualify for hedge accounting, but rather all changes in the fair value of such instruments are included in other comprehensive income (loss) during the three and six months ended August 3, 2019. Upon adoption of this guidance, the Company reclassified $2.0 million in gains from retained earnings to accumulated other comprehensive loss related to the previously recorded interest component on outstanding instruments that qualified for hedge accounting.

Foreign Exchange Currency Contracts Not Designated as Hedging Instruments

As of August ~~4, 2018~~3, 2019, the Company had euro foreign exchange currency contracts to purchase US$~~38.0 million~~ ~~expected to mature over the next nine months and Canadian dollar foreign exchange currency contracts to purchase US$7.7~~14.1 million expected to mature over the next ~~five months.~~one month. There were no Canadian dollar foreign exchange currency contracts as of August 3, 2019.

The following table summarizes the gains ~~(losses)~~ before taxes recognized on the derivative instruments not designated as hedging instruments in other income (expense) for the three and six months ended August 3, 2019 and August 4, 2018 ~~and~~ ~~July 29, 2017~~ (in thousands):



	Location of Gain Recognized in Earnings	Gain Recognized in Earnings
		Three Months Ended				Six Months Ended
		Aug 3, 2019		Aug 4, 2018		Aug 3, 2019		Aug 4, 2018
Derivatives not designated as hedging instruments:
Foreign exchange currency contracts	Other income (expense)	$	233	$	2,216	$	808	$	5,906

Location of
Gain (Loss)
Recognized in Earnings (Loss)
Gain (Loss) Recognized in Earnings (Loss)
Three Months Ended Six Months Ended
Aug 4, 2018 Jul 29, 2017 Aug 4, 2018 Jul 29, 2017
Derivatives not designated as hedging instruments:

Foreign exchange currency contracts Other income (expense) $ 2,216
$ (6,540 ) $ 5,906
$ (7,333 )

At February ~~3, 2018~~,2, 2019, the Company had euro foreign exchange currency contracts to purchase US$~~68.2 million~~ ~~and~~8.2 million. There were 0 Canadian dollar foreign exchange currency contracts ~~to purchase US$17.6 million~~.as of February 2, 2019.


~~(16)~~(17)	Subsequent Events

Dividends

On August ~~29, 2018,~~28, 2019, the Company announced a regular quarterly cash dividend of ~~$0.225~~$0.1125 per share on the Company’s common stock. The cash dividend will be paid on September ~~28, 2018~~27, 2019 to shareholders of record as of the close of business on September ~~12, 2018.~~11, 2019.

Share Repurchases

On September 4, 2019, the Company received a final delivery of 5.4 million shares under its ASR Contract entered into in April 2019, which amount was determined based on the daily volume-weighted average price since the effective date of the ASR Contract, less the applicable contractual discount. When combined with the 5.2 million upfront shares received at the inception of the ASR in April 2019, the Company repurchased approximately

10.6 million of its shares under the ASR at an average repurchase price of $16.09 per share. All shares were repurchased in accordance with the Company’s publicly announced ASR program, which is now complete. The shares delivered under the ASR Contract reduced the Company’s outstanding shares, and going forward that will have the effect of reducing its weighted average number of common shares outstanding for purposes of calculating basic and diluted earnings per share.


ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.

General

Unless the context indicates otherwise, when we refer to “we,” “us,” “our” or the “Company” in this Form 10-Q, we are referring to Guess?, Inc. (“GUESS?”) and its subsidiaries on a consolidated basis.

Important Factors Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, including documents incorporated by reference herein, contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may also be contained in the Company’s other reports filed under the Securities Exchange Act of 1934, as amended, in its press releases and in other documents. In addition, from time-to-time, the Company, through its management, may make oral forward-looking statements. These statements relate to expectations, analyses and other information based on current plans, forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our goals, future prospects, global cost reduction opportunities and profitability efforts, capital allocation plans, cash needs and current business strategies and strategic initiatives. These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “continue,” “could,” “create,” “estimate,” “expect,” “goal,” “intend,” “may,” “outlook,” “pending,” “plan,” “predict,” “project,” “see,” “should,” “strategy,” “will,” “would,” and other similar terms and phrases, including references to assumptions.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed. These forward-looking statements may include, among other things, statements or assumptions relating to: our expected results of operations; the accuracy of data relating to, and anticipated levels of, future inventory and gross margins; anticipated cash requirements and sources; our convertible senior notes issued in April 2019, including our ability to settle the liability in cash; cost containment efforts; estimated charges; plans regarding store openings, closings, remodels and lease negotiations; effects of doing business outside of the United States, including, without limitations, exchange rate fluctuations, inflation, changes to import duties, tariffs and quotas, political and economic instability and terrorism; effects of the pending exit of the United Kingdom from the European Union; plans ~~regarding~~to improve the ~~opening or relocation~~efficiency and effectiveness of ~~our~~the Company’s European distribution centers; plans regarding business growth, international expansion and capital allocation; plans regarding supply chain efficiencies and global planning and allocation; e-commerce, digital and omni-channel initiatives; business seasonality; results and risks of current and future legal ~~proceedings, including the investigation by the European Commission regarding the potential breach of certain European Union competition rules by the Company;~~proceedings; industry trends; consumer demands and preferences; competition; currency fluctuations and related impacts; estimated tax rates, including the impact of the 2017 Tax ~~Reform~~Cuts and ~~changes~~Jobs Act (“Tax Reform”), future clarifications and legislative amendments thereto, as well as our ability to ~~provisional estimates;~~accurately interpret and predict its impact on our cash flows and financial condition; results of tax audits and other regulatory proceedings; the impact of recent accounting pronouncements; raw material and other inflationary cost pressures; consumer confidence; and general economic conditions. We do not intend, and undertake no obligation, to update our forward-looking statements to reflect future events or circumstances. Such statements involve risks and uncertainties, which may cause actual results to differ materially from those set forth in these statements. Important factors that could cause or contribute to such differences include those discussed under “Part I, Item 1A. Risk Factors” contained in the Company’s most recent Annual Report on Form 10-K for the fiscal year ended February ~~3, 2018~~2, 2019, under “Part II, Item 1A. Risk Factors” contained herein and in our other filings made from time-to-time with the ~~SEC~~Securities and Exchange Commission (“SEC”) after the date of this report.

Business Segments

The Company’s businesses are grouped into five reportable segments for management and internal financial reporting purposes: Americas Retail, Americas Wholesale, Europe, Asia and Licensing. Management evaluates segment performance based primarily on revenues and earnings (loss) from operations before corporate performance-based compensation costs, net gains (losses) ~~from~~on lease terminations, asset impairment charges, restructuring charges, and ~~restructuring~~certain non-recurring charges, if any. The Americas Retail segment includes the Company’s retail and e-commerce operations in ~~North and Central America and~~ the ~~Company’s retail operations in South America.~~Americas. The Americas Wholesale segment includes the Company’s wholesale operations in the Americas. The Europe segment includes the Company’s retail, e-commerce and wholesale operations in Europe and the Middle East. The Asia segment includes the Company’s retail, e-commerce and wholesale operations in Asia and the Pacific. The Licensing segment includes the worldwide licensing operations of the Company. The business segment operating results exclude corporate overhead costs, which consist of shared costs of the organization, net gains (losses) on lease terminations, asset impairment charges and restructuring ~~charges.~~charges and certain non-recurring charges, if any. Corporate overhead costs are presented separately and generally include, among other things, the following unallocated corporate costs: accounting and finance, executive compensation, corporate performance-based compensation, facilities, global advertising and marketing, human resources, information technology and legal. Information regarding these segments is summarized in “Part I, Item 1. Financial Statements – Note 8 ~~to the Condensed Consolidated Financial Statements.~~– Segment Information.”

Products

We derive our net revenue from the sale of GUESS?, G by GUESS (GbG), GUESS Kids and MARCIANO apparel and our licensees’ products through our worldwide network of directly operated and licensed retail stores, wholesale customers and distributors, as well as our online sites. We also derive royalty revenue from worldwide licensing activities.

Foreign Currency Volatility

Since the majority of our international operations are conducted in currencies other than the U.S. dollar (primarily the Canadian dollar, Chinese yuan, euro, Japanese yen, Korean won, Mexican peso, Russian rouble and ~~Russian rouble)~~Turkish lira), currency fluctuations can have a significant impact on the translation of our international revenues and earnings (loss) into U.S. dollar amounts.

In addition, some of our transactions that occur primarily in Europe, Canada, South Korea, China and Mexico are denominated in U.S. dollars, Swiss francs, British pounds and Russian roubles, exposing them to exchange

rate fluctuations when these transactions (such as inventory purchases) are converted to their functional currencies. As a result, fluctuations in exchange rates can impact the operating margins of our foreign operations and reported earnings (loss), and are largely dependent on the transaction timing and magnitude during the period that the currency fluctuates. When these foreign exchange rates weaken versus the U.S. dollar at the time U.S. dollar denominated inventory is purchased relative to the purchases of the comparable period, our product margins could be unfavorably impacted if the relative sales prices do not change.

During the first six months of fiscal ~~2019,~~2020, the average U.S. dollar rate was ~~weaker~~stronger against the Canadian dollar, Chinese yuan, euro, Japanese yen, ~~and the~~ Korean won, ~~and stronger against the~~ Mexican peso, ~~and the~~ Russian rouble and Turkish lira compared to the average rate in the same prior-year period. This had an overall ~~favorable~~unfavorable impact on the translation of our international revenues and ~~an unfavorable impact on~~ earnings from operations for the six months ended August ~~4, 2018~~3, 2019 compared to the same prior-year period.

If the U.S. dollar strengthens relative to the respective fiscal ~~2018~~2019 foreign exchange rates, foreign exchange could negatively impact our revenues and operating results, as well as our international cash and other balance sheet items, during the remainder of fiscal ~~2019,~~2020, particularly in Canada, Europe (primarily the euro, Turkish lira and Russian rouble) and Mexico. Alternatively, if the U.S. dollar weakens relative to the respective fiscal ~~2018~~2019 foreign exchange rates, our revenues and operating results, as well as our other cash balance sheet items, could be positively impacted by foreign currency fluctuations during the remainder of fiscal ~~2019,~~2020, particularly in these regions.

The Company enters into derivative financial instruments to offset some, but not all, of the exchange risk on foreign currency transactions. For additional discussion regarding our exposure to foreign currency risk, forward contracts designated as hedging instruments and forward contracts not designated as hedging instruments, refer to “Item 3. Quantitative and Qualitative Disclosures About Market Risk.”

~~Strategy~~Recent Developments

~~The Company continues to remain focused on its five top strategic initiatives aimed at driving shareholder value, including: (i) elevating~~On February 20, 2019, Carlos Alberini began his service as the ~~quality of our sales organization~~Company’s Chief Executive Officer and ~~merchandising strategy to match the quality of our product and marketing; (ii) building a major business in Asia by unlocking the potential~~member of the ~~GUESS? brand~~Board, replacing Victor Herrero, who separated from the Company on February 2, 2019. Mr. Alberini previously served as President and Chief Operating Officer of the Company from 2000 to 2010. From 2010 until 2014, Mr. Alberini was Co-CEO of Restoration Hardware and at present, remains a Director on the Board of Restoration Hardware. From 2014 until February 2019, Mr. Alberini served as the Chairman and CEO of Lucky Brand.

Although Mr. Alberini is currently in the ~~region;~~process of finalizing a strategic vision and implementation plan for execution with our leadership team, he has identified several key principles he plans to deploy to drive value creation. Those key principles include: (i) capital allocation; (ii) product development and distribution optimization; (iii) ~~creating a culture of purpose~~global strategies; (iv) cost and ~~accountability throughout the entire Company by implementing a more centralized organizational~~ structure ~~that reinforces our focus on sales and profitability; (iv) improving our cost structure (including supply chain and overhead);~~optimization; and (v) ~~stabilizing and revitalizing our wholesale business. The following provides~~a concept called Customer Centricity; each as further ~~details on the progress of these initiatives:~~described below:

~~Sales Organization and Merchandising Strategy.~~ Capital Allocation. We are executing on our plan to elevate the quality of our sales organization and merchandising strategy which includes: (1) elevating the product knowledge of our sales force; (2) building a more strategic and operational online organization in order to increase millennials’ engagement with our brand through digital marketing and social media; (3) taking steps such as investing in key stores and developing stronger replenishment, visual, stockroom and cost-control standards in order to improve our overall field and store structure; (4) implementing a more effective yearly retail calendar to better enable each store to fully capture local opportunities; (5) using feedback from our sales force to improve our collections and increase the number and effectiveness of our SKU’s; and (6) implementing a global pricing system with greater clarity and simplicity.

~~Building our Asia Business.~~ ~~We believe there continues to be significant potential in this region, particularly in mainland China, and~~ plan to continue to ~~allocate sufficient resources to fuel future growth.~~

~~Transforming our Company’s Culture.~~ ~~In order to generate global synergies, major decisions (including supply chain, technology, finance, stock~~prioritize capital allocation toward investments that support growth and ~~communications) are becoming more centralized~~infrastructure, while remaining highly disciplined in the ~~Company’s management team in Los Angeles. This centralized approach reinforces our~~way we allocate capital across projects, including new store development, store remodels, technology investments and others. When we prioritize investments, we will focus on ~~sales~~their strategic significance and ~~profitability and fosters an environment of accountability and execution measured through key performance metrics.~~

~~Improving our Cost Structure.~~ their return on invested capital expectations. We also plan to ~~continue improving our cost structure by identifying synergies among departments~~manage product buys and ~~strengthening our supply chain. We are executing on~~inventory ownership rigorously and optimize overall working capital management consistently.

During the ~~following supply chain initiatives~~first quarter of fiscal 2020, the Company announced that its Board of Directors reduced the future quarterly cash dividends that may be paid to ~~drive improvements in product costs: (i) developing a sourcing network in new territories that can offer better~~

~~costs; (ii) consolidating and building strategic partnerships with high-quality suppliers to gain scale efficiencies; and (iii) implementing a fabric platforming process for each~~holders of the ~~regional design offices~~Company’s common stock, when, as and if any such dividend is declared by the Company’s Board of Directors, from $0.225 per share to ~~develop~~$0.1125 per share to redeploy capital and ~~utilize common fabrics across multiple styles creating~~return incremental value to shareholders through share repurchases. In April 2019, the Company issued $300 million aggregate principal amount of 2.00% convertible senior notes due 2024 in a ~~consistently high quality global offer for our wholesale and retail customers. We are also working to shorten our lead times through partnering with our suppliers, exercising agility in~~private offering. During the ~~production process and continuously searching for new suppliers and sourcing opportunities in reaction to the latest trends.~~

~~We are also focused on improving the profitability~~first quarter of our retail business in the Americas. As almost two-thirds of our leases in Americas Retail are up for renewal or have lease exit options over the next three years, we continue to have the flexibility to further optimize our retail footprint, as appropriate, in the coming years. However, we are not restricting ourselves to waiting for these dates to close stores or renegotiate rents. For example, during fiscal 2018, we modified certain of our leases held with a common landlord that had original lease end dates from fiscal 2018 to fiscal 2026 to now end in fiscal 2018 through fiscal 2020, the Company used $170 million of proceeds from its convertible senior notes to enter into an accelerated share repurchase program (“ASR”). The Company also repurchased shares of its common stock in ~~order to accelerate~~open market and privately negotiated transactions totaling $110.6 million during the ~~reduction~~first half of ~~our retail store footprint in North America.~~

~~Stabilizing our Wholesale Business.~~ We are partnering with our wholesale customers to emphasize a retail-oriented mindset and encourage the adoption of best practices, including high quality visual merchandising, frequent rotation of products and maximization of inventory turns.

~~Capital Allocation~~fiscal 2020.

The Company’s investments in capital for the full fiscal year ~~2019~~2020 are planned between ~~$90~~$63 million and ~~$95~~$68 million. The planned investments in capital are related primarily to retail and e-commerce expansion in Europe and Asia, existing store remodeling programs as well as continued investments in technology to support our long-term growth plans.

Product Development and Distribution Optimization. The Company has a highly diversified customer base that offers opportunities for an expanded distribution of certain product categories, which may be matured in certain markets and underdeveloped in others. For example, denim has always been at the core of the GUESS? business. Today, our denim penetration is much lower than our historic levels and we plan to increase the penetration with a great product assortment, strong store presentation and effective marketing. We will explore other product opportunities as well.

Global Strategies. We plan to leverage and support our global business more effectively, including areas such as sourcing and product development, data capture and analysis regarding product performance and customer history and behavior, and information technology and innovation.

Cost and Structure Optimization. We believe there are several areas that present opportunities for cost savings in our Company and that we can structure our organization more effectively to improve accountability, collaboration and efficiency.

Customer Centricity. We plan to place the customer at the center of everything we do, including striving to perfect the omni-channel experience.

Comparable Sales

The Company reports National Retail Federation calendar comparable sales on a quarterly basis for our retail businesses which include the combined results from our brick-and-mortar retail stores and our e-commerce sites. We also separately report the impact of e-commerce sales on our comparable sales metric. As a result of our omni-channel strategy, our e-commerce business has become strongly intertwined with our brick-and-mortar retail store business. Therefore, we believe that the inclusion of e-commerce sales in our comparable sales metric provides a more meaningful representation of our retail results.

Sales from our brick-and-mortar retail stores include purchases that are initiated, paid for and fulfilled at our retail stores and directly operated concessions as well as merchandise that is reserved online but paid for and picked-up at our retail stores. Sales from our e-commerce sites include purchases that are initiated and paid for online and shipped from either our distribution centers or our retail stores as well as purchases that are initiated in a retail store, but due to inventory availability at the retail store, are ordered and paid for online and shipped from our distribution centers or picked-up from a different retail store.

Store sales are considered comparable after the store has been open for 13 full months. If a store remodel results in a square footage change of more than 15%, or involves a relocation or a change in store concept, the store sales are removed from the comparable store base until the store has been opened at its new size, in its new location or under its new concept for 13 full months. E-commerce sales are considered comparable after the online site has been operational in a country for 13 full months and exclude any related revenue from shipping fees.

Definitions and calculations of comparable sales used by the Company may differ from ~~similarly titled~~similarly-titled measures reported by other companies.

Other

The Company operates on a 52/53-week fiscal year calendar, which ends on the Saturday nearest to January 31 of each year. The six months ended August ~~4, 2018~~3, 2019 had the same number of days as the six months ended ~~July 29, 2017.~~August 4, 2018.

Executive Summary

Overview

Net earnings attributable to Guess?, Inc. ~~increased 67.8%~~decreased 0.8% to $25.3 million, or diluted earnings of $0.35 per common share, for the quarter ended August 3, 2019, compared to $25.5 million, or diluted earnings of $0.31 per common share, for the quarter ended August 4, ~~2018, compared~~2018.

During the quarter ended August 3, 2019, the Company recognized asset impairment charges of $1.5 million, certain professional services and legal fees and related costs of $0.4 million and amortization of debt discount related to ~~$15.2~~the Company’s convertible senior notes of $2.4 million (or a combined $2.1 million negative impact after considering the related tax benefit of these adjustments and adjustments to uncertain tax positions excluded from results in prior years totaling $2.3 million), or an unfavorable$0.03 per share impact. Excluding the impact of these items, adjusted net earnings attributable to Guess?, Inc. were $27.4 million and adjusted diluted earnings ~~of $0.18~~were $0.38 per common share for the quarter ended ~~July 29, 2017.~~

August 3, 2019. During the quarter ended August 4, 2018, the Company recognized asset impairment charges of $3.0 million and certain professional services and legal fees and related costs of $2.0 million (or a combined $3.9 million negative impact after considering the related tax benefit of these adjustments of $1.1 million), or an unfavorable $0.05 per share impact. Excluding the impact of these items, adjusted net earnings attributable to Guess?, Inc. were $29.5 million and adjusted diluted earnings were $0.36 per common share for the quarter ended August 4, 2018. During the quarter ended July 29, 2017, the Company recognized asset impairment charges of $1.2 million (or $0.8 million after considering the related tax benefit of $0.4 million), or an unfavorable $0.01 per share impact. Excluding the impact of the asset impairment charges and the related tax impact, adjusted net earnings attributable to Guess?, Inc. were $16.1 million and adjusted diluted earnings were $0.19 per common share for the quarter ended July 29, 2017. References to financial results excluding the impact of these items are non-GAAP measures and are addressed below under “Non-GAAP Measures.”

Highlights of the Company’s performance for the quarter ended August ~~4, 2018~~3, 2019 compared to the same prior-year period are presented below, followed by a more comprehensive discussion under “Results of Operations”:

Operations

Total net revenue increased ~~13.7%~~5.8% to ~~$645.9~~$683.2 million for the quarter ended August ~~4, 2018,~~3, 2019, compared to ~~$568.3~~$645.9 million in the same prior-year ~~period.~~quarter. In constant currency, net revenue increased by ~~12.2%~~8.8%.

Gross margin (gross profit as a percentage of total net revenue) increased ~~230~~180 basis points to ~~37.1%~~38.9% for the quarter ended August ~~4, 2018,~~3, 2019, compared to ~~34.8%~~37.1% in the same prior-year period.

Selling, general and administrative (“SG&A”) expenses as a percentage of total net revenue (“SG&A rate”) increased ~~130~~30 basis points to ~~31.7%~~32.0% for the quarter ended August ~~4, 2018,~~3, 2019, compared to ~~30.4%~~31.7% in the same prior-year period. SG&A expenses increased ~~18.2%~~6.7% to ~~$204.6~~$218.2 million for the quarter ended August ~~4, 2018,~~3, 2019, compared to ~~$173.0~~$204.6 million in the same prior-year period.

During the quarter ended August ~~4, 2018,~~3, 2019, the Company recognized asset impairment charges of ~~$3.0~~$1.5 million, compared to ~~$1.2~~$3.0 million in the same prior-year period.

Operating margin ~~improved 70~~increased 180 basis points to ~~4.9%~~6.7% for the quarter ended August ~~4, 2018,~~3, 2019, compared to ~~4.2%~~4.9% in the same prior-year period. ~~Higher~~Lower asset impairment charges ~~negatively~~favorably impacted operating margin by 30 basis points during the quarter ended August ~~4, 2018~~3, 2019 compared to the same prior-year period. ~~Certain~~Lower expenses related to certain professional service and legal fees and related costs ~~also negatively~~favorably impacted operating margin by 3020 basis ~~points.~~points during the quarter ended August 3, 2019 compared to the same prior-year period. Earnings from operations increased ~~34.0%~~44.2% to ~~$31.9~~$46.0 million for the quarter ended August ~~4, 2018,~~3, 2019, compared to ~~$23.8~~$31.9 million in the same prior-year period.

Other ~~income,~~expense, net (including interest income and expense), totaled ~~$1.6~~$11.0 million for the quarter ended August ~~4, 2018,~~3, 2019, compared to other ~~expense,~~income, net, of ~~$1.5~~$1.6 million in the same prior-year period.

The effective income tax rate ~~improved~~increased by ~~570~~200 basis points to ~~23.2%~~25.2% for the quarter ended August ~~4, 2018,~~3, 2019, compared to ~~28.9%~~23.2% in the same prior-year period.

Key Balance Sheet Accounts

The Company had $131.1 million in cash and cash equivalents and $0.5 million in restricted cash as of August 3, 2019, compared to $219.1 million in cash and cash equivalents and $0.4 million in restricted cash asat August 4, 2018.


◦	During fiscal 2019, the Company recognized charges of €39.8 million ($45.6 million) for a fine imposed by the European Commission related to alleged violations of European Union competition rules by the Company. The Company paid the full amount of the fine during the three months ended May 4, 2019.

◦

In April 2019, the Company issued $300 million aggregate principal amount of 2.00% convertible senior notes due 2024 in a private offering, for which it received total cash proceeds of $296.2 million, net of the initial purchasers’ discounts and commissions and offering costs of $3.8 million. In connection with the issuance of these notes, the Company (i) entered into convertible note hedge transactions for which it paid an aggregate $61.0 million and (ii) sold warrants for which it received aggregate proceeds of $28.1 million. These transactions are intended to reduce the potential dilution with respect to the Company’s common stock upon conversion of the notes and/or offset any cash payments the Company may be required to make in excess of the principal amount of the converted notes.

◦

During the three months ended May 4, 2019, the Company used $170 million of proceeds from its convertible senior notes to enter into an ASR, pursuant to which it received up front approximately 5.2 million shares (representing approximately $102 million (or 60%) of the $170 million notional amount of the ASR), with the remaining portion settled in September 2019. During the six months ended August 3, 2019, the Company also repurchased

approximately 5.8 million shares of its common stock in open market and privately negotiated transactions totaling $110.6 million, of which approximately 0.7 million shares were repurchased at an aggregate cost of $11.0 million during the three months ended August 3, 2019 and approximately 5.1 million shares were repurchased at an aggregate cost of $99.6 million during the three months ended May 4, 2019. Combined, these transactions resulted in the repurchase of approximately 11.0 million shares for $212.6 million during the six months ended August 3, 2019, with the remaining portion of the ASR determined based on the daily volume-weighted average price of the Company’s shares during the term of the ASR, less the applicable contractual discount. During the six months ended August 4, 2018, ~~compared~~the Company invested $17.6 million to ~~$316.5~~repurchase approximately 1.1 million ~~in cash and cash equivalents and $1.3~~of its common shares. The Company also paid an additional $6.0 million ~~in restricted cash at July 29, 2017.~~for shares that were repurchased during the fourth quarter of fiscal 2018 but were settled during the first quarter of fiscal 2019.

◦

The Company, ~~invested $17.6~~through its European subsidiaries, maintains short-term committed and uncommitted borrowing agreements, primarily for working capital purposes, with various banks in Europe. The Company had $27.8 million ~~to repurchase 1,118,808~~in outstanding borrowings as of ~~its common shares during the six months ended~~August 3, 2019 and no outstanding borrowings as of August 4, 2018. During the six months ended August 4, 2018, the Company also paid an additional $6.0 million for shares that were repurchased during the fourth quarter of fiscal 2018 but were settled during the first quarter of fiscal 2019.


◦	During the third quarter of fiscal 2018, the Company made up-front payments of approximately $22 million related to the modification of certain lease agreements held with a common landlord in North America.

Accounts receivable ~~which~~ consists of trade receivables relating primarily to the Company’s wholesale business in Europe and, to a lesser extent, to its wholesale businesses in the Americas and Asia, royalty receivables relating to its licensing operations, credit card and retail concession receivables related to its retail businesses and certain other ~~receivables,~~receivables. Accounts receivable increased by ~~$49.8~~$9.6 million, or ~~21.3%~~3.4%, to ~~$283.4~~$293.0 million as of August ~~4, 2018,~~3, 2019, compared to ~~$233.6~~$283.4 million at ~~July 29, 2017.~~August 4, 2018. On a constant currency basis, accounts receivable increased by ~~$55.4~~$20.1 million, or ~~23.7%~~7.1%, when compared to ~~July 29, 2017.~~August 4, 2018.

During the first quarter of fiscal 2020, the Company adopted a comprehensive new lease standard which superseded previous lease guidance. The standard requires a lessee to recognize an asset related to the right to use the underlying asset and a liability that approximates the present value of the lease payments over the term of contracts that qualify as leases under the new guidance. As of August 3, 2019, the operating lease right-of-use assets totaled $900.1 million and the operating lease liabilities totaled $961.7 million. Refer to “Part I, Item 1. Financial Statements – Note 2– Lease Accounting” for further information.

Global Store Count

In the second quarter of fiscal ~~2019,~~2020, together with our partners, we opened 4133 new stores worldwide, consisting of 1916 stores in Europe and the Middle East, 17ten stores in Asia and the Pacific, four stores in Central and South America and ~~one store~~three stores in ~~Canada.~~the U.S. Together with our partners, we closed 2333 stores worldwide, consisting of 1417 stores in Asia and the Pacific, ~~four~~eight stores in Canada, five stores in the U.S., and three stores ~~in Central and South America, one store in Canada and one store~~ in Europe and the Middle East.

We ended the second quarter of fiscal ~~2019~~2020 with ~~1,662~~1,724 stores and ~~429~~402 concessions worldwide, comprised as follows:


	Stores			Concessions			Stores			Concessions
Region	Total	Directly Operated	Partner Operated	Total	Directly Operated	Partner Operated	Total	Directly Operated	Partner Operated	Total	Directly Operated	Partner Operated
United States	295	293	2	1	—	1	287	285	2	1	—	1
Canada	86	86	—	—	—	—	80	80	—	—	—	—
Central and South America	104	61	43	27	27	—	111	71	40	27	27	—
Total Americas	485	440	45	28	27	1	478	436	42	28	27	1
Europe and the Middle East	674	440	234	36	36	—	726	510	216	37	37	—
Asia and the Pacific	503	181	322	365	174	191	520	216	304	337	162	175
Total	1,662	1,061	601	429	237	192	1,724	1,162	562	402	226	176

Of the total ~~1,662~~1,724 stores, ~~1,328~~1,411 were GUESS? stores, ~~216~~199 were GUESS? Accessories stores, 6869 were G by GUESS (GbG) stores and 5045 were MARCIANO stores.

Results of Operations

Three Months Ended August 3, 2019 and August 4, 2018 ~~and~~ ~~July 29, 2017~~

Consolidated Results

Net Revenue. Net revenue in~~creased~~increased by ~~$77.6~~$37.3 million,, or ~~13.7%~~5.8%, to $~~645.9 million~~ ~~for the quarter ended~~ ~~August 4, 2018, compared to $568.3~~$683.2 million for the quarter ended ~~July 29, 2017~~August 3, 2019, compared to $645.9 million for the quarter ended August 4, 2018. In constant currency, net revenue increased by ~~12.2%~~8.8% as currency translation fluctuations relating to our foreign operations ~~favorably~~unfavorably impacted net revenue by ~~$8.4~~$19.7 million compared to the same prior-year period. The in~~crease~~increase was driven primarily by higher wholesale shipments in Europe and the U.S. and, to a lesser extent, retail expansion in our international ~~markets and, to a lesser extent, higher European wholesale shipments.~~markets.

Gross Margin. Gross margin increased ~~230~~180 basis points to ~~37.1%~~38.9% for the quarter ended August ~~4, 2018,~~3, 2019, compared to ~~34.8%~~37.1% in the same prior-year period, of which ~~190~~100 basis points was due to a lower occupancy rate and 80 basis points was due to higher overall product ~~margins and 40 basis points was due to a~~margins. The lower occupancy ~~rate.~~rate was driven primarily by lower distribution costs mainly in Europe. The higher overall product margins were driven primarily by ~~lower markdowns~~higher initial markups in Europe and Americas Retail, partially offset by higher ~~retail promotions in Europe. The lower occupancy rate was driven~~markdowns primarily ~~by overall leveraging of expenses due mainly to higher European wholesale shipments and, to a lesser extent, cost reductions driven primarily by negotiated rent reductions~~ in Americas ~~Retail, partially offset by higher distribution costs resulting from the relocation of the Company’s European distribution center.~~Retail.

Gross Profit.Gross profit increased by ~~$41.4~~$26.2 million, or ~~20.9%~~11.0%, to ~~$239.4~~$265.7 million for the quarter ended August ~~4, 2018~~,3, 2019, compared to ~~$198.0~~$239.4 million in the same prior-year period. The increase in gross profit, which included the unfavorable impact of currency translation, was due primarily to the favorable impact on gross profit from higher ~~revenue.~~revenue and, to a lesser extent, higher gross margins. Currency translation fluctuations relating to our foreign operations unfavorably impacted gross profit by ~~$6.4~~$7.7 million.

The Company includes inbound freight charges, purchasing costs and related overhead, retail store occupancy costs, including rent and depreciation, and a portion of the Company’s distribution costs related to its retail business in cost of product sales. The Company also includes net royalties received on the Company’s inventory purchases of licensed product as a reduction to cost of product sales. The Company’s gross margin may not be comparable to that of other entities since some entities include all of the costs related to their distribution in cost of product sales and others, like the Company, generally exclude wholesale-related distribution costs from gross margin, including them instead in SG&A expenses. Additionally, some entities include retail store occupancy costs in SG&A expenses and others, like the Company, include retail store occupancy costs in cost of product sales.

SG&A Rate. The Company’s SG&A rate increased ~~130~~30 basis points to ~~31.7%~~32.0% for the quarter ended August ~~4, 2018,~~3, 2019, compared to ~~30.4%~~31.7% in the same prior-year period. The Company’s SG&A rate included the ~~negative~~favorable impact of 3020 basis points from lower expenses related to certain professional service and legal fees and related costs which the Company otherwise would not have incurred as part of its business operations. Excluding these ~~amounts,~~expenses, the Company’s SG&A rate would have increased ~~100~~50 basis points driven primarily by higher ~~distribution costs resulting from the relocation~~corporate expenses

due primarily to higher advertising expenses and, to a lesser extent, higher store selling expenses in Americas Retail, partially offset by leveraging of ~~the Company’s European distribution center.~~expenses, mainly in Europe.

SG&A Expenses. SG&A expenses increased by ~~$31.6~~$13.6 million, or ~~18.2%~~6.7%, to ~~$204.6~~$218.2 million for the quarter ended August ~~4, 2018,~~3, 2019, compared to ~~$173.0~~$204.6 million in the same prior-year period. The increase, which included the favorable impact of currency translation, was driven primarily by higher ~~distribution costs resulting from the relocation of the Company’s European distribution center~~store selling expenses and, to a lesser extent, higher ~~selling and merchandising expenses and higher store selling~~advertising expenses. Currency translation fluctuations relating to our foreign operations favorably impacted SG&A expenses by $5.7 million.

Asset Impairment Charges. During the quarter ended August ~~4, 2018,~~3, 2019, the Company recognized asset impairment charges of ~~$3.0~~$1.5 million, compared to ~~$1.2~~$3.0 million in the same prior-year period. The ~~higher~~decrease in asset impairment charges ~~during the quarter ended August 4, 2018 related~~were due primarily to ~~the~~lower impairment of certain retail locations in Europe ~~and North America resulting from under-performance and expected store closures.~~during the quarter ended August 3, 2019 compared to the same prior-year period.

Operating Margin. Operating margin increased 70180 basis points to ~~4.9%~~6.7% for the quarter ended August ~~4, 2018,~~3, 2019, compared to ~~4.2%~~4.9% in the same prior-year period. ~~Higher~~Lower asset impairment charges ~~negatively~~favorably impacted operating margin by 30 basis points during the quarter ended August ~~4, 2018~~3, 2019 compared to the same prior-year period. ~~Certain~~Lower expenses related to certain professional service and legal fees and related costs ~~negatively~~favorably impacted operating margin by 3020 basis ~~points.~~points during the quarter ended August 3, 2019 compared to the same prior-year period. Excluding the impact of these items, operating margin increased by 130 basis points compared to the same prior-year period. The ~~positive~~negative impact of currency on operating margin for the quarter ~~ended August 4, 2018~~ was approximately 10 basis points.

Earnings from Operations. Earnings from operations increased by ~~$8.1~~$14.1 million, or ~~34.0%~~44.2%, to $~~31.9~~$46.0 million for the quarter ended August ~~4, 2018~~3, 2019, compared to ~~$23.8~~$31.9 million in the same prior-year period. Currency translation fluctuations relating to our foreign operations unfavorably impacted earnings from operations by ~~$0.8~~$2.0 million.

Interest Income (Expense), Net. Interest expense, net, was $4.6 million for the quarter ended August 3, 2019, compared to interest income, net ~~was~~of $0.3 million for the quarter ended August 4, ~~2018, compared~~2018. The change was due primarily to ~~$0.7~~$2.4 million ~~for~~in amortization of debt discount and higher interest expense related to the Company’s convertible senior notes during the quarter ended ~~July 29, 2017~~August 3, 2019 and, ~~includes~~to a lesser extent, gains related to the impact of hedge ineffectiveness of foreign exchange currency contracts designated as cash flow ~~hedges.~~hedges recognized during the quarter ended August 4, 2018. As a result of the adoption of new guidance during the first quarter of fiscal 2020, there was no interest component recognized related to hedge ineffectiveness during the quarter ended August 3, 2019.

Other Income (Expense), Net. Other ~~income,~~expense, net, was ~~$1.4~~$6.4 million for the quarter ended August ~~4, 2018,~~3, 2019, a deterioration of $7.7 million, compared to other ~~expense,~~income, net, of ~~$2.2~~$1.4 million in the same prior-year period. ~~Other income,~~The change was driven primarily by our proportionate share of net losses related to our minority investment in a privately-held apparel company as well as unrealized losses on non-operating assets compared to unrealized gains in the ~~quarter ended August 4, 2018 consisted primarily of~~same prior-year period, and lower net unrealized and realized mark-to-market ~~revaluation~~ gains on revaluation of foreign exchange currency contracts ~~and, to a lesser extent, unrealized gains on non-operating assets, partially offset by net unrealized mark-to-market revaluation losses on foreign currency balances. Other expense, net in~~ during the quarter ended July 29, 2017 consisted primarily of net unrealized and realized mark-to-market revaluation losses on foreign exchange currency contracts, partially offset by net unrealized mark-to-market revaluation gains on foreign currency balances and,August 3, 2019 compared to ~~a lesser extent, unrealized gains on non-operating assets.~~the same prior-year period.

Income Tax Expense. Income tax expense for the quarter ended August ~~4, 2018~~3, 2019 was $8.8 million, or a 25.2% effective tax rate, compared to income tax expense of $7.8 million, or a 23.2% ~~effective tax rate, compared to $6.5 million, or a 28.9%~~ effective tax rate, in the same prior-year period. Generally, income taxes for the interim periods are computed using the tax rate estimated to be applicable for the full fiscal year, adjusted for discrete items, which is subject to ongoing review and evaluation by management. The ~~improvement~~increase in the effective ~~income~~ tax rate ~~during~~for the quarter ended August ~~4, 2018~~3, 2019 was due primarily to the impact of discrete non-deductible expenses as compared to the same prior-year period ~~was due primarily to lower losses~~and a shift in the distribution of earnings among the Company’s tax jurisdictions ~~which~~within the ~~Company has valuation allowances and, to a lesser extent, the reversal of a valuation allowance on certain deferred taxes and the favorable impact from the enactment~~quarters of the ~~Tax Reform.~~current fiscal year.

Net Earnings Attributable to Noncontrolling Interests. Netearnings attributable to noncontrolling interests were $0.9 million, net of taxes, for the quarter ended August 3, 2019, compared to $0.2 million, net of taxes, for the quarter ended August 4, ~~2018, compared to $0.7 million, net of taxes, for the quarter ended July 29, 2017.~~2018.

Net Earnings Attributable to Guess?, Inc. Net earningsattributable to Guess?, Inc. ~~increased~~decreased by ~~$10.3~~$0.2 million, or ~~67.8%~~0.8%, to ~~$25.5~~$25.3 million for the quarter ended August ~~4, 2018, compared to $15.2~~3, 2019, from $25.5 million in the same prior-year period. Diluted earnings per share increased to ~~$0.31~~$0.35 for the quarter ended August ~~4, 2018,~~3, 2019, compared to ~~$0.18~~$0.31 in the same prior-year period. We estimate that the favorable impact from share repurchases offset by the unfavorable impact from additional interest expense recognized related to the convertible senior notes had a net positive impact of $0.01 on diluted earnings per share for the quarter ended ~~July 29, 2017.~~August 3, 2019. We also estimate that the negative impact of currency on diluted earnings per share for the quarter ended August 3, 2019 was approximately $0.05 per share. During the quarter ended August 3, 2019, the Company recognized asset impairment charges of $1.5 million, certain professional services and legal fees and related costs of $0.4 million and amortization of debt discount related to the Company’s convertible senior notes of $2.4 million (or a combined $2.1 million negative impact after considering the related tax benefit and adjustments to uncertain tax positions excluded from results in prior years totaling $2.3 million), or an unfavorable $0.03 per share impact. Excluding the impact of these items, adjusted net earnings attributable to Guess?, Inc. were $27.4 million and adjusted diluted earnings were $0.38 per common share for the quarter ended August 3, 2019. We estimate that the favorable impact from share repurchases offset by the unfavorable impact from additional interest expense recognized related to the convertible senior notes had a net positive impact of $0.03 on adjusted diluted earnings per share for the quarter ended August 3, 2019. During the quarter ended August 4, 2018, the Company recognized asset impairment charges of $3.0 million and certain professional services and legal fees and related costs of $2.0 million (or a combined $3.9 million negative impact after considering the related tax benefit of these adjustments of $1.1 million), or an unfavorable $0.05 per share impact. Excluding the impact of these items, adjusted net earnings attributable to Guess?, Inc. were $29.5 million and adjusted diluted earnings were $0.36 per common share for the quarter ended August 4, 2018. We estimate that the positive impact of currency on diluted earnings per share for the quarter ended August 4, 2018 was approximately $0.05 per share. During the quarter ended July 29, 2017, the Company recognized asset impairment charges of $1.2 million (or $0.8 million after considering the related tax benefit of $0.4 million), or an unfavorable $0.01 per share impact. Excluding the impact of the asset impairment charges and the related tax impact, adjusted net earnings attributable to Guess?, Inc. were $16.1 million and adjusted diluted earnings were $0.19 per common share for the quarter ended July 29, 2017. References to financial results excluding the impact of these items are non-GAAP measures and are addressed below under “Non-GAAP Measures.”

Information by Business Segment

The following table presents our net revenue and earnings (loss) from operations by segment for the three months ended August 3, 2019 and August 4, 2018 ~~and~~ ~~July 29, 2017~~ (dollars in thousands):

Three Months Ended
Aug 4, 2018 Jul 29, 2017 Change % Change
Net revenue:
Americas Retail $ 197,125
$ 201,188
$ (4,063 ) (2.0 %)
Americas Wholesale 34,253
32,658
1,595
4.9
Europe 311,998
255,215
56,783
22.2
Asia 82,786
62,733
20,053
32.0
Licensing (1) (2) 19,709
16,498
3,211
19.5
Total net revenue (1) (2) $ 645,871
$ 568,292
$ 77,579
13.7 %
Earnings (loss) from operations:
Americas Retail (2) (3) (4) $ 5,582
$ (3,555 ) $ 9,137
257.0 %
Americas Wholesale (2) (3) (4) 5,325
5,238
87
1.7
Europe (3) (4) (5) 30,531
30,058
473
1.6
Asia (3) (4) 1,634
2,441
(807 ) (33.1 )
Licensing (2) (3) (4) 17,437
14,389
3,048
21.2
Total segment earnings from operations (2) (3) (5) 60,509
48,571
11,938
24.6
Corporate overhead (2) (3) (5) (25,647 ) (23,551 ) (2,096 ) 8.9
Asset impairment charges (3) (2,981 ) (1,233 ) (1,748 )
Total earnings from operations (2) (5) $ 31,881
$ 23,787
$ 8,094
34.0 %

Operating margins:
Americas Retail (2) (3) (4) 2.8 % (1.8 %)
Americas Wholesale (2) (3) (4) 15.5 % 16.0 %
Europe (3) (4) (5) 9.8 % 11.8 %
Asia (3) (4) 2.0 % 3.9 %
Licensing (1) (2) (3) (4) 88.5 % 87.2 %
Total Company (1) (2) (5) 4.9 % 4.2 %



	Three Months Ended
	Aug 3, 2019			Aug 4, 2018			$ Change			% Change
Net revenue:
Americas Retail	$	198,966		$	197,125		$	1,841		0.9	%
Americas Wholesale	41,902			34,253			7,649			22.3	%
Europe	340,509			311,998			28,511			9.1	%
Asia	83,301			82,786			515			0.6	%
Licensing	18,542			19,709			(1,167		)	(5.9	%)
Total net revenue	$	683,220		$	645,871		$	37,349		5.8	%
Earnings (loss) from operations:
Americas Retail	$	5,957		$	5,582		$	375		6.7	%
Americas Wholesale	8,422			5,325			3,097			58.2	%
Europe	51,594			30,531			21,063			69.0	%
Asia	(4,800		)	1,634			(6,434		)	(393.8	%)
Licensing	15,547			17,437			(1,890		)	(10.8	%)
Total segment earnings from operations	76,720			60,509			16,211			26.8	%
Corporate overhead	(29,229		)	(25,647		)	(3,582		)	14.0	%
Asset impairment charges	(1,504		)	(2,981		)	1,477			(49.5	%)
Total earnings from operations	$	45,987		$	31,881		$	14,106		44.2	%

Operating margins:
Americas Retail	3.0		%	2.8		%
Americas Wholesale	20.1		%	15.5		%
Europe	15.2		%	9.8		%
Asia	(5.8		%)	2.0		%
Licensing	83.8		%	88.5		%
Total Company	6.7		%	4.9		%

~~(1)~~

During the fourth quarter of fiscal 2018, the Company reclassified net royalties received on the Company’s inventory purchases of licensed product from net revenue to cost of product sales to reflect its treatment as a reduction of the cost of such licensed product. Accordingly, net revenue for the ~~three months ended July 29, 2017 has been adjusted to conform to the current period presentation. This reclassification had no impact on previously reported earnings from operations.~~

~~(2)~~

During the first quarter of fiscal 2019, the Company adopted a comprehensive new revenue recognition standard using a modified retrospective method that does not restate prior periods to be comparable to the current period presentation. The adoption of this guidance primarily impacted the presentation of advertising contributions received from the Company’s licensees and the related advertising expenditures incurred by the Company. The adoption of this guidance resulted in an increase in net royalty revenue within the Company’s Licensing segment of $2.1 million, as well as an increase in SG&A expenses in our Americas Retail, Americas Wholesale and Licensing segments as well as corporate overhead of $0.5 million, $0.2 million, $0.2 million and $0.5 million, respectively, during the three months ended August 4, 2018 compared to the same prior-year period. The net favorable impact on earnings from operations was approximately $0.6 million during the three months ended August 4, 2018 compared to the same prior-year period. Refer to Note 1 to the Condensed Consolidated Financial Statements for more information regarding the impact from the adoption of this new standard.

~~(3)~~

During the third quarter of fiscal 2018, segment results were adjusted to exclude corporate performance-based compensation costs, net gains (losses) on lease terminations and asset impairment charges due to the fact that these items are no longer included in the segment results provided to the Company’s chief operating decision maker in order to allocate resources and assess performance~~. Accordingly, segment results have been adjusted for the three months ended July 29, 2017 to conform to the current period presentation.~~

~~(4)~~

During the first quarter of fiscal 2019, the Company changed the segment accountability for funds received from licensees on the Company’s purchases of its licensed products. These amounts were treated as a reduction of cost of product sales within the Licensing segment but now are considered in the results of the segments that control the respective purchases for purposes of segment performance evaluation. Accordingly, segment results for the ~~three months ended July 29, 2017~~ ~~have been adjusted to conform to the current period presentation~~.

~~(5)~~

During the first quarter of fiscal 2019, the Company adopted new authoritative guidance which requires that the non-service components of net periodic defined benefit pension cost be presented outside of earnings (loss) from operations. Accordingly, earnings from operations and segment results for the three months ended July 29, 2017 ~~have been adjusted to conform to the current period presentation~~.

Americas Retail

Net revenue from our Americas Retail segment ~~decreased~~increased by ~~$4.1~~$1.8 million, or ~~2.0%~~0.9%, to ~~$197.1~~$199.0 million for the quarter ended August ~~4, 2018, from $201.2~~3, 2019, compared to $197.1 million in the same prior-year period. In constant currency, net revenue ~~decreased~~increased by ~~2.0%~~1.2%, driven primarily by ~~store closures,~~positive comparable sales, partially offset by ~~positive comparable sales. The~~ store base for the U.S. and Canada decreased by an average of 50 net stores during the quarter ended August 4, 2018 compared to the same prior-year period, resulting in a 9.5% net decrease in average square footage.closures. Comparable sales (including e-commerce) increased 3%2% in U.S. dollars and constant currency. The inclusion of our e-commerce sales had a minimal impact on the comparable sales percentage in U.S. dollars and constant currency. The store base for the U.S. and Canada decreased by an average of 10 net stores during the quarter ended August 3, 2019 compared to the same prior-year period, resulting in a 2.8% net decrease in overall square footage. Currency translation fluctuations relating to our non-U.S. retail stores and e-commerce sites had a ~~minimal~~negative impact of $0.6 million on net revenue during the quarter ended August ~~4, 2018.~~3, 2019.

Operating margin ~~improved 460~~increased 20 basis points to ~~2.8%~~3.0% for the quarter ended August ~~4, 2018,~~3, 2019, compared to ~~negative 1.8%~~2.8% in the same prior-year period, due to higher gross margins, partially offset by a higher SG&A rate. The higher gross margins were driven primarily by ~~lower markdowns and, to a lesser extent, cost reductions due primarily to negotiated rent reductions.~~higher initial markups, partially offset by higher markdowns. The higher SG&A rate was driven primarily by higher store selling ~~expenses.~~expenses due primarily to wage pressures, partially offset by the favorable impact from positive comparable sales.

Earnings from operations from our Americas Retail segment ~~were $5.6~~increased by $0.4 million, or 6.7%, to $6.0 million for the quarter ended August ~~4, 2018,~~3, 2019, compared to ~~loss from operations of $3.6~~$5.6 million in the same prior-year period. The ~~improvement~~increase reflects the favorable impact on earnings from ~~lower occupancy costs driven primarily by negotiated rent reductions and, to a lesser extent,~~ higher product ~~margins.~~margins, partially offset by higher store selling expenses.

Americas Wholesale

Net revenue from our Americas Wholesale segment increased by ~~$1.6~~$7.6 million, or ~~4.9%~~22.3%, to ~~$34.3~~$41.9 million for the quarter ended August ~~4, 2018,~~3, 2019, compared to ~~$32.7~~$34.3 million in the same prior-year period. In constant currency, net revenue increased by ~~6.8%~~22.4%, driven primarily by higher shipments in our ~~Mexican and~~ U.S. wholesale ~~businesses.~~business which was due partially to the favorable impact from timing of shipments. Currency translation fluctuations relating to our non-U.S. wholesale businesses ~~unfavorably~~ ~~impacted~~had a minimal impact on net revenue ~~by $0.6 million.~~during the quarter ended August 3, 2019.

Operating margin ~~decreased 50~~increased 460 basis points to ~~15.5%~~20.1% for the quarter ended August ~~4, 2018, from 16.0%~~3, 2019, compared to 15.5% in the same prior-year period, due primarily to ~~lower~~higher gross margins. The higher gross margins ~~driven~~were due primarily ~~by the liquidation of aged inventory.~~to higher initial markups and, to a lesser extent, lower markdowns.

Earnings from operations from our Americas Wholesale segment increased by ~~$0.1~~$3.1 million, or ~~1.7%~~58.2%, to ~~$5.3~~$8.4 million for the quarter ended August ~~4, 2018,~~3, 2019, compared to ~~$5.2~~$5.3 million in the same prior-year period. The increase reflects the favorable impact on earnings from higher revenue and, to a lesser extent, higher gross margins.

Europe

Net revenue from our Europe segment increased by ~~$56.8~~$28.5 million, or ~~22.2%~~9.1%, to ~~$312.0~~$340.5 million for the quarter ended August ~~4, 2018,~~3, 2019, compared to ~~$255.2~~$312.0 million in the same prior-year period. In constant currency, net revenue increased by ~~19.4%~~14.1%, driven primarily by ~~the favorable impact from~~ higher ~~shipments in our European~~ wholesale ~~business~~shipments and, to a lesser extent, retail expansion. As of August ~~4, 2018,~~3, 2019, we directly operated ~~440~~510 stores in Europe compared to ~~363~~440 stores at ~~July 29, 2017,~~August 4, 2018, excluding concessions, which represents a ~~21.2%~~15.9% increase over the same prior-year period. Comparable sales (including e-commerce) ~~increased 5%~~ decreased 3% in U.S. dollars and 2%increased 1% in constant currency compared to the same prior-year period. The inclusion of our e-commerce sales increased the comparable

sales percentage by 4%3% in U.S. dollars and ~~3% in~~ constant currency. Currency translation fluctuations relating to our ~~European~~European operations ~~favorably~~unfavorably impacted net revenue by ~~$7.3~~$15.3 million.

Operating margin ~~decreased 200~~increased 540 basis points to ~~9.8%~~15.2% for the quarter ended August ~~4, 2018, from 11.8%~~3, 2019, compared to 9.8% in the same prior-year period, driven primarily by higher gross margins and, to a lesser extent, a lower SG&A rate. The higher gross margins were due primarily to higher initial markups and, to a lesser extent, lower distribution costs. The lower SG&A rate was due primarily to overall leveraging of expenses driven by higher wholesale and e-commerce shipments.

Earnings from operations from our Europe segment increased by $21.1 million, or 69.0%, to $51.6 million for the quarter ended August 3, 2019, compared to $30.5 million in the same prior-year period, driven primarily by the favorable impact on earnings from higher revenue and, to a lesser extent, higher product margins. Currency translation fluctuations relating to our European operations unfavorably impacted earnings from operations by $2.3 million.

Asia

Net revenue from our Asia segment increased by $0.5 million, or 0.6%, to $83.3 million for the quarter ended August 3, 2019, compared to $82.8 million in the same prior-year period. In constant currency, net revenue increased by 5.2%, driven primarily by retail expansion, partially offset by negative comparable sales. As of August 3, 2019, we and our partners operated 520 stores and 337 concessions in Asia, compared to 503 stores and 365 concessions at August 4, 2018. As of August 3, 2019, we directly operated 216 stores and 162 concessions in Asia, compared to 181 directly operated stores and 174 concessions at August 4, 2018. Comparable sales (including e-commerce) decreased 13% in U.S. dollars and 8% in constant currency. The inclusion of our e-commerce sales increased the comparable sales percentage by 1% in U.S. dollars and constant currency. Currency translation fluctuations relating to our Asian operations unfavorably impacted net revenue by $3.8 million.

Operating margin deteriorated 780 basis points to negative 5.8% for the quarter ended August 3, 2019, from 2.0% in the same prior-year period, due to lower gross margins and, to a lesser extent, a higher SG&A rate. The lower gross margins were ~~due~~driven primarily ~~to higher distribution costs resulting from the relocation of the Company’s European distribution center and, to a lesser extent, higher retail promotions, partially offset~~ by higher ~~initial markups~~markdowns and, to a lesser extent, overall ~~leveraging~~deleveraging of occupancy costs resulting from higher wholesale shipments. The higher SG&A rate was driven primarily by higher distribution costs resulting from the relocation of the Company’s European distribution center, partially offset by overall leveraging of expenses resulting from higher wholesale shipments.

Earnings from operations from our Europe segment increased by $0.5 million, or 1.6%, to $30.5 million for the quarter ended August 4, 2018, compared to $30.1 million in the same prior-year period, driven primarily by the favorable impact on earnings from higher revenue, partially offset by higher distribution costs resulting from the relocation of the Company’s European distribution center. Currency translation fluctuations relating to our European operations unfavorably impacted earnings from operations by $0.9 million.

~~Asia~~

Net revenue from our Asia segment increased by $20.1 million, or 32.0%, to $82.8 million for the quarter ended August 4, 2018, compared to $62.7 million in the same prior-year period. In constant currency, net revenue increased by 29.0%, driven primarily by retail expansion and, to a lesser extent, positive comparable sales. As of August 4, 2018, we and our partners operated 503 stores and 365 concessions in Asia, compared to 480 stores and 374 concessions at July 29, 2017. As of August 4, 2018, we directly operated 181 stores and 174 concessions in Asia, compared to 109 directly operated stores and 188 concessions at July 29, 2017. Comparable sales (including e-commerce) increased 17% in U.S. dollars and 14% in constant currency. The inclusion of our e-commerce sales increased the comparable sales percentage by 5% in U.S. dollars and constant currency. Currency translation fluctuations relating to our Asian operations favorably impacted net revenue by $1.8 million.

~~Operating margin decreased 190 basis points to 2.0% for the quarter ended August 4, 2018, from 3.9% in the same prior-year period, due to a higher SG&A rate, partially offset by higher gross margins.~~costs. The higher SG&A rate was driven by ~~higher expenses due primarily to retail expansion in Australia. The higher gross margins were driven primarily by~~ overall ~~leveraging~~deleveraging of ~~occupancy costs and, to a lesser extent, the favorable impact of business mix on product margins.~~expenses.

~~Earnings~~

Loss from operations from our Asia segment ~~decreased by $0.8 million, or 33.1%, to $1.6~~was $4.8 million for the quarter ended August ~~4, 2018,~~3, 2019, compared to earnings from ~~$2.4~~operations of $1.6 million in the same prior-year ~~period,~~period. The deterioration was driven primarily by the unfavorable impact on earnings from ~~higher SG&A expenses and, to a lesser extent, higher occupancy costs due to retail expansion, partially offset by the favorable impact on earnings from revenue.~~lower gross margins.

Licensing

Net royalty revenue from our Licensing segment in~~creased~~decreased by ~~$3.2~~$1.2 million, or ~~19.5%~~5.9%, to ~~$19.7~~$18.5 million for the quarter ended August ~~4, 2018~~3, 2019, compared to ~~$16.5~~$19.7 million in the same prior-year period. This increase was driven primarily by the impact from the adoption of new accounting guidance for revenue recognition which increased net royalty revenue by $2.1 million, or 12.4%, during the quarter ended August 4, 2018 compared to the same prior-year period.

Earnings from operations from our Licensing segment in~~creased~~decreased by ~~$3.0~~$1.9 million, or ~~21.2%~~10.8%, to ~~$17.4~~$15.5 million for the quarter ended August ~~4, 2018~~3, 2019, compared to ~~$14.4~~$17.4 million in the same prior-year period. The in~~crease~~decrease was driven by the ~~favorable~~unfavorable impact to earnings from ~~higher~~lower revenue.

Corporate Overhead

Unallocated corporate overhead increased by ~~$2.1~~$3.6 million to ~~$25.6~~$29.2 million for the quarter ended August ~~4, 2018,~~3, 2019, compared to ~~$23.6~~$25.6 million in the same prior-year period, ~~driven~~due primarily to higher advertising expenses and, to a lesser extent, higher performance-based compensation, partially offset by ~~$2.0 million in~~lower expenses related to certain professional service and legal fees and related ~~costs, which the Company otherwise would not have incurred as part of its business operations.~~costs.

Six Months Ended August 3, 2019 and August 4, 2018 ~~and July 29, 2017~~

Consolidated Results

Net Revenue. Net revenue increased by ~~$144.5~~$52.8 million, or ~~14.1%~~4.5%, to $1.22 billion for the six months ended August 3, 2019, compared to $1.17 billion for the six months ended August 4, ~~2018, compared to $1.02 billion for the six months ended July 29, 2017.~~2018. In constant currency, net revenue increased by ~~10.2%~~8.6% as currency translation fluctuations relating to our foreign operations ~~favorably~~unfavorably impacted net revenue by ~~$40.3~~$47.1 million compared to the same prior-year period. The increase was driven primarily by retail expansion in our international markets and, to a lesser extent, higher ~~European~~ wholesale ~~shipments.~~shipments in Europe and the U.S and positive comparable sales in Americas Retail and Europe.

Gross Margin. Gross margin increased ~~190~~130 basis points to ~~35.4%~~36.7% for the six months ended August ~~4, 2018,~~3, 2019, compared to ~~33.5%~~35.4% in the same prior-year period, of which ~~160~~70 basis points was due to a lower occupancy rate and 60 basis points was due to higher overall product ~~margins and 30 basis points was due to a~~margins. The lower occupancy ~~rate.~~rate was impacted by various drivers, with the largest relating to lower distribution costs mainly in Europe. The higher overall product margins were driven primarily by ~~lower markdowns~~higher initial markups in Europe and Americas Retail, partially offset by higher retail promotions in Europe. The lower occupancy rate was driven primarily by overall global leveraging of expenses and, to a lesser extent, cost reductions due primarily to negotiated rent reductions in Americas Retail, partially offset by higher distribution costs resulting from the relocation of the Company’s European distribution center.Retail.

Gross Profit.Gross profit increased by ~~$70.7~~$34.2 million, or ~~20.6%~~8.3%, to ~~$413.4~~$447.6 million for the six months ended August ~~4, 2018,~~3, 2019, compared to ~~$342.7~~$413.4 million in the same prior-year period. The increase in gross profit, which included the unfavorable impact of currency translation, was due primarily to the favorable impact on gross profit from higher ~~revenue.~~ revenue and, to a lesser extent, higher gross margins.Currency translation fluctuations relating to our foreign operations unfavorably impacted gross profit by ~~$1.0~~$16.2 million.

SG&A Rate. The Company’s SG&A rate increased ~~130~~10 basis points to ~~34.5%~~34.6% for the six months ended August ~~4, 2018,~~3, 2019, compared to ~~33.2%~~34.5% in the same prior-year period. The Company’s SG&A rate included the ~~negative~~favorable impact of 50 basis points from lower expenses related to certain professional service and legal fees and related costs which the Company otherwise would not have incurred as part of its business operations. Excluding these ~~amounts,~~expenses, the Company’s SG&A rate would have increased 8060 basis points driven primarily by higher ~~distribution costs resulting from the relocation~~corporate expenses due primarily to higher advertising expenses and, to a lesser extent, higher store selling expenses in Americas Retail, partially offset by leveraging of ~~the Company’s European distribution center.~~expenses, mainly in Europe.

SG&A Expenses. SG&A expenses increased by ~~$62.9~~$20.0 million, or ~~18.5%~~5.0%, to ~~$402.8~~$422.8 million for the six months ended August ~~4, 2018,~~3, 2019, compared to ~~$339.9~~$402.8 million in the same prior-year period. The increase, which included the ~~unfavorable~~favorable impact of currency translation, was driven primarily by higher ~~distribution costs resulting from the relocation of the Company’s European distribution center~~store selling expenses and, to a lesser extent, higher ~~selling and merchandising expenses.~~ performance-based compensation.Currency translation fluctuations relating to our foreign operations ~~unfavorably~~favorably impacted SG&A expenses by $15.8 million.

Asset Impairment Charges. During the six months ended August 3, 2019, the Company recognized asset impairment charges of $3.3 million, compared to $3.7 ~~million.~~million in the same prior-year period.

Net Gains on Lease Terminations. There were no net gains on lease terminations recorded during the six months ended August 3, 2019. During the six months ended August 4, 2018, the Company ~~recognized~~recorded net gainson lease terminations of $0.2 million related primarily to the early termination of certain lease agreements in North America. ~~There were no net gains on lease terminations during the six months ended July 29, 2017.~~

~~Asset Impairment Charges.~~ ~~During the six months ended August 4, 2018, the Company recognized asset impairment charges of $3.7 million, compared to $4.0 million in the same prior-year period.~~

Operating Margin. Operating margin increased 70120 basis points to ~~0.6%~~1.8% for the six months ended August ~~4, 2018,~~3, 2019, compared to ~~negative 0.1%~~0.6% in the same prior-year period. ~~Certain~~Lower expenses related to certain professional service and legal fees and related costs ~~negatively~~favorably impacted operating margin by 50 basis ~~points. This was partially offset by the favorable impact on operating margin from lower asset impairment charges of 10 basis~~ points during the ~~six months~~quarter ended August ~~4, 2018~~3, 2019 compared to the same prior-year period. ~~Net gains on lease terminations had a minimal impact~~

~~on operating margin for the six months ended August 4, 2018.~~ Excluding the impact of these ~~items,~~expenses, operating margin would have improved by ~~110~~70 basis points compared to the same prior-year period. The ~~negative~~ impact of currency on operating margin for the first six months ~~ended August 4, 2018~~of fiscal 2020 was ~~approximately 20 basis points.~~minimal.

Earnings ~~(Loss)~~ from Operations. Earnings from operations ~~were $7.0~~increased by $14.5 million, or 207.7%, to $21.5 million for the six months ended August ~~4, 2018,~~3, 2019, compared to ~~loss from operations of $1.2~~$7.0 million in the same prior-year period. Currency translation fluctuations relating to our foreign operations unfavorably impacted earnings from operations by ~~$4.8~~$0.1 million.

Interest Income (Expense), Net. Interest expense, net, was $5.5 million for the six months ended August 3, 2019, compared to interest income, net ~~was~~of $0.5 million for the six months ended August 4, ~~2018, compared~~2018. The change was due primarily to ~~$1.2~~$2.7 million ~~for~~in amortization of debt discount and higher interest expense related to the ~~six months~~Company’s convertible senior notes during the quarter ended ~~July 29, 2017~~August 3, 2019 and, ~~includes~~to a lesser extent, gains related to the impact of hedge ineffectiveness of foreign exchange currency contracts designated as cash flow ~~hedges.~~hedges recognized during the six months ended August 4, 2018. As a result of the adoption of new guidance during the first quarter of fiscal 2020, there was no interest component recognized related to hedge ineffectiveness during the six months ended August 3, 2019.

Other Expense, Net. Other expense, net, was ~~$1.3~~$4.3 million for the six months ended August ~~4, 2018,~~3, 2019, a deterioration of $3.0 million, compared to ~~$0.3~~$1.3 million in the same prior-year period. ~~Other expense,~~The deterioration was due primarily to lower net unrealized and realized mark-to-market gains on revaluation of foreign exchange currency contracts and our proportionate share of net losses related to our minority investment in ~~the six months ended August 4, 2018 consisted primarily of~~a privately-held apparel company, partially offset by higher unrealized gains on non-operating assets and lower net unrealized mark-to-market ~~revaluation~~revaluations losses on foreign currency balances partially offset by net unrealized and realized mark-to-market revaluation gains on foreign exchange currency contracts. Other expense, net in the six months ended July 29, 2017 consisted primarily of net unrealized and realized mark-to-market revaluation losses on foreign exchange currency contracts, partially offset by net unrealized mark-to-market revaluation gains on foreign currency balances and, to a lesser extent, ~~unrealized gains on non-operating assets~~.

Income Tax Expense. Income tax expense for the six months ended August ~~4, 2018~~3, 2019 was $6.1 million, or a 52.2% effective tax rate, compared to $1.5 million, or a 24.0% ~~effective tax rate, compared to $5.1 million, or a negative 1,706.1%~~ effective tax rate, in the same prior-year period. Generally, income taxes for the interim periods are computed using the tax rate estimated to be applicable for the full fiscal year, adjusted for discrete items, which is subject to ongoing review and evaluation by management. The ~~improvement~~increase in the effective ~~income~~ tax rate ~~during the~~for six months ended August ~~4, 2018~~3, 2019 was due primarily to ~~lower losses~~the impact of discrete non-deductible expenses as compared to the same prior-year period and a shift in the distribution of earnings among the Company’s tax jurisdictions ~~which~~within the ~~Company has valuation allowances and, to a lesser extent, the reversal of a valuation allowance on certain deferred taxes and the favorable impact from the enactment~~quarters of the ~~Tax Reform.~~current fiscal year.

Net Earnings Attributable to Noncontrolling Interests. Net earnings attributable to noncontrolling interests were $1.6 million, net of taxes, for the six months ended August 3, 2019, compared to $0.4 million, net of taxes, for the six months ended August 4, ~~2018, compared to $0.7 million, net of taxes, for the six months ended July 29, 2017.~~2018.

Net Earnings ~~(Loss)~~ Attributable to Guess?, Inc. Net earnings attributable to Guess?, Inc. ~~were $4.3~~decreased $0.4 million, or 8.4%, to $3.9 million for the six months ended August ~~4, 2018, compared to net loss attributable to Guess?, Inc. of $6.1~~3, 2019, from $4.3 million in the same prior-year period. Diluted earnings per share ~~increased to~~was flat at $0.05 for the six months ended August 3, 2019, compared to the six months ended August 4, ~~2018,~~2018. We estimate that the unfavorable impact from additional interest expense recognized related to the convertible senior notes offset by the favorable impact from share repurchases had a net negative impact on diluted ~~loss~~earnings per share of ~~$0.08~~$0.04 for the six months ended ~~July 29, 2017.~~August 3, 2019. We also estimate that the negative

impact of currency on diluted earnings per share for the six months ended August 3, 2019 was approximately $0.05 per share. During the six months ended August 3, 2019, the Company recognized asset impairment charges of $3.3 million, certain professional services and legal fees and related costs of $0.7 million and amortization of debt discount related to the Company’s convertible senior notes of $2.7 million (or a combined $3.9 million after considering the related tax benefit and adjustments to uncertain tax positions excluded from results in prior years totaling $2.8 million), or an unfavorable impact of$0.05 per share. Excluding the impact of these items, adjusted net earnings attributable to Guess?, Inc. were $7.8 million and adjusted diluted earnings were $0.10 per common share during the six months ended August 3, 2019. We estimate that the unfavorable impact from additional interest expense recognized related to the convertible senior notes offset by the favorable impact from share repurchases had a net negative impact on adjusted diluted earnings per share of $0.01 for the six months ended August 3, 2019. During the six months ended August 4, 2018, the Company recognized ~~net gains on lease terminations of $0.2 million, asset impairment charges of $3.7 million and~~ certain professional services and legal fees and related costs of $5.8 million, asset impairment charges of $3.7 million and net gains on lease terminations of $0.2 million (or ~~a combined~~ $7.3 million after considering the related tax benefit of these adjustments of $2.1 million), or an unfavorable $0.09 per share impact. Excluding the impact of these items, adjusted net earnings attributable to Guess?, Inc. were $11.6 million and adjusted diluted earnings per share were $0.14 per common share during the six months ended August 4, 2018. We estimate that the positive impact of currency on diluted earnings per share for the six months ended August 4, 2018 was approximately $0.02 per share. During the six months ended July 29, 2017, the Company recognized asset impairment charges of $4.0 million (or $2.8 million after considering the related tax benefit of $1.2 million), or an unfavorable $0.04 per share impact. Excluding the impact of the asset impairment charges and the related tax impact, adjusted net loss attributable to Guess?, Inc. was $3.3 million and adjusted diluted loss was $0.04 per common share during the six months ended July 29, 2017. References to financial results excluding the impact of these items are non-GAAP measures and are addressed below under “Non-GAAP Measures.”

Information by Business Segment

The following table presents our net revenue and earnings (loss) from operations by segment for the six months ended August 3, 2019 and August 4, 2018 ~~and~~ ~~July 29, 2017~~ (dollars in thousands):

Six Months Ended
Aug 4, 2018 Jul 29, 2017 Change % Change
Net revenue:
Americas Retail $ 368,465
$ 374,882
$ (6,417 ) (1.7 %)
Americas Wholesale 74,932
68,515
6,417
9.4
Europe 517,433
420,603
96,830
23.0
Asia 166,837
126,114
40,723
32.3
Licensing (1) (2) 39,493
32,523
6,970
21.4
Total net revenue (1) (2) $ 1,167,160
$ 1,022,637
$ 144,523
14.1 %
Earnings (loss) from operations:
Americas Retail (2) (3) (4) $ (98 ) $ (25,136 ) $ 25,038
99.6 %
Americas Wholesale (2) (3) (4) 11,351
12,221
(870 ) (7.1 )
Europe (3) (4) (5) 10,198
29,052
(18,854 ) (64.9 )
Asia (3) (4) 5,699
2,780
2,919
105.0
Licensing (2) (3) (4) 34,923
27,850
7,073
25.4
Total segment earnings from operations (2) (3) (5) 62,073
46,767
15,306
32.7
Corporate overhead (2) (3) (5) (51,492 ) (43,960 ) (7,532 ) 17.1
Net gains on lease terminations (3) 152
—
152

Asset impairment charges (3) (3,740 ) (3,995 ) 255

Total earnings (loss) from operations (2) (5) $ 6,993
$ (1,188 ) $ 8,181
688.6 %
Operating margins:
Americas Retail (2) (3) (4) (0.0 %) (6.7 %)
Americas Wholesale (2) (3) (4) 15.1 % 17.8 %
Europe (3) (4) (5) 2.0 % 6.9 %
Asia (3) (4) 3.4 % 2.2 %
Licensing (1) (2) (3) (4) 88.4 % 85.6 %
Total Company (1) (2) (5) 0.6 % (0.1 %)



	Six Months Ended
	Aug 3, 2019			Aug 4, 2018			Change			% Change
Net revenue:
Americas Retail	$	375,389		$	368,465		$	6,924		1.9	%
Americas Wholesale	88,107			74,932			13,175			17.6	%
Europe	550,564			517,433			33,131			6.4	%
Asia	168,491			166,837			1,654			1.0	%
Licensing	37,360			39,493			(2,133		)	(5.4	%)
Total net revenue	$	1,219,911		$	1,167,160		$	52,751		4.5	%
Earnings (loss) from operations:
Americas Retail	$	4,145		$	(98	)	$	4,243		4,329.6	%
Americas Wholesale	16,236			11,351			4,885			43.0	%
Europe	35,267			10,198			25,069			245.8	%
Asia	(8,003		)	5,699			(13,702		)	(240.4	%)
Licensing	32,191			34,923			(2,732		)	(7.8	%)
Total segment earnings from operations	79,836			62,073			17,763			28.6	%
Corporate overhead	(55,041		)	(51,492		)	(3,549		)	6.9	%
Asset impairment charges	(3,279		)	(3,740		)	461			(12.3	%)
Net gains on lease terminations	—			152			(152		)	(100.0	%)
Total earnings from operations	$	21,516		$	6,993		$	14,523		207.7	%
Operating margins:
Americas Retail	1.1		%	(0.0		%)
Americas Wholesale	18.4		%	15.1		%
Europe	6.4		%	2.0		%
Asia	(4.7		%)	3.4		%
Licensing	86.2		%	88.4		%
Total Company	1.8		%	0.6		%

~~(1)~~

During the fourth quarter of fiscal 2018, the Company reclassified net royalties received on the Company’s inventory purchases of licensed product from net revenue to cost of product sales to reflect its treatment as a reduction of the cost of such licensed product. Accordingly, net revenue for the ~~six months ended July 29, 2017 has been adjusted to conform to the current period presentation. This reclassification had no impact on previously reported loss from operations.~~

~~(2)~~

During the first quarter of fiscal 2019, the Company adopted a comprehensive new revenue recognition standard using a modified retrospective method that does not restate prior periods to be comparable to the current period presentation. The adoption of this guidance primarily impacted the presentation of advertising contributions received from the Company’s licensees and the related advertising expenditures incurred by the Company. The adoption of this guidance resulted in an increase in net royalty revenue within the Company’s Licensing segment of $4.4 million, as well as an increase in SG&A expenses in our Americas Retail, Americas Wholesale and Licensing segments as well as corporate overhead of $2.3 million, $0.9 million, $0.4 million and $1.1 million, respectively, during the six months ended August 4, 2018 compared to the same prior-year period. The net unfavorable impact on earnings from operations was approximately $0.4 million during the six months ended August 4, 2018 compared to the same prior-year period. Refer to Note 1 to the Condensed Consolidated Financial Statements for more information regarding the impact from the adoption of this new standard.

~~(3)~~

During the third quarter of fiscal 2018, segment results were adjusted to exclude corporate performance-based compensation costs, net gains (losses) on lease terminations and asset impairment charges due to the fact that these items are no longer included in the segment results provided to the Company’s chief operating decision maker in order to allocate resources and assess performance~~. Accordingly, segment results have been adjusted for the six months ended July 29, 2017 to conform to the current period presentation.~~

~~(4)~~

During the first quarter of fiscal 2019, the Company changed the segment accountability for funds received from licensees on the Company’s purchases of its licensed products. These amounts were treated as a reduction of cost of product sales within the Licensing segment but now are considered in the results of the segments that control the respective purchases for purposes of segment performance evaluation. Accordingly, segment results for the ~~six months ended July 29, 2017~~ ~~have been adjusted to conform to the current period presentation~~.


~~(5)~~	During the first quarter of fiscal 2019, the Company adopted new authoritative guidance which requires that the non-service components of net periodic defined benefit pension cost be presented outside of earnings (loss) from operations. Accordingly, loss from operations and segment results for the six months ended July 29, 2017 ~~have been adjusted to conform to the current period presentation~~.

Americas Retail

Net revenue from our Americas Retail segment ~~decreased~~increased by ~~$6.4~~$6.9 million, or ~~1.7%~~1.9%, to ~~$368.5~~$375.4 million for the six months ended August ~~4, 2018, from $374.9~~3, 2019, compared to $368.5 million in the same prior-year period. In constant currency, net revenue ~~decreased~~increased by ~~2.1%~~2.5%, driven primarily by ~~store closures,~~positive comparable sales, partially offset by ~~positive~~store closures.

Comparable sales (including e-commerce) increased 3% in U.S. dollars and constant currency. The inclusion of our e-commerce sales increased the comparable ~~sales.~~sales percentage by 1% in U.S. dollars and had a minimal impact in constant currency. The store base for the U.S. and Canada decreased by an average of 5311 net stores during the six months ended August ~~4, 2018~~3, 2019 compared to the same prior-year period, resulting in a ~~10.1%~~3.2% net decrease in ~~average~~overall square footage. Comparable sales (including e-commerce) increased 2% in U.S. dollars and constant currency. The inclusion of our e-commerce sales had a minimal impact on the comparable sales percentage in U.S. dollars and constant currency. Currency translation fluctuations relating to our non-U.S. retail stores and e-commerce sites ~~favorably impacted~~had a negative impact of $2.2 million on net revenue ~~by $1.4 million.~~during the six months ended August 3, 2019.

Operating margin ~~improved 670~~increased 110 basis points to ~~relatively breakeven~~1.1% for the six months ended August ~~4, 2018,~~3, 2019, compared to ~~negative 6.7%~~relatively breakeven in the same prior-year ~~period. This improvement~~period, due primarily to higher gross margins, partially offset by a higher SG&A rate. The higher gross margins were driven primarily by higher initial markups and, to a lesser extent, overall leveraging of occupancy costs due primarily to positive comparable store sales, partially offset by higher markdowns. The higher SG&A rate was driven primarily by higher ~~gross margins due to lower markdowns and, to a lesser extent, cost reductions~~store selling expenses due primarily to ~~negotiated rent reductions.~~wage pressures.

~~Loss~~Earnings from operations from our Americas Retail segment ~~improved by $25.0 million, or 99.6%, to $0.1~~was $4.1 million for the six months ended August ~~4, 2018,~~3, 2019, compared to ~~$25.1~~loss from operations of $0.1 million in the same prior-year period. The improvement reflects the favorable impact on earnings from ~~lower occupancy costs driven primarily by negotiated rent reductions~~higher revenues and, to a lesser extent, lower occupancy costs, partially offset by higher ~~product margins.~~store selling expenses.

Americas Wholesale

Net revenue from our Americas Wholesale segment increased by ~~$6.4~~$13.2 million, or ~~9.4%~~17.6%, to ~~$74.9~~$88.1 million for the six months ended August ~~4, 2018,~~3, 2019, compared to ~~$68.5~~$74.9 million in the same prior-year period. In constant currency, net revenue increased by ~~9.1%~~18.7%, driven primarily by higher shipments in our U.S.~~, Mexican and Canadian~~ wholesale ~~businesses. Currency~~business which was due partially to the favorable impact from timing of shipments. Currency translation fluctuations relating to our non-U.S. wholesale businesses ~~favorably~~unfavorably impacted net revenue by ~~$0.2~~$0.8 million.

Operating margin ~~decreased 270~~increased 330 basis points to ~~15.1%~~18.4% for the six months ended August ~~4, 2018, from 17.8%~~3, 2019, compared to 15.1% in the same prior-year period, due primarily to ~~lower~~higher gross margins. The higher gross margins were driven primarily by ~~the liquidation of aged inventory.~~higher initial markups and, to a lesser extent, lower markdowns.

Earnings from operations from our Americas Wholesale segment ~~decreased~~increased by ~~$0.9~~$4.9 million, or ~~7.1%~~43.0%, to ~~$11.4~~$16.2 million for the six months ended August ~~4, 2018, from $12.2~~3, 2019, compared to $11.4 million in the same prior-year period, driven primarily by the ~~unfavorable~~favorable impact on earnings from ~~lower~~higher revenue and, to a lesser extent, higher gross margins.

Europe

~~Europe~~

Net revenue from our Europe segment increased by ~~$96.8~~$33.1 million, or ~~23.0%~~6.4%, to ~~$517.4~~$550.6 million for the six months ended August ~~4, 2018,~~3, 2019, compared to ~~$420.6~~$517.4 million in the same prior-year period. In constant currency, net revenue increased by ~~15.4%~~13.3%, driven primarily by the favorable impact from retail expansion and, to a lesser extent, ~~from~~ higher shipments in our European wholesale ~~business.~~business and positive comparable sales. Comparable sales (including e-commerce) ~~increased 9%~~decreased 2% in U.S. dollars and 2%4% in constant currency compared to the same prior-year period. The inclusion of our e-commerce sales increased the comparable sales percentage by 5%3% in U.S. dollars andconstant currency. Currency translation fluctuations relating to our ~~European~~European operations ~~favorably~~unfavorably impacted net revenue by ~~$32.2~~$35.9 million.

Operating margin ~~decreased 490~~increased 440 basis points to ~~2.0%~~6.4% for the six months ended August ~~4, 2018,~~3, 2019, from ~~6.9%~~2.0% in the same prior-year period, driven ~~primarily~~ by ~~lower~~higher gross margins and, to a lesser extent, a ~~higher~~lower SG&A rate. The ~~lower~~higher gross margins were due primarily to higher ~~distribution costs resulting from the relocation of the Company’s European distribution center and, to a lesser extent, higher retail promotions.~~initial markups. The ~~higher~~lower SG&A rate was ~~driven by higher distribution costs resulting from the relocation of the Company’s European distribution center, partially offset by~~due primarily to overall leveraging of expenses ~~resulting from~~driven by higher wholesale and e-commerce shipments.

Earnings from operations from our Europe segment ~~decreased~~increased by ~~$18.9~~$25.1 million, or ~~64.9%~~245.8%, to ~~$10.2~~$35.3 million for the six months ended August ~~4, 2018,~~3, 2019, compared to ~~$29.1~~$10.2 million in the same prior-year period. The ~~decrease~~increase was driven primarily by the favorable impact on earnings from higher ~~distribution~~revenue and, to a lesser extent, higher product margins, partially offset by higher occupancy costs ~~resulting from the relocation of the Company’s European distribution center.~~and store selling expenses driven primarily by retail

expansion. Currency translation fluctuations relating to our ~~European~~European operations unfavorably impacted earnings from operations by ~~$4.9~~$0.6 million.

Asia

Net revenue from our Asia segment increased by ~~$40.7~~$1.7 million, or ~~32.3%~~1.0%, to ~~$166.8~~$168.5 million for the six months ended August ~~4, 2018,~~3, 2019, compared to ~~$126.1~~$166.8 million in the same prior-year period. In constant currency, net revenue increased by ~~27.1%~~5.9%, driven primarily by retail expansion, ~~and, to a lesser extent, positive~~partially offset by negative comparable sales. Comparable sales (including e-commerce) ~~increased 20%~~decreased 14% in U.S. dollars and ~~15%~~9% in constant currency compared to the same prior-year period. The inclusion of our e-commerce sales increased the comparable sales percentage by 5%1% in U.S. dollars and constant currency. Currency translation fluctuations relating to our ~~Asian~~Asian operations ~~favorably~~unfavorably impacted net revenue by ~~$6.6~~$8.2 million.

Operating margin ~~increased 120~~deteriorated 810 basis points to ~~3.4%~~negative 4.7% for the six months ended August ~~4, 2018,~~3, 2019, compared to ~~2.2%~~3.4% in the same prior-year period, due to ~~higher gross margins, partially offset by~~ a higher SG&A ~~rate. The higher~~rate, and to a lesser extent, lower gross ~~margins were due primarily to overall leveraging of occupancy costs.~~margins. The higher SG&A rate was driven by overall deleveraging of expenses. The lower gross margins were driven primarily by higher ~~expenses due primarily to retail expansion in Australia.~~markdowns.

~~Earnings~~Loss from operations from our Asia segment ~~increased by $2.9 million, or 105.0%, to $5.7~~was $8.0 million for the six months ended August ~~4, 2018,~~3, 2019, compared to ~~$2.8~~earnings from operations of $5.7 million in the same prior-year period, driven primarily by the ~~favorable~~unfavorable impact on earnings from ~~higher revenue, partially offset by~~ higher SG&A expenses and, to a lesser extent, ~~higher occupancy costs due to retail expansion.~~lower gross margins.

Licensing

Net royalty revenue from our Licensing segment ~~increased~~decreased by ~~$7.0~~$2.1 million, or ~~21.4%~~5.4%, to ~~$39.5~~$37.4 million for the six months ended August ~~4, 2018,~~3, 2019, compared to ~~$32.5~~$39.5 million in the same prior-year period. This increase was driven primarily by the impact from the adoption of new accounting guidance for revenue recognition which increased net royalty revenue by $4.4 million, or 13.4%, during the six months ended August 4, 2018 compared to the same prior-year period.

Earnings from operations from our Licensing segment ~~increased~~decreased by ~~$7.1~~$2.7 million, or ~~25.4%~~7.8%, to ~~$34.9~~$32.2 million for the six months ended August ~~4, 2018,~~3, 2019, compared to ~~$27.9~~$34.9 million in the same prior-year period. The ~~increase~~decrease was driven by the ~~favorable~~unfavorable impact to earnings from ~~higher~~lower revenue.

Corporate Overhead

Unallocated corporate overhead increased by ~~$7.5~~$3.5 million to ~~$51.5~~$55.0 million for the six months ended August ~~4, 2018,~~3, 2019, compared to ~~$44.0~~$51.5 million in the same prior-year period, ~~driven~~due primarily to higher performance-based compensation and, to a lesser extent, higher advertising expenses, partially offset by ~~$5.8 million in~~lower expenses related to certain professional service and legal fees and related ~~costs, which the Company otherwise would not have incurred as part of its business operations.~~costs.

Non-GAAP Measures

The Company’s reported financial results are presented in accordance with GAAP. The reported net earnings attributable to Guess?, Inc. and diluted earnings per share for the three and six months ended August ~~4, 2018~~3, 2019 reflect the impact of ~~net gains on lease terminations,~~ asset impairment charges, certain professional service and legal fees and related costs, amortization of debt discount on the Company’s convertible senior notes and the tax effects of these adjustments ~~where applicable.~~as well as adjustments to uncertain tax positions excluded from results in prior years. The reported net earnings ~~(loss)~~ attributable to Guess?, Inc. and diluted earnings ~~(loss)~~ per share for the three and six months ended ~~July 29, 2017~~August 4, 2018 reflect the impact of certain professional service and legal fees and related costs, asset impairment charges, net gains on lease terminations and the ~~related~~ tax ~~impact.~~effects of these adjustments, where applicable. These items affect the comparability of the Company’s reported results. The financial results are also presented on a non-GAAP basis, as defined in Section 10(e) of Regulation S-K of the SEC, to exclude the effect of these items. The Company believes that these items are not indicative of the underlying performance of its business and that the “non-GAAP” or “adjusted” information provided is useful for investors to evaluate the comparability of the Company’s operating results and its future outlook when reviewed in conjunction with the Company’s GAAP financial statements. The non-GAAP measures are provided in addition to, and not as alternatives for, the Company’s reported GAAP results.

The adjusted measures for the three months ended August 3, 2019 exclude the impact of asset impairment charges of $1.5 million, certain professional services and legal fees and related costs of $0.4 million and

amortization of debt discount on the Company’s convertible senior notes of $2.4 million. The asset impairment charges related primarily to the impairment of certain retail locations in North America resulting from under-performance and expected store closures. These items resulted in a combined $2.1 million impact (after considering the related tax benefit and adjustments to uncertain tax positions excluded from results in prior years totaling $2.3 million), or an unfavorable $0.03 per share impact during the three months ended August 3, 2019. Net earnings attributable to Guess?, Inc. were $25.3 million and diluted earnings were $0.35 per common share for the three months ended August 3, 2019. Excluding the impact of these items, adjusted net earnings attributable to Guess?, Inc. were $27.4 millionand adjusted diluted earnings were $0.38 per common share for the three months ended August 3, 2019.

The adjusted measures for the six months ended August 3, 2019 exclude the impact of asset impairment charges of $3.3 million, certain professional services and legal fees and related costs of $0.7 million and amortization of debt discount on the Company’s convertible senior notes of $2.7 million. The asset impairment charges related primarily to the impairment of certain retail locations in Europe and North America resulting from under-performance and expected store closures. These items resulted in a combined $3.9 million impact (after considering the related tax benefit and adjustments to uncertain tax positions excluded from results in prior years totaling $2.8 million), or an unfavorable $0.05 per share impact during the six months ended August 3, 2019. Net earningsattributable to Guess?, Inc. were $3.9 million and diluted earnings were $0.05 per common share for the six months ended August 3, 2019. Excluding the impact of these items, adjusted net earnings attributable to Guess?, Inc. were $7.8 million and adjusted diluted earnings were $0.10 per common share for the six months ended August 3, 2019.

The adjusted measures for the three months ended August 4, 2018 exclude the impact of asset impairment charges of $3.0 million and certain professional services and legal fees and related costs of $2.0 million. The asset impairment charges related primarily to the impairment of certain retail locations in Europe and North America resulting from under-performance and expected store closures. These items resulted in a ~~combined~~ $3.9 million impact (after considering the related tax benefit of $1.1 million), or an unfavorable $0.05 per share impact during the three months ended August 4, 2018. Net earnings attributable to Guess?,. Inc. were $25.5 million and diluted earnings were $0.31 per common share for the three months ended August 4, 2018. Excluding the impact of these items, adjusted net earnings attributable to Guess?, Inc. were $29.5 million and adjusted diluted earnings were $0.36 per common share for the three months ended August 4, 2018.

The adjusted measures for the six months ended August 4, 2018 exclude the impact of ~~net gains on lease terminations of $0.2 million, asset impairment charges of $3.7 million and~~ certain professional services and legal fees and related costs of $5.8 ~~million. The~~million, asset impairment charges of $3.7 million and net gains on lease terminations ~~related primarily to the early termination~~ of ~~certain lease agreements in North America.~~$0.2 million. The asset impairment charges related primarily to the impairment of certain retail locations in Europe and North America resulting from under-performance and expected store closures. ~~These~~The net gains on lease terminations related primarily to the early termination of certain lease agreements in North America. During the six months ended August 4, 2018, these items resulted in a combined $7.3 million impact (after considering the related tax benefit of $2.1 million), or an unfavorable $0.09 per share impact during the six months ended August 4, 2018. Net earnings attributable to Guess?, Inc. were $4.3 million and diluted earnings were $0.05 per ~~common~~ share for the six months ended August 4, 2018. Excluding the impact of these items, adjusted net earnings attributable to Guess?, Inc. were $11.6 million and adjusted diluted earnings were $0.14 per common share for the six months ended August 4, 2018.

The adjusted measures for the three and six months ended July 29, 2017 exclude the impact of asset impairment charges of $1.2 million and $4.0 million, respectively, related primarily to the impairment of certain retail locations in North America resulting from under-performance and expected store closures. During the three months ended July 29, 2017, asset impairment charges resulted in a $0.8 million impact (after considering the related tax benefit of $0.4 million), or an unfavorable $0.01 per share impact. Net earnings attributable to Guess?, Inc. were $15.2 million and diluted earnings were $0.18 per share for the three months ended July 29, 2017. Excluding the impact of the asset impairment charges and the related tax impact, adjusted net earnings attributable to Guess?, Inc. were $16.1 million and adjusted diluted earnings were $0.19 per common share for the three months ended July 29, 2017. During the six months ended July 29, 2017, asset impairment charges resulted in a $2.8 million impact

(after considering the related tax benefit of $1.2 million), or an unfavorable $0.04 per share impact. Net loss attributable to Guess?, Inc. was $6.1 million and diluted loss was $0.08 per share for the six months ended July 29, 2017. Excluding the impact of the asset impairment charges and the related tax impact, adjusted net loss attributable to Guess?, Inc. was $3.3 million and adjusted diluted loss was $0.04 per common share for the six months ended July 29, 2017.

Our discussion and analysis herein also includes certain constant currency financial information. Foreign currency exchange rate fluctuations affect the amount reported from translating the Company’s foreign revenue, expenses and balance sheet amounts into U.S. dollars. These rate fluctuations can have a significant effect on reported operating results under GAAP. The Company provides constant currency information to enhance the visibility of underlying business trends, excluding the effects of changes in foreign currency translation rates. To calculate net revenue, comparable sales and earnings (loss)from operations on a constant currency basis, operating results for the current-year period are translated into U.S. dollars at the average exchange rates in effect during the comparable period of the prior year. To calculate balance sheet amounts on a constant currency basis, the current period balance sheet amount is translated into U.S. dollars at the exchange rate in effect at the comparable

prior-year period end. The constant currency calculations do not adjust for the impact of revaluing specific transactions denominated in a currency that is different to the functional currency of that entity when exchange rates fluctuate. The constant currency information presented may not be comparable to similarly titled measures reported by other companies.

In calculating the estimated impact of currency fluctuations (including translational and transactional impacts) on other measures such as earnings (loss) per share, the Company estimates gross margin (including the impact of foreign exchange currency contracts designated as cash flow hedges for anticipated merchandise purchases) and expenses using the appropriate prior-year rates, translates the estimated foreign earnings (loss) at the comparable prior-year rates and excludes the year-over-year earnings impact of gains or losses arising from balance sheet remeasurement and foreign exchange currency contracts not designated as cash flow hedges for merchandise purchases.

Liquidity and Capital Resources

We need liquidity globally primarily to fund our working capital, occupancy costs, expansion plans, remodeling and rationalization of our retail stores, shop-in-shop programs, concessions, systems, infrastructure, other existing operations, international growth and potential acquisitions and investments. In addition, in the U.S. we need liquidity to fund share repurchases, ~~and~~ payment of dividends to our ~~stockholders.~~stockholders and interest payments on our debt. Generally, our working capital needs are highest during the late summer and fall as our inventories increase before the holiday selling period. During the six months ended August ~~4, 2018, the Company~~3, 2019, we relied primarily on the trade credit, available cash, real estate and other operating leases, ~~capital~~finance leases, proceeds from the issuance of convertible senior notes, proceeds from short-term lines of credit and internally generated funds to finance our operations, share repurchases, payment of dividends ~~share repurchases~~ and expansion. ~~The Company anticipates~~We anticipate that we will be able to satisfy our ongoing cash requirements during the next twelve months for working capital, capital expenditures, payments on our debt, ~~capital~~finance leases and operating leases as well as lease termination payments, potential acquisitions and investments, share repurchases and dividend payments to stockholders, primarily with cash flow from operations and existing cash balances as supplemented by borrowings under our existing Credit Facility in the U.S. and Canada as well as bank facilities in Europe and China as needed. We expect to settle the principal amount of our outstanding convertible senior notes in 2024 in cash and any excess in shares. Such ~~facilities~~arrangements are described further ~~below under “—~~in “Part I, Item 1. Financial Statements – Note 9 – Borrowings and ~~Capital~~Finance Lease ~~Obligations.”~~Obligations” and “Part I, Item 1. Financial Statements – Note 10 – Convertible Senior Notes and Related Transactions” of this Form 10-Q. Due to the seasonality of our business and cash needs, including to help fund our continuing retail expansion plans, we may increase borrowings under our established credit facilities from time-to-time, during the next twelve months.

In December 2017, the U.S. government enacted the Tax Reform, which significantly changed the U.S. corporate income tax laws, including moving from a global taxation regime to a territorial regime and lowering the future U.S. federal tax rate from 35% to 21%. The ~~Company is~~Tax Reform also required ~~to pay~~ a one-time mandatory transition tax on ~~all historical earnings of~~accumulated foreign ~~subsidiaries that have not been repatriated to the U.S. The~~earnings. Any income tax payable related to the transition tax is due over an eight-year period beginning in calendar 2018. The Company ~~included $0.4 million~~determined that in the event certain proposed legislation is passed in the future, the Company could have tax liabilities of approximately $25.8 million. Therefore, the Company accrued such amount in the fourth quarter of fiscal 2019. During the second quarter of fiscal 2020, the Company revised its tax liability estimation and ~~$17.7 million~~related accrual to $23.2 million. The balance related to ~~the~~this transition tax included in ~~accrued expenses and~~ other long-term liabilities ~~in its condensed consolidated balance sheets~~was $23.2 million and $25.8 million as of August ~~4, 2018,~~3, 2019 and February 2, 2019, respectively. The Company included $1.9 million and $17.7 million related to the transition tax in accrued expenses and other long-term liabilities in its condensed consolidated balance sheets as of February 3, 2018, respectively.

The Company has ~~provided for tax liabilities~~

~~on amounts that are estimated~~historically considered the undistributed earnings of its foreign subsidiaries to be ~~repatriated from foreign operations as~~indefinitely reinvested. As a result of the Tax ~~Reform. We have not provided~~Reform, the Company had a substantial amount of previously taxed earnings that could be distributed to the U.S. without additional U.S. taxation. The Company continues to evaluate its plans for ~~other~~reinvestment or repatriation of unremitted foreign earnings and regularly review its cash positions and determination of permanent reinvestment of foreign earnings. If the Company determines that all or a portion of such foreign earnings are no longer indefinitely reinvested, it may be subject to additional foreign withholding

taxes and U.S. state income taxes, ~~on undistributed~~beyond the Tax Reform’s one-time transition tax. The Company intends to indefinitely reinvest the remaining earnings from the Company’s foreign ~~earnings expected to be reinvested outside the U.S. If in the future we decide to repatriate such earnings, we would incur other incremental taxes. Our current plans do~~subsidiaries for which a deferred tax liability has not ~~indicate a need to repatriate them to fund our U.S. cash requirements.~~already been recorded. As of August ~~4, 2018,~~3, 2019, the Company had cash and cash equivalents of ~~$219.1~~$131.1 million, of which approximately ~~$49.7 million~~$29.7 was held in the U.S.

Excess cash and cash equivalents, which represent the majority of our outstanding cash and cash equivalents balance, are held primarily in overnight deposit and short-term time deposit accounts. Please see “—Important Factors Regarding Forward-Looking Statements” discussed above, “Part II, Item 1A. Risk Factors” in this Form 10Q and “Part I, Item 1A. Risk Factors” contained in the Company’s most recent Annual Report on Form 10-K for the fiscal year ended February ~~3, 2018~~2, 2019 for a discussion of risk factors which could reasonably be likely to result in a decrease of internally generated funds available to finance capital expenditures and working capital requirements.

The Company has presented below the cash flow performance comparison of the six months ended August ~~4, 2018,~~3, 2019, compared to the six months ended ~~July 29, 2017.~~August 4, 2018.

Operating Activities

Net cash used in operating activities was $23.0 million for the six months ended August 3, 2019, compared to $21.7 million for the six months ended August 4, 2018, ~~compared to $9.7 million for the six months ended July 29, 2017,~~ or a deterioration of ~~$12.0~~$1.3 million. This deterioration was driven primarily by changes in working capital due mainly to ~~higher inventory resulting from retail expansion,~~increased payments on accounts payable and accrued expenses, of which $45.6 million related to payment of the European Commission fine. The increase in payments was partially offset by ~~higher cash flows generated~~lower inventory purchases and the favorable impact on receivables from ~~net earnings for~~timing of shipments during the six months ended August ~~4, 2018~~3, 2019 compared to the same prior-year period.

Investing Activities

Net cash used in investing activities was $33.9 million for the six months ended August 3, 2019, compared to $53.2 million for the six months ended August 4, ~~2018, compared to $39.5 million~~2018. Net cash used in investing activities for the six months ended ~~July 29, 2017. Net cash used in investing activities~~August 3, 2019 related primarily to capital expenditures incurred on retail expansion, investments in technology infrastructure and existing store remodeling programs. In addition, settlements of forward exchange currency contracts, purchases of investments, the cost of any business acquisitions ~~purchases~~and proceeds from the disposition of ~~investments and other~~long-term assets ~~and the settlement of forward exchange currency contracts~~ are also included in cash flows used in investing activities.

The ~~increase~~decrease in cash used in investing activities was driven primarily by ~~higher~~lower spending on retail expansion during the six months ended August ~~4, 2018~~3, 2019 compared to the same prior-year period. During the six months ended August ~~4, 2018,~~3, 2019, the Company opened 60 43directly operated stores compared to 4960 directly operated stores that were opened in the same prior-year period.

Financing Activities

Net cash used in financing activities was $18.5 million for the six months ended August 3, 2019, compared to $56.8 million for the six months ended August 4, ~~2018, compared to $55.1 million for the six months ended July 29, 2017.~~2018. Net cash used in financing activities for the six months ended August 3, 2019 related primarily to ~~the payment of dividends and~~ repurchases of shares of the Company’s common ~~stock.~~stock and payment of dividends, partially offset by net proceeds from the issuance of convertible senior notes, related warrants and short-term borrowings. In addition, payments related to ~~capital~~finance lease obligations and borrowings and ~~proceeds~~cash activity from the issuance of common stock under our equity ~~plan, capital contributions from noncontrolling interests and borrowings~~plans are also included in cash flows used in financing activities.

The ~~increase~~decrease in cash used in financing activities was driven primarily by ~~higher payments for repurchases of shares of~~net proceeds received from the ~~Company’s common stock, partially offset by proceeds from~~ issuance of ~~common stock under our equity plan~~convertible senior notes and related warrants and short-term borrowings during the six months ended August ~~4, 2018~~3, 2019. This was partially offset by higher investments made in share repurchases, which included shares repurchased under the Company’s accelerated share repurchase agreement, during the six months ended August 3, 2019 compared to the same prior-year period.

Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash

During the six months ended August ~~4, 2018,~~3, 2019, changes in foreign currency translation rates decreased our reported cash, cash equivalents and restricted cash balance by ~~$16.6~~$4.0 million. This compares to ~~an increase~~a decrease of ~~$24.4~~$16.6 million in cash, cash equivalents and restricted cash driven by changes in foreign currency translation rates during the six months ended ~~July 29, 2017.~~

August 4, 2018.

Working Capital

As of August ~~4, 2018,~~3, 2019, the Company had net working capital (including cash and cash equivalents) of ~~$583.1~~$294.2 million, compared to ~~$640.9~~$545.3 million at February ~~3, 2018~~2, 2019 and ~~$670.8~~$583.1 million at ~~July 29, 2017.~~ August 4, 2018. The decrease in net working capital as of August 3, 2019 was driven primarily by the recognition of the current portion of operating lease liabilities of $213.9 million resulting from the adoption of a comprehensive new lease standard during the first quarter of fiscal 2020.

The Company’s primary working capital needs are for accounts receivable and inventory. Accounts receivable increased by ~~$49.8~~$9.6 million, or ~~21.3%~~3.4%, to ~~$283.4~~$293.0 million as of August ~~4, 2018,~~3, 2019, compared to ~~$233.6~~$283.4 million at ~~July 29, 2017.~~ August 4, 2018. On a constant currency basis, accounts receivable increased by $20.1 million, or 7.1%, when compared to August 4, 2018. The increase was driven primarily by higher wholesale shipments during the six months ended August 3, 2019 compared to the same prior-year period.

The accounts receivable balance consists of trade receivables relating primarily to the Company’s wholesale business in Europe and, to a lesser extent, to its wholesale businesses in the Americas and Asia, royalty receivables relating to its licensing operations, credit card and retail concession receivables related to its retail businesses and certain other receivables. On a constant currency basis, accounts receivable increased by $55.4 million, or 23.7%, when compared to July 29, 2017. The increase was driven primarily by higher European wholesale shipments, partially offset by the favorable timing of collections during the six months ended August 4, 2018 compared to the same prior-year period. During the first quarter of fiscal 2019, the Company adopted a new revenue recognition standard on a modified retrospective basis which changed the presentation of allowances for wholesale sales returns and wholesale markdowns to be classified within accrued expenses rather than as a reduction to accounts receivable. Accordingly, the Company has included allowances of $27.0 million and $10.8 million related to wholesale sales returns and wholesale markdowns, respectively, in accrued expenses as of August 4, 2018. As of August ~~4, 2018,~~3, 2019, approximately 52% of our total net trade receivables and 62% of our European net trade receivables were subject to credit insurance coverage, certain bank guarantees or letters of credit for collection purposes. Our credit insurance coverage contains certain terms and conditions specifying deductibles and annual claim limits.

Inventory increased by ~~$28.5~~$19.7 million, or ~~6.5%~~4.2%, to ~~$464.5~~$484.2 million as of August ~~4, 2018,~~3, 2019, compared to ~~$436.0~~$464.5 million at ~~July 29, 2017.~~August 4, 2018. On a constant currency basis, inventory increased by ~~$37.7~~$33.4 million, or ~~8.6%~~7.2%, when compared to ~~July 29, 2017,~~August 4, 2018. The increase in inventory was driven primarily by retail expansion in our international ~~markets. The adoption~~markets and, to a lesser extent, some excess inventory from the prior year.

Capital Expenditures

Gross capital expenditures totaled $34.6 million, before deducting lease incentives of $4.0 million, for the ~~new revenue recognition standard also impacted~~six months ended August 3, 2019. This compares to gross capital expenditures of $46.0 million, before deducting lease incentives of $4.9 million for the presentation of the estimated cost associated with the allowance for sales returns to be included within other current assets rather than included in inventories. Accordingly, the Company has included $11.6 million related to the estimated cost associated with the allowance for sales returns in other current assets as ofsix months ended August 4, 2018.

The Company’s investments in capital for the full fiscal year 2020 are planned between $63 million and $68 million. The planned investments in capital are related primarily to retail and e-commerce expansion in Europe and Asia, existing store remodeling programs as well as continued investments in technology to support our long-term growth plans.

We will periodically evaluate strategic acquisitions and alliances and pursue those that we believe will support and contribute to our overall growth initiatives.

Dividends

During the first quarter of fiscal 2008, the Company announced the initiation of a quarterly cash dividend of $0.06 per share of the Company’s common stock. Since that time, the Company has continued to pay a quarterly cash dividend, which has subsequently increased to $0.225 per common share.

Decisions on whether, when and in what amounts to continue making any future dividend distributions will remain at all times entirely at the discretion of the Company’s Board of Directors, which reserves the right to change or terminate the Company’s dividend practices at any time and for any reason without prior notice. The payment of cash dividends in the future ~~will be at the discretion of our Board of Directors and~~ will be based upon a number of business, legal and other considerations, including our cash flow from operations, capital expenditures, debt service and covenant requirements, cash paid for income taxes, earnings, share repurchases, economic conditions and U.S. and global liquidity.

Share Repurchases

~~The shares were repurchased during the three months ended April 29, 2017.~~ASR Contract as described below. As of August ~~4, 2018,~~3, 2019, the Company had remaining authority under the program to purchase ~~$374.6~~$94.1 million of its common stock.

~~Capital Expenditures~~

~~Gross capital expenditures totaled $46.0 million, before deducting lease incentives of $4.9 million, for the six months ended August 4, 2018. This compares~~On April 26, 2019, pursuant to ~~gross capital expenditures of $39.6 million, before deducting lease incentives of $4.1 million for the six months ended July 29, 2017.~~

The Company’s investments in capital for the full fiscal year 2019 are planned between $90 million and $95 million. The planned investments in capital are related primarily to retail and e-commerce expansion in Europe and Asia as well as continued investments in technology to support our long-term growth plans.

~~We will periodically evaluate strategic acquisitions and alliances and pursue those that we believe will support and contribute to our overall growth initiatives.~~

~~Borrowings and Capital Lease Obligations~~

~~Credit Facilities~~

~~On June 23, 2015,~~existing stock repurchase authorizations, the Company entered into ~~a five-year senior secured asset-based revolving credit facility~~an ASR Contract with ~~Bank~~the ASR Counterparty to repurchase an aggregate of ~~America, N.A.~~$170 million of the Company’s common stock. Under the ASR Contract, the Company made an initial payment of $170 million to the ASR Counterparty and received an initial delivery of approximately 5.2 million shares of common stock, which represented approximately $102 million (or 60%) of the ~~other lenders party thereto (the “Credit Facility”).~~ASR Contract. The ~~Credit Facility provides for a borrowing capacity~~remaining balance of $68 million was classified as an equity forward contract and recorded in an amount up to $150 million, including a Canadian sub-facility up to $50 million, subject to a borrowing base. Based on applicable accounts receivable, inventory, eligible cash balances and relevant covenant restrictionspaid-in capital within shareholders’ equity as of August 3, 2019.

On September 4, ~~2018,~~2019 (subsequent to the second quarter of fiscal 2020), the Company ~~could have borrowed up to $104~~received a final delivery of 5.4 million shares under the Credit Facility. The Credit Facility has an option to expand the borrowing capacity by up to $150 million subject to certain terms and conditions, including the willingness of existing or new lenders to assume such increased amount. The Credit Facility is available for direct borrowings and the issuance of letters of credit, subject to certain letters of credit sublimits, and may be used for working capital and other general corporate purposes.

~~Direct borrowings under the Credit Facility made by the Company and~~ its domestic subsidiaries shall bear interest at the U.S. base rate plus an applicable margin (varying from 0.25% to 0.75%) or at LIBOR plus an applicable margin (varying from 1.25% to 1.75%). The U.S. base rate isASR Contract entered into in April 2019, which amount was determined based on the ~~greater~~daily volume-weighted average price since the effective date of ~~(i)~~ the ~~U.S. prime rate, (ii)~~ASR Contract, less the ~~federal funds rate, plus 0.5%, and (iii) LIBOR for a 30 day interest period, plus 1.0%. Direct borrowings~~applicable contractual discount. When combined with the 5.2 million upfront shares received at the inception of the ASR in April 2019, the Company repurchased approximately 10.6 million of its shares under the ~~Credit Facility made by~~ASR at an average repurchase price of $16.09 per share. All shares were repurchased in accordance with the Company’s Canadian subsidiaries shall bear interest at the Canadian prime rate plus an applicable margin (varying from 0.25% to 0.75%) or at the Canadian BA rate plus an applicable margin (varying from 1.25% to 1.75%).publicly announced ASR program, which is now complete. The Canadian prime rate is based on the greater of (i) the Canadian prime rate, (ii) the Bank of Canada overnight rate, plus 0.5%, and (iii) the Canadian BA rate for a one month interest period, plus 1.0%. The applicable margins are calculated quarterly and vary based on the average daily availability of the aggregate borrowing base. The Company is also obligated to pay certain commitment, letter of credit and other fees customary for a credit facility of this size and type. As of August 4, 2018, the Company had $1.6 million in outstanding standby letters of credit, no outstanding documentary letters of credit and no outstanding borrowingsshares delivered under the ~~Credit Facility.~~

~~The Credit Facility requires~~ASR Contract reduced the ~~Company to comply with a fixed charge coverage ratio on a trailing four-quarter basis if a default or an event~~Company’s outstanding shares, and going forward that will have the effect of default occurs under the Credit Facility or generally if borrowings exceed 80% of the borrowing base. In addition, the Credit Facility contains customary covenants, including covenants that limit or restrict the Company and certain ofreducing its subsidiaries’ ability to: incur liens, incur indebtedness, make investments, dispose of assets, make certain restricted payments, merge or consolidate and enter into certain transactions with affiliates. Upon the occurrence of an event of default under the Credit Facility, the lenders may cease making loans, terminate the Credit Facility and declare all amounts outstanding to be immediately due and payable. The Credit Facility specifies aweighted average number of ~~events~~common shares outstanding for purposes of ~~default (some of which are subject to applicable~~calculating basic and diluted earnings per share.

~~grace or cure periods), including, among other things, non-payment defaults, covenant defaults, cross-defaults to other material indebtedness, bankruptcy~~Borrowings and ~~insolvency defaults and material judgment defaults. The Credit Facility allows for both secured and unsecured borrowings outside of the Credit Facility up to specified amounts.~~

The Company, through its European subsidiaries, maintains short-term uncommitted borrowing agreements, primarily for working capital purposes, with various banks in Europe. The majority of the borrowings under these agreements are secured by specific accounts receivable balances. Based on the applicable accounts receivable balances as of August 4, 2018, the Company could have borrowed or entered into documentary letters of credit totaling up to $83.7 million under these agreements. As of August 4, 2018, the Company had no outstanding borrowings or outstanding documentary letters of credit under these agreements. The agreements are denominated primarily in euros and provide for annual interest rates ranging from 0.5% to 4.6%. The maturities of any short-term borrowings under these arrangements are generally linked to the credit terms of the underlying accounts receivable that secure the borrowings. With the exception of one facility for up to $40.5 million that has a minimum net equity requirement, there are no other financial ratio covenants.

~~Mortgage Debt~~

On February 16, 2016, the Company entered into a ten-year $21.5 million real estate secured loan (the “Mortgage Debt”). The Mortgage Debt is secured by the Company’s U.S. distribution center based in Louisville, Kentucky and provides for monthly principal and interest payments based on a 25-year amortization schedule, with the remaining principal balance and any accrued and unpaid interest due at maturity. Outstanding principal balances under the Mortgage Debt bear interest at the one-month LIBOR rate plus 1.5%. As of August 4, 2018, outstanding borrowings under the Mortgage Debt, net of debt issuance costs of $0.1 million, were $20.0 million. At February 3, 2018, outstanding borrowings under the Mortgage Debt, net of debt issuance costs of $0.1 million, were $20.3 million.

The Mortgage Debt requires the Company to comply with a fixed charge coverage ratio on a trailing four-quarter basis if consolidated cash, cash equivalents and short term investment balances fall below certain levels. In addition, the Mortgage Debt contains customary covenants, including covenants that limit or restrict the Company’s ability to incur liens on the mortgaged property and enter into certain contractual obligations. Upon the occurrence of an event of default under the Mortgage Debt, the lender may terminate the Mortgage Debt and declare all amounts outstanding to be immediately due and payable. The Mortgage Debt specifies a number of events of default (some of which are subject to applicable grace or cure periods), including, among other things, non-payment defaults, covenant defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency defaults and material judgment defaults.

On February 16, 2016, the Company also entered into a separate interest rate swap agreement, designated as a cash flow hedge, that resulted in a swap fixed rate of approximately 3.06%. This interest rate swap agreement matures in January 2026 and converts the nature of the Mortgage Debt from LIBOR floating-rate debt to fixed-rate debt. The fair value of the interest rate swap asset for each of the periods ended August 4, 2018 and February 3, 2018 was approximately $1.5 million.

~~Capital~~Finance Lease Obligations and Convertible Senior Notes

~~During fiscal 2018, the Company began the relocation of its European distribution center to the Netherlands. As a result, the Company entered into a capital lease of $17.0 million~~See “Part I, Item 1. Financial Statements – Note 9 – Borrowings and Finance Lease Obligations” and “Part I, Item 1. Financial Statements – Note 10 – Convertible Senior Notes and Related Transactions” in this Form 10-Q for ~~equipment used in the new facility. The capital lease primarily provides for monthly minimum lease payments through May 2027 with an effective interest rate of approximately 6%. As of August 4, 2018~~disclosures about our borrowings and ~~February 3, 2018, the capital lease obligation was $15.4 million and $17.3 million, respectively.~~

~~The Company also has smaller capital leases related primarily to computer hardware and software. As of August 4, 2018 and February 3, 2018, these capital~~finance lease obligations ~~totaled $2.3 million~~ and ~~$1.3 million, respectively.~~

~~Other~~

~~From time-to-time, the Company will obtain other financing in foreign countries for working capital to finance its local operations.~~convertible senior notes.

Supplemental Executive Retirement Plan

As a non-qualified pension plan, no dedicated funding of the SERP is required; however, the Company has made periodic payments into insurance policies held in a rabbi trust to fund the expected obligations arising under the non-qualified SERP. The amount of any future payments into the insurance policies, if any, may vary depending on investment performance of the trust. The cash surrender values of the insurance policies were ~~$64.3~~$63.9 million and ~~$64.5~~$61.7 million as of August ~~4, 2018~~3, 2019 and February ~~3, 2018,~~2, 2019, respectively, and were included in other assets in the Company’s condensed consolidated balance sheets. As a result of changes in the value of the insurance policy investments, the Company recorded unrealized gains (losses) of $(0.2) million and $3.0 million in other income

(expense) during the three and six months ended August 3, 2019, respectively, and unrealized gains of $1.7 million and $0.7 million in other income (expense) during the three and six months ended August 4, 2018, ~~respectively, and unrealized gains of $1.9 million and $3.8 million in other income during the three and six months ended July 29, 2017,~~ respectively. The projected benefit obligation was ~~$54.9~~$52.3 million and ~~$54.8~~$52.2 million as of August ~~4, 2018~~3, 2019 and February ~~3, 2018,~~2, 2019, respectively, and was included in accrued expenses and other long-term liabilities in the Company’s condensed consolidated balance sheets depending on the expected timing of payments. SERP benefit payments of $0.4 million and $0.8 million were made during the three and six months ended August ~~4, 2018,~~3, 2019, respectively. SERP benefit payments of $0.4 million and $0.8 million were made during the three and six months ended ~~July 29, 2017,~~August 4, 2018, respectively.

Contractual Obligations and Commitments

During the six months ended August 3, 2019, the Company issued convertible senior notes and borrowed upon certain short-term borrowing arrangements in Europe. See “Part I, Item 1. Financial Statements – Note 10 – Convertible Senior Notes and Related Transactions” and “Part I, Item 1. Financial Statements – Note 9 – Borrowings and Finance Lease Obligations” for further information on these arrangements. As of August 3, 2019, there were no other material changes to our contractual obligations and commitments outside the ordinary course of business compared to the disclosures included in our Form 10-K for the fiscal year ended February 2, 2019.

Inflation

The Company does not believe that inflation trends in the U.S. and internationally over the last three years have had a significant effect on net revenue or profitability.

~~Seasonality~~

The Company’s business is impacted by the general seasonal trends characteristic of the apparel and retail industries. The retail operations in the Americas and Europe are generally stronger during the second half of the fiscal year, and the wholesale operations in the Americas generally experience stronger performance from July through November. The European wholesale businesses operate with two primary selling seasons: the Spring/Summer season, which ships from November to April and the Fall/Winter season, which ships from May to October. The Company may take advantage of early-season demand and potential reorders in its European wholesale business by offering a pre-collection assortment which ships at the beginning of each season. Customers retain the ability to request early shipment of backlog orders or delay shipment of orders depending on their needs.

Wholesale Backlog

We generally receive orders for fashion apparel three to six months prior to the time the products are delivered to our customers’ stores. The backlog of wholesale orders at any given time is affected by various factors, including seasonality, cancellations, the scheduling of market weeks, the timing of the receipt of orders and the timing of the shipment of orders and may include orders for multiple seasons. Accordingly, a comparison of backlogs of wholesale orders from period-to-period is not necessarily meaningful and may not be indicative of eventual actual shipments.

U.S. and Canada Backlog.Our U.S. and Canadian wholesale backlog as of September ~~5, 2018,~~3, 2019, consisting primarily of orders for fashion apparel, was ~~$50.1~~$42.0 million in constant currency, compared to ~~$36.9~~$50.9 million at September ~~6, 2017, an increase~~4, 2018, a decrease of ~~35.8%~~17.6%. We estimate that if we were to normalize the orders for the scheduling of market weeks, the current backlog would have decreased by 11.5% compared to the prior year.

Europe Backlog. As of September ~~2, 2018,~~1, 2019, the European wholesale backlog was ~~€228.5~~€268.0 million, compared to ~~€221.9~~€229.8 million at September ~~3, 2017,~~2, 2018, an increase of ~~3.0%~~16.6%. The backlog as of September ~~2, 2018~~1, 2019 is comprised of sales orders for the Fall/Winter ~~2018~~2019 and Spring/Summer ~~2019~~2020 seasons.

Application of Critical Accounting Policies

Our critical accounting policies reflecting our estimates and judgments are described in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended February ~~3, 2018~~2, 2019 filed with the SEC on March 29, ~~2018.~~2019. There have been no significant changes to our critical accounting policies other than the implementation of a comprehensive new lease standard during the ~~six months ended August 4, 2018~~.

first quarter of fiscal 2020. See “Part I, Item 1. Financial Statements – Note 2 – Lease Accounting” for further information on our accounting policies related to the implementation of the comprehensive new lease standard.

Recently Issued Accounting Guidance

~~In February 2016, the~~See “Part I, Item 1. Financial Statements – Note 1 – Basis of Presentation and New Accounting ~~Standards Board (“FASB”)~~Guidance” for disclosures about recently issued ~~a comprehensive new lease standard which will supersede previous lease~~accounting guidance. The standard requires a lessee to recognize assets and liabilities related to long-term leases that were classified as operating leases under previous guidance in its balance sheet. An asset would be recognized related to the right to use the underlying asset and a liability would be recognized related to the obligation to make lease payments over the term of the lease. The standard also requires expanded disclosures surrounding leases. The standard (including clarification guidance issued during fiscal 2019) is effective for fiscal periods beginning after December 15, 2018, which will be the Company’s first quarter of fiscal 2020, with early adoption permitted. The Company has completed the design phase of its selected lease management system and is in the process of completing its inventory of its lease contracts as well as implementing processes and controls to enable the preparation of the required financial information for this standard. The Company will apply this guidance retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment to retained earnings and expects that this guidance will result in material increases in assets and liabilities in its consolidated balance sheet as well as enhanced disclosures.

In June 2016, the FASB issued authoritative guidance related to the measurement of credit losses on financial instruments. This guidance is effective for fiscal years beginning after December 15, 2019, which will be the Company’s first quarter of fiscal 2021. Early adoption is permitted for fiscal periods beginning after December 15, 2018, which will be the Company’s first quarter of fiscal 2020. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements and related disclosures.

In January 2017, the FASB issued authoritative guidance to simplify the testing for goodwill impairment by removing step two from the goodwill testing. Under current guidance, if the fair value of a reporting unit is lower than its carrying amount (step one), an entity would calculate an impairment charge by comparing the implied fair value of goodwill with its carrying amount (step two). The implied fair value of goodwill was calculated by deducting the fair value of the assets and liabilities of the respective reporting unit from the reporting unit’s fair value as determined under step one. This guidance instead provides that an impairment charge should be recognized based on the difference between a reporting unit’s fair value and its carrying value. This guidance also does not require a qualitative test to be performed on reporting units with zero or negative carrying amounts. However, entities need to disclose any reporting units with zero or negative carrying amounts that have goodwill and the amount of goodwill allocated to each. This guidance is effective for fiscal years beginning after December 15, 2019, which will be the Company’s first quarter of fiscal 2021, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements or related disclosures.

~~In August 2018, the FASB issued authoritative guidance to modify the disclosure requirements on fair value measurements in ASC 820,~~ ~~Fair Value Measurement~~. This guidance is effective for fiscal years beginning after December 15, 2019, which will be the Company’s first quarter of fiscal 2021, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its related disclosures.

In August 2018, the FASB issued authoritative guidance to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The guidance provides criteria for determining which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The capitalized implementation costs are required to be expensed over the term of the hosting arrangement. The guidance also clarifies the presentation requirements for reporting such costs in the entity’s financial statements. This guidance is effective for fiscal years beginning after December 15, 2019, which will be the Company’s first quarter of fiscal 2021, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements and related disclosures.


ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk.

Exchange Rate Risk

More than half of product sales and licensing revenue recorded for the six months ended August ~~4, 2018~~3, 2019 were denominated in currencies other than the U.S. dollar. The Company’s primary exchange rate risk relates to operations in Europe, Canada, South Korea, China, Hong Kong and Mexico. Changes in currencies affect our earnings in various ways. For further discussion on currency-related risk, please refer to our risk factors under “Part I, Item 1A. Risk Factors” contained in the Company’s most recent Annual Report on Form 10-K for the fiscal year ended February ~~3, 2018~~.2, 2019.

Foreign Currency Translation Adjustment

The local selling currency is typically the functional currency for all of the Company’s significant international operations. In accordance with authoritative guidance, assets and liabilities of the Company’s foreign operations are translated from foreign currencies into U.S. dollars at period-end rates, while income and expenses are translated at the weighted average exchange rates for the period. The related translation adjustments are reflected as a foreign currency translation adjustment in accumulated other comprehensive income (loss) within stockholders’ equity. In addition, the Company records foreign currency translation adjustments related to its noncontrolling interests within stockholders’ equity. Accordingly, our reported other comprehensive income (loss) could be unfavorably impacted if the U.S. dollar strengthens, particularly against the British pound, Canadian dollar, Chinese yuan, euro, Japanese yen, Korean won, Mexican peso, Russian rouble and ~~Russian rouble.~~Turkish lira. Alternatively, if the U.S. dollar weakens relative to those currencies, our reported other comprehensive income (loss) could be favorably impacted. Our foreign currency translation adjustments recorded in other comprehensive income (loss) are significantly impacted by net assets denominated in euros.

Periodically, the Company may also use foreign exchange currency contracts to hedge the translation and economic exposures related to its net investments in certain of its international subsidiaries (see below). Changes in the fair values of these foreign exchange currency contracts, designated as net investment hedges, are recorded in foreign currency translation adjustment as a component of accumulated other comprehensive income (loss) within stockholders’ equity.

During the six months ended August ~~4, 2018,~~3, 2019, the total foreign currency translation adjustment decreased stockholders’ equity by ~~$47.5~~$17.4 million, driven primarily by the weakening of the U.S. dollar against the euro.

Foreign Currency Transaction Gains and Losses

Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency, including gains and losses on foreign exchange currency contracts (see below), are included in the condensed consolidated statements of ~~income (loss).~~income. Net foreign currency transaction losses of $1.3 million and $4.8 million were included in the determination of net earnings ~~(loss) were $4.8 million and $2.5 million~~ for the six months ended August 3, 2019 and August 4, 2018, ~~and July 29, 2017,~~ respectively.

Foreign Exchange Currency Contracts

The Company operates in foreign countries, which exposes it to market risk associated with foreign currency exchange rate fluctuations. Various transactions that occur primarily in Europe, Canada, South Korea, China, Hong Kong and Mexico are denominated in U.S. dollars, British pounds and Russian roubles and thus are exposed to earnings risk as a result of exchange rate fluctuations when converted to their functional currencies. These types of transactions include U.S. ~~dollar denominated~~dollar-denominated purchases of merchandise and U.S. ~~dollar~~dollar- and British ~~pound denominated~~pound-denominated intercompany liabilities. In addition, certain operating expenses, tax liabilities and pension-related liabilities are denominated in Swiss francs and are exposed to earnings risk as a result of exchange rate fluctuations when converted to the functional currency. The Company is also subject to certain translation and economic exposures related to its net investment in certain of its international subsidiaries. The Company enters into derivative financial instruments to offset some, but not all, of its exchange risk. In addition, some of the derivative contracts in place will create volatility during the fiscal year as they are marked-to-market according to the accounting rules and may result in revaluation gains or losses in different periods from when the currency impact on the underlying transactions are realized.

Foreign Exchange Currency Contracts Designated as Cash Flow Hedges

During the six months ended August ~~4, 2018,~~3, 2019, the Company purchased U.S. dollar forward contracts in Europe totaling US$~~21.6~~68.6 million that were designated as cash flow hedges. As of August ~~4, 2018~~,3, 2019, the Company had forward contracts outstanding for its European ~~and Canadian~~ operations of US$~~103.7~~151.8 million ~~and US$17.4 million, respectively,~~ to hedge forecasted merchandise purchases, which are expected to mature over the next 1213 months. The Company’s foreign exchange currency contracts are recorded in its condensed consolidated balance sheet at fair value based on quoted market rates. Changes in the fair value of the U.S. dollar forward contracts, designated as cash flow hedges for forecasted merchandise purchases, are recorded as a component of accumulated other comprehensive income (loss) within stockholders’ equity and are recognized in cost of product sales in the period that approximates the time the hedged merchandise inventory is sold. Changes in the fair value of the U.S. dollar forward contracts, designated as cash flow hedges for forecasted intercompany royalties, are recorded as a component of accumulated other comprehensive income (loss) within stockholders’ equity and are recognized in other income (expense) in the period in which the royalty expense is incurred.

As of August ~~4, 2018,~~3, 2019, the net unrealized gain of the remaining open forward contracts recorded in the Company’s condensed consolidated balance sheet was approximately ~~$3.7~~$5.9 million.

At February ~~3, 2018,~~2, 2019, the Company had forward contracts outstanding for its European and Canadian operations of US$~~145.8~~175.2 million and US$~~38.7~~3.9 million, respectively, that were designated as cash flow hedges. At February ~~3, 2018,~~2, 2019, the net unrealized ~~loss~~gain of these open forward contracts recorded in the Company’s condensed consolidated balance sheet was approximately ~~$13.7~~$4.0 million.

Foreign Exchange Currency Contracts Not Designated as Hedging Instruments

The Company ~~also~~ has foreign exchange currency contracts that are not designated as hedging instruments for accounting purposes. Changes in fair value of foreign exchange currency contracts not designated as hedging instruments are reported in net earnings (loss) as part of other income (expense). For the six months ended August ~~4, 2018,~~3, 2019, the Company recorded a net gain of ~~$5.9~~$0.8 million for its euro ~~and Canadian~~ dollar foreign exchange

currency contracts not designated as hedges, which has been included in other ~~income.~~expense. As of August ~~4, 2018,~~3, 2019, the Company had euro foreign exchange currency contracts to purchase US$~~38.0~~14.1 million expected to mature over the next ~~nine months and Canadian dollar foreign exchange currency contracts to purchase US$7.7 million expected to mature over the next five months.~~one month. As of August ~~4, 2018,~~3, 2019, the net unrealized gain of these open forward contracts recorded in the Company’s condensed consolidated balance sheet was approximately ~~$1.2~~$1.0 million.

At February ~~3, 2018,~~2, 2019, the Company had euro foreign exchange currency contracts to purchase US$~~68.2 million and Canadian dollar foreign exchange currency contracts to purchase US$17.6~~8.2 million. At February ~~3, 2018,~~2, 2019, the net unrealized ~~loss~~gain of these open forward contracts recorded in the Company’s condensed consolidated balance sheet was approximately ~~$4.3~~$0.6 million.

Sensitivity Analysis

As of August ~~4, 2018,~~3, 2019, a sensitivity analysis of changes in foreign currencies when measured against the U.S. dollar indicates that, if the U.S. dollar had uniformly weakened by 10% against all of the U.S. dollar denominated foreign exchange derivatives totaling US$~~166.7~~165.9 million, the fair value of the instruments would have decreasedby ~~$18.5~~$18.4 million. Conversely, if the U.S. dollar uniformly strengthened by 10% against all of the U.S. dollar denominated foreign exchange derivatives, the fair value of these instruments would have increased by ~~$15.2~~$15.1 million. Any resulting changes in the fair value of the hedged instruments may be partially offset by changes in the fair value of certain balance sheet positions (primarily U.S. dollar denominated liabilities in our foreign operations) impacted by the change in the foreign currency rate. The ability to reduce the exposure of currencies on earnings depends on the magnitude of the derivatives compared to the balance sheet positions during each reporting cycle.

Interest Rate Risk

In April 2019, the Company issued $300 million principal amount of the Notes in a private offering. The fair value of the Notes is subject to interest rate risk, market risk and other factors due to its conversion feature. The fair value of the Notes will generally increase as our common stock price increases and will generally decrease as our common stock price declines. The interest and market value changes affect the fair value of the Notes but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligation. Additionally, we carry the Notes at face value, less any unamortized discount on our balance sheet and we present the fair value for disclosure purposes only.

Interest Rate Swap Agreement Designated as Cash Flow Hedge

During fiscal 2017, the Company entered into an interest rate swap agreement with a notional amount of $21.5 million, designated as a cash flow hedge, to hedge the variability of cash flows in interest payments associated with the Company’s floating-rate debt. This interest rate swap agreement matures in January 2026 and converts the nature of the Company’s real estate secured term loan from LIBOR floating-rate debt to fixed-rate debt, resulting in a swap fixed rate of approximately 3.06%. The fair value of the interest rate swap agreement is based upon inputs corroborated by observable market data. Changes in the fair value of the interest rate swap agreement, designated as a cash flow hedge to hedge the variability of cash flows in interest payments associated with the Company’s floating-rate debt, are recorded as a component of accumulated other comprehensive income (loss) within stockholders’ equity and are amortized to interest expense over the term of the related debt.

As of August ~~4, 2018,~~3, 2019, accumulated other comprehensive income (loss) related to the interest rate swap agreement included a net unrealized ~~gain~~loss of ~~approximately $1.2~~less than $0.1 million, net of tax, which will be recognized in interest expense after the following 12 months, at the then current values on a pre-tax basis, which can be different than the current quarter-end values. As of August ~~4, 2018 and~~3, 2019, the net unrealized loss of the interest rate swap recorded in the Company’s condensed consolidated balance sheet was approximately $0.1 million. As of February ~~3, 2018,~~2, 2019, the net unrealized gain of the interest rate swap recorded in the Company’s condensed consolidated balance sheet was approximately ~~$1.5~~$1.0 million.

Sensitivity Analysis

As of August ~~4, 2018, approximately 93% of~~3, 2019, the ~~Company’s total~~Company had indebtedness related to a real estate secured term loan of $19.4

million and ~~capital~~finance lease ~~obligations.~~obligations of $18.1 million. The real estate secured term loan is covered by a separate interest rate swap agreement with a swap fixed interest rate of approximately 3.06% that matures in January 2026. The interest

rate swap agreement is designated as a cash flow hedge and converts the nature of the Company’s real estate secured term loan from LIBOR floating-rate debt to fixed-rate debt. The ~~capital~~finance lease obligations are based on fixed interest rates derived from the respective agreements.

~~The Company’s remaining indebtedness is at~~As of August 3, 2019, the Company also had borrowings under its short-term borrowing arrangements of $27.8 million which are based on variable rates of interest. Accordingly, changes in interest rates would impact the Company’s results of operations in future periods. A 100 basis point increase in interest rates would not have ~~had an insignificant~~a significant effect on interest expense for the six months ended August ~~4, 2018.~~3, 2019.

The fair ~~value~~values of the Company’s debt instruments are based on the amount of future cash flows associated with each instrument discounted using the Company’s incremental borrowing rate. As of August ~~4, 2018~~3, 2019 and February ~~3, 2018,~~2, 2019, the carrying value ~~of all financial instruments~~ was not materially different from fair value, as the interest rates on the Company’s debt approximated rates currently available to the Company. The fair value of the Company’s convertible senior notes is determined based on inputs that are observable in the market and have been classified as Level 2 in the fair value hierarchy.

ITEM 4. Controls and Procedures.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the quarterly period covered by this report.

There was no change in our internal control over financial reporting during the second quarter of fiscal ~~2019~~2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION


ITEM 1.	Legal Proceedings.

~~The Company is involved~~See “Part I, Item 1. Financial Statements – Note 13 – Commitments and Contingencies – Legal and Other Proceedings” in this Form 10-Q for disclosures about our legal ~~proceedings, arising both in the ordinary course of business and otherwise, including the proceedings described below as well as various other claims~~ and other matters incidental to the Company’s business. Unless otherwise stated, the resolution of any particular proceeding is not currently expected to have a material adverse impact on the Company’s financial position or results of operations. Even if such an impact could be material, we may not be able to estimate the reasonably possible loss or range of loss until developments in the proceedings have provided sufficient information to support an assessment.proceedings.

issued a ruling on November 8, 2013 granting an injunction in favor of the plaintiff for certain of the claimed infringements on handbags and small leather goods and awarding the plaintiff statutory damages in the amount of approximately $80,000. The Company strongly disagreed with the Court’s decision and appealed the ruling. On August 31, 2016, the Court of Appeal for the China matter issued a decision in favor of the Company, rejecting all of the plaintiff’s claims. In March 2017, the plaintiff petitioned the China Supreme Court for a retrial of the matter. On January 30, 2015, the Court of Paris ruled in favor of the Company in the France matter, rejecting all of the plaintiff’s claims and partially canceling two of the plaintiff’s community trademark registrations and one of the plaintiff’s international trademark registrations. On February 17, 2015, the plaintiff appealed the Court of Paris’ ruling. In April 2018, the parties entered into an agreement to settle all pending worldwide intellectual property litigation and trademark office matters between the parties and their subsidiaries, including the previously active litigation matters in Italy, China and France. As part of the settlement, the parties agreed on the use of various design elements by each party on a go-forward basis. The settlement did not have a significant impact on the Company’s financial results, and the terms of the settlement are not expected to have a negative impact on the Company’s business operations going forward.

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. Such assessments totaled €9.8 million ($11.4 million), including potential penalties and interest. The Company strongly disagrees with the positions that the ICA has taken and therefore filed appeals with the Milan First Degree Tax Court (“MFDTC”). In May 2015, the MFDTC issued a judgment in favor of the Company in relation to the first set of appeals (covering the period through September 2010) and canceled the related assessments totaling €1.7 million ($2.0 million).In November 2015, the ICA notified the Company of its intent to appeal this first MFDTC judgment. During fiscal 2017, the Appeals Court ruled in favor of the Company and rejected the appeal by the ICA on the first MFDTC judgment. The ICA has appealed the majority of these to the Italian Supreme Court. During fiscal 2017, the MFDTC also issued judgments in favor of the Company in relation to the second through seventh set of appeals (covering the period from October 2010 through December 2012) and canceled the related assessments totaling €8.1 million ($9.4 million). Subsequently, the Italian Customs Agency has appealed the majority of these favorable MFDTC judgments, as well as certain of the Appeals Court judgments. In April 2018, a different judge within the Appeals Court ruled in favor of the ICA with respect to a portion of the outstanding appeals (covering the period from October through December 2010) totaling ~~€1.2 million~~ ($1.4 million). The Company believes that this recent Appeals Court ruling is incorrect and inconsistent with the prior rulings on similar matters by both the MFDTC and other judges within the Appeals Court, and plans to appeal the decision. In July 2018, a different section of the Appeals Court ruled in favor of the Company and rejected the appeals by the ICA with respect to a portion of the outstanding appeals (covering the periods from January through June 2012 and August through December 2012) totaling €3.0 million ($3.4 million). There can be no assurances the Company will be successful in the remaining appeals. It also continues to be possible that the Company will receive similar or even larger assessments for periods subsequent to December 2012 or other claims or charges related to the matter in the future. Although the Company believes that it has a strong position and will continue to vigorously defend this matter, it is unable to predict with certainty whether or not these efforts will ultimately be successful or whether the outcome will have a material impact on the Company’s financial position or results of operations.

On June 6, 2017, the European Commission notified the Company that it had initiated proceedings to investigate whether certain of the Company’s practices and agreements concerning the distribution of apparel and accessories within the European Union breach European Union competition rules related to cross-border transactions, internet sales limitations and resale price restrictions. The Company has cooperated and plans to continue to cooperate with the European Commission, including through responses to requests for information and through changes to certain business practices and agreements, as appropriate. Depending on the outcome of the proceedings, a broad range of remedies is potentially available to the European Commission, including imposing a fine and/or injunctive relief prohibiting or restricting certain business practices. However, the Company does not currently believe that any changes to its business practices or agreements made in connection with these proceedings will have a material impact on its ongoing business operations within the European Union. As of

November 6, 2017, the Company and the European Commission agreed to begin a settlement discussion process to determine if the parties can mutually agree on an outcome of the proceedings. Those discussions are still ongoing. To the extent the Company and the European Commission are able to reach an agreement, such agreement could occur as early as during fiscal 2019, although any resolution may be delayed due to the inherent unpredictability of the proceedings. Although it is currently not possible to assess the impact any settlement or other conclusion may have on our consolidated financial statements because the process is still ongoing, it is possible that the result could have a material adverse effect on our financial statements in the applicable reporting period.

ITEM 1A. Risk Factors.

~~There~~Other than the risk factors noted below, there have not been any material changes from the Risk Factors as previously disclosed in our Annual Report on Form 10-K for the year ended February ~~3, 2018,~~2, 2019, filed with the SEC on March 29, ~~2018.~~2019.

Our indebtedness and liabilities could limit the cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition and results of operations and impair our ability to satisfy our obligations under our outstanding indebtedness.

As of August 3, 2019, we had approximately $19.4 million of secured indebtedness, $330.6 million of senior unsecured indebtedness at maturity and approximately $246.5 million of trade payables on a consolidated basis.

We may incur additional indebtedness to meet future financing needs, some of which may be secured indebtedness. Our indebtedness could have significant negative consequences for our security holders and our business, results of operations and financial condition by, among other things:

increasing our vulnerability to adverse economic and industry conditions;

limiting our ability to obtain additional financing;

requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for other purposes;

limiting our flexibility to plan for, or react to, changes in our business;

diluting the interests of our existing stockholders as a result of issuing shares of our common stock upon conversion of the Notes; and

placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital.

Our business may not generate sufficient funds, and we may otherwise be unable to maintain sufficient cash reserves, to pay amounts due under our indebtedness, and our cash needs may increase in the future. In addition, our existing Credit Facility contains, and any future indebtedness that we may incur may contain, financial and other restrictive covenants that limit our ability to operate our business, raise capital or make payments under our other indebtedness. If we fail to comply with these covenants or to make payments under our indebtedness when due, then we would be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full.

We conduct a significant amount of our operations through our subsidiaries and may rely on our subsidiaries to make payments under our outstanding indebtedness.

We conduct a significant amount of our operations through our subsidiaries. Accordingly, our ability to pay amounts due on our outstanding indebtedness may depend on the cash flows of our subsidiaries and their ability to make distributions to us. Our subsidiaries are separate and distinct legal entities and any payments to us would depend on the earnings or financial condition of our subsidiaries and various business considerations. Statutory, contractual or other restrictions may also limit our subsidiaries’ ability to pay dividends or make distributions, loans or advances to us, and the notes and the Indenture pursuant to which the notes were issued do not limit or restrict our or our subsidiaries’ ability to enter into contractual restrictions on our subsidiaries’ ability to pay dividends or make distributions, loans or advances to us. For these reasons, we may not have access to any assets or cash flows of our subsidiaries to make payments on our outstanding indebtedness.

We cannot ensure that we will continue paying dividends at the current rates, or at all.

We cannot ensure that we will continue periodic dividends on our common stock at the current rates, or at all. On April 19, 2019, our Board of Directors determined to reduce the quarterly cash dividend paid to holders of our common stock, when, as and if any such dividend with respect to any future period is decided by the board of directors, from $0.225 per share to $0.1125 per share. Changes in our dividend and market perceptions and expectations with respect to our dividend, may materially affect the price of our common stock and the Notes.

Any quarterly dividends on our common stock will be paid from funds legally available for such purpose when, as and if declared by our Board of Directors. Decisions on whether, when and in which amounts to continue making any future dividend distributions will remain at all times entirely at the discretion of our Board of Directors, which reserves the right to change or terminate our dividend practices at any time and for any reason without prior notice, including without limitation for any of the following reasons:

our cash requirements or plans might change for a wide variety of reasons, including changes in our financial position, capital allocation plans (including a desire to retain or accumulate cash), capital spending plans, stock purchase plans, acquisition strategies, strategic initiatives, debt payment plans (including a desire to maintain or improve credit ratings on our debt securities), pension funding or other benefits payments;

our ability to service and refinance our current and future indebtedness and our ability to borrow or raise additional capital to satisfy our capital needs;

the amount of dividends that we may distribute to our shareholders is subject to restrictions under applicable law and restrictions imposed by our existing or future credit facilities, debt securities,

then-outstanding preferred stock securities, if any, leases and other agreements, including restricted payment and leverage covenants; and

the amount of cash that our subsidiaries may make available to us, whether by dividends, loans or other payments, may be subject to the legal, regulatory and contractual restrictions in our outstanding indebtedness.

Based on its evaluation of these and other relevant factors, our Board of Directors may, in its sole discretion, decide not to declare a dividend on our common stock for any period and for any reason without prior notice, regardless of whether we have funds legally available for such purposes. Holders of our equity securities have no contractual or other legal right to receive dividends.

We may be unable to raise the funds necessary to repurchase the Notes for cash following a fundamental change, or to pay any cash amounts due upon conversion, and our other indebtedness may limit our ability to repurchase the Notes or pay cash upon their conversion.

Noteholders may require us to repurchase their Notes following a fundamental change at a cash repurchase price generally equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any. In addition, upon conversion, we will satisfy part or all of our conversion obligation in cash unless we elect to settle conversions solely in shares of our common stock. Moreover, we will be required to repay the Notes in cash at their maturity, unless earlier converted or repurchased. We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the Notes or pay the cash amounts due upon conversion. In addition, applicable law, regulatory authorities and the agreements governing our other indebtedness, including our current Credit Facility and other agreements we may enter into in the future, may restrict our ability to make payments on the Notes other than scheduled principal and interest, and as a result, upon a fundamental change we may not be able to repurchase the Notes and upon any conversions of the Notes may be unable to pay the cash amounts, if any, then due. Our inability to satisfy our obligations under the Notes could harm our reputation and affect the trading price of our common stock.

Our failure to repurchase Notes or to pay the cash amounts due upon conversion or at maturity when required will constitute a default under the Indenture. A default under the Indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, which may result in that other indebtedness becoming immediately payable in full. We may not have sufficient funds to satisfy all amounts due under the other indebtedness and the Notes.

The issuance or sale of shares of our common stock, or rights to acquire shares of our common stock, could depress the trading price of our common stock and the Notes.

We may conduct future offerings of our common stock, preferred stock or other securities that are convertible into or exercisable for our common stock to finance our operations or fund acquisitions, or for other purposes. In addition, we have reserved a substantial number of shares of our common stock for issuance upon the exercise of stock options, upon the vesting of restricted stock and restricted stock units pursuant to our employee benefit plans, upon conversion of the Notes and upon the exercise and settlement or termination of the warrant transactions. We cannot predict the size of future issuances or the effect, if any, that they may have on the trading price of our common stock and the Notes.

If we issue additional shares of our common stock or rights to acquire shares of our common stock, if any of our existing stockholders sells a substantial amount of our common stock, or if the market perceives that such issuances or sales may occur, then the trading price of our common stock and the Notes may significantly decrease. In addition, our issuance of additional shares of common stock will dilute the ownership interests of our existing common stockholders.

Recent and future regulatory actions and other events may adversely affect the trading price and liquidity of the Notes and the liquidity of the market for our common stock.

Noteholders may seek to employ a convertible note arbitrage strategy with respect to the Notes. Under this strategy, investors typically short sell a certain number of shares of our common stock and adjust their short position over time while they continue to hold the Notes. Investors may also implement this type of strategy by entering into swaps on our common stock in lieu of, or in addition to, short selling shares of our common stock.

The SEC and other regulatory authorities have implemented various rules and taken certain actions, and may in the future adopt additional rules and take other actions, that may impact those engaging in short selling activity involving equity securities (including our common stock). These rules and actions include Rule 201 of SEC Regulation SHO, the adoption by the Financial Industry Regulatory Authority, Inc., and the national securities exchanges of a “limit up-limit down” program, the imposition of market-wide circuit breakers that halt trading of securities for certain periods following specific market declines, and the implementation of certain regulatory reforms required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Any governmental or regulatory action that restricts investors’ ability to effect short sales of our common stock or enter into equity swaps on our common stock could depress the trading price of, and the liquidity of the market for, the Notes.

In addition, the liquidity of the market for our common stock may decline, including as a result of our anticipated share repurchases, which could reduce the number of shares available for lending in connection with short sale transactions and the number of counterparties willing to enter into an equity swap on our common stock with a note investor. If investors and noteholders seeking to employ a convertible note arbitrage strategy are unable to borrow or enter into equity swaps on our common stock on commercially reasonable terms, then the trading price of, and the liquidity of the market for, the Notes may significantly decline.

Provisions in the Indenture could delay or prevent an otherwise beneficial takeover of us.

Certain provisions in the Indenture could make a third-party attempt to acquire us more difficult or expensive. For example, if a takeover constitutes a fundamental change, then noteholders will have the right to require us to repurchase their Notes for cash. In addition, if a takeover constitutes a make-whole fundamental change, then we may be required to temporarily increase the conversion rate. As well, the Indenture prohibits us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the Notes. In such cases, and in other cases, our obligations under the Notes and the Indenture could increase the cost of acquiring us or otherwise discourage a third-party from acquiring us or removing incumbent management, including in a transaction that noteholders or holders of our common stock may view as favorable.

The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and results of operations.

In the event the conditional conversion feature of the Notes is triggered, noteholders will be entitled to convert the Notes at any time during specified periods at their option. If one or more noteholders elect to convert their Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock, we would be required to settle all or a portion of the conversion obligation through the payment of cash, which could adversely affect our liquidity. Even if noteholders do not elect to convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current liability, which would result in a material reduction of our net working capital.

The accounting method for the Notes could adversely affect our reported financial condition and results.

The accounting method for reflecting the Notes on our balance sheet, accruing interest expense for the Notes and reflecting the underlying shares of our common stock in our reported diluted earnings per share may adversely affect our reported earnings and financial condition.

Under applicable accounting principles, the initial liability carrying amount of the Notes is the fair value of a similar debt instrument that does not have a conversion feature, valued using our cost of capital for straight, unconvertible debt. We reflect the difference between the net proceeds from the Notes offering and the initial carrying amount as a debt discount for accounting purposes, which will be amortized into interest expense over

the term of the Notes. As a result of this amortization, the interest expense that we expect to recognize for the Notes for accounting purposes will be greater than the cash interest payments we will pay on the Notes, which will result in lower reported income or higher reported loss. The lower reported income or higher reported loss resulting from this accounting treatment could depress the trading price of our common stock and the Notes.

In addition, because we intend to settle conversions by paying the conversion value in cash up to the principal amount being converted and any excess in shares, we expect to be eligible to use the treasury stock method to reflect the shares underlying the Notes in our diluted earnings per share. Under this method, if the conversion value of the notes exceeds their principal amount for a reporting period, then we will calculate our diluted earnings per share assuming that all the Notes were converted and that we issued shares of our common stock to settle the excess. However, if reflecting the Notes in diluted earnings per share in this manner is antidilutive, or if the conversion value of the Notes does not exceed their principal amount for a reporting period, then the shares underlying the Notes will not be reflected in our diluted earnings per share. However, if for any reason we are unable to use the treasury stock method in accounting for the shares issuable upon conversion of the Notes, then our diluted earnings per share may be adversely affected. For example, the Financial Accounting Standards Board has recently taken preliminary steps to potentially amend these accounting standards to eliminate the treasury stock method for convertible instruments and instead require application of the “if-converted” method. Under that method, if it is adopted, diluted earnings per share would generally be calculated assuming that all the Notes were converted solely into shares of common stock at the beginning of the reporting period, unless the result would be antidilutive. The application of the if-converted method may reduce our reported diluted earnings per share.

Furthermore, if any of the conditions to the convertibility of the Notes is satisfied, then we may be required under applicable accounting standards to reclassify the liability carrying value of the Notes as a current, rather than a long-term, liability. This reclassification could be required even if no noteholders convert their Notes and could materially reduce our reported working capital.

The Notes’ hedge and warrant transactions may affect the value of the Notes and our common stock.

In connection with the pricing of the Notes, we entered into convertible note hedge transactions with the hedge counterparties. The convertible note hedge transactions covered, subject to anti-dilution adjustments substantially similar to those applicable to the Notes, the number of shares of common stock that initially underlie the Notes, including those sold to the initial purchaser, and are expected generally to reduce the potential dilution upon conversion of the Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Notes, as the case may be. We also entered into warrant transactions with the hedge counterparties relating to the same number of shares of our common stock, subject to customary antidilution adjustments. However, the warrant transactions could separately have a dilutive effect on our common stock to the extent that the market price per share of our common stock exceeds the strike price of the warrants. In connection with establishing their initial hedges of the convertible note hedge and warrant transactions, the hedge counterparties or affiliates thereof entered into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the Notes, and may unwind these derivative transactions and purchase shares of our common stock in open market transactions shortly following the pricing of the Notes. These activities could increase (or reduce the size of any decrease in) the market price of our common stock or the Notes at that time.

In addition, the hedge counterparties or affiliates thereof may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the Notes (and are likely to do so during any observation period related to a conversion of Notes). This activity could also cause or avoid an increase or a decrease in the market price of our common stock or the Notes.

We are subject to counterparty risk with respect to the Notes’ hedge transactions.

The hedge counterparties are financial institutions, and we are subject to the risk that they might default under the convertible note hedge transactions. Our exposure to the credit risk of the hedge counterparties is not

secured by any collateral. Global economic conditions have from time to time resulted in the actual or perceived failure or financial difficulties of many financial institutions, including the bankruptcy filing by Lehman Brothers Holdings Inc. and its various affiliates. If any hedge counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under our transactions with such hedge counterparty. Our exposure will depend on many factors, but, generally, the increase in our exposure will be correlated to the increase in the market price and in the volatility of our common stock. In addition, upon a default by a hedge counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of the hedge counterparties.

Conversion of the Notes or exercise of the warrants evidenced by the warrant transactions may dilute the ownership interest of existing stockholders.

At our election, we may settle Notes tendered for conversion entirely or partly in shares of our common stock. Furthermore, the warrants evidenced by the warrant transactions are expected to be settled on a net-share basis. As a result, the conversion of some or all of the Notes or the exercise of some or all of such warrants may dilute the ownership interests of existing stockholders. Any sales in the public market of the common stock issuable upon such conversion of the Notes or such exercise of the warrants could adversely affect prevailing market prices of our common stock and, in turn, the price of the Notes. In addition, the existence of the Notes may encourage short selling by market participants because the conversion of the Notes could depress the price of our common stock.

Our repurchases of shares of our common stock may affect the value of the Notes and our common stock.

After effectuating the convertible note hedge transactions, we used substantially all of the net proceeds of the Notes offering to repurchase shares of our common stock pursuant to our $500 million share repurchase program. Some of these transactions were effected by repurchases from purchasers of the Notes in privately negotiated transactions through the initial purchaser or its affiliate, as our agent, concurrently with the closing of the Notes offering, and we may continue to effect repurchases in open market or other transactions from time to time in the future. These activities and our other repurchases of shares of our common stock may cause or avoid an increase or a decrease in the market price of our common stock or the Notes and add volatility. There can be no assurance that repurchases will be made at the best possible price. Potential risks and uncertainties also include, but are not necessarily limited to, the amount and timing of future share repurchases and the origin of funds used for such repurchases. The existence of a share repurchase program could also cause the market price of our common stock to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our common stock. Depending on market conditions and other factors, these repurchases may be commenced or suspended from time to time. Any such suspension could cause the market price of our common stock to decline.


ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds.

Items (a) and (b) are not applicable.

Item (c). Issuer Purchases of Equity Securities

Period
Total
Number
of Shares
Purchased

Average
Price
Paid
per Share

Total Number of
Shares
Purchased as Part of
Publicly
Announced
Plans or Programs

Maximum Number
(or Approximate
Dollar Value)
of Shares That May
Yet Be Purchased
Under the Plans
or Programs
May 6, 2018 to June 2, 2018
Repurchase program (1) —
—
—
$ 374,636,677
Employee transactions (2) —
—
—

June 3, 2018 to July 7, 2018
Repurchase program (1) —
—
—
$ 374,636,677
Employee transactions (2) —
—
—

July 8, 2018 to August 4, 2018
Repurchase program (1) —
—
—
$ 374,636,677
Employee transactions (2) 21,324
$ 21.97
—

Total
Repurchase program (1) —
—
—

Employee transactions (2) 21,324
$ 21.97
—



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs¹
May 5, 2019 to June 1, 2019
Repurchase program²	—	—		—	$	105,137,922
Employee transactions³	139	$	19.75	—
June 2, 2019 to July 6, 2019
Repurchase program²	749,252	$	14.67	749,252	$	94,149,167
Employee transactions³	1,365	$	15.73	—
July 7, 2019 to August 3, 2019
Repurchase program²	—	—		—	$	94,149,167
Employee transactions³	2,000	$	16.33	—
Total
Repurchase program²	749,252	$	14.67	749,252
Employee transactions³	3,504	$	16.23	—

______________________________________________________________________

Notes:

~~(1)~~

On April 26, 2019, pursuant to existing stock repurchase authorizations, the Company entered into an accelerated share repurchase agreement (the “ASR Contract”) with JPMorgan Chase Bank, National Association (the “ASR Counterparty”) to repurchase an aggregate of $170 million of the Company’s common stock. Upon the terms of the ASR Contract, the Company made an initial payment of $170 million to the ASR Counterparty and received an initial delivery of 5.2 million shares of common stock, which represented approximately $102 million (or 60%) of the ASR Contract. The remaining balance of $68 million was classified as an equity forward contract and has reduced the maximum dollar value of shares that may yet be purchased under the Company’s repurchase program. The equity forward contract was settled in September 2019. Refer to “Part I, Item 1. Financial Statements – Note 4 – Stockholders’ Equity – Share Repurchase Program” for further information.


~~(2)~~ ³	Consists of shares surrendered to, or withheld by, the Company in satisfaction of employee tax withholding obligations that occur upon vesting of restricted stock awards/units granted under the Company’s 2004 Equity Incentive Plan, as amended.


ITEM 6.	Exhibits.



Exhibit Number		Description
3.1.		Restated Certificate of Incorporation of the Registrant (incorporated by reference from Amendment No. 3 to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-4419) filed July 30, 1996).
3.2.		Third Amended and Restated Bylaws of the Registrant (incorporated by reference from the Registrant’s Annual Report on Form 10-K for the year ended February 3, 2018).
4.1.		Specimen Stock Certificate (incorporated by reference from Amendment No. 3 to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-4419) filed July 30, 1996).
*†~~10.1~~4.2.		Indenture, dated as of April 26, 2019, between the Registrant and U.S. Bank National Association, as trustee (including form of 2.00% Convertible Senior Notes due 2024) (incorporated by reference from the Registrant’s Current Report on Form 8-K filed April 29, 2019).
*†10.1.		Restricted Stock Unit Agreement dated as of June ~~25, 2018~~20, 2019 for Paul ~~Marciano and Victor Herrero.~~Marciano.
*†~~10.2~~31.1.		~~Performance Share Award Agreement (total shareholder return) dated as of June 25, 2018 for Paul Marciano and Victor Herrero.~~
*†~~10.3~~.		~~Performance Share Award Agreement (revenue and earnings from operations) dated as of June 25, 2018 for Paul Marciano and Victor Herrero~~.
*†~~10.4~~.		~~Form of Performance Share Award Agreement.~~
†~~31.1~~.		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
†31.2.		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
††32.1.		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
††32.2.		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
†101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
†101.SCH		XBRL Taxonomy Extension Schema Document
†101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
†101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
†101.LAB		XBRL Taxonomy Extension Label Linkbase Document
†101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
†104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

_______________________________________________________________________________



*	Management Contract or Compensatory Plan
†	Filed herewith
††	Furnished herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		Guess?, Inc.

Date:	September ~~6, 2018~~5, 2019	By:	/s/ ~~VICTOR HERRERO~~CARLOS ALBERINI
			~~Victor Herrero~~Carlos Alberini
			Chief Executive Officer

Date:	September ~~6, 2018~~5, 2019	By:	/s/ SANDEEP REDDY
			Sandeep Reddy
			Chief Financial Officer
			(Principal Financial Officer)

6468



	Three Months Ended Jul 29, 2017
	Foreign Currency Translation Adjustment			Derivative Financial Instruments Designated as Cash Flow Hedges			Defined Benefit Plans			Total
Balance at April 29, 2017	$	(146,754	)	$	4,948		$	(8,486	)	$	(150,292	)
Gains (losses) arising during the period	43,079			(13,093		)	(82		)	29,904
Reclassification to net loss for (gains) losses realized	—			(606		)	85			(521		)
Net other comprehensive income (loss)	43,079			(13,699		)	3			29,383
Balance at July 29, 2017	$	(103,675	)	$	(8,751	)	$	(8,483	)	$	(120,909	)



	Six Months Ended Jul 29, 2017
	Foreign Currency Translation Adjustment			Derivative Financial Instruments Designated as Cash Flow Hedges			Defined Benefit Plans			Total
Balance at January 28, 2017	$	(158,227	)	$	5,400		$	(8,562	)	$	(161,389	)
Gains (losses) arising during the period	54,552			(12,969		)	(95		)	41,488
Reclassification to net loss for (gains) losses realized	—			(1,182		)	174			(1,008		)
Net other comprehensive income (loss)	54,552			(14,151		)	79			40,480
Balance at July 29, 2017	$	(103,675	)	$	(8,751	)	$	(8,483	)	$	(120,909	)



	Number of Units		Weighted Average Grant Date Fair Value
Nonvested at February 3, 2018	1,300,921		$	14.01
Granted	489,646		21.83
Vested	(141,625	)	15.07
Forfeited	(27,441	)	11.16
Nonvested at August 4, 2018	1,621,501		$	16.33



	Three Months Ended July 29, 2017
	SERP		Foreign Pension Plans			Total
Service cost	$	—	$	606		$	606
Interest cost	460		20			480
Expected return on plan assets	—		(46		)	(46		)
Net amortization of unrecognized prior service credit	—		(6		)	(6		)
Net amortization of actuarial losses	38		73			111
Net periodic defined benefit pension cost	$	498	$	647		$	1,145



	Six Months Ended July 29, 2017
	SERP		Foreign Pension Plans			Total
Service cost	$	—	$	1,232		$	1,232
Interest cost	921		42			963
Expected return on plan assets	—		(95		)	(95		)
Net amortization of unrecognized prior service credit	—		(13		)	(13		)
Net amortization of actuarial losses	76		152			228
Net periodic defined benefit pension cost	$	997	$	1,318		$	2,315



	Derivative Balance Sheet Location	Fair Value at Aug 4, 2018		Fair Value at Feb 3, 2018
ASSETS:
Derivatives designated as hedging instruments:
Cash flow hedges:
Foreign exchange currency contracts	Other current assets/ Other assets	$	4,224	$	41
Interest rate swap	Other assets	1,525		1,460
Total derivatives designated as hedging instruments		5,749		1,501
Derivatives not designated as hedging instruments:
Foreign exchange currency contracts	Other current assets	1,726		10
Total		$	7,475	$	1,511
LIABILITIES:
Derivatives designated as hedging instruments:
Cash flow hedges:
Foreign exchange currency contracts	Accrued expenses/ Other long-term liabilities	$	528	$	13,789
Derivatives not designated as hedging instruments:
Foreign exchange currency contracts	Accrued expenses	483		4,300
Total		$	1,011	$	18,089



	Location of Gain (Loss) Recognized in Earnings (Loss)	Gain (Loss) Recognized in Earnings (Loss)
		Three Months Ended					Six Months Ended
		Aug 4, 2018		Jul 29, 2017			Aug 4, 2018		Jul 29, 2017
Derivatives not designated as hedging instruments:
Foreign exchange currency contracts	Other income (expense)	$	2,216	$	(6,540	)	$	5,906	$	(7,333	)



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs
May 6, 2018 to June 2, 2018
Repurchase program (1)	—	—		—	$	374,636,677
Employee transactions (2)	—	—		—
June 3, 2018 to July 7, 2018
Repurchase program (1)	—	—		—	$	374,636,677
Employee transactions (2)	—	—		—
July 8, 2018 to August 4, 2018
Repurchase program (1)	—	—		—	$	374,636,677
Employee transactions (2)	21,324	$	21.97	—
Total
Repurchase program (1)	—	—		—
Employee transactions (2)	21,324	$	21.97	—