Guess' (GES) 8-K Guess?, Inc. Reports Record Third Quarter Earnings

GUESS?, INC. NEWSRELEASE

GUESS?, INC. REPORTS RECORD THIRD QUARTER EARNINGS

Q3 EPS Reached A Record of $0.69, Compared to $0.67 Last Year

Provides Q4 EPS Guidance in the Range of $0.77 to $0.80

Provides Current Fiscal Year EPS Guidance in the Range of $2.45 to $2.48

Third Quarter Fiscal 2010 Highlights

- Global revenues reached $523 million, compared to $528 million last year

- Product margins improved across all business segments

- Operating margin reached 18.9% vs. 18.8% last year

- Cash increased to $345 million, compared to $237 million last year

LOS ANGELES, November 30, 2009 – Guess?, Inc. (NYSE: GES) today reported financial results for the third quarter of its 2010 fiscal year, which ended October 31, 2009.

Third Quarter Fiscal 2010 Results

For the third quarter of fiscal 2010, the Company reported record net earnings of $64.1 million, a slight increase compared to net earnings of $64.0 million for the third quarter of fiscal 2009.  Diluted earnings per share increased 3.0%, reaching $0.69, compared to $0.67 for the prior-year quarter.

Paul Marciano, Chief Executive Officer, commented, “We are very pleased with the position of our Company today.  Our brand enjoys significant momentum worldwide and our management team continues to execute well.  We are gaining share in key markets, generating strong cash flows and delivering solid returns.  As we look into the future, we will continue to fund key growth initiatives and invest in our infrastructure.  International expansion remains a high priority for us and we plan to resume retail development in North America and expand our retail presence in other countries as well.”

Mr. Marciano continued, “Our third quarter financial results exceeded our expectations. Each of our businesses performed better than expected in both revenues and earnings, as our customer continued to respond well to our product assortment in all markets around the world. In addition, we managed well, controlling our costs and inventories tightly to protect our profitability. This solid performance resulted in record third quarter earnings and a significant improvement in our cash flows in the period. There have been many challenges over the past year, and we responded well to them. As a result, we are a stronger company today. Through it all, we have remained true to our brand and focused on our customer, always delivering outstanding product and improving our service in our stores. We strongly believe that we are well positioned to achieve our objectives for growth and profitability.”

Total net revenue for the third quarter of fiscal 2010 decreased 1.0% to $522.8 million from $527.9 million in the prior-year quarter.  Currency translation did not have a material effect on total revenues in the quarter.  The Company’s retail stores in North America generated net revenue of $239.5 million in the third quarter of fiscal 2010, a 1.9% increase from $235.1 million in the same period a year ago.  Comparable store sales decreased 3.4% for the third quarter of fiscal 2010, compared to the same period a year ago.  The Company operated 433 retail stores in the United States and Canada at the end of the third quarter of fiscal 2010 versus 422 stores a year earlier.

Net revenue from the Company’s wholesale segment, which includes the Company’s Asian operations, increased 10.0% to $86.7 million in the third quarter of fiscal 2010, from $78.8 million in the prior-year period.

As expected, net revenue from the Company’s European segment decreased 9.3% to $168.8 million in the third quarter of fiscal 2010, compared to $186.2 million in the prior-year period, due to a shift in shipments from the current year’s third quarter into the second quarter.

Licensing segment net revenue decreased 0.4% to $27.8 million in the third quarter of fiscal 2010, from $27.9 million in the prior-year period.

Operating earnings for the third quarter of fiscal 2010 decreased 0.4% to $99.0 million from $99.4 million in the prior-year period.  Currency translation did not have a material effect on operating profit in the quarter.  Operating margin in the third quarter increased 10 basis points to 18.9%, compared to the prior-year’s quarter.  This operating margin increase was due to higher product margins in all segments and SG&A leverage resulting from strong expense management.  These improvements were nearly offset by occupancy deleverage due to negative comparable store sales and a greater mix of European retail stores.

The Company’s effective tax rate for the quarter was 33%, essentially flat to the prior year quarter.

Nine-Month Period Results

For the nine months ended October 31, 2009, the Company reported net earnings of $156.2 million, a decrease of 5.7% compared to net earnings of $165.7 million for the nine months ended November 1, 2008.  Diluted earnings per share decreased 3.4% to $1.68 per share in the first nine months of the 2010 fiscal year versus $1.74 per share in the comparable nine-month period last year.

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Total net revenue for the first nine months of fiscal 2010 decreased 3.0% to $1,486.4 million from $1,532.3 million in the prior-year period.  In constant dollars, total net revenue increased 2.3%.  The Company’s retail stores in North America generated revenue of $674.5 million in the first nine months of fiscal 2010, a 2.2% decrease from $689.4 million in the same period a year ago.  Comparable store sales decreased 6.8% in local currency and 8.6% in US dollars for the nine months ended October 31, 2009, compared to the nine months ended November 1, 2008.  Net revenue from the Company’s wholesale segment, which includes the Company’s Asian operations, decreased 4.9% to $215.3 million in the first nine months of fiscal 2010, from $226.3 million in the prior-year period.  Net revenue from the Company’s European segment decreased 2.7% to $524.7 million in the first nine months of fiscal 2010, compared to $539.1 million in the prior-year period.  (In local currency, European segment revenues increased 5.7% for the first nine months of fiscal 2010.)  Licensing segment net revenue decreased 7.3% to $71.9 million in the first nine months of fiscal 2010, from $77.6 million in the prior-year period.

Operating earnings for the first nine months of fiscal 2010 decreased 8.5% to $238.1 million (including a $15.5 million unfavorable currency translation impact) from $260.3 million in the prior-year period.  Operating margin in the first nine months of fiscal 2010 decreased 100 basis points to 16.0%, compared to the prior-year period.  This operating margin decline was the result of lower European product margins, primarily due to the impact of the stronger US dollar on product purchases and occupancy deleverage due to the negative comparable store sales, which were partially offset by higher product margins in North America and Asia and SG&A expense leverage.

Outlook

The Company’s expectations for the fourth quarter of fiscal 2010 ending January 30, 2010, are as follows:

- Consolidated net revenues are expected to range from $585 million to $605 million.

- Operating margin is expected to be around 18%.

- Diluted earnings per share are expected to be in the range of $0.77 to $0.80.

The Company’s expectations for the full fiscal year ending January 30, 2010 are as follows:

- Consolidated net revenues are expected to range from $2.07 billion to $2.09 billion.

- Operating margin is expected to be around 16.5%.

- Diluted earnings per share are expected to range from $2.45 to $2.48.

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Dividend

The Company also announced today that its Board of Directors has approved a quarterly cash dividend of $0.125 per share on the Company’s common stock.  The dividend will be payable on December 31, 2009 to shareholders of record at the close of business on December 16, 2009.

The Company will hold a conference call at 4:30 pm (ET) on November 30, 2009 to discuss the news announced in this press release.  A live webcast of the conference call will be accessible at www.guessinc.com via the “Investor’s Info” link.  The webcast will be archived on the website for 30 days.

Guess?, Inc. designs, markets, distributes and licenses a lifestyle collection of contemporary apparel, denim, handbags, watches, footwear and other related consumer products.  As of October 31, 2009, the Company operated 433 retail stores in the United States and Canada and 753 retail stores outside of North America, of which 115 were directly owned.  The Company also distributes its products through better department and specialty stores around the world.  For more information about the Company, please visit www.guessinc.com.

Except for historical information contained herein, certain matters discussed in this press release, including statements concerning the Company’s future prospects and guidance for the fourth quarter and full year of fiscal 2010 are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are only expectations, and involve known and unknown risks and uncertainties, which may cause actual results in future periods to differ materially from what is currently anticipated.  Factors which may cause actual results in future periods to differ materially from current expectations include, among other things, domestic and international economic conditions, including economic and other events that could negatively impact consumer confidence and discretionary consumer spending; our ability to, among other things, anticipate consumer preferences, effectively operate our various retail concepts, effectively manage inventories and successfully execute our strategies, including our supply chain and international growth strategies; and risks associated with changes in economic, political, social and other conditions affecting our foreign operations, including currency fluctuations.  In addition to these factors, the economic, litigation-related and other risks identified in the Company’s most recent annual report on Form 10-K and other filings with the Securities and Exchange Commission, including but not limited to the risk factors discussed therein, could cause actual results to differ materially from current expectations.

Contact:	Guess?, Inc.
	Investor Relations
	(213) 765-5578

Source: Guess?, Inc.

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Guess?, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(amounts in thousands, except per share data)

	Three Months Ended												Nine Months Ended
	October 31,						November 1,						October 31,						November 1,
	2009						2008						2009						2008
	$			%			$			%			$			%			$			%
Net revenue
Product sales	$	494,998			94.7	%	$	499,994			94.7	%	$	1,414,489			95.2	%	$	1,454,685			94.9	%
Net royalties		27,814			5.3	%		27,934			5.3	%		71,947			4.8	%		77,635			5.1	%
		522,812			100.0	%		527,928			100.0	%		1,486,436			100.0	%		1,532,320			100.0	%
Cost of product sales		285,921			54.7	%		286,116			54.2	%		840,265			56.5	%		837,114			54.6	%
Gross profit		236,891			45.3	%		241,812			45.8	%		646,171			43.5	%		695,206			45.4	%
Selling, general and administrative expenses		137,917			26.4	%		142,432			27.0	%		408,049			27.5	%		434,891			28.4	%
Earnings from operations		98,974			18.9	%		99,380			18.8	%		238,122			16.0	%		260,315			17.0	%
Other income (expense):
Interest expense		(778	)		(0.1	)%		(1,706	)		(0.3	)%		(1,723	)		(0.1	)%		(3,530	)		(0.2	)%
Interest income		277			0.1	%		2,000			0.4	%		1,461			0.1	%		5,086			0.3	%
Other, net		(1,340	)		(0.3	)%		(3,717	)		(0.7	)%		(1,413	)		(0.1	)%		(5,349	)		(0.4	)%
Earnings before income taxes		97,133			18.6	%		95,957			18.2	%		236,447			15.9	%		256,522			16.7	%
Income taxes		32,054			6.2	%		31,721			6.0	%		78,028			5.2	%		89,526			5.8	%
Net earnings		65,079			12.4	%		64,236			12.2	%		158,419			10.7	%		166,996			10.9	%
Net earnings attributable to noncontrolling interests in subsidiaries		1,009			0.1	%		219			0.1	%		2,247			0.2	%		1,346			0.1	%
Net earnings attributable to Guess?, Inc.	$	64,070			12.3	%	$	64,017			12.1	%	$	156,172			10.5	%	$	165,650			10.8	%
Earnings per common share attributable to common stockholders:
Basic (1)	$	0.69					$	0.68					$	1.70					$	1.75
Diluted (1)	$	0.69					$	0.67					$	1.68					$	1.74
Weighted average common shares outstanding attributable to common stockholders:
Basic		90,941						92,438						90,765						92,799
Diluted (1)		91,778						93,140						91,416						93,533

(1) The Company adopted a new accounting pronouncement in the first quarter of fiscal 2010 that requires the Company to exclude certain earnings and shares related to participating securities from the computation of earnings per common share. The net earnings attributable to participating securities were approximately $886 and $1,159 in the third quarter of fiscal 2010 and fiscal 2009, respectively, and the amount of participating shares for the same periods were 160 and 169, respectively. The effect of the new accounting pronouncement on diluted earnings per common share is to reduce the current quarter by approximately $0.01 per share, reduce the prior year quarter by approximately $0.02 per share and reduce both the current year-to-date period and the prior year-to-date period by approximately $0.03 per share. The prior year's earnings per share has been adjusted to reflect the change.

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Guess?, Inc. and Subsidiaries

Consolidated Segment Data

(dollars in thousands)

	Three Months Ended									Nine Months Ended
	October 31,			November 1,			%			October 31,			November 1,			%
	2009			2008			chg			2009			2008			chg
Net revenue:
Retail operations	$	239,518		$	235,074			2	%	$	674,538		$	689,371			-2	%
Wholesale operations		86,651			78,760			10	%		215,265			226,257			-5	%
European operations		168,829			186,160			-9	%		524,686			539,057			-3	%
Licensing operations		27,814			27,934			0	%		71,947			77,635			-7	%
	$	522,812		$	527,928			-1	%	$	1,486,436		$	1,532,320			-3	%
Earnings (loss) from operations:
Retail operations	$	33,110		$	27,378			21	%	$	81,325		$	80,358			1	%
Wholesale operations		17,717			13,839			28	%		35,031			37,184			-6	%
European operations		40,801			49,541			-18	%		116,233			129,628			-10	%
Licensing operations		24,176			24,075			0	%		61,863			66,852			-7	%
Corporate overhead		(16,830	)		(15,453	)		9	%		(56,330	)		(53,707	)		5	%
	$	98,974		$	99,380			0	%	$	238,122		$	260,315			-9	%
Operating margins:
Retail operations		13.8	%		11.6	%					12.1	%		11.7	%
Wholesale operations		20.4	%		17.6	%					16.3	%		16.4	%
European operations		24.2	%		26.6	%					22.2	%		24.0	%
Licensing operations		86.9	%		86.2	%					86.0	%		86.1	%
Total Company		18.9	%		18.8	%					16.0	%		17.0	%

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Guess?, Inc. and Subsidiaries

Selected Condensed Consolidated Balance Sheet Data

(in thousands)

	October 31,		January 31,		November 1,
	2009		2009		2008
ASSETS
Cash and cash equivalents	$	344,862	$	294,118	$	236,601
Receivables, net		318,472		262,349		299,653
Inventories		261,880		239,675		252,973
Other current assets		81,976		98,047		67,856
Property and equipment, net		254,259		221,416		243,704
Other assets		147,869		130,961		145,893
Total Assets	$	1,409,318	$	1,246,566	$	1,246,680
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of borrowings and capital lease obligations	$	2,577	$	24,018	$	45,555
Other current liabilities		300,700		311,866		300,573
Borrowing and capital lease obligations		15,457		14,586		14,494
Other long-term liabilities		119,420		110,592		121,181
Redeemable and nonredeemable noncontrolling interests		19,209		12,503		8,132
Guess?, Inc. stockholders' equity		951,955		773,001		756,745
Total Liabilities and Stockholders' Equity	$	1,409,318	$	1,246,566	$	1,246,680

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Guess?, Inc. and Subsidiaries

Condensed Consolidated Cash Flow Data

(in thousands)

	Nine Months Ended
	October 31,			November 1,
	2009			2008
Net cash provided by operating activities	$	165,401		$	93,447
Net cash used in investing activities		(66,058	)		(82,435	)
Net cash used in financing activities		(54,356	)		(41,235	)
Effect of exchange rates on cash		5,757			(8,771	)
Net increase (decrease) in cash and cash equivalents		50,744			(38,994	)
Cash and cash equivalents at the beginning of the year		294,118			275,595
Cash and cash equivalents at the end of the period	$	344,862		$	236,601
Supplemental information:
Depreciation and amortization	$	47,093		$	45,015
Rent		130,298			117,966

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Guess?, Inc. and Subsidiaries

Retail Store Data

International Store Count

As of October 31, 2009

	Total		Directly Operated
	Stores		Stores
Region
United States and Canada		433		433
Europe and Middle East		373		77
Asia		327		25
Other		53		13
		1,186		548

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Guess?, Inc. and Subsidiaries

Retail Store Data

U.S. and Canada

	Nine Months Ended
	October 31,			November 1,
	2009			2008
Number of stores at the beginning of the year		425			373
Store openings		13			50
Store closures		(5	)		(1	)
Number of stores at the end of the period		433			422
Total store square footage at the end of the period		1,992,000			1,944,000

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