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EX-32.2 - EX-32.2 - GUESS INCges-20160430x10qxexhibit322.htm
EX-32.1 - EX-32.1 - GUESS INCges-20160430x10qxexhibit321.htm
EX-31.2 - EX-31.2 - GUESS INCges-20160430x10qxexhibit312.htm
EX-31.1 - EX-31.1 - GUESS INCges-20160430x10qxexhibit311.htm
EX-10.4 - EX-10.4 - GUESS INCges-20160430x10qxexhibit104.htm
EX-10.3 - EX-10.3 - GUESS INCges-20160430x10qxexhibit103.htm
EX-10.2 - EX-10.2 - GUESS INCges-20160430x10qxexhibit102.htm
EX-10.1 - EX-10.1 - GUESS INCges-20160430x10qxexhibit101.htm

 
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 April 30, 2016
OR 
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)
Identification No.)
 
 
1444 South Alameda Street
 
Los Angeles, California
90021
(Address of principal executive offices)
(Zip Code)
(213) 765-3100
(Registrant’s telephone number, including area code)
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.  Yes x  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).  Yes x  No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer o
 
 
Non-accelerated filer o
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
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 May 31, 2016 the registrant had 84,315,971 shares of Common Stock, $.01 par value per share, outstanding.
 



GUESS?, INC.
FORM 10-Q
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

i


PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
GUESS?, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data) 
 
Apr 30,
2016
 
Jan 30,
2016
 
(unaudited)
 
 
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
427,485

 
$
445,480

Accounts receivable, net
177,669

 
222,359

Inventories
358,191

 
311,704

Other current assets
62,305

 
56,709

Total current assets
1,025,650

 
1,036,252

Property and equipment, net
265,818

 
255,344

Goodwill
34,762

 
33,412

Other intangible assets, net
7,279

 
7,269

Deferred tax assets
89,068

 
83,613

Other assets
130,199

 
122,858

 
$
1,552,776

 
$
1,538,748

LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Current portion of capital lease obligations and borrowings
$
4,443

 
$
4,024

Accounts payable
179,533

 
177,505

Accrued expenses
135,446

 
145,530

Total current liabilities
319,422

 
327,059

Long-term debt
23,539

 
2,318

Deferred rent and lease incentives
78,576

 
76,968

Other long-term liabilities
100,922

 
95,858

 
522,459

 
502,203

Redeemable noncontrolling interests
8,204

 
5,252

 
 
 
 
Commitments and contingencies (Note 12)


 


 
 
 
 
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 140,511,873 and 140,028,937 shares, outstanding 84,326,321 and 83,833,937 shares, as of April 30, 2016 and January 30, 2016, respectively
843

 
838

Paid-in capital
472,090

 
468,574

Retained earnings
1,224,916

 
1,269,775

Accumulated other comprehensive loss
(126,536
)
 
(158,054
)
Treasury stock, 56,185,552 and 56,195,000 shares as of April 30, 2016 and January 30, 2016, respectively
(562,563
)
 
(562,658
)
Guess?, Inc. stockholders’ equity
1,008,750

 
1,018,475

Nonredeemable noncontrolling interests
13,363

 
12,818

Total stockholders’ equity
1,022,113

 
1,031,293

 
$
1,552,776

 
$
1,538,748

 
See accompanying notes to condensed consolidated financial statements.

1


GUESS?, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands, except per share data)
(unaudited)
 
Three Months Ended
 
Apr 30,
2016
 
May 2,
2015
Product sales
$
426,468

 
$
452,959

Net royalties
22,347

 
25,865

Net revenue
448,815

 
478,824

Cost of product sales
306,056

 
313,339

Gross profit
142,759

 
165,485

Selling, general and administrative expenses
165,654

 
161,132

Restructuring charges
6,083

 

Earnings (loss) from operations
(28,978
)
 
4,353

Other income (expense):
 

 
 

Interest expense
(520
)
 
(435
)
Interest income
651

 
272

Other income (expense), net
(1,098
)
 
2,626

 
(967
)
 
2,463

 
 
 
 
Earnings (loss) before income tax expense (benefit)
(29,945
)
 
6,816

Income tax expense (benefit)
(4,791
)
 
2,829

Net earnings (loss)
(25,154
)
 
3,987

Net earnings attributable to noncontrolling interests
24

 
646

Net earnings (loss) attributable to Guess?, Inc.
$
(25,178
)
 
$
3,341

 
 
 
 
Net earnings (loss) per common share attributable to common stockholders (Note 2):
Basic
$
(0.30
)
 
$
0.04

Diluted
$
(0.30
)
 
$
0.04

 
 
 
 
Weighted average common shares outstanding attributable to common stockholders (Note 2):
Basic
83,514

 
84,965

Diluted
83,514

 
85,099

 
 
 
 
Dividends declared per common share
$
0.225

 
$
0.225


See accompanying notes to condensed consolidated financial statements.


2


GUESS?, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
Three Months Ended
 
Apr 30,
2016
 
May 2,
2015
Net earnings (loss)
$
(25,154
)
 
$
3,987

Other comprehensive income (loss) (“OCI”):
 

 
 

Foreign currency translation adjustment
 
 
 
Gains (losses) arising during the period
43,152

 
(703
)
Derivative financial instruments designated as cash flow hedges
 

 
 

Losses arising during the period
(12,243
)
 
(1,295
)
Less income tax effect
2,363

 
369

Reclassification to net earnings (loss) for gains realized
(1,416
)
 
(2,236
)
Less income tax effect
271

 
301

Marketable securities
 

 
 

Gains (losses) arising during the period
1

 
(7
)
Less income tax effect

 
3

Defined benefit plans
 

 
 

Foreign currency and other adjustments
(164
)
 

Less income tax effect
15

 

Actuarial loss amortization
86

 
513

Prior service credit amortization
(7
)
 
(58
)
Less income tax effect
(19
)
 
(149
)
Total comprehensive income
6,885

 
725

Less comprehensive income attributable to noncontrolling interests:
 

 
 

Net earnings
24

 
646

Foreign currency translation adjustment
521

 
(364
)
Amounts attributable to noncontrolling interests
545

 
282

Comprehensive income attributable to Guess?, Inc.
$
6,340

 
$
443


See accompanying notes to condensed consolidated financial statements.


3


GUESS?, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Three Months Ended
 
Apr 30,
2016
 
May 2,
2015
Cash flows from operating activities:
 

 
 

Net earnings (loss)
$
(25,154
)
 
$
3,987

Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
 

 
 

Depreciation and amortization of property and equipment
16,215

 
17,789

Amortization of intangible assets
465

 
541

Share-based compensation expense
4,232

 
3,612

Unrealized forward contract losses
4,708

 
490

Net (gain) loss on disposition of property and equipment and long-term assets
178

 
(940
)
Other items, net
(935
)
 
(1,510
)
Changes in operating assets and liabilities:
 

 
 

Accounts receivable
44,957

 
24,038

Inventories
(33,973
)
 
(7,027
)
Prepaid expenses and other assets
(10,543
)
 
(973
)
Accounts payable and accrued expenses
(29,112
)
 
(22,815
)
Deferred rent and lease incentives
161

 
(2,605
)
Other long-term liabilities
(2,043
)
 
(5,452
)
Net cash provided by (used in) operating activities
(30,844
)
 
9,135

Cash flows from investing activities:
 

 
 

Purchases of property and equipment
(17,841
)
 
(11,604
)
Proceeds from sale of long-term assets
7,500

 

Acquisition of businesses, net of cash acquired
(55
)
 
(599
)
Net cash settlement of forward contracts
310

 
1,668

Net cash used in investing activities
(10,086
)
 
(10,535
)
Cash flows from financing activities:
 

 
 

Payment of debt issuance costs
(111
)
 

Proceeds from borrowings
21,500

 
581

Repayment of capital lease obligations and borrowings
(472
)
 
(593
)
Dividends paid
(19,256
)
 
(19,261
)
Noncontrolling interest capital contributions
1,876

 

Noncontrolling interest capital distributions

 
(3,830
)
Issuance of common stock, net of tax withholdings on vesting of stock awards
262

 
145

Excess tax benefits from share-based compensation
133

 
34

Net cash provided by (used in) financing activities
3,932

 
(22,924
)
Effect of exchange rates on cash and cash equivalents
19,003

 
(31
)
Net change in cash and cash equivalents
(17,995
)
 
(24,355
)
Cash and cash equivalents at the beginning of the year
445,480

 
483,483

Cash and cash equivalents at the end of the period
$
427,485

 
$
459,128

 
 
 
 
Supplemental cash flow data:
 

 
 

Interest paid
$
310

 
$
232

Income taxes paid
$
5,335

 
$
1,258

 
See accompanying notes to condensed consolidated financial statements.

4


GUESS?, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2016
(unaudited) 
(1)
Basis of Presentation
In the opinion of management, the accompanying unaudited condensed consolidated financial statements of Guess?, Inc. and its subsidiaries (the “Company”) contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the condensed consolidated balance sheets as of April 30, 2016 and January 30, 2016 and the condensed consolidated statements of income (loss), comprehensive income and cash flows for the three months ended April 30, 2016 and May 2, 2015. 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. 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 months ended April 30, 2016 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 January 30, 2016.
The three months ended April 30, 2016 had the same number of days as the three months ended May 2, 2015. All references herein to “fiscal 2017,” “fiscal 2016” and “fiscal 2015” represent the results of the 52-week fiscal year ending January 28, 2017 and the 52-week fiscal years ended January 30, 2016 and January 31, 2015, respectively. 
New Accounting Guidance
Changes in Accounting Policies
In February 2015, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance which modifies existing consolidation guidance for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. The Company adopted this guidance effective January 31, 2016. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements or related disclosures.
In April 2015, the FASB issued authoritative guidance to simplify the presentation of debt issuance costs by requiring such costs to be presented as a deduction from the corresponding debt liability. The Company adopted this guidance effective January 31, 2016. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements or related disclosures.
In April 2015, the FASB issued authoritative guidance which provides clarification on accounting for cloud computing arrangements which include a software license. The Company adopted this guidance effective January 31, 2016. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements or related disclosures.
In September 2015, the FASB issued authoritative guidance that eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. The Company adopted this guidance effective January 31, 2016. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements or related disclosures.
Recently Issued Accounting Guidance
In May 2014, the FASB issued a comprehensive new revenue recognition standard which will supersede previous existing revenue recognition guidance. The standard creates a five-step model for revenue recognition that requires companies to exercise judgment when considering contract terms and relevant facts and circumstances. The five-step model includes (1) identifying the contract, (2) identifying the separate performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations and (5) recognizing revenue when each performance obligation has been satisfied. The

5


standard also requires expanded disclosures surrounding revenue recognition. During the first quarter of fiscal 2017, the FASB issued additional clarification guidance on the new revenue recognition standard which also included certain scope improvements and practical expedients. The standard (including clarification guidance issued) is effective for fiscal periods beginning after December 15, 2017, which will be the Company’s first quarter of fiscal 2019, and allows for either full retrospective or modified retrospective adoption. Early adoption is permitted for fiscal periods beginning after December 15, 2016, which will be the Company’s first quarter of fiscal 2018. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements and related disclosures, including the choice of application method upon adoption.
In July 2015, the FASB issued authoritative guidance to simplify the subsequent measurement of inventories by replacing the lower of cost or market test with a lower of cost and net realizable value test. This guidance is effective for fiscal years beginning after December 15, 2016, which will be the Company’s first quarter of fiscal 2018, and requires prospective adoption, with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements or related disclosures.
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. This guidance also addresses other recognition, measurement, presentation and disclosure requirements for financial instruments. This guidance is effective for fiscal years beginning after December 15, 2017, which will be the Company’s first quarter of fiscal 2019, and requires a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements and related disclosures.
In February 2016, the FASB issued a comprehensive new lease standard which will supersede 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 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 is effective for fiscal periods beginning after December 15, 2018, which will be the Company’s first quarter of fiscal 2020, and requires modified retrospective adoption, 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, but expects there will be a significant increase in its long-term assets and liabilities resulting from the adoption.
In March 2016, the FASB issued authoritative guidance to simplify the accounting for certain aspects of share-based compensation. This guidance requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. This guidance also addresses other recognition, measurement and presentation requirements for share-based compensation. This guidance is effective for fiscal years beginning after December 15, 2016, which will be the Company’s first quarter of fiscal 2018, 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.
(2)
Earnings (Loss) 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 weighted average number of common shares outstanding does not include restricted stock units with forfeitable dividend rights that have been classified as issued and outstanding but are considered contingently returnable as a result of certain service conditions. These restricted stock units are considered common equivalent shares outstanding and are excluded from the basic earnings (loss) per share calculation until the respective service conditions have been met. Diluted earnings (loss) per share represents net earnings (loss) 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. However, nonvested restricted stock awards (referred to as participating

6


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, 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 since 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 (loss) 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 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
 
Apr 30, 2016
 
May 2, 2015
Net earnings (loss) attributable to Guess?, Inc.
$
(25,178
)
 
$
3,341

Less net earnings attributable to nonvested restricted stockholders
150

 
84

Net earnings (loss) attributable to common stockholders
$
(25,328
)
 
$
3,257

 
 
 
 
Weighted average common shares used in basic computations
83,514

 
84,965

Effect of dilutive securities:
 

 
 

Stock options and restricted stock units

 
134

Weighted average common shares used in diluted computations
83,514

 
85,099

 
 
 
 
Net earnings (loss) per common share attributable to common stockholders:
Basic
$
(0.30
)
 
$
0.04

Diluted
$
(0.30
)
 
$
0.04

For the three months ended April 30, 2016 and May 2, 2015, equity awards granted for 3,022,961 and 2,124,253, 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 three months ended April 30, 2016 and May 2, 2015, the Company also excluded 602,816 and 175,866 nonvested stock units, respectively, which were subject to the achievement of performance-based or market-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 the end of each of the respective periods.
For the three months ended April 30, 2016, there were 249,003 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.
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. As of April 30, 2016, the Company had remaining authority under the program to purchase $451.8 million of its common stock. There were no share repurchases during the three months ended April 30, 2016 and May 2, 2015.

7


(3)
Stockholders’ Equity and Redeemable Noncontrolling Interests
A reconciliation of common stock outstanding, treasury stock and the total carrying amount of total stockholders’ equity, Guess?, Inc. stockholders’ equity and stockholders’ equity attributable to nonredeemable and redeemable noncontrolling interests for the fiscal year ended January 30, 2016 and three months ended April 30, 2016 is as follows (in thousands, except share data):
 
Shares
 
Stockholders’ Equity
 
 
 
Common Stock
 
Treasury Stock
 
Guess?, Inc.
Stockholders’
Equity
 
Nonredeemable
Noncontrolling
Interests
 
Total
 
Redeemable
Noncontrolling
Interests
Balance at January 31, 2015
85,323,154

 
54,235,846

 
$
1,073,856

 
$
15,590

 
$
1,089,446

 
$
4,437

Net earnings

 

 
81,851

 
2,964

 
84,815

 

Foreign currency translation adjustment

 

 
(36,083
)
 
(1,661
)
 
(37,744
)
 
(476
)
Gain on derivative financial instruments designated as cash flow hedges, net of income tax of ($559)

 

 
95

 

 
95

 

Loss on marketable securities, net of income tax of $7

 

 
(12
)
 

 
(12
)
 

Actuarial valuation gain (loss) and related amortization, plan amendment, curtailment, prior service credit amortization and foreign currency and other adjustments on defined benefit plans, net of income tax of ($2,972)

 

 
5,011

 

 
5,011

 

Issuance of common stock under stock compensation plans, net of tax effect
469,937

 

 
(4,023
)
 

 
(4,023
)
 

Issuance of stock under Employee Stock Purchase Plan
40,846

 
(40,846
)
 
660

 

 
660

 

Share-based compensation

 

 
18,880

 

 
18,880

 

Dividends

 

 
(77,287
)
 

 
(77,287
)
 

Share repurchases
(2,000,000
)
 
2,000,000

 
(44,053
)
 

 
(44,053
)
 

Noncontrolling interest capital contribution

 

 

 

 

 
871

Noncontrolling interest capital distribution

 

 

 
(4,075
)
 
(4,075
)
 

Redeemable noncontrolling interest redemption value adjustment

 

 
(420
)
 

 
(420
)
 
420

Balance at January 30, 2016
83,833,937

 
56,195,000

 
$
1,018,475

 
$
12,818

 
$
1,031,293

 
$
5,252

Net earnings (loss)

 

 
(25,178
)
 
24

 
(25,154
)
 

Foreign currency translation adjustment

 

 
42,631

 
521

 
43,152

 
406

Loss on derivative financial instruments designated as cash flow hedges, net of income tax of $2,634

 

 
(11,025
)
 

 
(11,025
)
 

Gain on marketable securities, net of minimal tax effect

 

 
1

 

 
1

 

Actuarial valuation and prior service credit amortization and foreign currency and other adjustments on defined benefit plans, net of income tax of ($4)

 

 
(89
)
 

 
(89
)
 

Issuance of common stock under stock compensation plans, net of tax effect
482,936

 

 
(640
)
 

 
(640
)
 

Issuance of stock under Employee Stock Purchase Plan
9,448

 
(9,448
)
 
150

 

 
150

 

Share-based compensation

 

 
4,232

 

 
4,232

 

Dividends

 

 
(19,137
)
 

 
(19,137
)
 

Noncontrolling interest capital contribution

 

 

 

 

 
1,876

Redeemable noncontrolling interest redemption value adjustment

 

 
(670
)
 

 
(670
)
 
670

Balance at April 30, 2016
84,326,321

 
56,185,552

 
$
1,008,750

 
$
13,363

 
$
1,022,113

 
$
8,204



8


Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss), net of related income taxes, for the three months ended April 30, 2016 and May 2, 2015 are as follows (in thousands):
 
Three Months Ended Apr 30, 2016
 
Foreign Currency Translation Adjustment
 
Derivative Financial Instruments Designated as Cash Flow Hedges
 
Marketable Securities
 
Defined Benefit Plans
 
Total
Balance at January 30, 2016
$
(157,652
)
 
$
7,252

 
$
(15
)
 
$
(7,639
)
 
$
(158,054
)
Gains (losses) arising during the period
42,631

 
(9,880
)
 
1

 
(149
)
 
32,603

Reclassification to net loss for (gains) losses realized

 
(1,145
)
 

 
60

 
(1,085
)
Net other comprehensive income (loss)
42,631

 
(11,025
)
 
1

 
(89
)
 
31,518

Balance at April 30, 2016
$
(115,021
)
 
$
(3,773
)
 
$
(14
)
 
$
(7,728
)
 
$
(126,536
)
 
Three Months Ended May 2, 2015
 
Foreign Currency Translation Adjustment
 
Derivative Financial Instruments Designated as Cash Flow Hedges
 
Marketable Securities
 
Defined Benefit Plans
 
Total
Balance at January 31, 2015
$
(121,569
)
 
$
7,157

 
$
(3
)
 
$
(12,650
)
 
$
(127,065
)
Losses arising during the period
(339
)
 
(926
)
 
(4
)
 

 
(1,269
)
Reclassification to net earnings for (gains) losses realized

 
(1,935
)
 

 
306

 
(1,629
)
Net other comprehensive income (loss)
(339
)
 
(2,861
)
 
(4
)
 
306

 
(2,898
)
Balance at May 2, 2015
$
(121,908
)
 
$
4,296

 
$
(7
)
 
$
(12,344
)
 
$
(129,963
)

Details on reclassifications out of accumulated other comprehensive income (loss) to net earnings (loss) during the three months ended April 30, 2016 and May 2, 2015 are as follows (in thousands):
 
Three Months Ended
 
Location of
(Gain) Loss
Reclassified from
Accumulated OCI
into Earnings (Loss)
 
Apr 30, 2016
 
May 2, 2015
 
Derivative financial instruments designated as cash flow hedges:
 
 
 
 
 
   Foreign exchange currency contracts
$
(1,435
)
 
$
(1,750
)
 
Cost of product sales
   Foreign exchange currency contracts
(32
)
 
(486
)
 
Other income/expense
   Interest rate swap
51

 

 
Interest expense
      Less income tax effect
271

 
301

 
Income tax expense (benefit)
 
(1,145
)
 
(1,935
)
 
 
Defined benefit plans:
 
 
 
 
 
   Actuarial loss amortization
86

 
513

 
(1) 
   Prior service credit amortization
(7
)
 
(58
)
 
(1) 
      Less income tax effect
(19
)
 
(149
)
 
Income tax expense (benefit)
 
60

 
306

 
 
Total reclassifications during the period
$
(1,085
)
 
$
(1,629
)
 
 
__________________________________
(1)
These accumulated other comprehensive income (loss) components are included in the computation of net periodic defined benefit pension cost. 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 from the acquisition of its majority-owned subsidiary, Guess Sud SAS (“Guess Sud”). The put arrangement for Guess Sud, representing 40% of the total outstanding equity interest of that subsidiary, may be exercised at the discretion of the noncontrolling interest holders by providing written notice to the Company

9


any time after January 30, 2012. The put arrangement is recorded on the balance sheet at its expected redemption value based on a method which approximates fair value and is classified as a redeemable noncontrolling interest outside of permanent equity. The redemption value of the Guess Sud redeemable put arrangement was $4.6 million and $3.7 million as of April 30, 2016 and January 30, 2016, respectively. In May 2016, the Company acquired the remaining 40% interest from the noncontrolling interest holder.
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 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. During the three months ended April 30, 2016, the Company and the noncontrolling interest holder increased their capital contributions by $1.0 million, of which $0.6 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 Brazil. The carrying value of the redeemable noncontrolling interest related to Guess Brazil was $1.2 million and $0.7 million as of April 30, 2016 and January 30, 2016, respectively.
During fiscal 2016, the Company entered into a new majority-owned joint venture to establish Guess? CIS, LLC (“Guess CIS”) which is based in Russia. The Company made an initial contribution of $2.0 million to obtain a 70% interest in Guess CIS and is party to a put arrangement with respect to the common securities that represent the remaining noncontrolling interest. During the three months ended April 30, 2016, the Company and the noncontrolling interest holder increased their capital contributions by $5.0 million, of which $3.5 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 put arrangement 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. The carrying value of the redeemable noncontrolling interest related to Guess CIS was $2.4 million and $0.9 million as of April 30, 2016 and January 30, 2016, respectively.
(4)
Accounts Receivable
Accounts receivable is summarized as follows (in thousands):
 
Apr 30, 2016
 
Jan 30, 2016
Trade
$
188,769

 
$
222,972

Royalty
13,273

 
16,443

Other
8,770

 
16,493

 
210,812

 
255,908

Less allowances
33,143

 
33,549

 
$
177,669

 
$
222,359

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 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. The accounts receivable allowance includes allowances for doubtful accounts, wholesale sales returns and wholesale markdowns. Retail sales returns allowances are included in accrued expenses.

10


(5)
Inventories
Inventories consist of the following (in thousands):
 
Apr 30, 2016
 
Jan 30, 2016
Raw materials
$
2,251

 
$
2,043

Work in progress
116

 
92

Finished goods
355,824

 
309,569

 
$
358,191

 
$
311,704

The above balances include an allowance to write down inventories to the lower of cost or market of $18.9 million and $15.9 million as of April 30, 2016 and January 30, 2016, respectively.
(6)
Restructuring Charges
During the first quarter of fiscal 2017, the Company initiated a global cost reduction and restructuring plan to better align its global cost and organizational structure with its current strategic initiatives. This plan includes the consolidation and streamlining of the Company’s business processes and a reduction in its global workforce and other expenses. These actions resulted in restructuring charges of $6.1 million related primarily to cash-based severance costs during the three months ended April 30, 2016. As of April 30, 2016, the Company had a balance of approximately $5.1 million in accrued expenses for amounts expected to be paid during the remainder of fiscal 2017. The Company currently estimates that it may incur an additional $1 million to $2 million in future cash-based severance charges during the remainder of fiscal 2017. The Company’s assessment of the costs associated with the restructuring-related activities is still ongoing and actual amounts could differ significantly from these estimates as plans evolve, details are finalized and negotiations are completed.
The following table summarizes restructuring activities related primarily to severance during the three months ended April 30, 2016 (in thousands):
 
Total
Balance at January 30, 2016
$

Charges to operations
6,083

Cash payments
(930
)
Foreign currency and other adjustments
(7
)
Balance at April 30, 2016
$
5,146

During the three months ended April 30, 2016, the Company also incurred an estimated exit tax charge of approximately $1.9 million related to its reorganization in Europe as a result of the global cost reduction and restructuring plan.
(7)
Income Taxes
Income tax expense (benefit) for the interim periods was computed using the effective tax rate estimated to be applicable for the full fiscal year. The Company’s effective income tax rate decreased to 16.0% for the three months ended April 30, 2016 from 41.5% for the three months ended May 2, 2015. The change in the effective income tax rate was due primarily to a shift in the distribution of earnings among the Company’s tax jurisdictions within the quarters of the current fiscal year and more losses incurred in certain foreign jurisdictions where the Company has valuation allowances during the three months ended April 30, 2016 compared to the same prior-year period.
From time-to-time, the Company is subject to routine income tax audits on various tax matters around the world in the ordinary course of business. As of April 30, 2016, several income tax audits were underway for various periods in multiple jurisdictions. The Company accrues an amount for its estimate of additional income tax liability which the Company, more likely than not, could 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

11


uncertain tax positions as more definitive information becomes available from taxing authorities, upon completion of tax audits, 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 $14.9 million and $13.9 million as of April 30, 2016 and January 30, 2016, respectively. The change in the accrual balance from January 30, 2016 to April 30, 2016 resulted from interest and penalties and additional accruals during the three months ended April 30, 2016.
(8)
Segment Information
The Company’s businesses are grouped into five reportable segments for management and internal financial reporting purposes: Americas Retail, Europe, Asia, Americas Wholesale and Licensing. The Company’s operating segments are the same as its reportable segments. Management evaluates segment performance based primarily on revenues and earnings (loss) from operations before restructuring charges, if any. The Company believes this segment reporting reflects how its five 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 its retail operations in South America. 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. The Americas Wholesale segment includes the Company’s wholesale operations in the Americas. 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, and restructuring charges. These costs are presented separately and generally include, among other things, the following unallocated corporate costs: accounting and finance, executive 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 months ended April 30, 2016 and May 2, 2015 (in thousands):    
 
Three Months Ended
 
Apr 30, 2016
 
May 2, 2015
Net revenue:
 

 
 

Americas Retail
$
204,161

 
$
214,249

Europe
135,380

 
137,397

Asia
54,129

 
64,035

Americas Wholesale
32,798

 
37,278

Licensing
22,347

 
25,865

Total net revenue
$
448,815

 
$
478,824

Earnings (loss) from operations:
 

 
 

Americas Retail
$
(12,601
)
 
$
(7,209
)
Europe
(14,085
)
 
(3,668
)
Asia
(669
)
 
4,613

Americas Wholesale
5,611

 
6,747

Licensing
20,415

 
23,025

Corporate Overhead
(21,566
)
 
(19,155
)
Restructuring Charges
(6,083
)
 

Total earnings (loss) from operations
$
(28,978
)
 
$
4,353

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. Restructuring charges incurred during the three months ended April 30, 2016 related to plans to better align the Company’s global cost and organizational structure with its current strategic initiatives. Refer to Note 6 for more information regarding these restructuring charges.

12


(9)
Borrowings and Capital Lease Obligations
Borrowings and capital lease obligations are summarized as follows (in thousands):
 
Apr 30, 2016
 
Jan 30, 2016
Mortgage debt, maturing monthly through January 2026
$
21,299

 
$

European capital lease, maturing quarterly through May 2016
3,893

 
4,024

Other
2,790

 
2,318

 
27,982

 
6,342

Less current installments
4,443

 
4,024

Long-term debt
$
23,539

 
$
2,318

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 April 30, 2016, outstanding borrowings under the Mortgage Debt, net of debt issuance costs of $0.1 million, were $21.3 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 liability as of April 30, 2016 was approximately $0.1 million.
Capital Lease
The Company leases a building in Florence, Italy under a capital lease which provides for minimum lease payments through May 1, 2016. As of April 30, 2016, the capital lease obligation was $3.9 million, which was paid during the second quarter of fiscal 2017. The Company entered into a separate interest rate swap agreement designated as a non-hedging instrument that resulted in a swap fixed rate of 3.55%. This interest rate swap agreement matured on February 1, 2016 and had converted the nature of the capital lease obligation from Euribor floating-rate debt to fixed-rate debt.
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 “Credit Facility”). 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 and eligible cash balances as of April 30, 2016, the Company could have borrowed up to $148 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.

13


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 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 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 April 30, 2016, the Company had $1.7 million in outstanding standby letters of credit, $0.4 million in outstanding documentary letters of credit and no 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 if the borrowing capacity falls below certain levels. 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 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 April 30, 2016, the Company could have borrowed up to $65.6 million under these agreements. As of April 30, 2016, the Company had no outstanding borrowings and $0.8 million in outstanding documentary letters of credit under these agreements. The agreements are denominated primarily in euros and provide for annual interest rates ranging from 0.4% to 6.8%. 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 $40.1 million that has a minimum net equity requirement, there are no other financial ratio covenants.
Other
From time-to-time, the Company will obtain other financing in foreign countries for working capital to finance its local operations.

14


(10)
Share-Based Compensation
The following table summarizes the share-based compensation expense recognized under all of the Company’s stock plans during the three months ended April 30, 2016 and May 2, 2015 (in thousands): 
 
Three Months Ended
 
Apr 30, 2016
 
May 2, 2015
Stock options
$
512

 
$
481

Stock awards/units
3,678

 
3,087

Employee Stock Purchase Plan
42

 
44

Total share-based compensation expense
$
4,232

 
$
3,612

Unrecognized compensation cost, adjusted for estimated forfeitures, related to nonvested stock options and nonvested stock awards/units totaled approximately $4.9 million and $31.6 million, respectively, as of April 30, 2016. This cost is expected to be recognized over a weighted average period of 1.9 years. The weighted average grant date fair value of options granted was $3.56 and $3.62 during the three months ended April 30, 2016 and May 2, 2015, respectively. 
Grants
On April 29, 2016, the Company granted select key management 602,816 nonvested stock units which are subject to certain performance-based vesting or market-based vesting conditions.
On July 7, 2015, the Company granted Victor Herrero, the Company’s Chief Executive Officer, 600,000 stock options and 250,000 nonvested stock units in connection with an employment agreement entered into between the Company and Mr. Herrero (the “Herrero Employment Agreement”). Mr. Herrero was also granted 150,000 restricted stock units which are considered contingently returnable as a result of certain service conditions set forth in the Herrero Employment Agreement.
Annual Grants
On March 30, 2016, the Company made an annual grant of 616,450 stock options and 442,000 nonvested stock awards/units to its employees. On April 2, 2015, the Company made an annual grant of 577,700 stock options and 401,700 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 the end of the first fiscal year followed by annual vesting periods which may range from two-to-three years. The nonvested stock units are subject to the achievement of certain performance-based vesting conditions during the first fiscal year of the grant as well as continued service requirements through each of the vesting periods.
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 which may relate to the first fiscal year of the grant or the third fiscal year of the grant. Any shares that are ultimately issued are scheduled to vest at the end of the third fiscal year following the grant date.

15


The following table summarizes the activity for nonvested performance-based units during the three months ended April 30, 2016:
 
Number of
Units
 
Weighted
Average
Grant Date
Fair Value
Nonvested at January 30, 2016
580,000

 
$
22.65

Granted
462,359

 
18.35

Vested
(179,422
)
 
28.05

Forfeited

 

Nonvested at April 30, 2016
862,937

 
$
19.22

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 three months ended April 30, 2016:
 
Number of
Units
 
Weighted
Average
Grant Date
Fair Value
Nonvested at January 30, 2016
183,368

 
$
17.72

Granted
140,457

 
15.20

Vested

 

Forfeited

 

Nonvested at April 30, 2016
323,825

 
$
16.63

(11)
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 Emeritus and member 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 of these leases in effect as of April 30, 2016 with expiration dates ranging from calendar years 2017 to 2020.
In January 2016, the Company sold an approximately 140,000 square foot parking lot located adjacent to the Company’s corporate headquarters to a partnership affiliated with the Marciano Trusts for a sales price of $7.5 million, which was subsequently collected during the first quarter of fiscal 2017. Concurrent with the sale, the Company entered into a lease agreement to lease back the parking lot from the purchaser. During the fourth quarter of fiscal 2016, the Company recognized a net gain of approximately $3.4 million in other income as a result of these transactions.
Aggregate rent, common area maintenance charges and property tax expense recorded under these four related party leases for the three months ended April 30, 2016 and May 2, 2015 was $1.2 million and $1.4 million, respectively. The Company believes that the terms of the related party leases and parking lot sale have not been significantly affected by the fact that the Company and the lessors are related.

16


Aircraft Arrangements
The Company periodically charters aircraft owned by MPM Financial, LLC (“MPM Financial”), an entity affiliated with the Marciano Trusts, through informal arrangements with MPM Financial and independent third party management companies contracted by MPM Financial to manage its aircraft. The total fees paid under these arrangements for the three months ended April 30, 2016 were approximately $0.3 million. There were no fees paid under these arrangements for the three months ended May 2, 2015.
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 January 30, 2016.
(12)
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 September 2031. 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 2% to 12%, when specific sales volumes are exceeded. The Company’s concession leases also provide for rents primarily based upon a percentage of annual sales volume which average approximately 34% 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 March 2021. As discussed in further detail in Note 9, the Company leases a building in Florence, Italy under a capital lease which provides for minimum lease payments through May 1, 2016.
Litigation
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 have also been 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 is now in 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 disagrees with the Court’s decision and has appealed the ruling. The judgment in the China matter is stayed pending the appeal, which was heard in May 2014. On January 30, 2015, the Court of Paris ruled in favor of the Company, rejecting all of the plaintiff’s claims and partially canceling

17


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.
On August 25, 2006, Franchez Isaguirre, a former employee of the Company, filed a complaint in the Superior Court of California, County of Los Angeles alleging violations by the Company of California wage and hour laws. The complaint was subsequently amended, adding a second former employee as an additional named party. The plaintiffs purport to represent a class of similarly situated employees in California who allegedly had been injured by not being provided adequate meal and rest breaks. The complaint seeks unspecified compensatory damages, statutory penalties, attorney’s fees and injunctive and declaratory relief. On June 9, 2009, the Court certified the class but immediately stayed the case pending the resolution of a separate California Supreme Court case on the standards of class treatment for meal and rest break claims. Following the Supreme Court ruling, the Superior Court denied the Company’s motions to decertify the class and to narrow the class in January 2013 and June 2013, respectively. The Company subsequently petitioned to have the Court’s decision not to narrow the class definition reviewed. That petition was ultimately denied by the California Supreme Court in April 2014. In July 2015, the parties entered into a Memorandum of Understanding to settle the matter for $5.25 million, subject to certain limited offsets. The Court issued a final order and judgment approving the settlement in February 2016.
The Company has received customs tax assessment notices from the Italian Customs Agency 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 ($11.2 million), including potential penalties and interest. The Company strongly disagrees with the positions that the Italian Customs Agency 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 ($1.9 million). In November 2015, the Italian Customs Agency notified the Company of its intent to appeal this first MFDTC judgment. During the first quarter of fiscal 2017, the MFDTC issued judgments in favor of the Company in relation to the second, third and fourth set of appeals (covering the period from October 2010 through June 2011) as well as a portion of the seventh set of appeals (covering the period from August 2012 through December 2012) and canceled the related assessments totaling €3.3 million ($3.8 million). While these MFDTC judgments have been favorable to the Company, there can be no assurances that the Company’s remaining open appeals for July 2011 through December 2012 will be successful. There also can be no assurances that the Italian Customs Agency will not be successful in its appeal of the first MFDTC judgment or that they will not appeal the other favorable MFDTC judgments. 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 each of the remaining matters, it is unable to predict with certainty whether or not these efforts will ultimately be successful or whether the outcomes will have a material impact on the Company’s financial position or results of operations.
The Company is also involved in various other claims and other matters incidental to the Company’s business, the resolutions of which are not expected to have a material adverse effect on the Company’s financial position or results of operations.
(13)
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.
In fiscal 2016, the SERP was amended in connection with Paul Marciano’s transition from Chief Executive Officer to Executive Chairman of the Board and Chief Creative Officer. This amendment effectively eliminated any future salary progression by finalizing compensation levels for future benefits. Mr. Marciano will continue to be eligible to receive SERP benefits in the future in accordance with the amended terms of the SERP. Subsequent

18


to this amendment, there are no employees considered actively participating under the terms of the SERP. As a result, the Company included an actuarial gain of $11.4 million before taxes in accumulated other comprehensive income (loss) during fiscal 2016. In addition, the Company also recognized a curtailment gain of $1.7 million before taxes related to the accelerated amortization of the remaining prior service credit during fiscal 2016. The actuarial and curtailment gains were recorded during the three months ended August 1, 2015.
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 $55.6 million and $52.5 million as of April 30, 2016 and January 30, 2016, 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 of $3.2 million and $2.0 million in other income during the three months ended April 30, 2016 and May 2, 2015, respectively. The Company also recorded realized gains of $0.1 million and $0.7 million in other income resulting from payout on the insurance policies during the three months ended April 30, 2016 and May 2, 2015, respectively. The projected benefit obligation was $53.5 million and $53.4 million as of April 30, 2016 and January 30, 2016, 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 were made during each of the three months ended April 30, 2016 and May 2, 2015.
The components of net periodic defined benefit pension cost for the three months ended April 30, 2016 and May 2, 2015 related to the SERP are as follows (in thousands):    
 
Three Months Ended
 
Apr 30, 2016
 
May 2, 2015
Interest cost
$
460

 
$
496

Net amortization of unrecognized prior service credit

 
(58
)
Net amortization of actuarial losses
39

 
428

Net periodic defined benefit pension cost
$
499

 
$
866

Swiss Pension Plan
In accordance with local regulations, the Company also maintains a pension plan in Switzerland for certain of its employees. The plan is a government-mandated defined contribution plan that provides employees with a minimum investment return determined annually by the Swiss government, and as such, is treated under pension accounting in accordance with authoritative guidance. Under the 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 April 30, 2016 and January 30, 2016, the plan had a projected benefit obligation of CHF15.8 million (US$16.5 million) and CHF15.6 million (US$15.2 million), respectively, and plan assets held at the independent investment fiduciary of CHF13.2 million (US$13.8 million) and CHF13.0 million (US$12.7 million), respectively. The net liability of CHF2.6 million (US$2.7 million) and CHF2.6 million (US$2.5 million) was included in other long-term liabilities in the Company’s condensed consolidated balance sheets as of April 30, 2016 and January 30, 2016, respectively. During the three months ended April 30, 2016 and May 2, 2015, the Company recognized net periodic defined benefit pension cost of CHF0.4 million (US$0.4 million) and CHF0.4 million (US$0.5 million), respectively, resulting primarily from service cost.

19


(14)
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 April 30, 2016 and January 30, 2016 (in thousands):
 
 
Fair Value Measurements at Apr 30, 2016
 
Fair Value Measurements at Jan 30, 2016
Recurring Fair Value Measures
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Foreign exchange currency contracts
 
$

 
$
117

 
$

 
$
117

 
$

 
$
9,797

 
$

 
$
9,797

Available-for-sale securities
 
18

 

 

 
18

 
17

 

 

 
17

Total
 
$
18

 
$
117

 
$

 
$
135

 
$
17

 
$
9,797

 
$

 
$
9,814

Liabilities:
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 

Foreign exchange currency contracts
 
$

 
$
9,597

 
$

 
$
9,597

 
$

 
$
366

 
$

 
$
366

Interest rate swaps
 

 
81

 

 
81

 

 
37

 

 
37

Deferred compensation obligations
 

 
11,112

 

 
11,112

 

 
10,155

 

 
10,155

Total
 
$

 
$
20,790

 
$

 
$
20,790

 
$

 
$
10,558

 
$

 
$
10,558

 
There were no transfers of financial instruments between the three levels of fair value hierarchy during the three months ended April 30, 2016 or during the year ended January 30, 2016.
The fair values of the Companys available-for-sale securities are based on quoted prices. The fair values of the interest rate swaps are based upon inputs corroborated by observable market data. 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 Companys foreign exchange currency contracts are based on quoted foreign exchange forward rates at the reporting date. 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.
Available-for-sale securities, which consist of marketable equity securities, are recorded at fair value and are included in other assets in the accompanying condensed consolidated balance sheets. As of April 30, 2016 and January 30, 2016, available-for-sale securities were minimal. Unrealized gains (losses), net of taxes, are included as a component of stockholders equity and comprehensive income (loss). As of April 30, 2016 and January 30, 2016, the accumulated unrealized losses, net of taxes, included in accumulated other comprehensive income (loss) related to available-for-sale securities owned by the Company were minimal.
The carrying amount of the Companys 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 Companys debt instruments (see Note 9) are based on the amount of future cash flows associated with each instrument discounted using the Companys

20


incremental borrowing rate. As of April 30, 2016 and January 30, 2016, 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, 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 Company considers each individual 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 certain long-term security deposits and lease acquisition costs. The Company reviews 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 one year allows a retail location to reach a maturity level where a more comprehensive analysis of financial performance can be performed. The Company evaluates impairment risk for 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.
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 assets ability to continue to generate earnings from operations and positive cash flow in future periods or if significant changes in the Companys strategic business objectives and utilization of the assets occurred. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the estimated fair value, which is determined based on discounted future cash flows. 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 retail locations are based on managements estimates of future cash flows over the remaining lease period or expected life, if shorter. For expected retail 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 retail location. The Company also considers factors such as: the local environment for each retail location, including mall traffic and competition; the Companys 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 Companys results of operations.
The Company recorded impairment charges of $0.2 million and $1.1 million during the three months ended April 30, 2016 and May 2, 2015, respectively. The impairment charges related primarily to the impairment of certain retail locations in Europe and North America resulting from under-performance and expected store closures during each of the respective periods. These impairment charges were included in selling, general and administrative expenses in the Company’s condensed consolidated statements of income (loss) for each of the respective periods.
(15)
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.

21


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 and Mexico are denominated in U.S. dollars and British pounds 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 purchases of merchandise and U.S. dollar and British 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 April 30, 2016, 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 which approximates the time the hedged merchandise inventory is sold. The Company also hedges 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 and 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 until the sale or liquidation of the hedged net investment.
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 and expense.
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.

22


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 and expense.
Summary of Derivative Instruments
The fair value of derivative instruments in the condensed consolidated balance sheets as of April 30, 2016 and January 30, 2016 is as follows (in thousands):
 
 
Derivative
Balance Sheet
Location
 
Fair Value at
Apr 30, 2016
 
Fair Value at
Jan 30, 2016
ASSETS:
 
 
 
 

 
 

Derivatives designated as hedging instruments:
 
 
 
 

 
 

Cash flow hedges:
 
 
 
 
 
 
   Foreign exchange currency contracts
 
Other current assets/
Other assets
 
$
99

 
$
7,491

Derivatives not designated as hedging instruments:
 
 
 
 
 
 

Foreign exchange currency contracts
 
Other current assets
 
18

 
2,306

Total
 
 
 
$
117

 
$
9,797

LIABILITIES:
 
 
 
 

 
 

Derivatives designated as hedging instruments:
 
 
 
 

 
 

Cash flow hedges:
 
 
 
 
 
 
   Foreign exchange currency contracts
 
Accrued expenses/
Other long-term liabilities
 
$
5,667

 
$
47

   Interest rate swap
 
Other long-term liabilities
 
81

 

Total derivatives designated as hedging instruments
 
 
 
5,748

 
47

Derivatives not designated as hedging instruments:
 
 
 
 

 
 

Foreign exchange currency contracts
 
Accrued expenses
 
3,930

 
319

Interest rate swap
 
Accrued expenses
 

 
37

Total derivatives not designated as hedging instruments
 
 
 
3,930

 
356

Total
 
 
 
$
9,678

 
$
403

Derivatives Designated as Hedging Instruments
Foreign Exchange Currency Contracts Designated as Cash Flow Hedges
During the three months ended April 30, 2016, the Company purchased U.S. dollar forward contracts in Canada and Europe totaling US$21.3 million and US$18.9 million, respectively, to hedge forecasted merchandise purchases and intercompany royalties that were designated as cash flow hedges. As of April 30, 2016, the Company had forward contracts outstanding for its European and Canadian operations of US$104.8 million and US$59.0 million, respectively, which are expected to mature over the next 18 months.
As of April 30, 2016, accumulated other comprehensive income (loss) related to foreign exchange currency contracts included a net unrealized loss of approximately $3.7 million, net of tax, of which $0.9 million will be recognized in cost of product sales or other expense 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.
At January 30, 2016, the Company had forward contracts outstanding for its European and Canadian operations of US$106.3 million and US$48.2 million, respectively, that were designated as cash flow hedges.
Interest Rate Swap Agreement Designated as Cash Flow Hedge
During the three months ended April 30, 2016, 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%.

23


As of April 30, 2016, accumulated other comprehensive income (loss) related to the interest rate swap agreement included a net unrealized loss of approximately $0.1 million, net of tax, which will be recognized in interest expense 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.
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 months ended April 30, 2016 and May 2, 2015 (in thousands): 
 
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)
 
Three Months Ended
 
 
Three Months Ended
 
Apr 30, 2016
 
May 2, 2015
 
 
Apr 30, 2016
 
May 2, 2015
Derivatives designated as cash flow hedges:
 

 
 

 
 
 
 

 
 

Foreign exchange currency contracts
$
(11,412
)
 
$
(1,147
)
 
Cost of product sales
 
$
1,435

 
$
1,750

Foreign exchange currency contracts
$
(699
)
 
$
(148
)
 
Other income/expense
 
$
32

 
$
486

Interest rate swap
$
(132
)
 
$

 
Interest expense
 
$
(51
)
 
$

 __________________________________
(1)
The Company recognized gains of $0.5 million resulting from the ineffective portion related to foreign exchange currency contracts in interest income during the three months ended April 30, 2016. The ineffective portion related to foreign exchange currency contracts was immaterial during the three months ended May 2, 2015. There was no ineffectiveness recognized related to the interest rate swap during the three months ended April 30, 2016.
The following table summarizes net after-tax derivative activity recorded in accumulated other comprehensive income (loss) (in thousands):
 
Three Months Ended
 
Apr 30, 2016
 
May 2, 2015
Beginning balance gain
$
7,252

 
$
7,157

Net losses from changes in cash flow hedges
(9,880
)
 
(926
)
Net gains reclassified to earnings (loss)
(1,145
)
 
(1,935
)
Ending balance gain (loss)
$
(3,773
)
 
$
4,296

Derivatives Not Designated as Hedging Instruments
As of April 30, 2016, the Company had euro foreign exchange currency contracts to purchase US$68.5 million expected to mature over the next 12 months and Canadian dollar foreign exchange currency contracts to purchase US$22.6 million expected to mature over the next 11 months.
The following table summarizes the gains (losses) before taxes recognized on the derivative instruments not designated as hedging instruments in other income and expense for the three months ended April 30, 2016 and May 2, 2015 (in thousands):
 
 
Location of
Gain (Loss)
Recognized in
Earnings (Loss)
 
Gain (Loss)
Recognized in Earnings (Loss)
 
 
 
Three Months Ended
 
 
 
Apr 30, 2016
 
May 2, 2015
Derivatives not designated as hedging instruments:
 
 
 
 

 
 

Foreign exchange currency contracts
 
Other income/expense
 
$
(6,029
)
 
$
(701
)
Interest rate swap
 
Other income/expense
 
$
38

 
$
49

At January 30, 2016, the Company had euro foreign exchange currency contracts to purchase US$54.8 million and Canadian dollar foreign exchange currency contracts to purchase US$25.8 million.

24


(16)
Subsequent Events
On May 25, 2016, the Company announced a regular quarterly cash dividend of $0.225 per share on the Company’s common stock. The cash dividend will be paid on June 24, 2016 to shareholders of record as of the close of business on June 8, 2016.
On May 30, 2016, the Company sold its minority interest equity holding in a privately-held boutique apparel company for net proceeds of approximately €31 million (US$35 million), which resulted in a gain of approximately €20 million (US$22 million) that will be recorded in other income during the second quarter of fiscal 2017.
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 analyses and other information based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our goals, future prospects, global cost reduction efforts, capital allocation plans and proposed new products, services, developments or business strategies and initiatives (including those identified by the Company’s Chief Executive Officer, Victor Herrero). These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “outlook,” “pending,” “plan,” “predict,” “project,” “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 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, cost containment efforts, restructuring charges, estimated charges, plans regarding store openings, closings and remodels, plans regarding business growth, international expansion and capital allocation, plans regarding supply chain efficiencies and global planning and allocation, e-commerce and omni-channel initiatives, business seasonality, results and risks of current and future litigation, industry trends, consumer demands and preferences, competition, currency fluctuations and related impacts, estimated tax rates, results of tax audits and other regulatory proceedings, 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 January 30, 2016 and in our other filings made from time-to-time with the 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, Europe, Asia, Americas Wholesale and Licensing. The Company’s operating segments are the same as its reportable segments. Management evaluates segment performance based primarily on revenues and earnings (loss) from operations before restructuring charges, if any. The Company believes this segment reporting reflects how its five 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

25


decisions. The Americas Retail segment includes the Company’s retail and e-commerce operations in North and Central America and its retail operations in South America. 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. The Americas Wholesale segment includes the Company’s wholesale operations in the Americas. 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, and restructuring charges. These costs are presented separately and generally include, among other things, the following unallocated corporate costs: accounting and finance, executive compensation, facilities, global advertising and marketing, human resources, information technology and legal. Information regarding these segments is summarized in Note 8 to the Condensed Consolidated Financial Statements.
Products
We derive our net revenue from the sale of GUESS?, G by GUESS, GUESS Kids and MARCIANO apparel and our licensees’ products through our worldwide network of 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 euro, Canadian dollar, Korean won and Mexican peso), currency fluctuations can have a significant impact on the translation of our international revenues and earnings into U.S. dollar amounts.
In addition, some of our transactions that occur primarily in Europe, Canada, South Korea and Mexico are denominated in U.S. dollars, Swiss francs and British pounds, 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, 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. Such exchange rate fluctuations had a negative impact on our product margins in Europe and Canada during the three months ended April 30, 2016 compared to the same prior-year period.
During the first three months of fiscal 2017, the average U.S. dollar rate was stronger against the Canadian dollar, the Korean won and the Mexican peso and weaker against the euro compared to the average rate in the same prior-year period. This had an overall negative impact on the translation of our international revenues and loss from operations for the three months ended April 30, 2016 compared to the same prior-year period.
If the U.S. dollar remains strong relative to the respective fiscal 2016 foreign exchange rates, we expect that foreign exchange will continue to have a negative impact on our revenues and operating results as well as our international cash and other balance sheet items during the remainder of fiscal 2017, particularly in Europe and Canada.
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
The Company has identified five strategic initiatives focused on driving shareholder value. They include: (i) elevating the quality of our sales organization and merchandising strategy to match the quality of our product and marketing; (ii) building a major business in Asia by unlocking the potential of the GUESS? brand in the region; (iii) creating a culture of purpose and accountability throughout the entire Company by implementing a more centralized organizational structure that reinforces our focus on sales and profitability; (iv) improving our

26


cost structure (including supply chain and overhead) and (v) stabilizing and revitalizing our wholesale business. The following provides further details on the planned implementation of these initiatives:
Sales Organization and Merchandising Strategy. We have begun 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 allocate sufficient resources to fuel future growth.
Transforming our Company’s Culture. In order to generate global synergies, major decisions (including logistics, finance, communication and stock allocation) are becoming more centralized in the Company’s management team in Los Angeles. This centralized approach will reinforce the focus on sales and profitability as well as foster an environment of accountability and execution measured through key performance metrics.
Improving our Cost Structure. We plan to improve our cost structure by optimizing our use of capital in accordance with growth strategies, identifying synergies among departments and strengthening our supply chain. We plan to strengthen our supply chain by optimizing vendor proximity to our main markets, improving fabric management and reinforcing open-to-buys. We also plan to shorten our lead times through partnering with our suppliers, exercising agility in the production process and continuously searching for new suppliers and sourcing opportunities in reaction to the latest trends.
During the first quarter of fiscal 2017, the Company initiated a global cost reduction and restructuring plan to better align its global cost and organizational structure with its current strategic initiatives. This plan includes the consolidation and streamlining of the Company’s business processes and a reduction in its global workforce and other expenses. These actions resulted in restructuring charges of $6.1 million and a related estimated exit tax charge of approximately $1.9 million (or a combined $5.8 million after considering the $2.2 million tax benefit as a result of the restructuring charges). The Company currently estimates that it may incur an additional $1 million to $2 million in future cash-based severance charges during the remainder of fiscal 2017. The Company’s assessment of the costs associated with the restructuring-related activities is still ongoing and actual amounts could differ significantly from these estimates as plans evolve, details are finalized and negotiations are completed.
Stabilizing our Wholesale Business. We plan to partner 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.
In addition to the above strategic initiatives, we plan to increase the profitability for our brick-and-mortar locations by improving the productivity and performance of our existing stores. We will also continue to review our field and store structure. For example in Americas Retail, approximately half of our leases are up for renewal or have lease exit options over the next three years which will provide us with the opportunity to renegotiate more favorable lease terms or optimize our retail footprint as appropriate in the coming years.
Capital Allocation
The Company’s investments in capital for the full fiscal year 2017 are planned between $90 million and $100 million (after deducting estimated lease incentives of approximately $8 million). The planned investments in capital are primarily for retail expansion, store remodeling programs and investments in maintaining and improving our infrastructure (primarily information and operating systems).

27


Comparable Store Sales
The Company reports National Retail Federation calendar comparable store 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 store 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 store 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 store sales used by the Company may differ from 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 three months ended April 30, 2016 had the same number of days as the three months ended May 2, 2015.
Executive Summary
Overview 
Net loss attributable to Guess?, Inc. was $25.2 million, or diluted loss of $0.30 per common share, for the quarter ended April 30, 2016, compared to net earnings attributable to Guess?, Inc. of $3.3 million, or diluted earnings of $0.04 per common share, for the quarter ended May 2, 2015. During the first quarter of fiscal 2017, the Company initiated a global cost reduction and restructuring plan to better align its global cost and organizational structure with its current strategic initiatives. This plan includes the consolidation and streamlining of the Company’s business processes and a reduction in its global workforce and other expenses. These actions resulted in restructuring charges of $6.1 million and a related estimated exit tax charge of approximately $1.9 million (or a combined $5.8 million after considering the $2.2 million tax benefit as a result of the restructuring charges), or an unfavorable impact of $0.07 per share. Excluding the impact of restructuring charges, related tax impacts and estimated exit tax charge, adjusted net loss attributable to Guess?, Inc. was $19.4 million and adjusted diluted loss was $0.23 per common share for the quarter ended April 30, 2016. References to financial results excluding the impact of these charges are non-GAAP measures and are addressed below under “Non-GAAP Measures.”
Highlights of the Company’s performance for the quarter ended April 30, 2016 compared to the same prior-year period are presented below, followed by a more comprehensive discussion under “Results of Operations”:
Operations
Total net revenue decreased 6.3% to $448.8 million for the quarter ended April 30, 2016, from $478.8 million in the same prior-year period. In constant currency, net revenue decreased by 5.0%.
Gross margin (gross profit as a percentage of total net revenue) decreased 280 basis points to 31.8% for the quarter ended April 30, 2016, from 34.6% in the same prior-year period.

28


Selling, general and administrative (“SG&A”) expenses as a percentage of total net revenue (“SG&A rate”) increased 320 basis points to 36.9% for the quarter ended April 30, 2016, compared to 33.7% in the same prior-year period. SG&A expenses increased 2.8% to $165.7 million for the quarter ended April 30, 2016, compared to $161.1 million in the same prior-year period.
The Company incurred $6.1 million in restructuring charges during the quarter ended April 30, 2016.
Operating margin decreased 740 basis points to negative 6.5% for the quarter ended April 30, 2016, from 0.9% in the same prior-year period. The restructuring charges negatively impacted operating margin by 140 basis points for the quarter ended April 30, 2016. Loss from operations was $29.0 million for the quarter ended April 30, 2016, compared to earnings from operations of $4.4 million in the same prior-year period.
Other expense, net (including interest income and expense), totaled $1.0 million for the quarter ended April 30, 2016, compared to other income, net of $2.5 million in the same prior-year period.
The effective income tax rate decreased by 25.5% to 16.0% for the quarter ended April 30, 2016, from 41.5% in the same prior-year period. The effective income tax rate for the quarter ended April 30, 2016 included an estimated exit tax charge of approximately $1.9 million related to the Company’s reorganization in Europe as well as the impact of restructuring charges of $6.1 million and a $2.2 million tax benefit as a result of these charges. These items unfavorably impacted the Company’s effective tax rate by 290 basis points.
Key Balance Sheet Accounts
The Company had $427.5 million in cash and cash equivalents as of April 30, 2016. This compares to cash and cash equivalents of $459.1 million at May 2, 2015.
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 and certain other receivables, decreased by $18.0 million, or 9.2%, to $177.7 million as of April 30, 2016, from $195.7 million at May 2, 2015. On a constant currency basis, accounts receivable decreased by $19.3 million, or 9.8%.
Inventory increased by $31.1 million, or 9.5%, to $358.2 million as of April 30, 2016, compared to $327.1 million at May 2, 2015. On a constant currency basis, inventory increased by $31.6 million, or 9.6%.
During the three months ended April 30, 2016, the Company entered into a ten-year $21.5 million real estate secured loan to partially finance the $28.8 million purchase of the Company’s U.S. distribution center during the fourth quarter of fiscal 2016.
Global Store Count
In the first quarter of fiscal 2017, together with our partners, we opened 24 new stores worldwide, consisting of 19 stores in Asia, three stores in Europe, one store in the U.S. and one store in Canada. Together with our partners, we closed 31 stores worldwide, consisting of 12 stores in Asia, nine stores in Europe and the Middle East, seven stores in Central and South America, two stores in Canada and one store in the U.S.

29


We ended the first quarter of fiscal 2017 with 1,632 stores worldwide, comprised as follows:
Region
 
Total Stores
 
Directly
Operated Stores
 
Licensee Stores
United States
 
343

 
342

 
1

Canada
 
112

 
112

 

Central and South America
 
92

 
46

 
46

Total Americas
 
547

 
500

 
47

Europe and the Middle East
 
588

 
275

 
313

Asia
 
497

 
65

 
432

Total
 
1,632

 
840

 
792

This store count does not include 432 concessions located primarily in South Korea and Greater China, which have been excluded because of their smaller store size in relation to our standard international store size. Of the total 1,632 stores, 1,259 were GUESS? stores, 226 were GUESS? Accessories stores, 74 were MARCIANO stores and 73 were G by GUESS stores.
Results of Operations
Three Months Ended April 30, 2016 and May 2, 2015
Consolidated Results
Net Revenue. Net revenue decreased by $30.0 million, or 6.3%, to $448.8 million for the quarter ended April 30, 2016, from $478.8 million for the quarter ended May 2, 2015. In constant currency, net revenue decreased by 5.0% as currency translation fluctuations relating to our foreign operations unfavorably impacted net revenue by $6.2 million compared to the same prior-year period. The decrease was driven primarily by lower shipments in our European wholesale business.
Gross Margin. Gross margin decreased 280 basis points to 31.8% for the quarter ended April 30, 2016, from 34.6% in the same prior-year period, of which 150 basis points was due to a higher occupancy rate and 130 basis points was due to lower overall product margins. The higher occupancy rate was driven by the negative impact on the fixed cost structure resulting from lower shipments in our European wholesale business. The lower overall product margins were due primarily to the negative impact from currency exchange rate fluctuations.
Gross Profit. Gross profit decreased by $22.7 million, or 13.7%, to $142.8 million for the quarter ended April 30, 2016, from $165.5 million in the same prior-year period. The decrease in gross profit, which included the unfavorable impact of currency translation, was due primarily to the negative impact from lower wholesale shipments in Europe and lower overall product margins. Currency translation fluctuations relating to our foreign operations unfavorably impacted gross profit by $1.8 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’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 320 basis points to 36.9% for the quarter ended April 30, 2016, compared to 33.7% in the same prior-year period, due primarily to overall deleveraging driven by lower shipments in our European wholesale business.
SG&A Expenses. SG&A expenses increased by $4.5 million, or 2.8%, to $165.7 million for the quarter ended April 30, 2016, compared to $161.1 million in the same prior-year period. The increase, which included the favorable impact of currency translation, was driven by higher investments to support our expansion. Currency translation fluctuations relating to our foreign operations favorably impacted SG&A expenses by $1.0 million.

30


Restructuring Charges. During the first quarter of fiscal 2017, the Company initiated a global cost reduction and restructuring plan to better align its global cost and organizational structure with its current strategic initiatives. This plan includes the consolidation and streamlining of the Company’s business processes and a reduction in its global workforce and other expenses. These actions resulted in restructuring charges of $6.1 million incurred during the quarter ended April 30, 2016.
Operating Margin. Operating margin decreased 740 basis points to negative 6.5% for the quarter ended April 30, 2016, from 0.9% in the same prior-year period. The decrease in operating margin was driven by a higher SG&A rate and lower overall gross margins. Currency exchange rate fluctuations negatively impacted operating margin by approximately 150 basis points. The restructuring charges negatively impacted the operating margin by 140 basis points.
Earnings (Loss) from Operations.   Loss from operations was $29.0 million for the quarter ended April 30, 2016, compared to earnings from operations of $4.4 million in the same prior-year period. Currency translation fluctuations relating to our foreign operations unfavorably impacted loss from operations by $0.9 million.
Interest Income (Expense), Net. Interest income, net was $0.1 million for the quarter ended April 30, 2016, compared to interest expense, net of $0.2 million for the quarter ended May 2, 2015 and includes the impact of hedge ineffectiveness of foreign exchange currency contracts designated as cash flow hedges.
Other Income (Expense), Net. Other expense, net was $1.1 million for the quarter ended April 30, 2016, compared to other income, net of $2.6 million in the same prior-year period. Other expense, net in the quarter ended April 30, 2016 consisted primarily of net unrealized and realized mark-to-market revaluation losses on foreign exchange currency contracts, partially offset by net unrealized and realized gains on non-operating assets. Other income, net in the quarter ended May 2, 2015 consisted primarily of net unrealized and realized gains on non-operating assets.
Income Tax Expense (Benefit).  Income tax benefit for the quarter ended April 30, 2016 was $4.8 million, or a 16.0% effective tax rate, compared to income tax expense of $2.8 million, or a 41.5% effective tax rate, in the same prior-year period. Generally, income taxes for the interim periods are computed using the effective tax rate estimated to be applicable for the full fiscal year which is subject to ongoing review and evaluation by management. The change in the effective income tax rate was due primarily to a shift in the distribution of earnings among the Company’s tax jurisdictions within the quarters of the current fiscal year and more losses incurred in certain foreign jurisdictions where the Company has valuation allowances during the three months ended April 30, 2016 compared to the same prior-year period. The effective income tax rate for the quarter ended April 30, 2016 also included an estimated exit tax charge of approximately $1.9 million related to the Company’s reorganization in Europe as well as the impact of restructuring charges of $6.1 million and a $2.2 million tax benefit as a result of these charges. These items unfavorably impacted the Company’s effective tax rate by 290 basis points. Excluding the impact of these items, the effective income tax rate was 18.9% for the quarter ended April 30, 2016.
Net Earnings Attributable to Noncontrolling Interests. Net earnings attributable to noncontrolling interests for the quarter ended April 30, 2016 was minimal, compared to $0.6 million, net of taxes, in the same prior-year period.
Net Earnings (Loss) Attributable to Guess?, Inc. Net loss attributable to Guess?, Inc. was $25.2 million for the quarter ended April 30, 2016, compared to net earnings attributable to Guess?, Inc. of $3.3 million in the same prior-year period. Diluted loss per share was $0.30 for the quarter ended April 30, 2016, compared to diluted earnings per share of $0.04 for the quarter ended May 2, 2015. The results for the quarter ended April 30, 2016 included the unfavorable $0.07 per share impact of the restructuring charges, related tax impacts and estimated exit tax charge. Excluding the impact of restructuring charges, related tax impacts and estimated exit tax charge, adjusted net loss attributable to Guess?, Inc. was $19.4 million and adjusted diluted loss was $0.23 per common share for the quarter ended April 30, 2016. We estimate that the negative impact from currency fluctuations on diluted loss per common share for the quarter ended April 30, 2016 was approximately $0.08 per share.

31


Information by Business Segment
The following table presents our net revenue and earnings (loss) from operations by segment for the three months ended April 30, 2016 and May 2, 2015 (dollars in thousands):
 
Three Months Ended
 
 
 
 
 
Apr 30, 2016
 
May 2, 2015
 
Change
 
% Change
Net revenue:
 
 
 
 
 
 
 
Americas Retail
$
204,161

 
$
214,249

 
$
(10,088
)
 
(4.7
%)
Europe
135,380

 
137,397

 
(2,017
)
 
(1.5
)
Asia
54,129

 
64,035

 
(9,906
)
 
(15.5
)
Americas Wholesale
32,798

 
37,278

 
(4,480
)
 
(12.0
)
Licensing
22,347

 
25,865

 
(3,518
)
 
(13.6
)
Total net revenue
$
448,815

 
$
478,824

 
$
(30,009
)
 
(6.3
%)
Earnings (loss) from operations:
 
 
 
 
 
 
 
Americas Retail
$
(12,601
)
 
$
(7,209
)
 
$
(5,392
)
 
(74.8
%)
Europe
(14,085
)
 
(3,668
)
 
(10,417
)
 
(284.0
)
Asia
(669
)
 
4,613

 
(5,282
)
 
(114.5
)
Americas Wholesale
5,611

 
6,747

 
(1,136
)
 
(16.8
)
Licensing
20,415

 
23,025

 
(2,610
)
 
(11.3
)
Corporate Overhead
(21,566
)
 
(19,155
)
 
(2,411
)
 
12.6

Restructuring Charges
(6,083
)
 

 
(6,083
)
 
 
Total earnings (loss) from operations
$
(28,978
)
 
$
4,353

 
$
(33,331
)
 
(765.7
%)
Operating margins:
 
 
 
 
 
 
 
Americas Retail
(6.2
%)
 
(3.4
%)
 
 
 
 
Europe
(10.4
%)
 
(2.7
%)
 
 
 
 
Asia
(1.2
%)
 
7.2
%
 
 
 
 
Americas Wholesale
17.1
%
 
18.1
%
 
 
 
 
Licensing
91.4
%
 
89.0
%
 
 
 
 
Total Company
(6.5
%)
 
0.9
%
 
 
 
 
Americas Retail
Net revenue from our Americas Retail segment decreased by $10.1 million, or 4.7%, to $204.2 million for the quarter ended April 30, 2016, from $214.2 million in the same prior-year period. In constant currency, net revenue decreased by 3.3%, driven primarily by the unfavorable impact from negative comparable store sales and store closures. Comparable store sales (including e-commerce) in the U.S. and Canada decreased 4.2% in U.S. dollars and 3.1% in constant currency, which excludes the unfavorable translation impact from currency fluctuations relating to our Canadian retail stores and e-commerce sites. E-commerce sales increased by $2.0 million, or 11.0%, to $20.2 million for the quarter ended April 30, 2016, compared to $18.2 million in the same prior-year period. The inclusion of our e-commerce sales improved the comparable store sale percentage by 1.5% in U.S. dollars and 1.4% in constant currency. The store base for the U.S. and Canada decreased by an average of 21 net stores during the quarter ended April 30, 2016 compared to the same prior-year period, resulting in a 3.0% net decrease in average square footage. Currency translation fluctuations relating to our non-U.S. retail stores and e-commerce sites unfavorably impacted net revenue by $3.0 million.
Operating margin decreased 280 basis points to negative 6.2% for the quarter ended April 30, 2016, from negative 3.4% in the same prior-year period, driven by lower gross margins and a higher SG&A rate due primarily to the negative impact on the fixed cost structure resulting from negative comparable store sales.
Loss from operations from our Americas Retail segment increased by $5.4 million, or 74.8%, to $12.6 million for the quarter ended April 30, 2016, compared to $7.2 million in the same prior-year period, driven primarily by the unfavorable impact on earnings from negative comparable store sales.
As of April 30, 2016, we directly operated 454 stores in the U.S. and Canada, of which 342 stores were in the U.S. and 112 stores were in Canada. As of April 30, 2016, the total 454 directly operated stores were comprised of 155 full-priced GUESS? retail stores, 152 GUESS? factory outlet stores, 65 G by GUESS stores, 41

32


MARCIANO stores, 27 GUESS? factory accessories stores and 14 GUESS? retail accessories stores. As of May 2, 2015, we directly operated 470 stores in the U.S. and Canada, of which 356 stores were in the U.S. and 114 stores were in Canada.
Europe
Net revenue from our Europe segment decreased by $2.0 million, or 1.5%, to $135.4 million for the quarter ended April 30, 2016, from $137.4 million in the same prior-year period. In constant currency, net revenue decreased by 2.8%, driven primarily by lower shipments in our European wholesale business, partially offset by a percentage increase in the mid-teens for comparable store sales in our directly operated retail stores versus the same prior-year period. As of April 30, 2016, we directly operated 275 stores in Europe compared to 267 stores at May 2, 2015, excluding concessions, which represents a 3.0% increase over the prior-year first quarter end. Currency translation fluctuations relating to our European operations favorably impacted net revenue by $1.8 million.
Operating margin decreased 770 basis points to negative 10.4% for the quarter ended April 30, 2016, from negative 2.7% in the same prior-year period, due to lower gross margins and a higher SG&A rate. The lower gross margins were driven primarily by the unfavorable impact from lower wholesale shipments, currency exchange rate fluctuations and more promotions, partially offset by the favorable impact from business mix and positive comparable store sales. The higher SG&A rate was due primarily to overall deleveraging driven by lower wholesale shipments, partially offset by the favorable impact on the fixed cost structure resulting from positive comparable store sales.
Loss from operations from our Europe segment increased by $10.4 million, or 284.0%, to $14.1 million for the quarter ended April 30, 2016, compared to $3.7 million in the same prior-year period. The deterioration was driven primarily by lower product margins, higher store selling expenses and higher occupancy costs during the quarter ended April 30, 2016 compared to the same prior-year period.
Asia
Net revenue from our Asia segment decreased by $9.9 million, or 15.5%, to $54.1 million for the quarter ended April 30, 2016, from $64.0 million in the same prior-year period. In constant currency, net revenue decreased by 10.8%, driven primarily by South Korea as we completed the phase out of our G by GUESS concept in the region during fiscal 2016. As of April 30, 2016, we and our partners operated 497 stores and 406 concessions in Asia, compared to 499 stores and 471 concessions at May 2, 2015. Currency translation fluctuations relating to our Asian operations unfavorably impacted net revenue by $3.0 million.
Operating margin decreased 840 basis points to negative 1.2% for the quarter ended April 30, 2016, from 7.2% in the same prior-year period. The decrease in operating margin was due to a higher SG&A rate and lower overall gross margins due primarily to the unfavorable impact from business mix and higher expenses driven by expansion in China.
Loss from operations from our Asia segment was $0.7 million for the quarter ended April 30, 2016, compared to earnings from operations of $4.6 million in the same prior-year period. The deterioration was driven by higher SG&A expenses due to expansion in China and higher occupancy costs.
Americas Wholesale
Net revenue from our Americas Wholesale segment decreased by $4.5 million, or 12.0%, to $32.8 million for the quarter ended April 30, 2016, from $37.3 million in the same prior-year period. In constant currency, net revenue decreased by 6.8%, driven primarily by lower shipments in our U.S. wholesale business. Currency translation fluctuations relating to our non-U.S. wholesale businesses unfavorably impacted net revenue by $2.0 million.
Operating margin decreased 100 basis points to 17.1% for the quarter ended April 30, 2016, from 18.1% in the same prior-year period. The decrease in operating margin was due to lower product margins driven primarily by the unfavorable impact from currency exchange rate fluctuations on product costs.

33


Earnings from operations from our Americas Wholesale segment decreased by $1.1 million, or 16.8%, to $5.6 million for the quarter ended April 30, 2016, from $6.7 million in the same prior-year period. Currency translation fluctuations relating to our non-U.S. wholesale businesses unfavorably impacted earnings from operations by $0.6 million.
Licensing
Net royalty revenue from our Licensing segment decreased by $3.5 million, or 13.6%, to $22.3 million for the quarter ended April 30, 2016, from $25.9 million in the same prior-year period. The decrease was driven primarily by overall softness in our licensing business, particularly in our watch category.
Earnings from operations from our Licensing segment decreased by $2.6 million, or 11.3%, to $20.4 million for the quarter ended April 30, 2016, from $23.0 million in the same prior-year period. The decrease was driven primarily by the unfavorable impact to earnings from lower revenue.
Corporate Overhead
Unallocated corporate overhead increased by $2.4 million to $21.6 million for the quarter ended April 30, 2016, compared to $19.2 million in the same prior-year period. The increase was driven primarily by higher professional fees.
Non-GAAP Measures
The Company’s reported financial results are presented in accordance with GAAP. The reported net loss attributable to Guess?, Inc., diluted loss per share and the effective tax rate for the quarter ended April 30, 2016 reflect the impact of restructuring charges and an estimated exit tax charge which affect the comparability of those reported results. Those 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 this item. The Company has excluded these charges, and related tax impact, from its adjusted financial measures primarily because it does not believe such charges reflect the Company’s ongoing operating results or future outlook. The Company believes that these “non-GAAP” or “adjusted” financial measures are useful as an additional means for investors to evaluate the comparability of the Company’s operating results 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 quarter ended April 30, 2016 exclude the impact of restructuring charges and an estimated exit tax charge. During the first quarter of fiscal 2017, the Company initiated a global cost reduction and restructuring plan to better align its global cost and organizational structure with its current strategic initiatives. This plan includes the consolidation and streamlining of the Company’s business processes and a reduction in its global workforce and other expenses. These actions resulted in restructuring charges of $6.1 million and a related estimated exit tax charge of approximately $1.9 million (or a combined $5.8 million after considering the $2.2 million tax benefit as a result of the restructuring charges), or an unfavorable impact of $0.07 per share during the quarter ended April 30, 2016. Net loss attributable to Guess?, Inc. was $25.2 million for the quarter ended April 30, 2016, diluted loss per common share for the quarter ended April 30, 2016 was $0.30 and the effective tax rate for the quarter ended April 30, 2016 was 16.0%. Excluding the impact of the restructuring charges, related tax impacts and the estimated exit tax charge, adjusted net loss attributable to Guess?, Inc. for the quarter ended April 30, 2016 was $19.4 million, adjusted diluted loss per common share for the quarter ended April 30, 2016 was $0.23 and the adjusted effective tax rate for the quarter ended April 30, 2016 was 18.9%.
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 store 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

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during the comparable period of the prior year. However, in calculating the estimated impact of currency on 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 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. 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.
Liquidity and Capital Resources
We need liquidity primarily to fund our working capital, the expansion and remodeling of our retail stores, shop-in-shop programs, concessions, systems, infrastructure, other existing operations, international growth, potential acquisitions, potential share repurchases and payment of dividends to our stockholders. During the three months ended April 30, 2016, the Company relied primarily on trade credit, available cash, real estate and other operating leases, proceeds from the real estate secured loan and short-term lines of credit and internally generated funds to finance our operations, the purchase of the Company’s U.S. distribution center during the fourth quarter of fiscal 2016, dividends and expansion. The Company anticipates that we will be able to satisfy our ongoing cash requirements during the next twelve months for working capital, capital expenditures, interest and principal payments on our debt, potential acquisitions, potential share repurchases and any dividend payments to stockholders, primarily with cash flow from operations and existing cash balances supplemented by borrowings, as necessary, under our existing Credit Facility and bank facilities in Europe, as described below under “—Borrowings and Capital Lease Obligations.”
As of April 30, 2016, the Company had cash and cash equivalents of $427.5 million, of which approximately $88.8 million was held in the U.S. As of April 30, 2016, we have not provided for U.S. federal and state income taxes on the undistributed earnings of our foreign subsidiaries, since such earnings are considered indefinitely reinvested outside the U.S. If in the future we decide to repatriate such earnings, we would incur incremental U.S. federal and state income taxes, reduced by allowable foreign tax credits. However, our intent is to keep these funds indefinitely reinvested outside of the U.S. and our current plans do not indicate a need to repatriate them to fund our U.S. operations. Due to the complexities associated with the hypothetical calculation, including the availability of foreign tax credits, it is not practicable to determine the unrecognized deferred tax liability related to the undistributed earnings.
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 and a diversified money market fund. The money market fund is AAA rated by national credit rating agencies and is generally comprised of high-quality, liquid investments. Please see “—Important Factors Regarding Forward-Looking Statements” 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 January 30, 2016 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 three months ended April 30, 2016, versus the three months ended May 2, 2015.

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Operating Activities
Net cash used by operating activities was $30.8 million for the three months ended April 30, 2016, compared to net cash provided by operating activities of $9.1 million for the three months ended May 2, 2015, or a decrease of $39.9 million. The decrease was driven primarily by lower net earnings and the unfavorable impact of changes in working capital for the three months ended April 30, 2016 compared to the same prior-year period. The change in working capital was driven primarily by higher inventory related to timing of receipts, retail expansion and a buildup of excess inventory in Americas Retail, partially offset by lower accounts receivable due primarily to lower European wholesale shipments during the three months ended April 30, 2016 compared to the same prior-year period.
Investing Activities
Net cash used in investing activities was $10.1 million for the three months ended April 30, 2016, compared to $10.5 million for the three months ended May 2, 2015. Cash used in investing activities related primarily to capital expenditures incurred on retail expansion and existing store remodeling programs. In addition, the cost of any business acquisitions, proceeds from disposition of long-term assets and the settlement of forward exchange currency contracts are also included in cash flows used in investing activities.
The decrease in cash used in investing activities was driven primarily by proceeds from the sale of long-term assets, partially offset by a higher level of spending on retail expansion during the three months ended April 30, 2016 compared to the same prior-year period. During the three months ended April 30, 2016, the Company opened 14 directly operated stores compared to ten directly operated stores that were opened in the comparable prior-year period. The Company also acquired one store from one of its European licensees during each of the three months ended April 30, 2016 and May 2, 2015.
Financing Activities
Net cash provided by financing activities was $3.9 million for the three months ended April 30, 2016, compared to net cash used by financing activities of $22.9 million for the three months ended May 2, 2015. Cash flows from financing activities related primarily to proceeds from borrowings, partially offset by the payment of dividends during the three months ended April 30, 2016. In addition, capital contributions from noncontrolling interests, proceeds from issuance of common stock under our equity plans and excess tax benefits from share-based compensation, payments related to capital lease obligations, other borrowings and debt issuance costs and capital distributions to noncontrolling interests are also included in cash flows from financing activities.
The change in cash flows from financing activities was driven primarily by proceeds from the Company’s ten-year $21.5 million real estate secured loan entered into during the three months ended April 30, 2016 to partially finance the $28.8 million purchase of the Company’s U.S. distribution center during the fourth quarter of fiscal 2016.
Effect of Exchange Rates on Cash and Cash Equivalents
During the three months ended April 30, 2016, changes in foreign currency translation rates increased our reported cash and cash equivalents balance by $19.0 million. This compares to a minimal impact on cash and cash equivalents from changes in foreign currency translation rates during the three months ended May 2, 2015.
Working Capital
As of April 30, 2016, the Company had net working capital (including cash and cash equivalents) of $706.2 million, compared to $709.2 million at January 30, 2016 and $768.8 million at May 2, 2015. As a result of the adoption of new authoritative guidance during the fourth quarter of fiscal 2016 which requires that all deferred tax liabilities and assets be classified as long-term on the balance sheet, net working capital at May 2, 2015 was adjusted to reflect the reclassification of deferred tax assets for $19.7 million from current to long-term. The Company’s primary working capital needs are for accounts receivable and inventory. Accounts receivable decreased by $18.0 million, or 9.2%, to $177.7 million as of April 30, 2016, from $195.7 million at May 2, 2015. 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

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relating to its licensing operations and certain other receivables. On a constant currency basis, accounts receivable decreased by $19.3 million, or 9.8%, when compared to May 2, 2015. The decrease was driven primarily by lower European wholesale shipments during the three months ended April 30, 2016 compared to the same prior-year period. As of April 30, 2016, approximately 47% of our total net trade receivables and 64% 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 $31.1 million, or 9.5%, to $358.2 million as of April 30, 2016, compared to $327.1 million at May 2, 2015. On a constant currency basis, inventory increased by $31.6 million, or 9.6%, when compared to May 2, 2015, driven primarily by timing of receipts, retail expansion and a buildup of excess inventory in Americas Retail.
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.
On May 25, 2016, the Company announced a regular quarterly cash dividend of $0.225 per share on the Company’s common stock. The cash dividend will be paid on June 24, 2016 to shareholders of record as of the close of business on June 8, 2016.
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 liquidity.
Capital Expenditures
Gross capital expenditures totaled $17.8 million, before deducting lease incentives of $1.4 million, for the three months ended April 30, 2016. This compares to gross capital expenditures of $11.6 million, before deducting lease incentives of $0.7 million, for the three months ended May 2, 2015. As part of our strategic initiatives, we plan to significantly increase our capital expenditures over the next three years. The Company’s investments in capital for the full fiscal year 2017 are planned between $90 million and $100 million (after deducting estimated lease incentives of approximately $8 million). The planned investments in capital are primarily for retail expansion, store remodeling programs and investments in maintaining and improving our infrastructure (primarily information and operating systems).
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, 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 “Credit Facility”). 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 and eligible cash balances as of April 30, 2016, the Company could have borrowed up to $148 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.

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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 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 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 April 30, 2016, the Company had $1.7 million in outstanding standby letters of credit, $0.4 million in outstanding documentary letters of credit and no 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 if the borrowing capacity falls below certain levels. 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 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 April 30, 2016, the Company could have borrowed up to $65.6 million under these agreements. As of April 30, 2016, the Company had no outstanding borrowings and $0.8 million in outstanding documentary letters of credit under these agreements. The agreements are denominated primarily in euros and provide for annual interest rates ranging from 0.4% to 6.8%. 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 $40.1 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 April 30, 2016, outstanding borrowings under the Mortgage Debt, net of debt issuance costs of $0.1 million, were $21.3 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,

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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 liability as of April 30, 2016 was approximately $0.1 million.
Capital Lease
The Company leases a building in Florence, Italy under a capital lease which provides for minimum lease payments through May 1, 2016. As of April 30, 2016, the capital lease obligation was $3.9 million, which was paid during the second quarter of fiscal 2017. The Company entered into a separate interest rate swap agreement designated as a non-hedging instrument that resulted in a swap fixed rate of 3.55%. This interest rate swap agreement matured on February 1, 2016 and had converted the nature of the capital lease obligation from Euribor floating-rate debt to fixed-rate debt.
Other
From time-to-time, the Company will obtain other financing in foreign countries for working capital to finance its local operations.
Share Repurchases
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. As of April 30, 2016, the Company had remaining authority under the program to purchase $451.8 million of its common stock. There were no share repurchases during the three months ended April 30, 2016 and May 2, 2015.
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.
In fiscal 2016, the SERP was amended in connection with Paul Marciano’s transition from Chief Executive Officer to Executive Chairman of the Board and Chief Creative Officer. This amendment effectively eliminated any future salary progression by finalizing compensation levels for future benefits. Mr. Marciano will continue to be eligible to receive SERP benefits in the future in accordance with the amended terms of the SERP. Subsequent to this amendment, there are no employees considered actively participating under the terms of the SERP. As a result, the Company included an actuarial gain of $11.4 million before taxes in accumulated other comprehensive income (loss) during fiscal 2016. In addition, the Company also recognized a curtailment gain of $1.7 million before taxes related to the accelerated amortization of the remaining prior service credit during fiscal 2016. The actuarial and curtailment gains were recorded during the three months ended August 1, 2015.
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 $55.6 million and $52.5 million as of April 30, 2016 and January 30, 2016, 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 of $3.2 million and $2.0 million in other income during the three months ended April 30, 2016 and May 2, 2015, respectively. The Company also recorded realized gains of $0.1 million and $0.7 million in other income resulting from payout on the insurance policies during the three

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months ended April 30, 2016 and May 2, 2015, respectively. The projected benefit obligation was $53.5 million and $53.4 million as of April 30, 2016 and January 30, 2016, 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 were made during each of the three months ended April 30, 2016 and May 2, 2015.
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’s goal in the European wholesale business is to take advantage of early-season demand and potential reorders 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 May 30, 2016, consisting primarily of orders for fashion apparel, was $45.4 million in constant currency, compared to $52.7 million at June 1, 2015, a decrease of 13.8%. We estimate that if we were to normalize the orders for the scheduling of market weeks the current backlog would have increased by 1.6% compared to the prior year.
Europe Backlog. As of May 29, 2016, the European wholesale backlog was €199.3 million, compared to €218.2 million at May 31, 2015, a decrease of 8.7%. The backlog as of May 29, 2016 is comprised of sales orders for the Spring/Summer 2016, Fall/Winter 2016 and Spring/Summer 2017 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 year ended January 30, 2016 filed with the SEC on March 25, 2016. There have been no significant changes to our critical accounting policies during the three months ended April 30, 2016.
Recently Issued Accounting Guidance
In May 2014, the Financial Accounting Standards Board (“FASB”) issued a comprehensive new revenue recognition standard which will supersede previous existing revenue recognition guidance. The standard creates a five-step model for revenue recognition that requires companies to exercise judgment when considering contract terms and relevant facts and circumstances. The five-step model includes (1) identifying the contract, (2) identifying the separate performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations and (5) recognizing revenue when each performance obligation has been satisfied. The standard also requires expanded disclosures surrounding revenue

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recognition. During the first quarter of fiscal 2017, the FASB issued additional clarification guidance on the new revenue recognition standard which also included certain scope improvements and practical expedients. The standard (including clarification guidance issued) is effective for fiscal periods beginning after December 15, 2017, which will be the Company’s first quarter of fiscal 2019, and allows for either full retrospective or modified retrospective adoption. Early adoption is permitted for fiscal periods beginning after December 15, 2016, which will be the Company’s first quarter of fiscal 2018. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements and related disclosures, including the choice of application method upon adoption.
In July 2015, the FASB issued authoritative guidance to simplify the subsequent measurement of inventories by replacing the lower of cost or market test with a lower of cost and net realizable value test. This guidance is effective for fiscal years beginning after December 15, 2016, which will be the Company’s first quarter of fiscal 2018, and requires prospective adoption, with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements or related disclosures.
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. This guidance also addresses other recognition, measurement, presentation and disclosure requirements for financial instruments. This guidance is effective for fiscal years beginning after December 15, 2017, which will be the Company’s first quarter of fiscal 2019, and requires a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements and related disclosures.
In February 2016, the FASB issued a comprehensive new lease standard which will supersede 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 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 is effective for fiscal periods beginning after December 15, 2018, which will be the Company’s first quarter of fiscal 2020, and requires modified retrospective adoption, 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, but expects there will be a significant increase in its long-term assets and liabilities resulting from the adoption.
In March 2016, the FASB issued authoritative guidance to simplify the accounting for certain aspects of share-based compensation. This guidance requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. This guidance also addresses other recognition, measurement and presentation requirements for share-based compensation. This guidance is effective for fiscal years beginning after December 15, 2016, which will be the Company’s first quarter of fiscal 2018, 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 three months ended April 30, 2016 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 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 January 30, 2016.

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Various transactions that occur primarily in Europe, Canada, South Korea and Mexico are denominated in U.S. dollars and British pounds 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 purchases of merchandise and U.S. dollar and British 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 three months ended April 30, 2016, the Company purchased U.S. dollar forward contracts in Canada and Europe totaling US$21.3 million and US$18.9 million, respectively, to hedge forecasted merchandise purchases and intercompany royalties that were designated as cash flow hedges. As of April 30, 2016, the Company had forward contracts outstanding for its European and Canadian operations of US$104.8 million and US$59.0 million, respectively, which are expected to mature over the next 18 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 which 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 and expense in the period in which the royalty expense is incurred.
As of April 30, 2016, accumulated other comprehensive income (loss) related to foreign exchange currency contracts included a net unrealized loss of approximately $3.7 million, net of tax, of which $0.9 million will be recognized in cost of product sales or other expense 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. As of April 30, 2016, the net unrealized loss of the remaining open forward contracts recorded in the Company’s condensed consolidated balance sheet was approximately $5.6 million.
At January 30, 2016, the Company had forward contracts outstanding for its European and Canadian operations of US$106.3 million and US$48.2 million, respectively, that were designated as cash flow hedges. At January 30, 2016, the net unrealized gain of these open forward contracts recorded in the Company’s condensed consolidated balance sheet was approximately $7.4 million.
Derivatives 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 and expense. For the three months ended April 30, 2016, the Company recorded a net loss of $6.0 million for its euro and Canadian dollar foreign exchange currency contracts not designated as hedges, which has been included in other expense. As of April 30, 2016, the Company had euro foreign exchange currency contracts to purchase US$68.5 million expected to mature over the next 12 months and Canadian dollar foreign exchange currency contracts to purchase US$22.6 million expected to mature over the next 11 months. As of April 30, 2016, the net unrealized loss of these open forward contracts recorded in the Company’s condensed consolidated balance sheet was approximately $3.9 million.
At January 30, 2016, the Company had euro foreign exchange currency contracts to purchase US$54.8 million and Canadian dollar foreign exchange currency contracts to purchase US$25.8 million. At January 30,

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2016, the net unrealized gain of these open forward contracts recorded in the Company’s condensed consolidated balance sheet was approximately $2.0 million.
Sensitivity Analysis
As of April 30, 2016, 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$254.9 million, the fair value of the instruments would have decreased by $28.3 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 $23.2 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
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.
Interest Rate Swap Agreement Designated as Cash Flow Hedge
During the three months ended April 30, 2016, 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 values of the interest rate swap agreements are based upon inputs corroborated by observable market data. Changes in the fair value of the interest rate swap agreement, designated as cash flow hedges 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 April 30, 2016, accumulated other comprehensive income (loss) related to the interest rate swap agreement included a net unrealized loss of approximately $0.1 million, net of tax, which will be recognized in interest expense 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. As of April 30, 2016, the net unrealized loss of the interest rate swap recorded in the Company’s condensed consolidated balance sheet was approximately $0.1 million.
Sensitivity Analysis
As of April 30, 2016, approximately 76% of the Company’s total indebtedness related to a real estate secured term loan, which 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. Changes in the fair value of the interest rate swap agreement 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. The majority of the Company’s remaining indebtedness is at 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 have had an insignificant effect on interest expense for the three months ended April 30, 2016.

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The fair value 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 April 30, 2016 and January 30, 2016, the carrying value of all financial instruments was not materially different from fair value, as the interest rate on the Company’s debt approximates rates currently available to the Company.
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 first quarter of fiscal 2017 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.
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 have also been 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 is now in 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 disagrees with the Court’s decision and has appealed the ruling. The judgment in the China matter is stayed pending the appeal, which was heard in May 2014. On January 30, 2015, the Court of Paris ruled in favor of the Company, 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.
On August 25, 2006, Franchez Isaguirre, a former employee of the Company, filed a complaint in the Superior Court of California, County of Los Angeles alleging violations by the Company of California wage and hour laws. The complaint was subsequently amended, adding a second former employee as an additional named party. The plaintiffs purport to represent a class of similarly situated employees in California who allegedly had been injured by not being provided adequate meal and rest breaks. The complaint seeks unspecified compensatory damages, statutory penalties, attorney’s fees and injunctive and declaratory relief. On June 9, 2009, the Court

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certified the class but immediately stayed the case pending the resolution of a separate California Supreme Court case on the standards of class treatment for meal and rest break claims. Following the Supreme Court ruling, the Superior Court denied the Company’s motions to decertify the class and to narrow the class in January 2013 and June 2013, respectively. The Company subsequently petitioned to have the Court’s decision not to narrow the class definition reviewed. That petition was ultimately denied by the California Supreme Court in April 2014. In July 2015, the parties entered into a Memorandum of Understanding to settle the matter for $5.25 million, subject to certain limited offsets. The Court issued a final order and judgment approving the settlement in February 2016.
The Company has received customs tax assessment notices from the Italian Customs Agency 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 ($11.2 million), including potential penalties and interest. The Company strongly disagrees with the positions that the Italian Customs Agency 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 ($1.9 million). In November 2015, the Italian Customs Agency notified the Company of its intent to appeal this first MFDTC judgment. During the first quarter of fiscal 2017, the MFDTC issued judgments in favor of the Company in relation to the second, third and fourth set of appeals (covering the period from October 2010 through June 2011) as well as a portion of the seventh set of appeals (covering the period from August 2012 through December 2012) and canceled the related assessments totaling €3.3 million ($3.8 million). While these MFDTC judgments have been favorable to the Company, there can be no assurances that the Company’s remaining open appeals for July 2011 through December 2012 will be successful. There also can be no assurances that the Italian Customs Agency will not be successful in its appeal of the first MFDTC judgment or that they will not appeal the other favorable MFDTC judgments. 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 each of the remaining matters, it is unable to predict with certainty whether or not these efforts will ultimately be successful or whether the outcomes will have a material impact on the Company’s financial position or results of operations.
The Company is also involved in various other claims and other matters incidental to the Company’s business, the resolutions of which are not expected to have a material adverse effect on the Company’s financial position or results of operations.
ITEM 1A. Risk Factors.
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 January 30, 2016, filed with the SEC on March 25, 2016.

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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
January 31, 2016 to February 27, 2016
 
 
 
 
 
 
 
Repurchase program (1)

 

 

 
$
451,783,109

Employee transactions (2)
502

 
$
18.21

 

 
 
February 28, 2016 to April 2, 2016
 
 
 
 
 
 
 
Repurchase program (1)

 

 

 
$
451,783,109

Employee transactions (2)
639

 
$
19.59

 

 
 
April 3, 2016 to April 30, 2016
 
 
 
 
 
 
 
Repurchase program (1)

 

 

 
$
451,783,109

Employee transactions (2)
1,353

 
$
17.86

 

 
 
Total
 
 
 
 
 
 
 
Repurchase program (1)

 

 

 
 
Employee transactions (2)
2,494

 
$
18.37

 

 
 
 
________________________________
(1) 
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.
(2) 
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.

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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.
 
Second Amended and Restated Bylaws of the Registrant (incorporated by reference from the Registrant’s Current Report on Form 8-K filed December 4, 2007).
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.
 
Restricted Stock Unit Agreement dated as of April 29, 2016 for Paul Marciano and Victor Herrero.
*†10.2.
 
Performance Share Award Agreement (total shareholder return) dated as of April 29, 2016 for Paul Marciano and Victor Herrero.
*†10.3.
 
Performance Share Award Agreement (revenue and operating income) dated as of April 29, 2016 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
†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
_______________________________________________________________________________
*
Management Contract or Compensatory Plan
Filed herewith


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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:
June 2, 2016
By:
/s/ VICTOR HERRERO
 
 
 
Victor Herrero
 
 
 
Chief Executive Officer
 
 
 
 
Date:
June 2, 2016
By:
/s/ SANDEEP REDDY
 
 
 
Sandeep Reddy
 
 
 
Chief Financial Officer
 
 
 
(Principal Financial Officer)


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