EXHIBIT 99.1
PROSPECTUS
7,000,000 SHARES
[LOGO]
COMMON STOCK
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Of the 7,000,000 shares of Common Stock of Guess ?, Inc. offered hereby,
5,600,000 shares are initially being offered in the United States and Canada by
the U.S. Underwriters and 1,400,000 shares are initially being offered outside
the United States and Canada by the International Managers. The initial public
offering price and the aggregate underwriting discount per share are identical
for each of the Offerings. See "Underwriting."
Prior to the Offerings, there has been no public market for the Common
Stock. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price of the Common Stock.
The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "GES," subject to official notice of issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
Per Share........................... $18.00 $1.10 $16.90
Total (3)........................... $126,000,000 $7,700,000 $118,300,000
(1) The Company and certain Principal Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including certain
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $2,000,000.
(3) The Company has granted to the U.S. Underwriters and the International
Managers options, exercisable within 30 days after the date of this
Prospectus, to purchase up to an additional 840,000 and 210,000 shares of
Common Stock, respectively, to cover over-allotments, if any. If all such
additional shares are purchased, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $144,900,000, $8,855,000 and
$136,045,000, respectively. See "Underwriting."
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The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, and subject to
the approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The Underwriters reserve the right to withdraw, cancel
or modify such offer and to reject orders in whole or in part. It is expected
that delivery of the shares of Common Stock will be made in New York, New York
on or about August 13, 1996.
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MERRILL LYNCH & CO. MORGAN STANLEY & CO.
INCORPORATED
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The date of this Prospectus is August 7, 1996.
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY SHOULD CONSIDER
CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL AS OTHER INFORMATION SET FORTH IN
THIS PROSPECTUS, IN EVALUATING AN INVESTMENT IN THE COMMON STOCK. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED BY SUCH FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS DISCUSSED IN THIS PROSPECTUS,
INCLUDING THE FACTORS SET FORTH BELOW AND IN "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," AS
WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
COMPETITION AND OTHER FACTORS AFFECTING THE APPAREL AND RETAILING INDUSTRIES
The apparel industry is highly competitive, fragmented and subject to
rapidly changing consumer demands and preferences. The Company believes that its
success depends in large part upon its ability to anticipate, gauge and respond
to changing consumer demands and fashion trends in a timely manner and upon the
continued appeal to consumers of the Guess image. Failure by the Company to
identify and respond appropriately to changing consumer demands and fashion
trends could adversely affect consumer acceptance of Guess products and may have
a material adverse effect on the Company's financial condition and results of
operations. Guess competes with numerous apparel manufacturers and distributors
(including Calvin Klein, Ralph Lauren, DKNY, Tommy Hilfiger and Nautica).
Moreover, several well-known designers have recently entered or re-entered the
designer denim market with products generally priced lower than the Company's
designer jeans products. Guess's retail and factory outlet stores face
competition from other retailers. Additionally, the Company encounters
substantial competition from department stores, including some of the Company's
major retail customers. Many of the Company's competitors have greater financial
resources than Guess. The Company's licensed apparel and accessories also
compete with a substantial number of designer and non-designer lines. Although
the level and nature of competition differ among its product categories, Guess
believes that it competes primarily on the basis of its brand image, quality of
design and workmanship and product assortment. Increased competition by existing
and future competitors could result in reductions in sales or prices of Guess
products that could have a material adverse effect on the Company's financial
condition and results of operations. In addition, the apparel industry
historically has been subject to substantial cyclical variations, and a
recession in the general economy or uncertainties regarding future economic
prospects that affect consumer spending habits could have a material adverse
effect on the Company's financial condition and results of operations.
DEPENDENCE UPON CERTAIN CUSTOMERS AND LICENSEES
The Company's department store customers include major United States
retailers. The Company's three largest customers accounted for approximately
26.0% of net revenue in 1995. During 1995, Bloomingdale's, Macy's and affiliated
stores owned by Federated Department Stores together accounted for approximately
11.0% of the Company's net revenue; The May Company accounted for approximately
7.7% of the Company's net revenue; and Dillard's stores accounted for
approximately 7.3% of the Company's net revenue. Although several of the
Company's department store customers are under common ownership, no other single
customer or group of related customers accounted for more than 3.0% of the
Company's net revenue in this period. While the Company believes that purchasing
decisions in many cases are made independently by each department store chain
under common ownership, the trend may be toward more centralized purchasing
decisions. A decision by the controlling owner of a group of department stores
or any other significant customer to decrease the amount purchased from the
Company or to cease carrying Guess products could have a material adverse effect
on the Company's financial condition and results of operations. The retail
industry has periodically experienced consolidation and other ownership changes.
In the future, the Company's wholesale customers may consolidate, undergo
restructurings or reorganizations, or realign these affiliations, any of which
could decrease the number of stores that carry the Company's or its licensees'
products or increase the ownership concentration within the retail industry.
Approximately 48.1% of the Company's net royalties was derived from its top four
licensed product lines, GUESS WATCHES (18.9% of 1995 net royalties), BABY GUESS
(12.3%), GUESS KIDS (9.2%) and GUESS EYEWEAR (7.7%). The BABY GUESS and GUESS
KIDS lines are licensed to the same entity. A substantial portion of sales of
GUESS brand products by its licensees are also made to the Company's three
largest customers. The inability of the Company to control
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the quality, focus, image or distribution of its licensed products could impact
consumer receptivity to the Company's products generally and, therefore,
adversely affect the Company's financial condition and results of operations.
RISKS ASSOCIATED WITH ACHIEVING AND MANAGING GROWTH
To manage growth effectively, Guess will be required to continue to
implement changes in certain aspects of its business, continue to expand its
information systems and operations to respond to increased demand, attract and
retain qualified personnel (including management), and develop, train and manage
an increasing number of management-level and other employees. Failure to
continue to enhance operating control systems or unexpected difficulties
encountered during expansion could adversely affect the Company's financial
condition and results of operations.
As part of its operating strategy, Guess intends to continue to expand its
network of retail stores. Factors beyond the Company's control may affect the
Company's ability to expand, including general economic and business conditions
affecting consumer spending. The actual number and type of such stores to be
opened and their success will depend on various factors, including the
performance of the Company's wholesale and retail operations, the acceptance by
consumers of the Company's retail concepts, the ability of the Company to manage
such expansion and hire and train personnel, the availability of desirable
locations and the negotiation of acceptable lease terms for new locations.
Certain of these factors are also beyond the Company's control.
In addition, Guess's strategy relies heavily upon its ability to align
itself with effective distributors and licensees that are able to deliver
high-quality products consistent with the GUESS brand image in a timely fashion
and to successfully integrate such distributors and licensees into its global
distribution channels. A general failure by the Company to maintain and control
its existing distribution and licensing arrangements or to procure additional
distribution and licensing relationships could adversely affect the Company's
growth strategy, which could adversely affect the Company's financial condition
and results of operations.
The Company's strategic plan for its wholesale division depends in part on
its ability to expand its sales to international distributors, deepen its
product offerings and expand and upgrade its shop-in-shop program. This strategy
is subject to a number of factors beyond the Company's control including general
economic conditions and changing consumer preferences. Between 1992 and 1995,
net revenue from wholesale operations decreased 32%. There can be no assurance
that the Company's business strategy will be successful in halting or reversing
this decline in net revenue.
DEPENDENCE UPON KEY PERSONNEL
The success of Guess is largely dependent upon the personal efforts and
abilities of its senior management, particularly Mr. Maurice Marciano, Chairman
of the Board and Chief Executive Officer, Mr. Paul Marciano, President and Chief
Operating Officer, and Mr. Armand Marciano, Senior Executive Vice President and
Secretary. Effective upon consummation of the Offerings, Maurice, Paul and
Armand Marciano will continue to beneficially own an aggregate of 83.6% of the
Company's outstanding Common Stock and each will enter into employment
agreements with the Company. Although the Company has recently recruited several
key executives with substantial industry expertise, the extended loss of the
services of one or more of the Principal Executive Officers could have a
material adverse effect on the Company's operations. The Company does not
currently have "key man" insurance with respect to any of such individuals. See
"Management -- Employment Agreements."
FOREIGN OPERATIONS AND SOURCING; IMPORT RESTRICTIONS
During 1995, approximately 18% of the Company's purchases of raw materials,
labor and finished goods for its apparel were made in Hong Kong and other Asian
countries; approximately 4% were made in Europe; approximately 1% were made
elsewhere outside the United States; and the balance of 77% were made in the
United States, all through arrangements with independent contractors. In recent
years, Guess has been increasing its sourcing of fabrics outside of the United
States. In addition, Guess has been increasing its international sales and, in
1995, approximately 5.0% and 1.9% of the Company's net revenue was from product
sales to customers in international markets and from net royalties paid by
international
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licensees, respectively. As a result, the Company's operations may be affected
adversely by political instability resulting in the disruption of trade with the
countries in which the Company's contractors, suppliers or customers are
located, the imposition of additional regulations relating to imports, the
imposition of additional duties, taxes and other charges on imports, significant
fluctuations in the value of the dollar against foreign currencies or
restrictions on the transfer of funds. The inability of a contractor to ship
orders in a timely manner could cause the Company to miss the delivery date
requirements of its customers for those items, which could result in
cancellation of orders, refusal to accept deliveries or a reduction in sales
prices. Further, since Guess is unable to return merchandise to its suppliers,
it could be faced with a significant amount of unsold merchandise, which could
have a material adverse effect on the Company's financial condition and results
of operations.
Sovereignty over Hong Kong is scheduled to be transferred from the United
Kingdom to The People's Republic of China effective July 1, 1997. If the
business climate in Hong Kong were to experience an adverse change as a result
of the transfer, the Company believes it could relocate its production and
sourcing facilities outside Hong Kong and replace the merchandise currently
produced in Hong Kong with merchandise produced elsewhere without a material
adverse effect on the Company's financial condition or results of operations.
Nevertheless, there can be no assurance that the Company would be able to do so.
The Company's import operations are subject to constraints imposed by
bilateral textile agreements between the United States and a number of foreign
countries, including Hong Kong, China, Taiwan and South Korea. These agreements,
which have been negotiated bilaterally either under the framework established by
the Arrangement Regarding International Trade in Textiles, known as the
Multifiber Agreement, or other applicable statutes, impose quotas on the amounts
and types of merchandise which may be imported into the United States from these
countries. These agreements also allow the United States to impose restraints at
any time and on very short notice on the importation of categories of
merchandise that, under the terms of the agreements, are not currently subject
to specified limits. Imported products are also subject to United States customs
duties which comprise a material portion of the cost of the merchandise. A
substantial increase in customs duties could have an adverse effect on the
Company's financial condition or results of operations. The United States and
the countries in which the Company's products are produced or sold may, from
time to time, impose new quotas, duties, tariffs or other restrictions, or
adversely adjust prevailing quota, duty or tariff levels, any of which could
have a material adverse effect on the Company's financial condition or results
of operations.
DEPENDENCE ON UNAFFILIATED MANUFACTURERS
The Company does not own or operate any manufacturing facilities other than
cutting, silk-screen and embroidery machinery, and is therefore dependent upon
independent contractors for the manufacture of its products. The Company's
products are manufactured to its specifications by both domestic and
international manufacturers. The inability of a manufacturer to ship the
Company's products in a timely manner or to meet the Company's quality standards
could adversely affect the Company's ability to deliver products to its
customers in a timely manner. Delays in delivery could result in missing certain
retailing seasons with respect to some or all of the Company's products or could
otherwise have an adverse effect on the Company's financial condition and
results of operations. The Company does not have long-term contracts with any
manufacturers.
The Company conducts a program to monitor the labor practices of its
independent contractors; however, the Company does not control such contractors
or their labor practices. This program was implemented in 1992 pursuant to an
agreement with the federal Department of Labor (the "DOL") in response to
concerns regarding minimum wage and overtime payments by certain of the
Company's contractors. In connection with such agreement, the Company paid
approximately $559,000 to the DOL in settlement of a minimum wage and overtime
claim on behalf of the workers of two of the Company's contractors. The
California Labor Commissioner (the "CLC") and the DOL regularly investigate the
labor practices of apparel manufacturers. Recently, the Company has become aware
of a CLC investigation of a number of clothing contractors located in
California, some of whom may be producing goods for the Company. Although the
Company has not received a report from the CLC identifying any of the Company's
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contractors involved in such investigation, the Company believes that several of
the approximately seventy contractors used by the Company are subjects in such
investigation. If it is determined that one or more of the Company's contractors
has engaged in labor practices that violate the Company's policies, the Company
would expect to terminate its relationship with such contractors under
appropriate circumstances. No assurance can be given that any terminations
resulting from investigations of this type would not adversely affect the
Company's ability to deliver products to its customers in a timely manner. Over
the past three years, the Company has terminated contractors due to violations
of the Company's policies. Violations of state or federal labor standards by
contractors engaged by the Company can result in the Company becoming subject to
monetary and/or injunctive sanctions. Based upon the information available to
the Company at this time with respect to the aforementioned investigation by the
CLC, the Company does not believe that such investigation will result in the
imposition of any sanctions that would have a material adverse effect upon the
Company.
PROTECTION OF TRADEMARKS
Guess believes that its trademarks and other proprietary rights are
important to its success and its competitive position. Accordingly, Guess
devotes substantial resources to the establishment and protection of its
trademarks on a worldwide basis. Nevertheless, there can be no assurance that
the actions taken by the Company to establish and protect its trademarks and
other proprietary rights will be adequate to prevent imitation of its products
by others or to prevent others from seeking to block sales of Guess products as
violative of the trademarks and proprietary rights of others. No assurance can
be given that others will not assert rights in, or ownership of, trademarks and
other proprietary rights of Guess. In addition, the laws of certain foreign
countries do not protect proprietary rights to the same extent as do the laws of
the United States. See "Business -- Trademarks."
FUTURE SALES BY PRINCIPAL STOCKHOLDERS; SHARES ELIGIBLE FOR FUTURE SALE
The Common Stock offered hereby will be freely tradeable (other than by an
"affiliate" of the Company as such term is defined in the Securities Act of
1933, as amended (the "Securities Act")) without restriction or registration
under the Securities Act. Immediately after the Offerings, Maurice Marciano,
Paul Marciano and Armand Marciano will beneficially own approximately 38.4%,
31.3% and 13.9%, respectively, of the outstanding Common Stock. Subject to the
restrictions set forth below, the Principal Stockholders will be free to sell
such shares from time to time to take advantage of favorable market conditions
or for any other reason. Future sales of shares of Common Stock by the Company
and its stockholders could adversely affect the prevailing market price of the
Common Stock. Guess and the Principal Stockholders have entered into lock-up
agreements with Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") and Morgan Stanley & Co. Incorporated, as representatives of the U.S.
Underwriters (the "U.S. Representatives"), and with Merrill Lynch International
and Morgan Stanley & Co. International Limited, as representatives of the
International Managers (the "International Representatives" and, together with
the U.S. Representatives, the "Representatives"), pursuant to which the Company
and the Principal Stockholders have agreed, subject to certain exceptions, not
to, directly or indirectly, (i) sell, grant any option to purchase or otherwise
transfer or dispose of any Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock or file a registration statement
under the Securities Act with respect to the foregoing or (ii) enter into any
swap or other agreement or transaction that transfers, in whole or in part, the
economic consequence of ownership of the Common Stock, without the prior written
consent of Merrill Lynch, for a period of 180 days after the date of this
Prospectus. After such time, approximately 35,681,819 shares of Common Stock
will be eligible for sale pursuant to Rule 144 promulgated under the Securities
Act. In addition, the Principal Stockholders have rights to demand or
participate in future registrations of shares of Common Stock under the
Securities Act. Sales of substantial amounts of Common Stock in the public
market, or the perception that such sales may occur, could have a material
adverse effect on the market price of the Common Stock. See "Shares Eligible for
Future Sale" and "Underwriting."
CONTROL BY PRINCIPAL STOCKHOLDERS
Following the consummation of the Offerings, the Principal Stockholders will
have majority control of the Company and the ability to control the election of
directors and the results of other matters submitted to a vote of stockholders.
Such concentration of ownership, together with the anti-takeover effects of
certain
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provisions in the Delaware General Corporation Law and in the Company's
Certificate of Incorporation and Bylaws, may have the effect of delaying or
preventing a change in control of the Company. See "Description of Capital
Stock." The Board of Directors of the Company is expected to be comprised
entirely of designees of the Principal Stockholders. See "Management" and
"Principal Stockholders."
ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained. The initial public offering price of the Common Stock offered
hereby will be determined through negotiations among the Company, the Principal
Stockholders and the Representatives and may bear no relationship to the market
price for the Common Stock after the Offerings. Subsequent to the Offerings,
prices for the Common Stock will be determined by the market and may be
influenced by a number of factors, including depth and liquidity of the market
for the Common Stock, investor perceptions of the Company, changes in conditions
or trends in the Company's industry or in the industry of the Company's
significant customers, publicly traded comparable companies and general economic
and other conditions. See "Underwriting."
DILUTION
The initial public offering price is substantially higher than the book
value per share of Common Stock. Investors purchasing shares of Common Stock in
the Offerings will therefore incur immediate and substantial dilution of $17.86
per share. See "Dilution."
FORWARD-LOOKING STATEMENTS
When used in this Prospectus and the documents incorporated herein by
reference, the words "believes," "anticipates," "expects" and similar
expressions are intended to identify in certain circumstances, forward-looking
statements. Such statements are subject to a number of risks and uncertainties
that could cause actual results to differ materially from those projected,
including the risks described in this "Risk Factors" section. Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such statements. The Company also undertakes no obligation to update these
forward-looking statements.
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