Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Exhibits and Financial Statement Schedules
Form 10-K Summary
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IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (“Annual Report”), including documents incorporated by reference herein, contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical or current fact are forward-looking statements. These statements include those relating to expectations, analyses and other information based on current plans, forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our goals, future prospects, potential actions, events impacting our supply chain and the markets in which we operate, the impact of new laws and regulations in the United States or abroad, including the impact of trade policies such as tariffs, our strategic initiatives, plans to expand our business, our expectations regarding our convertible senior notes and hedges, global cost reduction opportunities and profitability efforts, our environmental, social and governance (“ESG”) performance, goals and initiatives, any Proposed Transaction (as defined below), capital allocation plans, cash needs and current business strategies. These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “continue,” “could,” “create,” “estimate,” “expect,” “goal,” “intend,” “may,” “outlook,” “pending,” “plan,” “predict,” “project,” “see,” “should,” “strategy,” “will,” “would,” and other similar terms and phrases, including references to assumptions.
The forward-looking statements included herein are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. These risks and uncertainties, all of which are difficult or impossible to predict accurately and many of which are beyond our control, include, but are not limited to, those set forth under “Summary of Risk Factors” below and in “Item 1A. Risk Factors” and elsewhere in this Annual Report.
We operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements.
The forward-looking statements included herein are based on current expectations of our management based on available information and are believed to be reasonable. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. In light of the significant risks and uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that such results will be achieved, and readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. Except as required by law, we undertake no obligation to revise the forward-looking statements contained herein, whether to reflect events or circumstances after the date hereof or otherwise. You should read this Annual Report and the other documents we file with the SEC with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by the cautionary statements referenced above.
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SUMMARY OF RISK FACTORS
An investment in our securities involves various risks and you are urged to carefully consider the risks discussed under “Item 1A. Risk Factors” in this Annual Report prior to making an investment in our securities. If any of the risks below or in “Item 1A. Risk Factors” occurs, our business could be materially and adversely affected. As more fully described in “Item 1A. Risk Factors”, the principal risks and uncertainties that may affect our business, financial condition and results of operations include, but are not limited to, the following:
Risks Related to Operating a Global Business
• Our business is global in scope and can be impacted by factors beyond our control.
• Currency fluctuations could adversely impact our financial condition, results of operations and earnings.
• Our business may be impacted by weather conditions and other natural events.
• Changes to income tax or trade laws and policies, including tariffs, could affect our business.
• We could be impacted by errors in our assumptions, estimates and judgments related to tax matters.
• Changes in income tax laws, significant shifts in the relative source of our earnings, or other unanticipated income tax liabilities could adversely affect our financial results.
• We may be affected by economic sanctions and export controls targeting Russia.
Risks Related to our Business Strategy
• Failure to execute growth initiatives, including completion or integration of acquisitions and alliances, could harm our business.
• Failure to realize the benefits from our acquisition of rag & bone or from our strategic partnership with WHP Global could harm our business.
• We face risks associated with our joint ventures and strategic partnerships.
• Failure to successfully develop and manage new stores and design concepts could harm our business.
• We may not fully realize expected cost savings and/or operating efficiencies related to cost-saving initiatives.
Risks Related to Macroeconomic Conditions
• Slowing in-person customer traffic could reduce our sales, increase pressure on our margins and leave us with excess inventory.
• Failure to successfully develop an omnichannel shopping experience could harm our business.
• Poor or uncertain economic conditions have harmed, and could in the future harm, our business.
• Fluctuations and volatility in the price of input costs may impact our business.
• Fluctuations in the price or availability of quality raw materials may harm our profitability.
• Public health crises have harmed, and may in the future harm, our business.
Risks Related to Brand Reputation, Relevance and Protection
• Failure to identify and rapidly respond to consumers’ fashion tastes and shopping preferences could harm our business.
• Failure to protect our reputation could harm our business.
• We depend on our intellectual property and our methods of protecting it may not be adequate.
• Failure to appropriately address emerging environmental, social and governance concerns could harm our business.
Risks Related to Third Party Relationships
• Our licensees’ conduct could harm our business.
• Our success depends on the strength of our relationships with our suppliers and manufacturers.
Risks Related to Data Privacy and Cybersecurity
• A cybersecurity incident could damage our reputation, customer relationships and our business.
• Failure to comply with confidentiality or privacy obligations could harm our business.
• A disruption or cessation in operations of our information systems or websites could harm our business.
Risks Related to Competition
• We may face difficulties competing successfully in the retail industry.
• Our Americas Wholesale business is highly concentrated and if any large customer decreases its purchases, our business could be harmed.
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Risks Related to Legal, Governmental and Regulatory Matters
• Proxy contests and activist investor activity could harm our business.
• Violation of, or changes to, laws or regulations directly or through a licensee or supplier could adversely affect our business.
• Litigation or regulatory proceedings could result in substantial charges and diversion of time.
Risks Related to Inventory, Human Capital and Supply Chain Management
• Failure to retain and attract management and other key personnel could harm our business.
• Increases in labor costs, including wages, could harm our business.
• Events affecting consumer demand, the failure of our vendors to timely supply products, our failure to effectively market or merchandise products or open new or remodeled stores on schedule could result in excess inventory.
• Failure to deliver merchandise timely to our distribution facilities, stores and wholesale customers could harm our business.
• A disruption at our distribution facilities could harm our business.
Risks Related to Credit, Indebtedness and Ownership of our Common Stock
• Our Board’s consideration of potential avenues to enhance shareholder value, including a Proposed Transaction, could adversely impact our business, financial condition and results of operations, as well as our stock price.
• Litigation may arise in connection with a Proposed Transaction, which could be costly, prevent the consummation of the transaction, divert management’s attention and otherwise materially harm our business.
• Failure to satisfy the obligations under our 2028 Notes (as defined below), including our ability to settle the liability in cash, could harm our business.
• Provisions in the indenture for the 2028 Notes could delay or prevent an otherwise beneficial takeover of us.
• The conversion features of the 2028 Notes, if triggered, may adversely affect our business.
• The 2028 Notes’ hedge and warrant transactions may affect the value of the 2028 Notes and our common stock.
• Our repurchases, issuances or sales of shares of our common stock may affect the value of the 2028 Notes and our common stock.
• Adverse developments affecting financial institutions with whom we maintain cash balances could adversely impact our liquidity and financial performance.
• Difficulties in the credit markets could impact our customers, suppliers and business partners and harm our business.
• Our indebtedness and liabilities expose us to risks that could harm our business.
• We may rely on our subsidiaries to make payments under our outstanding indebtedness.
• Regulatory actions may adversely affect the value of the 2028 Notes and our common stock.
• The accounting method for the 2028 Notes could adversely affect our reported financial condition and results.
• We are subject to risks related to the Notes’ hedge transactions.
• Conversion of the 2028 Notes or exercise of our warrants may dilute the ownership of existing stockholders.
• Our repurchases of our common stock may affect the value of the 2028 Notes and our common stock.
• Fluctuations in quarterly performance could have an adverse effect on our earnings and our stock price.
• We cannot ensure that we will continue paying dividends at the current rates or at all.
• The market price of our common stock may be volatile.
• Our co-founders own a significant percentage of our common stock, and their interests may differ from other stockholders.
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WEBSITE REFERENCES
In this Annual Report, we make references to our website at http://investors.guess.com and http://sustainability.guess.com . References to our website throughout this Annual Report are provided for convenience only and the content on our website does not constitute a part of, and shall not be deemed incorporated by reference into, this Annual Report.
WHERE YOU CAN FIND MORE INFORMATION
Investors and others should note that we announce material financial information to our investors using our investor relations website, press releases, SEC filings and public conference calls and webcasts. We may also use our LinkedIn page (www.linkedin.com/company/guess-) and our website (www.guess.com) as a means of disclosing information about the Company (as defined below), our products, our planned financial and other announcements, attendance at upcoming investor and industry conferences, and other matters as well as for complying with our disclosure obligations under Regulation FD.
The information we post through these channels may be deemed material. Accordingly, investors should monitor these accounts and our investor relations website, in addition to following our press releases, SEC filings and public conference calls and webcasts. This list may be updated from time to time on our investor relations website. The information we post through these channels is not a part of this Annual Report.
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PART I
ITEM 1. Business.
General
Unless the context indicates otherwise, the terms “we,” “us,” “our” or the “Company” in this Annual Report refer to Guess?, Inc. (“GUESS?”) and its subsidiaries on a consolidated basis.
We design, market, distribute and license one of the world’s leading lifestyle collections of contemporary apparel and accessories for men, women and children that reflect the American lifestyle and European fashion sensibilities. Our apparel is marketed under numerous trademarks, including GUESS, GUESS?, GUESS U.S.A., GUESS JEANS, GUESS? and Triangle Design, MARCIANO, Question Mark and Triangle Design, a stylized G and a stylized M, GUESS Kids, Baby GUESS, YES, G by GUESS (GbG), GUESS by MARCIANO and Gc. The lines include full collections of clothing, including jeans, pants, skirts, dresses, activewear, shorts, blouses, shirts, jackets, knitwear, outerwear and intimate apparel. In addition, we selectively grant licenses to design, manufacture and distribute a broad range of products that complement our apparel lines, including eyewear, watches, handbags, footwear, kids’ and infants’ apparel, fragrance, jewelry and other fashion accessories. We also grant licenses to certain wholesale partners to operate and sell our products through licensed retail stores.
Our products are sold through direct-to-consumer, wholesale and licensing distribution channels. Our core customers are style-conscious consumers comprised of three target consumer groups: Heritage, Millennials and Generation Z. Our Heritage customers, typically aged 40 years and older, are very loyal and have been shopping with us for years. We appeal to these customers through GUESS and specialty product lines that include MARCIANO, a more sophisticated fashion line targeted to women. Our Millennial customers are typically between the ages of 25 to 39, and our Generation Z customers are typically between the ages of ten to 24 years old. These two target consumer groups typically shop streetwear and vintage inspired trends, viewing GUESS as accessible luxury. Our recent initiative to launch GUESS JEANS as its own brand is specifically targeted to our Millennial and Generation Z customers; however, these products should appeal to a much wider customer base.
In April 2024, we completed the acquisition of the operating assets and liabilities of rag & bone, a lifestyle and apparel fashion brand. Concurrent with the closing of the acquisition, we entered into a joint venture with global management firm, WHP Global, to acquire rag & bone’s intellectual property. Through our license agreement with the joint venture, we have the exclusive right to use rag & bone intellectual property to manufacture licensed products worldwide and to sell licensed products in specified territories. We believe this acquisition and associated license agreement allows us to further diversify our portfolio with complementary customer bases and price points.
We were founded in 1981 and currently operate as a Delaware corporation.
We operate on a 52/53-week fiscal year calendar, which ends on the Saturday nearest to January 31 of each year. All references herein to “fiscal 2025,” “fiscal 2024” and “fiscal 2023” represent the 52-week fiscal years ended February 1, 2025 and January 28, 2023 and the 53-week fiscal year ended February 3, 2024. The additional week in fiscal 2024 occurred during the fourth quarter ended February 3, 2024. References to “fiscal 2026” represent the 52-week fiscal year ending January 31, 2026.
Business Strengths
We believe we have several business strengths that set us apart from our competition, including:
Brand Equity. The GUESS? brand is an integral part of our business, a significant strategic asset and the primary source of sustainable competitive advantage. The GUESS? brand communicates a distinctive image that is fun, fashionable and sexy. We have developed and maintained this image worldwide through our consistent emphasis on innovative and distinctive product designs and through our award-winning advertising, under the creative leadership and vision of Paul Marciano, our Chief Creative Officer and Director. Brand loyalty, name awareness, perceived quality, strong brand images, public relations, publicity, promotional events and trademarks all contribute to the reputation and integrity of the GUESS? brand.
Global Diversification. The global success of the GUESS? brand has reduced our reliance on any particular geographic region. This geographic diversification provides broad opportunities for long-term growth,
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even during regional economic slowdowns. The percentage of our revenue generated from outside of the United States has grown from approximately 32% of our total revenues for the year ended December 31, 2005 to approximately 72% of our total revenues, including rag & bone, for the year ended February 1, 2025. As of February 1, 2025, we directly operated 1,070 retail stores in the Americas, Europe and Asia, including rag & bone retail stores in the Americas and Europe. Our partners operated 527 additional retail stores worldwide. As of February 1, 2025, we and our partners operated in approximately 100 countries worldwide. We continue to evaluate the different businesses in our global portfolio, directing capital investments to those with more profit potential.
Multiple Distribution Channels. We use direct-to-consumer, wholesale and licensing distribution channels to sell our products globally. This allows us to maintain a critical balance as our operating results do not depend solely on the performance of any single channel. The use of multiple channels also allows us to adapt quickly to changes in the distribution environment in any particular region.
Direct-to-Consumer. Our direct-to-consumer network is omni-channel, made up of both directly operated brick-and-mortar retail stores and concessions, as well as integrated e-commerce sites that create a seamless shopping experience for our customers.
• Directly operated retail stores and concessions. Distribution through our directly operated retail stores and concessions allows us to influence the merchandising and presentation of our products, enhance our brand image, build brand equity and test new product design concepts. Our store locations vary country by country depending on the type of locations available. In general, our stores, including our rag & bone stores, average approximately 2,900 square feet in Europe and the Middle East, approximately 4,500 square feet in the Americas and approximately 2,300 square feet in Asia and the Pacific. Concessions generally average 600 square feet and are located primarily in South Korea and Greater China (consisting of mainland China, Hong Kong, Macau and Taiwan). As part of our omni-channel initiative, retail store sales in certain regions may be fulfilled from one of our numerous retail store locations or from our distribution centers.
Our directly operated retail stores and concessions were:
Year Ended
Feb 1, 2025
Feb 3, 2024
Jan 28, 2023
Region
Stores
Concessions
Stores
Concessions
Stores
Concessions
United States
Canada
Central and South America
Total Americas
Europe and the Middle East
Asia and the Pacific
Total
• e-Commerce. As of February 1, 2025, we operated retail websites in the Americas, Europe and Asia. We have e-commerce available to 50 countries and in 13 languages around the world. Our websites act as virtual storefronts that both sell our products and promote our brands. Designed as customer shopping centers, these sites showcase our products in an easy-to-navigate format, allowing customers to see and purchase our collections of apparel and accessories. These virtual stores have not only expanded our direct-to-consumer distribution channel, but they have also improved customer relations and are fun and entertaining alternative-shopping environments. As part of our omni-channel initiative, e-commerce orders in certain regions may be fulfilled from our distribution centers, from our retail stores, or both.
Wholesale Distribution. We sell through both domestic and international wholesale distribution channels as well as retail stores and concessions operated by certain wholesale partners.
• Wholesale. In Europe, our products are sold in stores ranging from large, well-known department stores like El Corte Inglès, Galeries Lafayette, Printemps, Boyner, Galeria, Rinascente
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and P&C to small, upscale multi-brand boutiques. Because our European wholesale business is more fragmented, we generally rely on a large number of smaller regional distributors and agents to distribute our products. In the Americas, our wholesale customers consist primarily of department stores, including Burlington Stores, Liverpool, Nordstrom, Macy’s and Hudson’s Bay, and select specialty retailers and upscale boutiques, which have the image and merchandising expertise that we require for the effective presentation of our products. Through our foreign subsidiaries and our network of international distributors, our products are also available in major cities throughout Africa, Asia, Australia and the Middle East.
• Licensed stores and concessions. We also sell products to retail partners who operate licensed retail stores and concessions, which allows us to expand our international operations with a lower level of capital investment while still closely monitoring store development and merchandise programs and marketing activations in order to protect the integrity of the GUESS? brand.
Licensed retail stores and concessions operated by our retail partners were:
Year Ended
Feb 1, 2025
Feb 3, 2024
Jan 28, 2023
Region
Stores
Concessions
Stores
Concessions
Stores
Concessions
United States
Central and South America
Total Americas
Europe and the Middle East
Asia and the Pacific
Total
Licensing Operations. The desirability of the GUESS? brand name among consumers has allowed us to selectively expand our product offerings and global markets through trademark licensing arrangements, with minimal capital investment or on-going operating expenses. We currently have various domestic and international licenses that include eyewear, watches, handbags, footwear, fragrance, jewelry and other fashion accessories; and include licenses for the design, manufacture and distribution of GUESS? branded products in markets which include Africa, Asia, Australia, Europe, the Middle East, Central America, North America and South America.
Multiple Store Concepts. Our products are sold around the world primarily through eight different store concepts, namely our GUESS? full-price retail stores, our GUESS? factory outlet stores, our GUESS? Accessories stores, our G by GUESS (GbG) stores, our MARCIANO stores, our GUESS? Kids stores, our GUESS JEANS stores and our rag & bone stores. We and our partners also have a small number of underwear and footwear concept stores. This allows us to target the various demographics in each region through dedicated store concepts that market each brand or concept specifically to the desired customer population. Having multiple store concepts also allows us to target our newer brands and concepts in different markets than our flagship GUESS? store concept.
rag & bone Acquisition. On April 2, 2024, we and WHP Global completed the previously announced acquisition of New York-based fashion brand rag & bone. Under the terms of the agreement, we contributed $57.1 million toward the purchase of rag & bone, in addition to contributions from WHP Global. As a result, we now own all of the rag & bone operating assets, and we and WHP Global jointly own the rag & bone intellectual property. In connection with the acquisition, our wholly owned subsidiary, Guess Europe Sagl, entered into an intellectual property license agreement for the exclusive right to use rag & bone intellectual property to manufacture licensed products worldwide and to sell licensed products in specified territories. As of April 2, 2024, we integrated rag & bone into our existing segments.
Since its origins in New York in 2002, rag & bone has established itself as a leader in the American fashion scene, directly operating 37 stores in the United States and two stores in the United Kingdom, and also made available in high-end boutiques, department stores and through e-commerce globally. As part of the GUESS? portfolio, the rag & bone team is based in New York City and operates as an autonomous fashion brand with a focus on continuing to provide unique and timeless collections to its customers.
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Business Segments
Our businesses are grouped into five reportable segments: Europe, Americas Retail, Americas Wholesale, Asia and Licensing. The Europe segment includes our retail, e-commerce and wholesale operations in Europe and the Middle East. The Americas Retail segment includes our retail and e-commerce operations in the Americas. The Americas Wholesale segment includes our wholesale operations in the Americas. The Asia segment includes our retail, e-commerce and wholesale operations in Asia and the Pacific. The Licensing segment includes our worldwide licensing operations. Refer to “Note 18 - Segment Information” of the notes to our consolidated financial statements included in this Annual Report for disclosures about our segment financial information.
Europe Segment
In our Europe segment, we sell our products through direct-to-consumer and wholesale channels throughout Europe and the Middle East.
European Direct-to-Consumer. Our European direct-to-consumer network is comprised of brick-and-mortar retail stores and concessions and e-commerce sites.
• Retail stores and concessions. Our European retail stores and concessions are primarily comprised of a mix of directly operated GUESS? retail and outlet stores, MARCIANO retail stores, GUESS? Accessories retail and outlet stores, GUESS? Footwear stores, GUESS? Kids stores, GUESS JEANS and rag & bone stores. During fiscal 2025, we opened 35 new stores, acquired two rag & bone stores and closed 19 stores, ending the year with 570 directly operated stores in Europe and the Middle East. During fiscal 2025, we also acquired nine stores from our partners in the Middle East. This store count does not include 66 directly operated concessions in Europe. Certain of our European stores require initial investments in the form of key money to secure prime store locations. These amounts are paid to landlords or existing lessees in certain circumstances.
• e-Commerce. Our Europe segment also includes our directly operated retail and other marketplace websites. In Europe, similar to the Americas, our e-commerce sites operate as virtual storefronts that, combined with our retail stores, provide a seamless shopping experience to the consumer to sell our products and promote our brands. We have deployed omni-channel initiatives in our European markets, including “buy online, ship from store,” “buy in store, deliver by e-commerce,” “buy online, return in store” and “buy online, pick up in store.” We currently offer interactive content online and via mobile, including the PWA (Progressive Web App).
European Wholesale Distribution. We sell our products both through wholesale distribution channels and through licensed retail stores and concessions operated by our wholesale partners throughout Europe and the Middle East. Our European wholesale business generally relies on a large number of smaller regional distributors and agents to distribute our products primarily to smaller independent multi-brand boutiques. Our products are also sold directly to large, well-known department stores like El Corte Inglès, Galeries Lafayette, Printemps, Boyner, Galeria, Rinascente and P&C. The type of customer varies from region to region depending on both the prominence of the GUESS? brand in each region and the dominance of a particular type of retail channel in each region. In countries where the brand is well known, we operate through showrooms where agents and distributors can view our line and place orders. We currently have showrooms in key cities such as Florence, Barcelona, Düsseldorf, Istanbul, Lugano, Munich, Paris, Lisbon, Moscow and Warsaw. We sell both our apparel and certain accessories products under our GUESS?, MARCIANO and GUESS JEANS brand concepts through our wholesale channel, operating primarily through two seasons, Spring/Summer and Fall/Winter. Generally, our Spring/Summer sales campaign is from April to September with the related shipments occurring primarily from November to April. The Fall/Winter sales campaign is from November to April with the related shipments occurring primarily from May to October. We may 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, shipments or orders depending on their needs. Revenues from sales to our wholesale licensed stores are also recognized as wholesale sales within
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our European wholesale operations. During fiscal 2025, our partners opened 20 new licensed retail stores and closed 25 stores, ending the year with 213 licensed retail stores in Europe and the Middle East. During fiscal 2025, we also acquired nine stores from our partners in the Middle East.
Americas Retail Segment
In our Americas Retail segment, we sell our products direct-to-consumer through a network of directly operated retail and factory outlet stores and e-commerce sites in the Americas.
• Retail stores and concessions. Our Americas Retail stores and concessions are comprised of a mix of GUESS? retail stores, GUESS? factory outlet stores, G by GUESS (GbG) stores, GUESS? Accessories stores, MARCIANO stores, GUESS JEANS stores and rag & bone stores. During fiscal 2025, we opened 16 new stores, acquired 34 rag & bone stores and closed 12 stores in the Americas, ending the year with 409 stores. During fiscal 2025, we also acquired 15 stores from our partners in Chili and Peru. This store count does not include 32 directly operated concessions in Mexico. We directly operated our retail stores and concessions in Mexico, Chile, Peru and Brazil through our majority-owned joint ventures.
• e-Commerce. Our Americas Retail segment also includes our directly operated retail and other marketplace websites in the United States, Canada, Mexico, Brazil, Peru and Chile. These websites operate as virtual storefronts that, combined with our retail stores, provide a seamless shopping experience to the consumer to sell our products and promote our brands. They also provide information about fashion trends and a mechanism for customer feedback while promoting customer loyalty and enhancing our brand identity through interactive content online and through smartphone applications. Our U.S. and Canadian online sites are fully integrated with our customer relationship management (“CRM”) system and loyalty programs. Omni-channel initiatives that we have already deployed in the United States. and Canada include “buy online, pick up in stores” or “buy online, return in stores” and “order from store” as well as mobile-optimized commerce sites and smartphone applications. In the United States and Canada, e-commerce orders may be fulfilled from our distribution centers, or from our retail stores, or both.
Americas Wholesale Segment
In our Americas Wholesale segment, we sell our products through wholesale channels throughout the Americas and to third-party distributors based in Central and South America as well as licensed retail locations operated by our wholesale partners. Our Americas Wholesale business generally experiences stronger performance from July through November. Our Americas Wholesale customers consist primarily of department stores, select specialty retailers, upscale boutiques as well as select off-price retailers. Our products, including rag & bone, were sold to consumers through approximately 1,600 and 1,700 major doors in the Americas as of February 1, 2025 and February 3, 2024, respectively, as well as through our customers’ e-commerce sites. As of February 1, 2025, these locations included approximately 700 “shop-in-shops”—designated selling areas within a department store—offering a wide array of our products and incorporating GUESS? signage and fixture designs. These shop-in-shops, managed by the department stores, allow us to reinforce the GUESS? brand image with our customers. Many department stores have more than one shop-in-shop, with each one featuring women’s, men’s or kids’ apparel or handbags. We also sell products to licensed retail stores and concessions operated by certain wholesale customers. During fiscal 2025, our partners opened two new licensed retail store and closed two stores, ending the year with 14 licensed retail stores in the Americas, all of which were located in Central and South America. During fiscal 2025, we also acquired 15 stores from our partners in Chili and Peru.
Our Americas Wholesale merchandising strategy is to focus on trend-right products supported by key fashion basics. We have sales representatives in New York, Los Angeles, Mexico City, Toronto, Montreal and Vancouver who coordinate with customers to determine the inventory level and product mix that should be carried in each store. Additionally, we use merchandise coordinators who work with the stores to ensure that our products are displayed appropriately. During fiscal 2025, our two largest wholesale customers accounted for a total of approximately 3.9% of our consolidated net revenue.
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Asia Segment
In our Asia segment, we sell our products through direct-to-consumer and wholesale channels throughout Asia and the Pacific.
Asian Direct-to-Consumer. Our Asian direct-to-consumer network is comprised of brick-and-mortar retail stores and concessions and e-commerce sites.
• Retail stores and concessions. Our Asian retail stores and concessions include a mix of directly operated GUESS?, GUESS? Footwear, GUESS? Accessories, GUESS? Kids and MARCIANO stores. During fiscal 2025, we opened seven new stores and closed 19 stores, including stores transferred to and from our partners and other store relocations and remodels. We ended the year with 91 directly operated stores in Asia and the Pacific. This store count does not include 135 directly operated apparel and accessory concessions. Concessions are widely used in Asia and generally represent directly managed areas within a department store setting.
• e-Commerce. We also have e-commerce sites throughout Asia which operate as virtual storefronts that, combined with our retail stores, provide a seamless shopping experience to the consumer to sell our products and promote our brands.
Asian Wholesale Distribution. Our Asian wholesale customer base is comprised primarily of a small number of selected distributors with which we have contractual distribution arrangements and licensed stores and concessions operated by our wholesale partners. During fiscal 2025, our partners opened 21 new licensed retail stores and closed 16 stores, including stores transferred to and from our partners and other store relocations and remodels. We ended the year with 300 licensed retail stores. This store count does not include 85 apparel and accessory concessions operated by our partners in Asia.
Licensing Segment
Our Licensing segment includes our worldwide licensing operations. The desirability of the GUESS? brand name among consumers has allowed us to selectively expand our product offerings and global markets through trademark licensing arrangements, with minimal capital investment or on-going operating expenses. We currently have various domestic and international licenses that include eyewear, watches, handbags, footwear, fragrance, jewelry and other fashion accessories; and include licenses for the design, manufacture and distribution of GUESS? branded products in markets which include Africa, Asia, Australia, Europe, the Middle East, Central America, North America and South America.
Our trademark license agreements customarily provide for a multi-year initial term generally ranging from three to ten years and may contain options to renew prior to expiration for an additional multi-year period. The typical license agreement requires that the licensee pay us the greater of a royalty based on a percentage of the licensee’s net sales of licensed products or a guaranteed annual minimum royalty that typically increases over the term of the license agreement. In addition, several of our key license agreements provide for specified, fixed cash rights payments over and above our normal, ongoing royalty payments. Generally, licensees are required to spend a percentage of the net sales of licensed products for advertising and promotion of the licensed products and, in many cases, we place the ads on behalf of the licensee and are reimbursed. Additionally, licensees also make contributions to advertising funds, as a percentage of their sales, or may elect to increase their contribution to support specific brand-building initiatives.
In addition, to protect and increase the value of our trademarks, our license agreements include strict quality control and manufacturing standards. Our licensing personnel meet regularly with licensees to ensure consistency with our overall merchandising and design strategies in order to protect the GUESS? trademarks and brand. As part of this process, our licensing department reviews in advance GUESS? third-party licensed products, advertising and promotional materials.
We strategically reposition our existing licensing portfolio by monitoring and evaluating the performance of our licensees worldwide. For instance, between 2005 and 2013, we acquired several of our European apparel licensees. As a result, we now directly manage our adult and children’s apparel businesses in Europe.
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Strategic Partnerships
We evaluate opportunities for strategic acquisitions and alliances and pursue those that we believe will support and contribute to our overall strategic initiatives and/or will leverage our global infrastructure and network of licensees and wholesale partners. Similarly, when existing investments and alliances no longer align with strategic initiatives or as other circumstances warrant, we will evaluate various exit opportunities. As of the date of this Annual Report, we have majority-owned joint ventures in Brazil, the Canary Islands, Mexico (which also operates through subsidiaries in Chile and Peru), the Middle East, Portugal and a minority-owned joint venture in South Africa. These joint ventures allow us to accelerate expansion, revitalize certain regions, and provide enhanced development of our retail and wholesale channels in these regions. We also hold a 50% interest in a joint venture with WHP Global, as described above, in which we license the intellectual property of rag & bone to manufacture licensed products worldwide and to sell licensed products in specified territories in exchange for our payment of a royalty fee.
Design
Apparel products are designed by in-house design teams that collaborate to share ideas for products that can be sold throughout our global markets and are inspired by our GUESS? heritage. Our design teams seek to identify and reinterpret seasonal fashion trends through the iconic lens of the GUESS? brand, while always keeping our consumer at the center of our choices. The teams research market trends through travel, social media, trend forecast services, fabric shows, sample archives and best-selling styles. These efforts, combined with our Guess brand DNA, serve as the primary source of inspiration for our lines and collections. In fiscal 2021, we developed our first ever global line of apparel products and in fiscal 2022, we developed our first ever global line across all product categories including accessories. While we continue to align our product lines globally, we are implementing speed-to-market products that are specific to regional market needs. These initiatives helped to elevate our brand by allowing us to offer products to our customers across all markets from one line while servicing local market needs. We also maintain a fashion library consisting of vintage and contemporary garments as another source of creative concepts. In addition, our design teams work closely with members of our sales, merchandising and retail operations teams to further refine our products to meet the particular needs of our markets.
To aid in a sustainable creative process, our design teams utilize 3D software to reduce color repetitions in sample making and to reduce express courier fees. This process also enables our sales teams to use digital sales books, allowing our buyers and visual teams to easily merchandise their product assortments options and guidelines to stores.
In April 2024, we completed the acquisition of rag & bone including their creative and design teams. These teams continue to lead the design of rag & bone products.
Global Sourcing and Supply Chain
We source products through numerous suppliers, many of whom have established long-term relationships with us. We seek to achieve efficient and timely delivery of our products, combining global and local sourcing. Almost all of our products are acquired as full package purchases where we design and source products and the vendor delivers the finished products.
We believe that our balanced global supply chain, with deep vendor partnerships, provides us with a competitive advantage where we have the flexibility to respond to increased demand throughout the world. We believe that our new global apparel line of products will help improve product development costs by reducing the number of styles and help drive efficiencies in product costs by consolidating orders from multiple regions . Our sourcing strategy provides us with the opportunity to leverage costs and improve speed-to-market. Additionally, we continuously evaluate sourcing opportunities outside of China, focusing on countries like Bangladesh and India to diversify our supply chain and mitigate potential tariff risks. Periodic counter-sourcing exercises are conducted to ensure we capitalize on sourcing efficiencies, guided by macroeconomic trends and indicators.
As an ongoing strategic initiative, we leave a larger portion of our buys open prior to each season to improve the efficiency of our speed-to-market by allowing us to design and produce closer to market delivery. This allows us to better react to emerging fashion trends in the market. We are also continuously searching for
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new suppliers and sourcing opportunities in reaction to the latest trends. We have developed IT systems to capture and share key performance indicators with our partners to drive ongoing improvements. During fiscal 2025, we continued to tightly manage our vendor base to around 180 core suppliers, including rag & bone. Given the global instability and challenges within the supply chain and geopolitical environment, we are building an agile and lean supply chain by identifying new suppliers that can contribute to reduce our dependency on certain countries of origin. Additionally, offering an assortment of global products continues to be an area of focus. As a global brand, we maintain skilled sourcing teams in North America, Europe and Asia.
We are committed to sourcing our products in a responsible manner, respecting both the countries in which we conduct business and the business partners that produce our products. Our global supply chain’s Social Responsibility Program reflects our strong commitment to help our suppliers implement best practices in safe and decent work environments and achieve meaningful improvements in the lives of their workers.
Our program highlights three areas—factory approvals, factory monitoring and remediation, and supplier training and education.
All directly-sourced supplier factories go through a strict approval process before being authorized to work with us. To support and ensure our social compliance, we communicate our expectations to our partners through our Global Suppliers Code of Conduct (“Guess CoC”) and Human Rights Policy (“HR Policy”), which set the minimum requirements for all factories where GUESS? branded items are manufactured. Although local customs vary in different regions of the world, we believe that the issues of business ethics, human rights, health, safety and environmental stewardship transcend geographical boundaries.
Initial compliance assessments serve as a foundation for engaging and educating new suppliers about our standards, laying the groundwork for strong, collaborative relationships with a goal of continuous improvement. If deficiencies are discovered, personnel in each region are empowered to work with the respective business partner to implement corrective actions. This process not only addresses immediate issues but also fosters strategic relationships and enhances business practices over the long term.
We take a proactive educational approach by offering a range of training programs designed to increase factory personnel’s awareness of our Guess CoC and HR Policy best practices. These sessions aim to build compliance capacity, foster sustainable improvements, and ensure alignment with our responsible sourcing standards.
Training provided to our supply chain covers key sustainability topics, including GHG emissions reduction, wages and benefits for workers, and other critical social and environmental areas.
Additionally, we are dedicated to increasing the sourcing of environmentally preferred materials, focusing on reducing reliance on virgin raw materials, supporting industry innovation, promoting best practices in land use and agriculture, and minimizing waste. To drive this transition, we actively collaborate with our partners across the supply chain, providing continued education on critical aspects, such as meeting the updated requirements of our GUESS ECO guidelines and ensuring proper documentation to support the increased use of preferred fibers in GUESS? products.
Advertising and Marketing
Our advertising, public relations and marketing strategy is designed to promote a consistent high impact image which endures regardless of changing consumer trends. While our advertising promotes our products, the primary emphasis is on brand image.
Since our inception, Paul Marciano, co-founder and Chief Creative Officer, has had principal responsibility for the GUESS? brand image and creative vision. Throughout our history, we have maintained a high degree of consistency in our advertisements by using similar themes and images, including our signature black and white print advertisements and iconic logos.
We deploy a variety of media that is focused on national and international contemporary fashion/beauty, lifestyle and celebrity outlets. In recent years, we have also expanded our efforts into influencer and affiliate marketing, digital advertising with leading fashion and lifestyle websites and advertising on social media platforms, including YouTube, Facebook, Instagram, X, Pinterest, Snapchat, TikTok and global search engines. Our smartphone applications provide a unique mobile media experience by combining fashion, e-commerce,
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personalized product recommendations, targeted promotions and customer loyalty rewards to drive mobile brand engagement.
We also require our licensees and distributors to invest a percentage of their net sales of licensed products and net purchases of GUESS? products in Company-approved advertising, promotion and marketing initiatives. By retaining control over our advertising programs, we are able to maintain the integrity of our brands while realizing substantial cost savings compared to outside agencies.
We will continue to regularly assess and implement marketing initiatives that we believe will build brand equity and grow our business by investing in marketing programs to build awareness and drive customer traffic to our stores, websites and smartphone applications. We plan to further deepen relationships with customers through an emphasis on digital marketing, and through our websites, loyalty programs, direct catalog and marketing mailings. We also plan to strengthen communities through influencer marketing and various social media platforms, which enable us to provide timely information in an entertaining fashion to consumers about our history, products, special events, promotions and store locations, while allowing us to receive and respond directly to customer feedback.
As part of these initiatives, we have implemented tiered CRM loyalty programs in North America, Europe and Asia covering our portfolio of brands. The point-based programs are designed to reward our members by earning points for purchases that can be redeemed on future purchases either in our stores or online. In addition to earning rewards with such program, our loyalty members may receive other benefits including invitations to special VIP events in our stores, double points during their birthday month and access to seasonal savings, depending on their purchasing tier. Our Guess List loyalty program has experienced growth in its overall member engagement numbers through the introduction of experiential incentives and unique member content. The programs are also used to promote new products to our customers which in turn increases traffic in stores and online. The loyalty programs generate substantial repeat business that might otherwise go to competing brands. We continue to enhance our CRM program by keeping abreast on our members’ interests and needs by strategically marketing to this large and growing customer base.
Quality Control
Our quality control program is designed to ensure that products meet our high-quality standards. We test the quality of our raw materials prior to production and inspect prototypes of each product before production runs commence. We also perform random in-line quality control checks during and after production before the garments leave the contractor. Final random inspections occur when the garments are received in our distribution centers. We believe that our policy of inspecting our products is important to maintain the quality, consistency and reputation of our products. We have an on-site quality assurance collaboration with an external expert provider for a large portion of our European and North American purchase orders. During fiscal 2025, we continued to expand the program for additional purchase orders in Europe and North America. The objective is to stop product quality issues at the origin before investing in the transportation of the goods to the final destinations and incurring negative consequences based on quality issues.
Product Integrity and Testing Protocol
During fiscal 2025, we updated our protocols according to the new regulations of California Proposition 65. We are testing and covering all our major regions, which provide minimum product integrity and other testing for apparel, footwear, accessories and handbags to help ensure our products continue to meet or exceed our customers’ expectations.
Logistics
We utilize distribution centers at strategically located sites. Our U.S. distribution center is based in Louisville, Kentucky, where we use fully integrated and automated distribution systems. The bar code scanning of merchandise and distribution cartons, together with radio frequency communications, provide timely, controlled, accurate and instantaneous updates to our distribution information systems. Additionally, the U.S. business is partnered with the Customs Trade Partnership Against Terrorism (“CTPAT”), which expedites movement of goods into our U.S. trade lanes. We have been CTPAT certified for several years and complete our recertification
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annually. We have transitioned to a third-party logistics provider to operate our U.S. distribution center as of the second quarter of fiscal 2025.
Distribution of our products in Canada is handled primarily from our operated distribution centers in Montreal, Quebec. In Europe, distribution of our products is handled primarily by third-party distributors through distribution facilities in Italy, the Netherlands, Poland and Spain. We also utilize smaller distribution facilities throughout Europe. We utilize several third-party operated distribution warehouses that service the Asia region.
Competition
The apparel industry is highly competitive and fragmented and is subject to rapidly changing consumer demands and preferences. We believe that our success depends in large part upon our ability to anticipate, gauge and respond to changing consumer demands and fashion trends in a timely manner and upon the continued appeal to consumers of the GUESS? brand. We compete with numerous apparel retailers, manufacturers and distributors, both domestically and internationally, as well as several well-known designers. Our licensed apparel and accessories also compete with a substantial number of well-known brands. Although the level and nature of competition differs among our product categories and geographic regions, we believe that we differentiate ourselves from our competitors by offering a global lifestyle brand on the basis of our global brand image and wide product assortment comprising both apparel and accessories. We also believe that our geographic diversification, multiple distribution channels and multiple store concepts help to set us apart from our competition.
Information Systems
We believe that high levels of automation and technology are essential to maintain our competitive position and support our strategic objectives. We continue to invest in new technologies and update computer hardware, network infrastructure, system applications and cybersecurity. Our computer information systems consist of a full range of financial, distribution, merchandising, point-of-sales, customer relationship management, supply chain, digital platform, enterprise resource planning and other systems. During fiscal 2025, we improved and stabilized our digital platforms, implemented more payment methods, continued to improve our web front, expanded our shopping channels, enhanced our omni-channel experience and continued to develop mobile-based initiatives to support our wholesale and direct-to-consumer businesses. We continued to improve upon mobile point of sale check out, mobile based store operation applications, Salesforce Customer 360, endless aisle, and real time inventory and sales dashboards. We continued to improve artificial intelligence (“AI”) powered inventory planning and allocation tools for more accurate inventory management. We are also continuing to enhance our product life cycle management and supply chain tracking system. Furthermore, we are aligning and our IT infrastructure and standards globally to accommodate company expansion and provide operational .
Trademarks
We own numerous trademarks, including GUESS, GUESS?, GUESS U.S.A., GUESS JEANS, GUESS? and Triangle Design, MARCIANO, Question Mark and Triangle Design, a stylized G and a stylized M, GUESS Kids, Baby GUESS, YES, G by GUESS, GbG, GUESS by MARCIANO and Gc. As of February 1, 2025, we had over 5,500 trademarks in the United States. and internationally registered trademarks or trademark applications pending with the trademark offices in over 180 countries around the world, including the United States. From time-to-time, we adopt new trademarks in connection with the marketing of our product lines. We consider our trademarks to have significant value in the marketing of our products and act aggressively to register and protect our trademarks worldwide. We also hold a 50% interest in a joint venture with WHP Global, as described above, in which we license the intellectual property of rag & bone to manufacture licensed products worldwide and to sell licensed products in specified territories in exchange for our payment of a royalty fee.
Like many well-known brands, our trademarks are subject to infringement. We have staff devoted to the monitoring and aggressive protection of our trademarks worldwide.
Seasonality
Our 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
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November. The European wholesale businesses operate with two primary selling seasons: the Spring/Summer season and Fall/Winter season. Generally, the Spring/Summer season is from April to September, which ships from November to April, and the Fall/Winter season is from November to March, which ships from May to October. We may take advantage of early-season demand and potential reorders in our European wholesale business by offering a pre-collection assortment which ships at the beginning of each season. Customers retain the ability to request early shipment of backlog orders or delay shipment of orders depending on their needs.
Human Capital
Since our founding, we have been a company that welcomes all, both within our own operations and in our supply chain. As of February 1, 2025, with an inclusive culture and a commitment to empowering our people, we provide opportunities for approximately 13,000 associates, both full and part-time, consisting of approximately 4,500 in the United States and 8,500 internationally. From our innovative product designers and developers working behind the scenes, to our dynamic retail store associates—and everyone in between—we are committed to making sure their voices are valued, ideas are elevated, and excellence is rewarded.
Workplace Culture
Our longstanding commitment to workplace inclusion comes to life each day as we work together to maintain a fair and equitable workplace. Our aim is for all GUESS? associates to feel comfortable and safe bringing their whole selves to work and contributing fully to our shared success. Building on the example set by the Marciano brothers and their belief that a dynamic organization was a strong and creative one, for over 40 years, we have created a rich, vibrant culture that respects, and benefits from, different personal attributes, backgrounds, ideas, and perspectives.
Our expectations of everyone at GUESS? to support a welcoming workplace are spelled out in the GUESS?, Inc. Code of Ethics. We expect all at GUESS? to promptly report and investigate concerns about possible discrimination, as appropriate, and to facilitate this, we maintain an open-door policy that fosters honest and open communication. GUESS? associates are encouraged to discuss work-related concerns or issues with their manager, department head, Human Resources, or Executive Management without fear of repercussion. In addition, our global whistle-blower hotline allows associates to report concerns about unethical behavior or other potential conflicts.
Learning and Development
We are committed to the growth and development of our employees and offer a wide range of training programs for all levels. In addition to receiving ongoing on-the-job training and coaching, our employees can build skills and prepare for the future through our HR training portal. In fiscal 2025, we continued to add new courses and trainings, many of which focus on personal development skills, as well as additional workplace education. We also support learning beyond our walls by providing access to tools such as LinkedIn learning. These collective learning and development programs help foster career mobility for our employees, while simultaneously allowing us to fill open positions with existing employees who know our company best.
Employee Safety and Well-Being
We are committed to the safety, health, and overall well-being of each of our employees and their families, providing a wide array of physical, emotional and social support. Our GUESS Wellness 360 online portal in the United States offers our employees physical and mental wellness support using challenges, contests, and prizes.
Compensation and Benefits
We are committed to providing competitive compensation and benefits to attract and retain a talented workforce. We are also committed to maintaining pay parity throughout our organization, conducting annual assessments. We offer a wide array of both employer-paid and employee-paid benefits to support our employees’ overall financial, physical, and mental well-being, including, but not limited to, healthcare, retirement savings, paid time off, temporary leave, and flexible work arrangements. We also provide our employees a merchandise discount on most of our products.
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Sustainability and Climate Change
In fiscal 2024, we released an ESG Interim Report (the “Interim Report”) to provide our stakeholders with updated information on key ESG metrics for fiscal 2024.
This Interim Report highlights the steps we have taken and our progress toward achieving the goals outlined in our ACTION GUESS Strategy, which is designed to drive meaningful improvements across our operations and strengthen our commitment to responsible business practices. The report provides information about our current and future activities which includes, among others, reducing greenhouse gas (“GHG”) emissions with Science Based Targets, transitioning to more sustainable and recycled materials, and continuing our commitment to circular fashion. By publishing this Interim Report, we aim to maintain transparency, foster accountability, and actively engage our stakeholders in our journey toward a more sustainable future.
The Interim Report is available at http://sustainability.guess.com . We plan to release our next ESG report in fiscal 2026, covering fiscal 2024 and fiscal 2025, which will also be available on our website at the foregoing link. This site provides information on our policies, social impact and environmental programs, as well as our sustainability strategy, data and reporting. The information contained on, or that may be accessed through, our websites is not incorporated by reference into, and is not a part of, this Annual Report.
Strengthening Sustainability Oversight
We are committed to good governance and sustainability oversight at every level, ethics in every business facet, and transparency in sustainability reporting. During fiscal 2025, we further engaged with our Board of Directors on ESG priorities, risks, and opportunities. We continue to promote ethical practices in all of our operations and businesses, both with internal personnel and external business partners, and all of our directors, officers, and associates are held to our Code of Ethics.
In fiscal 2025, we published our ESG Governance and Human Rights Policies to reinforce our commitment to good governance, sustainability oversight at all levels, ethical practices in every aspect of our business, accountability, and full transparency in our sustainability reporting.
Additionally, in our ACTION GUESS strategy, we committed to connecting ESG priorities with business performance incentive and evaluation metrics. Our Sustainability and ESG Team aims to embed environmental and social responsibility into decision-making processes. In addition, we have implemented a rigorous internal auditing program, covering our sustainability metrics and performance data with the goal of providing complete, accurate, and balanced ESG reporting. Since fiscal 2020, we continued to undergo a third-party reasonable assurance examination indicating our sustainability report was prepared in accordance with the GRI, SASB and GHG Protocol.
Protecting Our Environment
We are committed to protecting our environment and addressing climate change issues through product responsibility, water stewardship, and GHG emissions reduction. Lifecycle analyses have shown that fiber and fabric production make up about half of our apparel’s environmental impact. To that end, we have been working with our vendors to incorporate more sustainable materials and practices such as an increased use of preferred fibers (fibers with a lower impact compared to regular ones) and avoiding harmful processes and embellishments, as well as incorporating innovative production methods that reduce water and chemical consumption. By setting sustainability goals to increase use of responsible materials and promote circular fashion, and by following the GUESS ECO material sourcing guide, we sourced over 25% preferred materials across all brands within our apparel product portfolios in the Americas and Europe in fiscal 2025.
As part of our commitment to protect our environment, we aim for our use of animal-derived material in our products to uphold our commitment to the ethical and humane treatment of animals. Through the GUESS Animal Welfare Policy, guided by international best practices in accordance with “The Five Freedoms for Animal Welfare” by the Farm Animal Welfare Council, our suppliers are prohibited from using any fur, mohair, angora, exotic leather or any other parts from vulnerable, endangered, or wild-caught species. The use of feathers and downs or other animal derived hair is subject to limitation and use with caution.
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Historically, denim production factories require the use of many chemicals, which could impact a factory’s wastewater discharge. In fiscal 2019, we established the GUESS Water Action Plan to address each phase of the denim lifecycle to prioritize water savings and improve water quality while providing water education and community engagement. With our commitments in adopting water-saving denim technology and managing environmental impacts in our supply chain, over 50% of our denim from apparel main line within our product portfolios in the Americas and Europe meets our GUESS ECO guidelines and approximately 100% of our key denim suppliers completed the Higg Facility Environmental Module survey.
Our strategy in managing GHG emissions includes meeting our carbon footprint goals and setting Science Based Targets. We are now pursuing our Science Based Targets for GHG emissions, which were approved by the Science Based Targets Initiative in fiscal 2021. We remain committed to a 50% reduction of absolute Scope 1 and 2 emissions, as well as an ambitious 30% reduction of absolute Scope 3 emissions by 2030. In fiscal 2024, we continued purchasing renewable energy, solar and wind credits in the Americas, Europe and Asia, equivalent to power approximately 35% of our stores globally. We replicated the same in fiscal 2025 while working on a long-term strategy to reduce our GHG emissions. We will also continue implementing a variety of energy efficiency and renewable energy strategies and working with our key vendors to implement energy efficiency and renewable energy plans.
In fiscal 2025, we released our Statement of Greenhouse Gas (GHG) Emissions for fiscal 2024 (the “Statement”). The Statement highlights our progress toward the emissions targets set in our Strategy, reinforcing our dedication to minimizing environmental impact and advancing a low-carbon future. The Statement of Greenhouse Gas (GHG) Emissions is available at http://sustainability.guess.com .
Government Regulations
As a company with global operations, we are subject to various federal, state, local and foreign laws, regulations and ordinances. Compliance with these laws, regulations and ordinances has not had, and is not expected to have, a material impact on our earnings, competitive position or capital expenditures.
Website Access to Our Periodic SEC Reports
Our investor website can be found at http://investors.guess.com . Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act, are available at our investor website, free of charge, as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. The SEC also maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC ( http://www.sec.gov ), including us. In addition, the charters of our Board of Directors’ Audit, Compensation and Nominating and Governance Committees as well as the Board of Directors’ Governance Guidelines and our Code of Ethics are posted on our investor website.
We have included our Internet website addresses throughout this filing as textual references only. The information contained within these websites is not incorporated into this Annual Report.
ITEM 1A. Risk Factors.
You should carefully consider the following factors and other information in this Annual Report. Additional risks which we do not presently consider material, or of which we are not currently aware, may also have an adverse impact on us. The information discussed below is at the time of this filing. This section contains forward looking statements. Please also refer to the section titled “Important Factors Regarding Forward-Looking Statements” of this Annual Report.
Risks Related to Operating a Global Business
Our business is global in scope and can be impacted by factors beyond our control.
As a result of our large and growing international operations, we face the possibility of greater losses from risks inherent in doing business in international markets and from factors beyond our control. Such factors that could harm our results of operations and financial condition include, among other things: (i) fluctuations in the value of the dollar against foreign currencies; (ii) additional or increased customs duties, tariffs, taxes and other charges on imports or exports; (iii) adoption of additional or revised quotas, restrictions or regulations relating to
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imports or exports; (iv) political instability, war or acts of terrorism, which disrupt trade with the countries where we operate or in which our contractors, suppliers or customers are located and increase our supply chain costs; (v) recessions and volatility in domestic and foreign economies; (vi) reduced global demand in our industry resulting in the closing of manufacturing facilities; (vii) challenges in managing dispersed foreign operations; (viii) local business practices that do not conform to our legal or ethical guidelines; (ix) anti-American sentiment in foreign countries where we operate resulting from actual or proposed changes to U.S. immigration and travel policies or other factors; (x) delays in receipts due to our distribution centers as a result of labor unrest, increasing security requirements or other factors at U.S. or other ports; (xi) increased difficulty in protecting our intellectual property rights in foreign jurisdictions; (xii) social, labor, legal or economic instability in the foreign markets in which we do business, which could influence our ability to sell products in, or distribute products from, these international markets; (xiii) restrictions on the transfer of funds between the U.S. and foreign jurisdictions; (xiv) our ability and the ability of our international retail store licensees, distributors and joint venture partners to locate and continue to open new retail locations; (xv) restrictions on the repatriation of funds held internationally and (xvi) natural or public health in areas in which our contractors, suppliers, or customers are located.
Further, our international presence means we are subject to certain U.S. laws, including the Foreign Corrupt Practices Act (“FCPA”), as well as the laws of the foreign countries in which we operate, including data privacy laws. If any of our international operations, or our employees or agents, violates such laws, we could become subject to sanctions or other penalties that could negatively affect our reputation, business and operating results.
Currency fluctuations could adversely impact our financial condition, results of operations and earnings.
Since the majority of our international operations are conducted in currencies other than the U.S. dollar (primarily the euro, British pound, Canadian dollar (CAD), Chinese yuan, Japanese yen, Korean won, Mexican peso, Polish zloty, Russian rouble and Turkish lira), currency fluctuations can have a significant impact on the translation of our international revenues and earnings (loss) into U.S. dollars. These amounts could be materially affected by the strengthening of the U.S. dollar, negatively impacting our results of operations, earnings and our ability to generate revenue growth. Furthermore, our products are typically sourced in U.S. dollars and the cost of these products may be affected by changes in the value of the applicable local currencies. Changes in currency exchange rates may also affect the U.S. dollar value of the foreign currency denominated prices at which our international businesses sell products. Our future financial results could be significantly affected by the value of the U.S. dollar in relation to the foreign currencies in which we conduct business and the speed at which these fluctuations occur. For example, economic sanctions imposed in response to Russia’s invasion of Ukraine, and subsequent downgrades by Fitch and Moody’s of Russia’s sovereign debt to “junk” status, have resulted in record lows of the Russian rouble against the U.S. dollar. If the U.S. dollar relative to the respective fiscal 2025 foreign exchange rates, foreign exchange could impact our revenues and operating results, as well as our international cash and other balance sheet items during fiscal 2026, particularly in Europe (primarily with the euro, British pound, Turkish lira and Russian rouble), Canada and Mexico.
Although we hedge certain exposures to changes in foreign currency exchange rates, we cannot assure you that foreign currency fluctuations will not have a material adverse effect on our financial condition or results of operations. Furthermore, since some of our hedging activities are designed to reduce volatility of fluctuating exchange rates, they not only reduce the negative impact of a stronger U.S. dollar, but they also reduce the positive impact of a weaker U.S. dollar. In addition, while our foreign currency hedges are designed to reduce volatility over the forward contract period, these contracts can create volatility during the period. The degree to which our financial results are affected for any given time period will depend in part upon our hedging activities.
Abnormally harsh or unseasonable weather conditions, including as a result of climate change or power outage, could have a material adverse impact on our sales, inventory levels and operating results.
Extreme weather conditions in areas in which our retail stores and wholesale doors are located, particularly in markets where we have a concentration of locations, could adversely affect our business. For example, heavy snowfall, rainfall, wildfires or other extreme weather conditions, such as hurricanes or deep freezes, sometimes makes it difficult or less desirable for our staff and customers to travel to our stores. If these disruptions are widespread or extend for long periods, our sales and profitability could be materially adversely affected. Our business is also susceptible to unseasonable weather conditions, including conditions resulting from climate
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change. For example, extended periods of unseasonably warm or prolonged periods of unseasonably cold temperatures during the winter season or cool weather during the summer season could render a portion of our inventory incompatible with those unseasonable conditions. Reduced sales from extreme or prolonged unseasonable weather conditions could have a material adverse effect on our results of operations, financial condition and cash flows.
Our results of operations could be affected by natural events in the locations in which we or our customers or suppliers operate.
Our corporate headquarters, as well as other key operational locations, including retail, distribution and warehousing facilities, are in areas subject to natural events such as severe weather and geological events or public health crises that could disrupt our operations. Many of our suppliers and customers also have operations in these locations. The occurrence of such natural events may result in sudden disruptions in business conditions of the local economies affected, as well as of the regional and global economies. Such disruptions have resulted in and could in the future result in store closures, decreased demand for our products and disruptions in our management functions, sales channels and manufacturing and distribution networks, which could have a material adverse effect on our business, financial condition and results of operations.
Future changes to U.S. income tax or trade policies impacting multi-national companies, including tariffs, could materially affect our financial condition and results of operations.
A significant portion of our product sales are generated outside of the United States. In fiscal 2025, approximately 72% of our consolidated net product sales were generated by sales from outside of the United States. In the long-term, we anticipate these international revenues will continue to grow as a percentage of our total business. The current political landscape has introduced greater uncertainty with respect to future income tax and trade regulations for U.S. companies with significant business and sourcing operations outside the United States. For example, economic sanctions and export controls targeting Russia as a result of its invasion of Ukraine, although not significantly disrupting our sales to date, could adversely impact our operations if additional economic sanctions or export controls are imposed. For further information regarding the risks we face relating to Russia’s invasion of Ukraine, refer to “— Our business may also be affected by existing or future economic sanctions and export controls targeting Russia and other responses to Russia's invasion of Ukraine. ”
The United States has recently announced changes to U.S. trade policy, including increasing tariffs on imports, in some cases significantly, and potentially renegotiating or terminating existing trade agreements. For example, on April 2, 2025, the United States announced a new universal baseline tariff of 10%, plus an additional country-specific tariff for select trading partners, on all U.S. imports. Tariffs have the potential to significantly raise the cost of our products. Additionally, retaliatory tariffs imposed by other countries on U.S. exports could adversely impact demand for our products in international markets. In such a case, there can be no assurance that we will be able to shift manufacturing and supply agreements to non-impacted countries, including the United States, to reduce the effects of the tariffs. As a result, we may suffer margin erosion or be required to raise our prices, which may result in the loss of customers, negatively impact our results of operations, or otherwise harm our business. In addition, the imposition of tariffs on products that we export to international markets could make our products more expensive compared to those of our competitors if we pass related additional costs on to our customers, which may also result in the of customers, impact our results of operations, or otherwise our business. We cannot predict future trade policy and regulations in the United States and other countries, the terms of any trade agreements or treaties, or tariffs and their impact on our business. A trade war could have a significant effect on world trade and the world economy. Uncertainty surrounding international trade policy and regulations as well as and protectionist measures could also have an effect on consumer confidence and spending.
During fiscal 2025, we sourced most of our finished products with partners and suppliers outside the United States, primarily in China, and we continued to design and purchase fabrics globally. While we have been reducing our dependency on China sourcing, particularly for our U.S. business, and mitigating tariff-related risks, the ongoing economic conflict between the United States and China and the additional tariffs announced on April 2, 2025 have resulted in increased tariffs being imposed on goods we import from China. We cannot predict whether, and to what extent, there may be changes to international trade agreements, such as those with China, or
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whether, or to what extent, quotas, duties, additional tariffs, exchange controls or other restrictions will be changed or imposed by the United States or by other countries. Continued changes in the trade relationship between the United States and China, including any new restrictions imposed on U.S. companies that do business in China or other changes that lead to restrictions on our ability to do business in China, may impact our ability to receive raw materials or finished goods from our third-party suppliers. If we or our vendors or product licensees are unable to obtain raw materials or finished goods from the countries where we or they wish to purchase them, either because of such regulatory changes or for any other reason, or if the cost of doing so should increase, it could have a material adverse effect on our results of operations and financial condition.
Errors in our assumptions, estimates and judgments related to tax matters, including those resulting from regulatory reviews, could adversely affect our financial results.
We are subject to routine tax audits on various tax matters around the world in the ordinary course of business (including income tax, business tax, customs duties, sales and use tax, and value added tax (“VAT”) matters). We regularly assess the adequacy of our uncertain income tax positions and other reserves, which requires a significant amount of judgment. Although we accrue for uncertain income tax positions and other regulatory audits, negotiations with taxing and customs authorities may lead to adjustments in excess of our accruals, resulting in liabilities for additional taxes, duties, penalties and interest. During the quarter ended October 30, 2021, we completed an intra-entity transfer of intellectual property rights from a U.S. entity to a wholly-owned Swiss subsidiary to more closely align our intellectual property rights with our business operations. The transactions resulted in a U.S. income tax expense that was substantially offset by the recognition of a deferred income tax asset in the Swiss subsidiary. We cannot be certain that this transfer will not lead to any unanticipated income tax consequences which could harm our financial results. In addition, the income tax impact to us in connection with an intra-entity intellectual property transfer depends on the fair value determination of the intellectual property rights which determination requires management to make significant estimates and to apply complex tax regulations in multiple jurisdictions. Tax authorities may our fair value determinations which could impact the income tax benefits we expect to realize as a result of the transfer. Refer to “Note 13 - Income Taxes” of the notes to our consolidated financial statements included in this Annual Report for disclosures about our income tax matters, including reserves for uncertain tax positions.
From time-to-time, we make VAT and other tax-related refund claims with various foreign tax authorities that are audited by those authorities for compliance. Failure by these authorities to approve or ultimately pay these claims could have a material adverse effect on our results of operations and liquidity.
Changes in income tax laws, significant shifts in the relative source of our earnings, or other unanticipated income tax liabilities could adversely affect our effective income tax rate and profitability and may result in volatility in our financial results.
We are subject to income taxes in the United States and numerous foreign jurisdictions. Income tax laws, regulations and administrative practices in various jurisdictions may be subject to significant change. We record income tax expense based on our estimate of future payments, which includes reserves for uncertain tax positions in multiple tax jurisdictions and requires significant judgment in evaluating and estimating our provision and accruals. Our effective income tax rate in the future could be affected by a number of other factors, including: the outcome of income tax audits in various jurisdictions, changes in our stock price, the resolution of uncertain tax positions, changes in tax law, such as the potential expiration of the 2017 Tax Cuts and Jobs Act in December 2025, and changes in our operating structure. We and our subsidiaries are engaged in intercompany transactions across multiple tax jurisdictions. Although we believe these transactions reflect arm’s length terms and the proper transfer pricing documentation is in place, these transfer pricing terms and conditions may be scrutinized by local tax authorities during an audit and any resulting changes may impact our mix of earnings in countries with differing statutory tax rates. In addition, the relative amount of our foreign earnings, including earnings being lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates, as well as losses in jurisdictions where we are to realize the related tax benefits, can create in our income tax rate. In particular, the income tax benefits associated with our transfer of intellectual property to our wholly-owned Swiss subsidiary during the quarter ended October 30, 2021 are sensitive to future and taxable income in Switzerland, audit assessments
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and changes in applicable tax law. Any one of these factors could adversely impact our income tax rate and our profitability and could create ongoing variability in our quarterly or annual tax rates.
Additionally, the Organization for Economic Cooperation and Development (“OECD”) has released certain guidelines, including the Base Erosion and Profit Shifting “Pillar 2” guidelines. The OECD Pillar 2 guidelines address the increasing digitalization of the global economy, re-allocating taxing rights among countries. The European Union, many other member states and various other governments have adopted, or are in the process of adopting, Pillar 2, which calls for a global minimum tax of 15% to be effective for tax years beginning in 2024. The OECD guidelines published to date include transition and safe harbor rules around the implementation of the Pillar 2 global minimum tax. We are monitoring developments and evaluating the impacts these new rules will have on our tax rate, including eligibility to qualify for these safe harbor rules.
Our business may also be affected by existing or future economic sanctions and export controls targeting Russia and other responses to Russia's invasion of Ukraine.
As a result of Russia’s invasion of Ukraine, the United States, in coordination with the United Kingdom and the European Union, among others, implemented economic sanctions and export controls targeting Russia, Belarus and Russian-controlled regions of Ukraine (Crimea, Donetsk, Kherson, Luhansk and Zaporizhzhia). These measures include: (i) blocking sanctions prohibiting dealings with various Russian senior government officials and companies in various sectors important to the Russian economy, including major Russian financial institutions; (ii) expanded sectoral sanctions related to designated Russian entities’ ability to raise capital; (iii) the disconnection of certain Russian and Belarusian banks from the Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) financial messaging network; (iv) a ban on new investment in Russia; (v) a ban on the provision of certain services in Russia in the areas of accounting, trust formation, management consulting, quantum computing, petroleum and in relation to the maritime transport of Russian-origin crude oil and petroleum products; (vi) bans on the import into the United States of certain Russian origin products, including various energy products; (vii) bans on the conduct of business or investment activity in the Russian-controlled Crimea, Donetsk, Kherson, Luhansk and Zaporizhzhia regions of Ukraine; and (viii) restrictions on the export of various products to Russia and Belarus, including certain dual-use industrial and commercial products and luxury goods. Additionally, certain logistics operators have imposed bans on direct air deliveries to Russia and restrictions on land deliveries to and from Russia, Belarus and Ukraine, none of which have had a material impact on our operations to date.
We are currently operating in Russia through wholesale and retail channels, and we have immaterial wholesale operations through local wholesale partners in Belarus and Ukraine. Our operations in Russia are operated primarily through Guess? CIS, LLC (“Guess CIS”), a wholly-owned Russian subsidiary. Guess CIS currently operates 45 retail stores in Russia and acts as a distributor for our wholesale partners in Russia. We also operate in Russia through other local wholesale partners where customers can either buy directly in store or online. Prior to February 2022, we also sold directly to retail customers in Ukraine and Belarus through our European online store. The local distributor through which we operate in Ukraine does not operate in the Russian-controlled Crimea, Donetsk, Kherson, Luhansk or Zaporizhzhia regions of Ukraine.
Our operations in Russia, Belarus and Ukraine represented less than 4% of the Company’s total revenue for fiscal 2025, with our operations in Russia comprising over 90% of this total revenue. As of February 1, 2025, our total assets in Russia, all of which are held by Guess CIS, represented slightly less than 2% of our total assets, consisting primarily of leasehold right of use assets, store inventory, furnishings and fixtures and receivables. We only maintain inventory in Russia in an amount sufficient for operating our Russian retail stores. We do not maintain inventory or hold any other significant assets in Belarus or Ukraine. We do not rely, directly or indirectly, on goods sourced in Russia, Belarus or Ukraine. Other than such labor and services necessary to conduct our direct operations in Russia in the ordinary course of business, we do not rely, directly or indirectly, on services sourced in Russia, Belarus or Ukraine.
The imposition of the current or possible future additional export controls and economic sanctions on transactions with Russia and Russian entities or retaliatory actions by the Russian government, could limit or prevent us from (i) operating all or a portion of our business in Russia, (ii) performing under existing contracts involving our Russia business or (iii) pursuing new business opportunities or maintaining adequate insurance
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coverage to protect our products and facilities in Russia. Additionally, the war in Ukraine could disrupt the operations of our distributor in that region and surrounding regions. Any of the foregoing could adversely affect our business, supply chain, partners or customers. In addition, the war between Russia and Ukraine could lead to disruption, instability and volatility in global markets and industries that could negatively impact our operations. The scope of the impact of economic sanctions, export controls and the ongoing war in Ukraine is impossible to predict at this time and could have an adverse impact on our business.
Risks Related to our Business Strategy
If we fail to successfully execute growth initiatives, including completion or integration of acquisitions and alliances, our business and results of operations could be harmed.
We regularly evaluate strategic acquisitions and alliances and pursue those that we believe will support and contribute to our overall growth initiatives and/or will leverage our global infrastructure and network of licensees and wholesale partners. For example, in April 2024, we, along with WHP Global, acquired lifestyle apparel and accessories brand rag & bone, with Guess? owning all of the rag & bone operating assets and Guess? and WHP Global jointly owning rag & bone’s intellectual property.
Any such efforts may place increased demands on our managerial, operational and administrative resources that could prevent or delay the successful opening of new stores and the identification of suitable licensee partners, adversely impact the performance of our existing stores and adversely impact our overall results of operations. In addition, acquired businesses and additional store openings may not provide us with increased business opportunities as consumer preferences for in-person shopping has shifted to online shopping, or result in the growth we anticipate, particularly during economic downturns. Furthermore, integrating acquired operations (including existing licensees or joint venture partners) is a complex, time-consuming and expensive process. We may not be able to successfully integrate acquired personnel, operations and technologies, or effectively manage the combined business following an acquisition. We also may not achieve the anticipated benefits from such acquisitions. Failing to acquire and successfully integrate complementary businesses, or to the business synergies or other anticipated benefits of acquisitions or joint ventures, could materially affect our business and results of operations.
We may fail to realize the benefits expected from our acquisition of rag & bone, and we may not be successful in our strategic partnership with WHP Global, which could adversely affect our business and stock price.
The anticipated benefits from our acquisition of rag & bone and our partnership with WHP Global may not materialize as expected, including our plans with respect to rag & bone’s intellectual property and expanding the brand’s product lines and market internationally. Our management team has limited experience in integrating acquisitions, including addressing the challenges of integrating management teams, strategies, cultures and organizations of two companies. Additionally, our plans for an expansion of rag & bone’s global presence depends on our ability to successfully deploy capital and consumers in international markets responding positively to such product. Further, our management team’s experience monetizing and managing Guess’ existing intellectual property and expanding Guess’ brands internationally may not translate to the rag & bone business. We may fail to achieve the expected benefits of the acquisition and partnership, we may experience unanticipated challenges or delays, and the integration or expansion may prove to be more costly than anticipated. Even if , the integration of rag & bone has and may continue to management’s attention and other resources away from our existing operations and other . If we do not realize the intended benefits of the rag & bone acquisition or if the acquisition to generate expected financial results, our business may .
Although we have a 50% ownership interest in the joint venture that owns rag & bone’s intellectual property, WHP Global has a controlling voting interest in the joint venture and therefore has ultimate control over rag & bone’s intellectual property, subject to our license agreement with the joint venture.
We have invested, and expect to continue to invest, a substantial amount of time, resources and efforts in connection with our joint venture with WHP Global, which may divert resources away from our other initiatives and operations. These efforts may not result in additional products, efficiencies or revenues for our Company, which could adversely affect our business, operating results and financial condition.
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If we do not successfully manage the challenges associated with the acquisition and partnership, we may not achieve the anticipated benefits of either or both of the acquisition or partnership. Moreover, we may not be able to achieve our expected synergies without increases in costs or other difficulties.
We face risks associated with our joint ventures and strategic partnership investments.
We have entered, and may in the future enter, into joint ventures and strategic partnerships, including our joint venture with WHP Global. Although we take steps to carefully select our partners, such arrangements may not be successful. These joint ventures and investments involve risks that our joint venture or strategic investment partners may:
• have economic or business interests or goals that are inconsistent with or adverse to ours, such as the licensing of intellectual property to other parties, the pricing of products or the offering of competitive products;
• take actions contrary to our requests or contrary to our policies or objectives, including actions that may violate applicable law;
• be unable or unwilling to fulfill their obligations to us, including under the relevant joint venture agreements;
• have financial or business difficulties;
• take actions that may harm our reputation; or
• have disputes with us as to the scope of their rights, responsibilities and obligations.
In certain cases, including in the case of our joint venture with WHP Global, joint ventures and strategic partnership investments may present us with a lack of ability to fully control all aspects of their operations, including due to veto rights. We also may not have full visibility or influence with respect to all operations, customer or vendor relations, compliance practices, or other important business processes.
Our present or future joint ventures and strategic partnership investment projects may not be successful. We may have disputes or encounter other problems with respect to our present or future joint venture or strategic investment partners or our joint venture or strategic partnership investment agreements may not be effective or enforceable in resolving these disputes or we may not be able to resolve such disputes and solve such problems in a timely manner or on favorable economic terms, or at all. Any failure by us to address these potential disputes or conflicts of interest effectively could have a material adverse effect on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.
Failure to successfully develop, open and manage new stores and new store design concepts could adversely affect our business and our results of operations.
New store openings and new store design concepts have historically been an important part of the growth of our business. To open and operate new stores successfully, we must: (i) identify desirable locations, the availability of which is out of our control; (ii) negotiate acceptable lease terms, including desired tenant improvement allowances; (iii) efficiently build and equip the new stores; (iv) source sufficient levels of inventory to meet the needs of the new stores; (v) hire, train and retain competent store personnel; (vi) successfully integrate the new stores into our existing systems and operations; and (vii) satisfy the fashion preferences of customers in the new geographic areas.
Any challenge in our ability to adequately address these development steps could delay our store openings, prevent us from completing our store opening plans or hinder the operations of stores we open or acquire. These challenges could be even more pronounced in foreign markets due to unfamiliar local regulations, business conditions and other factors. Once open, we cannot be sure that our new stores will be profitable. Unfavorable economic and business conditions and changing consumer preferences could also interfere with our store opening plans.
In addition, the introduction and growth or maintenance of new store design concepts as part of our growth and productivity strategies could strain our financial and management resources and are subject to a number of other risks, including customer acceptance, product differentiation, competition and maintaining desirable locations. These risks may be compounded during difficult economic climates or future economic downturn. There can be no assurance that new store designs will achieve or maintain sales and profitability levels that justify
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the required investments. If we are unable to successfully develop new store designs, or if consumers are not receptive to the products, design layout, or visual merchandising, our results of operations and financial results could be adversely affected. In addition, the failure of new store designs to achieve acceptable results could lead to unplanned store closures and/or impairment and other charges, which could adversely affect our results of operations and growth.
We may not fully realize expected cost savings and/or operating efficiencies related to cost-saving initiatives.
We have identified several areas that present opportunities for future cost savings and efficiencies, including improved working capital management, distribution, systems integration and development, supply chain, logistics, retail store rent relief efforts, store closure opportunities and other initiatives, based on a number of assumptions and expectations which, if achieved, would improve profitability and cash flows from operating activities. However, there can be no assurance the expected results will be achieved. These and any future spend reductions, if any, may also negatively impact other initiatives or efforts to grow our business, which may negatively impact future results of operations and increase the burden on existing management, systems and resources. In addition, these cost savings may be negated or offset by unexpected or increased costs and poorer performance in other areas of the business.
Risks Related to Macroeconomic Conditions
Slowing customer traffic in malls or outlet centers could significantly reduce our sales, increase pressure on our margins and leave us with excess inventory.
Unfavorable economic conditions, changing shopping patterns, including shifts in consumer preferences from in-person shopping to online shopping, changing demographic patterns and other factors have adversely affected customer traffic in mall and outlet centers. This, in turn, has resulted in significant pricing pressures and a highly promotional retail environment in the apparel sector. Should these trends continue or worsen, or should we fail to effectively market our products in these conditions, it could negatively impact our sales, increase pressure on our margins, leave us with excess inventory, cause a decline in profits and negatively impact our liquidity.
Failure to successfully develop an omnichannel shopping experience could have a material adverse impact on our business.
As e-commerce sales continue to grow and evolve, our customers increasingly interact with us through a variety of media, including smart phones and tablets, and expect seamless integration across all touchpoints. Our success depends on our ability to respond to shifting consumer traffic patterns and ability to engage our customers.
While we must keep up to date with emerging technology trends in the retail environment in order to develop a successful omnichannel shopping experience, it is possible these initiatives may not prove to be successful, may increase our costs, may not succeed in driving sales or attracting customers and could result in significant investments that do not provide the anticipated benefits or desired rates of return.
In addition, digital operations are subject to numerous risks, including reliance on third-party computer hardware, software and service providers, data breaches, violations of state, federal or international laws, including those relating to online privacy, credit card fraud, telecommunication failures, electronic break-ins and similar disruptions, and disruption of internet service. Changes in U.S. or foreign regulations may also negatively impact our ability to deliver product to our customers. Failure to successfully respond to these risks may adversely affect sales as well as damage the reputation of our brands.
Poor or uncertain economic conditions, and the resulting negative impact on consumer confidence and spending, have had and could in the future have an adverse effect on our business.
The apparel industry is cyclical in nature and is particularly affected by adverse trends in the general economy. Purchases of apparel and related merchandise are generally discretionary and, therefore, tend to decline during periods of economic uncertainty and recession, but may also decline at other times. Over the last several years, volatile economic conditions and uncertain market conditions in many markets around the world have resulted in cautious consumer spending. For example, a number of European countries experienced difficult economic conditions, including sovereign debt issues that negatively impacted the capital markets. These conditions resulted in reduced consumer confidence and spending in many countries in Europe, particularly
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Southern Europe. While these conditions have improved, if conditions in Europe, or other economic regions in which we do business, worsen or fail to further improve, there will likely be a negative impact on our business, prospects, operating results, financial condition and cash flows.
There are a number of other factors that could contribute to reduced levels of consumer spending, such as increases in interest rates, currency fluctuations, inflation, unemployment, consumer debt levels, inclement weather, tax, net worth reductions based on market declines or uncertainty, energy prices and austerity measures. Similarly, natural disasters, labor unrest, actual or potential terrorist acts, public health crises, global trade, immigration policies, geopolitical unrest and other conflicts can also create significant instability and uncertainty in the world, causing consumers to defer purchases and travel, or prevent suppliers and service providers from providing required services or materials to us. These or other factors, including to the extent they result in a decline in consumer spending, could materially and adversely affect our business, prospects, operating results, financial condition and cash flows.
Significant fluctuations and volatility in the price of various input costs, including, but not limited to, cotton and oil-related materials, utilities, fuel, freight and wages may have a material adverse effect on our business, results of operations, financial condition and cash flows.
Inflation can have a long-term impact on us because increasing input costs may impact our ability to maintain satisfactory margins. For example, over the past few years we have experienced significant inflation in labor, materials and shipping costs. The cost of the materials that are used in our manufacturing process, such as oil-related commodity prices and other raw materials, including cotton, dyes and chemicals, and other costs, such as fuel, energy and utility costs, can fluctuate as a result of inflation, supply chain disruptions, including due to the ongoing wars in Ukraine and Gaza, the Red Sea crisis, and other factors. Similarly, a significant portion of our products are manufactured in other countries and declines in the value of the U.S. dollar may result in higher manufacturing costs. In addition, sudden decreases in the costs for materials may result in the cost of inventory exceeding the cost of new production, which could result in lower profitability, particularly if these decreases result in downward price pressure. Furthermore, any price increases to mitigate inflationary pressures has in the past and could in the future lower consumer demand for our products. If, in the future we incur volatility in the costs for materials, labor and freight that we are to offset through price adjustments or , or if our competitors’ to follow our price changes results in price pressure, our business, results of operations, financial condition and cash flows may be affected.
Fluctuations in the price or availability of quality raw materials and commodities could increase costs and negatively impact profitability.
The raw materials used to manufacture our merchandise are subject to availability constraints and price volatility caused by high demand for fabrics, currency fluctuations, crop yields, weather patterns, climate change, supply conditions and supply chain disruptions, government regulations (including tariffs), labor conditions, including port strikes, energy costs, transportation or freight costs, economic climate, public health crises, market speculation and other unpredictable factors. Negative trends in any of these conditions or our inability to appropriately project fabric requirements have at times in the past and could in the future increase costs and negatively impact profitability.
We are subject to risks associated with public health crises, including pandemics, epidemics, and other outbreaks of contagious diseases.
We are subject to risks associated with public health crises. For example, the COVID-19 pandemic had a material adverse effect on our business. Other future public health crises, including any future outbreaks of contagious diseases, could have a similar material adverse impact on our business. Financial and operational impacts that we experienced in connection with the COVID-19 pandemic, and may experience as a result of future outbreaks or other public health crises, include:
• temporary closures of our stores or office buildings or the facilities of our wholesale customers or suppliers;
• constraints on our suppliers’ ability to source raw materials and to timely produce and fulfill finished goods orders due to factory closures;
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• lower traffic at open stores, especially during periods of surges or outbreaks in regions where our stores are located;
• disruptions due to concentrated regional outbreaks of disease, particularly in Asia, which is the source of most of our goods;
• labor shortages;
• disruptions in our supply chain and shipments;
• negative impacts to pricing of certain product components;
• volatility in the economies or financial markets in which we operate; and
• decrease in consumer demand, which may require us to obtain access to additional credit.
Depending on the severity of such financial and operational impacts, our business, financial condition, and results of operations may be materially adversely impacted. The extent to which any future public health crises may impact our business, results of operations, and financial condition depends on many factors which are highly uncertain and are difficult to predict. These factors include, but are not limited to, the duration and spread of any outbreak, its severity, the actions to contain or address the impact of the outbreak, the timing, distribution, and efficacy of vaccines and other treatments, U.S. and foreign government actions to respond to possible reductions in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume.
Risks Related to Brand Reputation, Relevance and Protection
Demand for our merchandise may decrease and the appeal of our brand image may diminish if we fail to identify and rapidly respond to consumers’ fashion tastes and shopping preferences.
The apparel industry is subject to rapidly evolving fashion trends and shifting consumer demands. Accordingly, our brand image and profitability are heavily dependent upon the priority that our customers place on fashion and our ability to anticipate, identify and capitalize upon emerging fashion trends. If we fail to anticipate, identify or react appropriately, or in a timely manner, to fashion trends (including as a result of our recent shift to a single global line of apparel), we could experience reduced consumer appeal and a diminished brand image. These factors could result in higher wholesale markdowns, lower average unit retail prices, lower product margins and decreased sales volumes and could have a material adverse effect on our results of operations and financial condition.
In addition, our customers have become increasingly technologically savvy and expect a seamless omni-channel experience regardless of whether they are shopping in stores or online. Innovation by existing or new competitors could alter the competitive landscape by improving the customer experience and heightening customer expectations or by transforming other aspects of their business through new technologies, such as AI. If we are unable to develop and continuously improve our technologies, the efforts of which typically require significant capital investments, we may not be able to provide a convenient and consistent experience to our customers, which could negatively affect our ability to compete with other retailers and could result in diminished loyalty to our brands, which could adversely impact our business.
Our inability to protect our reputation could have a material adverse effect on our brand.
Our ability to maintain our reputation is critical. Our reputation could be jeopardized if we or our third-party providers fail to maintain high standards for merchandise quality and integrity. Any negative publicity about these types of concerns may reduce demand for our merchandise. Failure by us or our third-party providers to comply with ethical, social, product, labor, health and safety or environmental standards could also jeopardize our reputation and potentially lead to adverse consumer actions, including boycotts. Such failures could also impact investment decisions by investors, including some large institutional investors and funds, which could negatively impact our stock price. With the increased proliferation of social media, public perception about products, business practices, stores or brand, whether justified or not, could impair our reputation, involve us in , our brand and have a material effect on our business. Additionally, actions taken by our employees, representatives or individuals that we partner with, such as brand representatives, influencers or our associates, that to represent our brand in a manner consistent with our brand image, whether through our social media platforms or their own, could our brand reputation and materially impact our business. to comply with local laws and regulations, to maintain an system of internal controls or to provide accurate
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and timely financial information could also hurt our reputation. Damage to our reputation or loss of consumer confidence for any of these or other reasons could have a material adverse effect on our results of operations and financial condition, as well as require additional resources to rebuild our reputation.
We depend on our intellectual property, and our methods of protecting it may not be adequate.
Our success and competitive position depend significantly upon our trademarks and other proprietary rights. We take steps to establish and protect our trademarks worldwide. Any precautions we may take to protect our intellectual property, such as policing unauthorized use of our intellectual property is difficult, expensive and time consuming. We may be unable to adequately protect our intellectual property or to determine the extent of any unauthorized use, particularly in those foreign countries where the laws do not protect proprietary rights as fully as in the United States. We also place significant value on our trade dress and the overall appearance and image of our products. However, we cannot assure you that we can prevent imitation of our products by others or prevent others from seeking to block sales of GUESS? products for purported violations of their trademarks and proprietary rights. We also cannot assure you that others will not assert rights in, or ownership of, trademarks and other proprietary rights of GUESS?, our proprietary rights would be upheld if or we would, in that event, not be prevented from using our trademarks, any of which could have a material effect on our financial condition and results of operations. Further, we could incur substantial costs in legal actions relating to our use of intellectual property or the use of our intellectual property by others.
Failure to appropriately address emerging ESG matters, or our focus on particular ESG matters over others, could have a material adverse impact on our reputation and, as a result, our business.
There has been an increased focus from investors, customers, associates, business partners and other stakeholders concerning ESG matters.
The expectations related to ESG matters are rapidly evolving, and we may announce changing initiatives and goals related to ESG matters from time to time. We could fail in achieving our ESG initiatives or goals or fail, or be perceived to fail, to act responsibly in our ESG efforts or in accurately reporting our progress on our initiatives and goals. In addition, we could be criticized for the scope of such initiatives or goals among certain stakeholders who believe we should change our goals or initiatives or who think the scope of our ESG initiatives is overdone. In any such events, we could suffer negative publicity, and our reputation could be adversely impacted, which in turn could have a negative impact on investor perception and our products’ acceptance by consumers. This may also impact our ability to attract and retain talent to compete in the marketplace. Conversely, backlash against our ESG initiatives and commitments, which is increasingly common, may our reputation among other stakeholders and us to related liabilities.
Additionally, standards for tracking and reporting ESG matters continue to evolve and our selection of voluntary disclosure frameworks and standards, and the interpretation or application of those frameworks and standards, may change from time to time or differ from those of others. Methodologies for reporting ESG data may be updated and previously reported ESG data may be adjusted to reflect improvement in availability and quality of third-party data, changing assumptions, changes in the nature and scope of our operations and other changes in circumstances. Our processes and controls for reporting ESG matters across our operations and supply chain are evolving along with multiple disparate standards for identifying, measuring and reporting ESG metrics, including ESG-related disclosures that are or may become required by the SEC or other U.S. constituencies, as well as European and other regulators, and such standards may change over time, which could result in significant revisions to our current goals, reported progress in achieving such goals, or ability to achieve such goals in the future.
Risks Related to Third Party Relationships
Since we do not control our licensees’ actions and we depend on our licensees for a substantial portion of our earnings from operations, their conduct could harm our business.
We license to others the rights to produce and market certain products sold with our trademarks. While we retain significant control over our licensees’ products and advertising, we rely on our licensees for, among other things, operational and financial control over their businesses. If the quality, focus, image or distribution of our
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licensed products diminish, consumer acceptance of and demand for our brands and products could decline. This could materially and adversely affect our business and results of operations.
In fiscal 2025, approximately 85% of our net royalties were derived from our top five licensed product lines. A decrease in customer demand for any of these product lines could have a material adverse effect on our results of operations and financial condition. In addition, purchases from our top two licensees in fiscal 2025 accounted for almost 29% of our total inventory purchases. Although we believe we could replace existing licensees if necessary, we may have a negative impact during the transition period. Our inability to replace existing licensees could adversely affect our revenues and results of operations.
Our success depends on the strength of our relationships with our suppliers and manufacturers.
The majority of our finished goods are sourced from partners and suppliers located in over 20 countries outside the United States. In fiscal 2025, over one-third of these products were sourced from partners and suppliers based in China. Our two largest suppliers, which were licensee partners, accounted for approximately 29% of our purchases of finished goods in fiscal 2025.
We do not own or operate production facilities, and we depend on independent factories to supply fabric and manufacture products to our specifications. We do not have long-term contracts with any suppliers or manufacturers, and our business is dependent on our partnerships with our vendors. If manufacturing costs rise significantly, or if we need to replace one of our vendors, our product margins and results of operations could be negatively affected. In addition, few of our vendors manufacture our products exclusively. As a result, we compete with other companies for the production capacity of independent contractors. If our vendors fail to ship our fabrics or products on time or to meet our quality standards or are unable to fill our orders, or if they choose to prioritize work with our competitors over the production of our product, we might not be able to deliver products to our retail stores and wholesale customers on time or at all.
Moreover, our suppliers have at times been unable to deliver finished products in a timely fashion. This has led, from time-to-time, to an increase in our inventory, creating potential markdowns and a resulting decrease in our profitability. As there are a finite number of skilled manufacturers that meet our requirements, it could take significant time to identify and qualify suitable alternatives, which could result in our missing retailing seasons or our wholesale customers canceling orders, refusing to accept deliveries or requiring us to lower selling prices. Since we prefer not to return merchandise to our manufacturers, we could also have a considerable amount of unsold merchandise. Any of these problems could harm our financial condition and results of operations.
Risks Related to Data Privacy and Cybersecurity
A cybersecurity incident could damage our reputation and customer relationships, expose us to litigation risk and potential fines and adversely affect our business.
The efficient operation of our global business depends on our information systems, including telecommunications, the internet, network communications, email and various computer hardware and software applications. We rely on our information systems to effectively manage sales and marketing data, accounting and financial functions, inventory management, product development, quality systems, customer service and technical support functions. Despite the security measures we have implemented, our facilities and information systems, and those of our third-party service providers, are vulnerable to cybersecurity incidents, including security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors, or other similar events, some of which we have experienced and expect to experience in the future. We (or third parties we rely on) may not be able to fully, continuously and effectively implement cybersecurity controls as intended. We utilize a risk-based approach to determine which security controls to implement and it is possible that we may not implement appropriate controls if we do not recognize, or we , a particular cybersecurity risk. In addition, cybersecurity controls, no matter how well designed or implemented, may only mitigate, and not fully eliminate, risks. Further, cybersecurity and the techniques used in change, develop and evolve rapidly, including from emerging technologies, such as advanced forms of AI and quantum computing. Events, when detected by security tools or third parties, may not always be immediately understood or acted upon. While none of the cybersecurity or service that we have experienced to date have had a material impact on our business, financial condition or operations, the preventative measures we have implemented to date may not be sufficient to prevent, mitigate or offset a future that may materially and
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impact us and the cybersecurity insurance we have obtained may or may not cover such an incident. Additionally, external events, like the ongoing wars in Ukraine and Gaza and the Red Sea crisis, can increase the likelihood of cybersecurity incidents. As security breaches at prominent retailers and other large institutions have become more common, the media and public scrutiny of information security and privacy has become more intense, and the regulatory environment has become more stringent. Any security breach involving the misappropriation, loss or other unauthorized disclosure of confidential customer or employee information, whether by us, our vendors, or another party with access to our information systems, could result in significant legal and remediation expenses, severely damage our reputation and our customer relationships, harm sales, us to risks of and liability and result in a material effect on our business, financial condition and results of operations.
Failure to comply with confidentiality and data privacy obligations could have a material adverse effect on our business.
As part of our normal operations, we collect, process, transmit and, where appropriate, retain certain sensitive and confidential employee and customer information. There is concern by consumers and employees over the security of personal information, consumer identity theft and user privacy. Changing privacy laws in the United States, Europe and elsewhere, including the California Consumer Privacy Act, which created an array of consumer privacy rights and business obligations with regard to the collection and sale of personal information, and other similar state laws, and the General Data Protection Regulation (“GDPR”), adopted in the European Union, which created individual privacy rights and imposed increased obligations on companies handling personal data. Consequently, we may incur significant costs related to complying with laws regarding the protection and unauthorized disclosure of personal information. A failure to comply with the stringent rules of the GDPR or state privacy laws could result in material fines.
Our business could suffer if our information systems or websites are disrupted or cease to operate effectively.
The efficient operation of our business is dependent on our computer and information systems. We rely heavily on our merchandise management and enterprise resource planning systems used to track sales and inventory and manage our supply chain. In addition, we have e-commerce and other Internet websites worldwide. Our e-commerce operations are a critical element of our long-term growth strategy and are vital to the success of our business. Given the complexity of our business it is imperative that we maintain constant operation of our information systems. Despite our preventative efforts, our information systems are vulnerable to damage or interruption from, among other things, ineffective upgrades, ineffective support from third-party vendors, difficulties in replacing or integrating new systems, security breaches, computer viruses, natural disasters and power . Any such or could result in information being supplied to management, ordering and replenishment of products, of orders, significant expenditures, of our operations, to produce accurate financial statements, access to or disclosure of personally identifiable or proprietary information and other impacts to our business. While we do occasionally experience or to our systems, we are not aware of any such events in the past that have had a material impact on our business, financial condition or results of operations. It is possible, however, that future events resulting in or to our systems could materially impact our business, financial condition or results of operations.
Risks Related to Competition
The retail industry is highly competitive, and we may face difficulties competing successfully in the future.
We operate in a highly competitive and fragmented industry with low barriers to entry. We compete with many apparel manufacturers and distributors, both domestically and internationally, as well as many well-known designers. We, along with our licensees, compete with many other designers and retailers (both brick and mortar and e-commerce sites), including department stores, some of whom are our major wholesale customers. Global and regional branded competitor companies pose significant challenges to our market share in our existing major domestic and foreign markets and to our ability to successfully develop new markets. Some of our competitors have advantages over us, including greater financial and marketing resources, higher wage rates, lower prices, more desirable store locations, greater online and e-commerce presence and faster speed-to-market. In addition, our larger competitors may be better equipped to adapt to changing conditions affecting the competitive market, including the ability to increase production and sales by the implementation of new technologies, including the
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successful utilization of data analytics, AI and machine learning to market their products and brands more successfully and identify or influence consumer preferences. Additionally, newer competitors may be viewed as more desirable by consumers. Also, in most countries, the industry’s low barriers to entry allow the introduction of new products or new competitors at a fast pace. In other countries, high import duties may favor locally produced products. Any of these factors could result in reductions in sales or prices and could have a material adverse effect on our results of operations and financial condition.
Our Americas Wholesale business is highly concentrated. If any large customer decreases its purchases or experiences financial difficulties, our results of operations and financial condition could be adversely affected.
In fiscal 2025, our three largest Americas Wholesale customers accounted for a total of approximately 4.8% of our consolidated net revenue. Continued consolidation in the retail industry could further decrease the number of, or concentrate the ownership of, stores that carry our products and our licensees’ products. In recent years, there has been a significant increase in the number of designer brands seeking placement in department stores, which makes any one brand potentially less attractive to department stores. If any one of our major wholesale customers decides to decrease purchases from us, to stop carrying our products or to carry our products on less favorable terms, our sales and profitability could significantly decrease. Similarly, some retailers have recently experienced significant financial difficulties, which in some cases have resulted in bankruptcy, liquidation and store closures. Financial difficulties of one of our major customers could result in reduced business and higher credit risk with respect to that customer. Any of these circumstances could ultimately have a material adverse effect on our results of operations and financial condition.
Risks Related to Legal, Governmental and Regulatory Matters
Proxy contests or other activist investor actions threatened or commenced against us could cause the Company to incur substantial costs, divert management’s attention and resources, cause uncertainty about the strategic direction of our business and adversely affect our business, operating results and financial condition.
Activist investors may from time to time threaten or commence a proxy contest, “vote no” campaign or take other actions, including engaging in proxy solicitations, advancing shareholder proposals, or otherwise attempting to affect changes and asserting influence on our Board of Directors and management. These actions could have a material adverse effect on us for the following reasons:
• Activist investors may attempt to effect changes in how we are governed and our strategic direction, or to acquire control over the Company. In particular, activist investors may suggest changes to our operations, including management, that conflict with our strategic direction and could cause uncertainty amongst employees, customers and our investors about the strategic direction of our business.
• Responding to proxy contests or other actions, such as Legion Partners Holdings, LLC’s (“Legion Partners”) “vote no” campaign in connection with our 2022 annual meeting of shareholders, are costly and time-consuming, and could disrupt our operations and divert the attention of our Board of Directors, senior management and employees away from their regular duties and the pursuit of business strategies. In addition, we may choose to initiate, or may become subject to, litigation as a result of a proxy contest or matters arising from a proxy contest or other activist investor actions. For example, we were a party to a stockholder derivative suit brought by Legion Partners, as described further in “Note 16 - Commitments and Contingencies” in the notes to our consolidated financial statements. Similar actions would serve as a further distraction to our Board of Directors, senior management and employees and could require us to incur significant additional costs.
• Perceived uncertainties as to our future direction as a result of potential changes to the composition of the Board of Directors may lead to the perception of a change in the direction of the business, instability or lack of continuity, which may be exploited by our competitors, may cause concern to our current or potential customers and employees, may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel and business partners.
• Proxy contests and related actions could cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
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Violation of laws or regulations, or changes to existing laws or regulations could adversely affect our business, reputation and results of operations.
We are subject to numerous laws and regulations at the state, federal and international levels, including, but not limited to, the areas of health care, data privacy, taxes, transportation and logistics, the environment, trade, conflict minerals, product safety, employment and labor, advertising and pricing practices, consumer protection, e-commerce, anti-competition, anti-corruption, including the FCPA, and intellectual property. Compliance with these numerous laws and regulations is complicated, time consuming and expensive.
In addition, we are subject to risks from the implementation or interpretation of new and existing laws and regulations. New and existing laws and regulations may be inconsistent, or interpreted inconsistently, from jurisdiction to jurisdiction and are subject to change from time to time, sometimes unexpectedly. We may also be subject to risks stemming from the uncertainty from recent changes to the U.S. presidential administration and its regulatory priorities and focus. Failure to comply or to effectively anticipate changes in such laws or regulations could have a material adverse effect on our business, reputation and results of operations.
Violation of labor, environmental and other laws by our licensees or suppliers could harm our business.
We require our licensing partners and suppliers to operate in compliance with applicable laws and regulations. While our internal and vendor operating guidelines, code of conduct and monitoring programs promote ethical business practices and compliance with laws, we do not control our licensees or suppliers or their labor, environmental, safety or other business practices. A violation of law by any of our licensees or suppliers, or divergence of a licensee’s or supplier’s business practices or social responsibility standards from ours or those generally accepted as ethical in the United States could disrupt the shipment of our products, harm the value of our trademarks, damage our reputation or expose us to potential liability.
Additionally, in many jurisdictions in which we operate, governmental bodies are enacting new or additional legislation and regulations to reduce or mitigate the potential impacts of climate change. If we, our suppliers, or our contract manufacturers are required to comply with these laws and regulations, or if we choose to take voluntary steps to reduce or mitigate our impact on climate change, we may experience increased costs for energy, production, transportation and raw materials, increased capital expenditures, or increased insurance premiums and deductibles, which could adversely impact our operations. Inconsistency of legislation and regulations among jurisdictions may also affect the costs of compliance with such laws and regulations. Any assessment of the potential impact of future climate change legislation, regulations or industry standards, as well as any international treaties and accords, is uncertain given the wide scope of potential regulatory change in the countries in which we operate.
We are subject to periodic litigation and regulatory proceedings, which could result in substantial charges, as well as the diversion of time and resources.
We are involved from time-to-time in various U.S. and foreign lawsuits relating to our business, including purported class action lawsuits, shareholder derivative lawsuits, employment claims and intellectual property claims, as well as various regulatory proceedings, such as audits by various U.S. or foreign state departments or governing bodies. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such new or existing proceedings. Should management’s evaluation of any such claims or proceedings or the likelihood of any future claims or proceedings prove incorrect, our exposure could materially exceed expectations, adversely impacting our business, financial condition and results of operations. In addition, any significant litigation or regulatory matters, regardless of the merits, could divert management’s attention from our operations and result in substantial legal fees. Refer to “Note 16 - Commitments and Contingencies” of the notes to our consolidated financial statements included in this Annual Report for disclosures about our legal and other proceedings.
We may also be subject to a variety of other claims arising in the ordinary course of our business, including commercial disputes and employee claims, such as claims of age discrimination, sexual harassment, gender discrimination, immigration violations or other local, state and federal labor law violations, and from time to time may be involved in governmental or regulatory investigations or similar matters arising out of our current or future business. In recent years, there has been an increase in the number of discrimination and harassment claims across the United States generally, which may impact our business. While we have policies in place that are
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intended to prevent or address such issues, we cannot be assured that such policies will adequately prevent or mitigate the foregoing concerns and any associated harm. Any claims asserted against us or our management, regardless of merit or eventual outcome, could harm our reputation or the reputation of our management and have an adverse impact on our relationship with our clients, business partners and other third parties and could lead to additional related claims. In light of the potential cost and uncertainty involved in litigation, we have in the past and may in the future settle matters even when we believe we have a meritorious defense. Certain claims may seek injunctive relief, which could disrupt the ordinary conduct of our business and operations or increase our cost of doing business. Our insurance or indemnities may not cover all that may be asserted us. Furthermore, there is no guarantee that we will be in ourselves in pending or future or similar matters under various laws. Any judgments or settlements in any pending or future , or could have a material effect on our business, financial condition and results of operations.
Risks Related to Inventory, Human Capital and Supply Chain Management
Our failure to retain our existing senior management team or to retain or attract other key personnel could adversely affect our business.
Our future performance depends to a significant degree upon the continued contributions of our key personnel, including our senior management and board members. Our business requires disciplined execution at all levels of our organization in order to ensure the timely delivery of desirable merchandise in appropriate quantities to our stores and other customers. This execution requires experienced and talented management in various areas of our business. Our success depends upon the personal efforts and abilities of our key personnel and senior management, particularly Carlos Alberini, Chief Executive Officer, and founding board member and Chief Creative Officer Paul Marciano. Although we believe we have a strong management team with relevant industry expertise, the extended loss of the services of these or other key personnel could materially harm our business. If Messrs. Alberini and Marciano were unable or unwilling to continue in their present positions, we may not be able to replace them readily, if at all. As such, any disruption in the services of our key personnel could significantly our operations and prevent the timely of our development strategies and growth, which could have an effect on our financial condition, operating results and prospects. These changes could also increase the of our stock price.
The market for qualified employees in the apparel and retail industries is highly competitive, and competitors may use aggressive tactics to recruit our key personnel. Our success depends upon our ability to attract, retain and motivate qualified employees and upon the continued contributions of these individuals. We cannot provide assurances that we will be successful in attracting and retaining qualified employees in future periods without our key personnel. Competition for personnel is intense, and the loss of services of one or more of these individuals, or the negative public perception with respect to the loss of one or more of these individuals, could have an adverse effect on our business. The continued presence of Messrs. Alberini and Marciano is necessary to facilitate continuity in any succession planning, and without these individuals, we may not be successful in finding and integrating suitable successors.
Increases in labor costs, including wages, could adversely impact our operational results, financial condition and results of operations.
Our retail store and distribution and fulfillment center operations are subject to laws governing such matters as minimum wages, working conditions and overtime pay. As minimum wage rates increase or related laws and regulations change, we may need to increase not only the wage rates of our minimum wage employees, but also the wages paid to our other hourly or salaried employees. We have experienced and may continue to experience increased employee turnover which may lead to wage rate increases in certain geographies. Any increase in the cost of our labor could have an adverse effect on our operating results, financial condition and results of operations. In addition, wage actions by other retailers may require us to increase wage rates in order to attract and retain talented employees. Persisting labor shortages, increased employee turnover or our inability to successfully implement our expanded format store strategy could also increase our labor costs. This in turn could lead us to increase prices, which could adversely impact our sales. We are also subject to risks related to other store and
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distribution and fulfillment center expenses and operational costs. Conversely, if competitive pressures or other factors prevent us from offsetting increased labor costs by increases in prices, our profitability may decline.
Our failure to shorten lead-times or to anticipate consumer demand, failure of our international vendors to supply quality products on a timely basis, failure of our merchandising strategies or failure to open new and remodel existing stores on schedule could result in excess inventory.
Although we have shortened lead-times for the design, production and development of a portion of our product lines, we expect to continue to place orders with our vendors for most of our products a season or more in advance. If we are unsuccessful in continuing to shorten lead-times or if we fail to anticipate fashion trends or consumer demand, we could have excess inventories. Additionally, our vendors could fail to timely supply the quality products and materials we require. Moreover, we could fail to effectively market or merchandise products once we receive them. We could fail to open new or remodeled stores on schedule, and inventory purchases made in anticipation of store openings could remain unsold. If we experience excess inventories, including as a result of reduced consumer demand or any store closures, wholesale order cancellations or for any other reason, we could incur inventory write-downs and markdowns, which in turn could have a material adverse effect on our results of operations and financial condition.
Failure to deliver merchandise timely to our distribution facilities, stores or wholesale customers could disrupt our business.
The efficient operation of our global retail and wholesale businesses depends on the timely importation, customs clearance, and receipt of merchandise to and from distribution centers and our ability to efficiently process such merchandise. We receive merchandise at our distribution facilities and deliver merchandise to our stores and wholesale customers using independent third parties who import as well as transport goods. The independent third parties and entities on which they rely have employees which may be represented by labor unions. Disruptions in the delivery of merchandise caused by importation delays, work stoppages by employees or contractors of any of these third parties or geopolitical conflicts could delay the timely receipt of merchandise. For example, the ongoing Red Sea crisis has disrupted global supply chains and increased freight costs. The Red Sea crisis has caused, and is expected to continue to cause, disruptions in the delivery of our merchandise. Any by us or our third-party providers to adapt to the Red Sea or any other events impacting our supply chain or to otherwise respond to our distribution needs could our business.
A disruption impacting our warehouse or distribution facilities could have a material adverse impact on our sales and operating results.
Our U.S. business relies primarily on a single distribution center located in Louisville, Kentucky to receive, store and distribute merchandise to our U.S. retail stores, wholesale customers and e-commerce customers. Distribution of our products in Canada is handled primarily from two distribution centers in Montreal, Quebec. In Asia, we utilize several third-party operated distribution warehouses that service the Asia region. In Europe, distribution of our products is handled by third-party distributors through distribution facilities in Italy, the Netherlands, Poland and Spain. We continue to optimize our logistic network in Europe. Additionally, we have transitioned our U.S. distribution center in Louisville, Kentucky to a third-party logistics provider. This transition from an owner-operated warehouse to a third-party logistics provider may cause interruptions to this U.S. warehouse as we transition employees, systems and technology. We may experience a shortage of labor, interruptions in our business systems or delays as a result of this transition. Because the third-party logistics provider operates a significant number of our other warehouses in Europe and elsewhere, we are also subject to concentration risks as a result of this transition, and any disruptions, delays or other events impacting the business of the third-party logistics provider may have a significant impact on our business, including our ability to timely fulfill orders.
Any significant interruption in the operation of any of our warehouse or distribution centers due to natural events (including public health crises), weather conditions, accidents, system failures, capacity issues, labor issues, relationships with our third-party warehouse operators or landlords, failure to successfully complete or delays in optimizing our logistics network, new providers, and/or new distribution systems or other unforeseen causes could have a material adverse effect on our ability to efficiently manage the volume and/or costs associated with the distribution of our products without encountering shipment delays or wholesale order cancellations. As
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previously noted, we have recently experienced, and expect to continue to experience, significant inflation in labor, materials and shipping costs. The increase of online shopping driven by changes in consumer shopping preferences has amplified certain of these risks resulting in capacity constraints. Such events could negatively impact our sales, inventory positions, operating results and customer relations.
Risks Related to Credit, Indebtedness and Ownership of our Common Stock
Our Board’s consideration of potential avenues to enhance shareholder value, including a Proposed Transaction (as defined below), could adversely impact our business, financial condition and results of operations, as well as our stock price.
In March 2025, we formed a Special Committee of independent and disinterested directors of the Board (the “Special Committee”) to evaluate a non-binding proposal received from WHP Global, through its affiliate WHP Investments, LLC, to acquire for $13.00 per share in cash the outstanding shares of our Company, other than shares held by certain existing shareholders, including Paul Marciano, Maurice Marciano and Carlos Alberini (collectively, the “Proposed Rollover Shareholders”), through which we would become a private company, and any other similar transaction (such transactions, a “Proposed Transaction”).
There is no guarantee that any definitive offer will be made, or any definitive agreement will be entered into, with respect to a Proposed Transaction, or that any Proposed Transaction will be approved or completed in a timely manner or at all. Completion of a Proposed Transaction could also be dependent upon a number of factors that may be beyond our control including, among other factors, market conditions, industry trends, a favorable vote by a majority of our stockholders, regulatory developments and litigation. Furthermore, if we reach an agreement with respect to a Proposed Transaction, we anticipate that the consummation of the transaction will be subject to a number of conditions, and there can be no assurance that such conditions will be satisfied or waived.
We may incur significant expenses related to the evaluation or consummation of a Proposed Transaction, which may also divert management’s time and attention and may result in changes in our employee base.
Speculation regarding any developments and perceived uncertainties related to our future could impact our ability to retain, attract or strengthen our relationships with key personnel, current and potential customers, suppliers and partners, which may cause them to terminate, or not to renew or enter into, arrangements with us, and could lead to fluctuations in our stock price.
Any of these factors could disrupt or adversely impact our business, financial condition and results of operations, as well as the market price of our common stock and could also heighten many of the other risks described in this Annual Report.
Litigation may arise in connection with a Proposed Transaction, which could be costly, prevent the consummation of the transaction, divert management’s attention and otherwise materially harm our business.
Putative shareholder complaints, including stockholder class action complaints, and other complaints or actions may be filed against us, our Board and others in connection with a Proposed Transaction. Such litigation may be time consuming and expensive and distract our management from running the day-to-day operations of our business, regardless of the outcome. The litigation costs and diversion of management’s attention and resources to address the claims and counterclaims in any litigation related to any Proposed Transaction may materially adversely impact our business, results of operations, prospects, cash flows and financial condition. If a Proposed Transaction is not consummated for any reason, litigation could be filed in connection with the failure to consummate the transaction. Any related to a Proposed Transaction may result in publicity or an impression of us, and impact our ability to retain, attract or our relationships with key personnel, current and potential customers, suppliers and partners, which may cause such individuals to , or not to renew or enter into, arrangements with us, and could lead to fluctuations in or impact the price of our common stock.
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We may be unable to raise the funds necessary to repurchase our $352 million 3.75% convertible senior notes due 2028 (the “2028 Notes”) for cash following a fundamental change, or to pay any cash amounts due upon conversion, and our other indebtedness may limit our ability to repurchase the Notes or pay cash upon their conversion.
Holders of our 2028 Notes may require us to repurchase their 2028 Notes following a fundamental change, at a cash repurchase price generally equal to the principal amount of the 2028 Notes to be repurchased, plus accrued and unpaid interest, if any. In addition, upon conversion, we will satisfy part or all of our conversion obligation in cash unless we elect to settle conversions solely in shares of our common stock. We will be required to repay the 2028 Notes in cash at their respective maturity, unless earlier converted or repurchased. We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the 2028 Notes or pay the cash amounts due upon conversion. In addition, applicable law, regulatory authorities and the agreements governing our other indebtedness, including our current credit facilities and other agreements we may enter into in the future, may restrict our ability to make payments on the 2028 Notes other than scheduled principal and interest, and as a result, upon a fundamental change we may not be able to repurchase any or all of the 2028 Notes and upon any conversions of the 2028 Notes may be unable to pay the cash amounts, if any, then due. Our inability to our obligations under the 2028 Notes could affect the terms of other financial obligations, our reputation and affect the trading price of our common stock.
Our failure to repurchase any or all of the 2028 Notes or to pay the cash amounts due upon conversion or at maturity when required will constitute a default under the indenture relating to the 2028 Notes (the “2028 Indenture”). A default under the 2028 Indenture or the fundamental change itself could also lead to a default under the agreement governing the 2028 Notes and our other indebtedness, which may result in that other indebtedness becoming immediately payable in full. We may not have sufficient funds to satisfy all amounts due under the other indebtedness and the 2028 Notes.
Provisions in the 2028 Indenture could delay or prevent an otherwise beneficial takeover of us.
Certain provisions in the 2028 Indenture could make a third-party attempt to acquire us more difficult or expensive. If a takeover constitutes a fundamental change, then noteholders will have the right to require us to repurchase their respective 2028 Notes for cash. In addition, if a takeover constitutes a make-whole fundamental change, then we may be required to temporarily increase the conversion rate. As well, the 2028 Indenture prohibits us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the 2028 Notes. In such cases, and in other cases, our obligations under the 2028 Notes and the 2028 Indenture could increase the cost of acquiring us or otherwise discourage a third-party from acquiring us or removing incumbent management, including in a transaction that noteholders or holders of our common stock may view as favorable.
The conversion features of the 2028 Notes, if triggered, may adversely affect our financial condition and results of operations.
The 2028 Notes are subject to a conditional conversion feature that, if triggered, would entitle the noteholders to convert their 2028 Notes at any time during specified periods into cash, shares of our common stock, or a combination of cash and shares of our common stock, at our option. While we intend to settle the principal amount of the 2028 Notes in cash and any excess in shares, if one or more noteholders elect to convert the 2028 Notes prior to the maturity date, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock, we would be required to settle all or a portion of the conversion obligation through the payment of cash earlier than the maturity date of the 2028 Notes, which could adversely affect our liquidity. In addition, even if noteholders do not elect to convert their 2028 Notes, if the conditional conversion features of the 2028 Notes are satisfied, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the 2028 Notes as a current liability, which would result in a material reduction of our net working capital.
The 2028 Notes’ hedge and warrant transactions may affect the value of the 2028 Notes and our common stock.
In connection with the offerings of the 2028 Notes, we entered into convertible note hedge transactions with hedge counterparties. At the time of the offerings of the 2028 Notes, the applicable convertible note hedge
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transactions covered, subject to anti-dilution adjustments substantially similar to those applicable to the 2028 Notes, the number of shares of common stock that initially underlay the 2028 Notes. Concurrently with the convertible note hedge transactions related to the offerings of the 2028 Notes, we also entered into warrant transactions with the hedge counterparties relating to the same number of shares of our common stock, subject to customary anti-dilution adjustments. The convertible note hedge transactions are expected generally to reduce the potential dilution upon conversion of the 2028 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2028 Notes, as the case may be. However, the warrant transactions could separately have a dilutive effect on our common stock to the extent that the market price per share of our common stock at maturity exceeds the strike price of the warrants.
It is our understanding that in connection with establishing their initial hedges of the convertible note hedge and warrant transactions, the hedge counterparties or affiliates thereof entered into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the respective 2028 Notes, and may have unwound these derivative transactions and purchased shares of our common stock in open market transactions shortly following the pricing of the respective 2028 Notes. These activities could have increased (or reduced the size of any decrease in) the market price of our common stock or the 2028 Notes at that time. In addition, the hedge counterparties or affiliates thereof may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market or privately negotiated transactions prior to the maturity of the 2028 Notes (and are likely to do so during any observation period related to a conversion of 2028 Notes). This activity could also cause or avoid an increase or a decrease in the market price of our common stock or the 2028 Notes.
The issuance or sale of shares of our common stock, or rights to acquire shares of our common stock, could depress the trading price of our common stock and the 2028 Notes.
We may conduct future offerings of our common stock, preferred stock or other securities that are convertible into or exercisable for our common stock to finance operations, fund acquisitions, or other purposes. In addition, we have reserved a substantial number of shares of our common stock for issuance upon the exercise of stock options, upon the vesting of restricted stock and restricted stock units pursuant to our employee benefit plans, upon conversion of the 2028 Notes and upon the exercise and settlement or termination of the warrant transactions. We cannot predict the size of future issuances or the effect they may have on the trading price of our common stock and the 2028 Notes.
If we issue additional shares of our common stock or rights to acquire shares of our common stock, if any of our existing stockholders sells a substantial amount of our common stock, or if the market perceives that such issuances or sales may occur, then the trading price of our common stock and the 2028 Notes may significantly decrease. In addition, our issuance of additional shares of common stock will dilute the ownership interests of our existing common stockholders.
We maintain cash deposits in excess of federally insured limits. Adverse developments affecting financial institutions, including bank failures, could adversely affect our liquidity and financial performance.
We regularly maintain domestic cash deposits in Federal Deposit Insurance Corporation (“FDIC”) insured banks, which exceed the FDIC insurance limits. We also maintain cash deposits in foreign banks where we operate, some of which are not insured or are only partially insured by the FDIC or other similar agencies. Bank failures, events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, or concerns or rumors about such events, may lead to liquidity constraints. The failure of a bank, or other adverse conditions in the financial or credit markets impacting financial institutions at which we maintain balances, could adversely impact our liquidity and financial performance. There can be no assurance that our deposits in excess of the FDIC or other comparable insurance limits will be backstopped by the U.S. or applicable foreign government, or that any bank or financial institution with which we do business will be able to obtain needed liquidity from other banks, government institutions or by acquisition in the event of a failure or liquidity .
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Difficulties in the credit markets or events limiting access to liquidity could have a negative impact on our customers, suppliers and business partners, which, in turn could materially and adversely affect our results of operations and liquidity.
The impact of difficult credit conditions or liquidity constraints, including those caused by bank failures, defaults, non-performance or other adverse developments that affect financial institutions, on our customers, business partners, suppliers, insurance providers and financial institutions with which we do business cannot be predicted and may be quite severe. The inability of our manufacturers to ship our products could impair our ability to meet delivery date requirements. A disruption in the ability of our significant customers, distributors or licensees to access liquidity could cause serious disruptions or an overall deterioration of their businesses. A disruption in the ability of a large group of our smaller customers to access liquidity could have similar adverse effects, particularly in our important multi-brand wholesale channel in Southern Europe, where many customers tend to be relatively small and not well capitalized. These conditions could lead to significant reductions in future orders of our products and the or on our customers’ part to meet their payment obligations to us, any of which could have a material effect on our results of operations and liquidity.
Similarly, a failure on the part of our insurance providers to meet their obligations for claims made by us could have a material adverse effect on our results of operations and liquidity. Continued market difficulties or additional deterioration could jeopardize our ability to rely on those financial institutions that are parties to our various bank facilities and foreign exchange contracts. We could be exposed to a loss if the counterparty fails to meet its obligations upon our exercise of foreign exchange contracts. In addition, instability, liquidity constraints or other distress in the financial markets, including the effects of bank failures, defaults, non-performance or other adverse developments that affect financial institutions, could the ability of one or more of the banks participating in our credit agreements from its commitments. This could have an effect on our business if we were not to replace those commitments or to locate other sources of liquidity on acceptable terms.
Our indebtedness and liabilities could limit the cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition and results of operations and impair our ability to satisfy our obligations under our outstanding indebtedness.
As of February 1, 2025, we had approximately $518.3 million of senior unsecured indebtedness at maturity and approximately $318.7 million of trade payables on a consolidated basis.
We may incur additional indebtedness or draw on our existing credit facilities to meet future financing needs, some of which may be secured indebtedness.
Our indebtedness could have significant negative consequences for our security holders and our business, results of operations and financial condition by, among other things: (i) increasing our vulnerability to adverse economic and industry conditions; (ii) limiting our ability to obtain additional financing; (iii) requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for other purposes; (iv) limiting our flexibility to plan for, or react to, changes in our business; (v) diluting the interests of our existing stockholders if we issue shares of our common stock in full or in part upon conversion of the 2028 Notes; and (vi) placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital.
Our business may not generate sufficient funds, and we may otherwise be unable to maintain sufficient cash reserves, to pay amounts due under our indebtedness, and our cash needs may increase in the future. In addition, our existing credit facilities contain, and any future indebtedness may contain, financial and other restrictive covenants that limit our ability to operate our business, raise capital or make payments under our other indebtedness. If we fail to comply with these covenants or to make payments under our indebtedness when due, then we would be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full.
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We conduct a significant amount of our operations through our subsidiaries and may rely on our subsidiaries to make payments under our outstanding indebtedness.
Our ability to pay amounts due on our outstanding indebtedness may depend on the cash flows of our subsidiaries and their ability to make distributions to us. Our subsidiaries, including those we may acquire, are separate and distinct legal entities and any payments to us would depend on the earnings or financial condition of our subsidiaries and various business considerations. Statutory, contractual or other restrictions may also limit our subsidiaries’ ability to pay dividends or make distributions, loans or advances to us, and the 2028 Notes and 2028 Indenture were issued do not limit or restrict our or our subsidiaries’ ability to enter into contractual restrictions on our subsidiaries’ ability to pay dividends or make distributions, loans or advances to us. For these reasons, we may not have access to any assets or cash flows of our subsidiaries to make payments on our outstanding indebtedness.
Recent and future regulatory actions and other events may adversely affect the trading price and liquidity of the 2028 Notes and the liquidity of the market for our common stock.
Noteholders may seek to employ a convertible note arbitrage strategy with respect to the 2028 Notes. Under this strategy, investors typically short sell a certain number of shares of our common stock and adjust their short position over time while they continue to hold the 2028 Notes. Investors may also implement this type of strategy by entering into swaps on our common stock in lieu of, or in addition to, short selling shares of our common stock.
The SEC and other regulatory authorities have implemented various rules and taken certain actions, and may in the future adopt additional rules and take other actions, that may impact those engaging in short selling activity involving equity securities (including our common stock). These rules and actions include Rule 201 of SEC Regulation SHO, the adoption by the Financial Industry Regulatory Authority, Inc., and the national securities exchanges of a “limit up-limit down” program, the imposition of market-wide circuit breakers that halt trading of securities for certain periods following specific market declines, and the implementation of certain regulatory reforms required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Any governmental or regulatory action that restricts investors’ ability to effect short sales of our common stock or enter into equity swaps on our common stock could depress the trading price of, and the liquidity of the market for, the 2028 Notes.
In addition, the liquidity of the market for our common stock may decline, which could reduce the number of shares available for lending in connection with short sale transactions and the number of counterparties willing to enter into an equity swap on our common stock with a note investor. If investors and noteholders seeking to employ a convertible note arbitrage strategy are unable to borrow or enter into equity swaps on our common stock on commercially reasonable terms, then the trading price of, and the liquidity of the market for, the Notes may significantly decline.
The accounting method for the 2028 Notes could adversely affect our reported financial condition and results.
The accounting method for reflecting the shares of our common stock underlying the 2028 Notes in our reported diluted earnings per share and reflecting the 2028 Notes on our balance sheets may adversely affect our reported earnings and financial condition.
In August 2020, the Financial Accounting Standards Board issued authoritative guidance requiring, among other things, that the “if-converted” method be applied for all convertible instruments (the treasury stock method is no longer available) and removes the ability to rebut the presumption of share settlement for contracts that may be settled in cash or stock. We adopted this guidance on January 30, 2022 using the modified retrospective transition method, which allows for a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption and does not require retrospective adjustments to prior periods. Under this accounting guidance, diluted earnings per share will generally be calculated assuming all the 2028 Notes were converted solely into shares of common stock at the beginning of the reporting period, unless the result would be antidilutive. Accordingly, unless the result would be antidilutive, among other impacts, we expect application of the if-converted method will result in an increase of approximately 15.9 million shares in our diluted weighted-average shares of common stock outstanding for the purposes of calculating diluted earnings per share, which will reduce our reported diluted earnings per share in the future.
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Furthermore, if any of the conditions to the convertibility of the 2028 Notes is satisfied, then we may be required under applicable accounting standards to reclassify the liability carrying value of the 2028 Notes as a current, rather than a long-term, liability. This reclassification could be required even if no noteholders convert their 2028 Notes and could materially reduce our reported working capital.
We are subject to counterparty risk with respect to the 2028 Notes’ hedge transactions.
The hedge counterparties are financial institutions, and we are subject to the risk that they might default under the convertible note hedge transactions. Our exposure to the credit risk of the hedge counterparties is not secured by any collateral. Global economic conditions have from time to time resulted in the actual or perceived failure or financial difficulties of many financial institutions. If any hedge counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under our transactions with such hedge counterparty. Our exposure will depend on many factors, but, generally, the increase in our exposure will be correlated to the increase in the market price and in the volatility of our common stock. In addition, upon a default by a hedge counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of the hedge counterparties.
Conversion of the 2028 Notes or exercise of the warrants evidenced by the warrant transactions may dilute the ownership interest of existing stockholders.
At our election, we may settle the 2028 Notes tendered for conversion entirely or partly in shares of our common stock. Furthermore, the warrants evidenced by the warrant transactions are expected to be settled on a net-share basis. As a result, the conversion of some or all of the 2028 Notes or the exercise of some or all of such warrants may dilute the ownership interests of existing stockholders. Any sales in the public market of the common stock issuable upon such conversion of the 2028 Notes or such exercise of the warrants could adversely affect prevailing market prices of our common stock and, in turn, the price of the 2028 Notes. In addition, the existence of the 2028 Notes may encourage short selling by market participants because the conversion of the 2028 Notes could depress the price of our common stock.
Our repurchases of shares of our common stock may affect the value of the 2028 Notes and our common stock.
In March 2024, the Board authorized a new $200 million share repurchase program (the “2024 Share Repurchase Program”). The timing and amount of the repurchases of shares of our common stock, if any, will depend upon several factors, including market and business conditions, the trading price of our common stock, our cost of capital and the nature of other investment opportunities. Repurchases of shares of our common stock may cause or avoid an increase or a decrease in the market price of our common stock or the 2028 Notes and may increase volatility. There can be no assurance that repurchases will be made at the best possible price. Additionally, our share repurchase program could diminish our cash reserves, which may impact our ability to finance future growth and to pursue possible future strategic opportunities and acquisitions. Potential risks and uncertainties also include, but are not necessarily limited to, the amount and timing of future share repurchases and the origin of funds used for such repurchases. The existence of a share repurchase program could also cause the market price of our common stock to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our common stock. Depending on market conditions and other factors, these repurchases may be commenced or from time to time. Any such could cause the market price of our common stock to . Although our share repurchase program is intended to long-term stockholder value, there is no assurance that it will do so, and short-term stock price fluctuations could reduce the program’s effectiveness.
Fluctuations in quarterly performance including retail comparable sales, sales per square foot, operating margins, timing of wholesale orders, royalty net revenue or other factors could have a material adverse effect on our earnings and our stock price.
Our quarterly results of operations for each of our business segments have fluctuated in the past and can be expected to fluctuate in the future. Further, if global growth plans or productivity initiatives fail to meet our expected results, our overhead and other costs could increase without an offsetting increase in sales and net revenue. This could have a material adverse effect on our results of operations and financial condition, including but not limited to future impairments of store assets or goodwill.
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Our net revenue and operating results have historically been lower in the first half of our fiscal year due to general seasonal trends in the apparel and retail industries. Our retail comparable sales, quarterly results of operations and stock price can also be affected by a variety of other factors, including, but not limited to: (i) shifts in consumer tastes and fashion trends; (ii) the timing of new store openings and the relative proportion of new stores to mature stores; (iii) the timing and effectiveness of planned store closures; (iv) calendar shifts of holiday or seasonal periods; (v) the timing of seasonal wholesale shipments; (vi) the effectiveness of our inventory management; (vii) the effectiveness and efficiency of our product distribution network; (viii) changes in our merchandise mix; (ix) changes in our mix of revenues by segment; (x) the timing of promotional events; (xi) actions by competitors; (xii) weather conditions; (xiii) public health crises; (xiv) changes in the business environment; (xv) inflationary changes in prices and costs; (xvi) changes in the payment of future cash dividends; (xvii) changes in currency exchange rates; (xviii) population trends; (xix) changes in patterns of commerce such as the expansion of e-commerce; (xx) the level of pre-operating expenses associated with new stores; and (xxi) volatility in securities’ markets which could impact the value of our investments in non-operating assets.
An unfavorable change in any of the above factors, among others could have a material adverse effect on our results of operations and our stock price.
We cannot ensure we will continue paying periodic dividends at the current rates or any dividends at all.
We cannot ensure we will continue periodic dividends on our common stock at the current rates, or the payment of any dividends at all. Changes in the amount of, and market perceptions and expectations with respect to, our periodic dividend distributions, may materially affect the price of our common stock and the 2028 Notes. In addition, pursuant to the terms of the 2028 Indenture, the increases to our quarterly cash dividend in fiscal 2022 and fiscal 2024 and our extraordinary cash dividend in fiscal 2025, required and will require adjustments to the conversion rate (resulting in an increase in the conversion rate) and the conversion price (resulting in a decrease in the conversion price) of the 2028 Notes in connection with the payment of those dividends. Refer to “Note 11 - Convertible Senior Notes and Related Transactions” of the notes to our consolidated financial statements included in this Annual Report for disclosures about the 2028 Notes.
Any dividends on our common stock will be paid from funds legally available for such purpose when, as and if declared by our Board of Directors. Holders of our equity securities have no contractual or other legal right to receive dividends. Decisions on whether, when and in what amounts to continue making any future dividend distributions are entirely at the discretion of our Board of Directors, which reserves the right, in its sole discretion, to change or terminate our dividend practices at any time and for any reason without prior notice, including without limitation for any of the following reasons: (i) our cash requirements or plans might change for a wide variety of reasons, including changes in our financial position, capital allocation plans (including a desire to retain or accumulate cash), capital spending plans, stock purchase plans, acquisition strategies, strategic initiatives, debt payment plans (including a desire to maintain or improve credit ratings on our debt securities), debt covenant requirements, pension funding or other benefits payments; (ii) our ability to service and refinance our current and future indebtedness and our ability to borrow or raise additional capital to satisfy our capital needs; (iii) the amount of dividends that we may distribute to our shareholders is subject to restrictions under applicable law and restrictions imposed by our existing or future credit facilities, debt securities, then-outstanding preferred stock securities, if any, leases and other agreements, including restricted payment and leverage covenants; and (iv) the amount of cash that our subsidiaries may make available to us, whether by dividends, loans or other payments, may be subject to the legal, regulatory and contractual restrictions in our outstanding indebtedness. For example, during the first and second quarters of fiscal 2021, we ultimately did not pay a quarterly cash dividend in light of the uncertainties related to the COVID-19 pandemic. While we resumed paying a quarterly dividend in the third quarter of fiscal 2021, and increased the value of our quarterly dividend in November 2021 and May 2023, we may again in the future decide to not declare a cash dividend for an extended period of time, or to decrease the value of any cash dividend that we do declare.
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The market price of our common stock may be volatile.
The trading price of our common stock may be volatile. In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include:
• actual or anticipated variations in our quarterly operating results or dividends;
• changes in guidance related to financial performance;
• publication of research reports about us or the retail industry;
• adverse market reaction to any additional debt we incur in the future;
• additions or departures of key management personnel;
• actions by institutional stockholders;
• speculation in the press or investment community;
• the realization of any of the other risk factors presented in this Annual Report;
• the extent of investor interest in our securities;
• investor confidence in the stock market generally;
• changes in tax laws;
• future equity issuances;
• failure to meet guidance related to financial performance; and
• general market and economic conditions, including changes in domestic or foreign policy, such as the imposition of tariffs.
In the past, securities class action litigation has been instituted against companies following periods of volatility in the price of their common stock. This type of litigation could result in substantial costs and divert our management’s attention and resources, which could have an adverse effect on our financial condition, results of operations, cash flow and trading price of our common stock.
Our co-founders own a significant percentage of our common stock. Their respective interests may differ from the interests of our other stockholders.
Our co-founders, Paul Marciano, Chief Creative Officer and Board member, and Maurice Marciano, a former executive officer and Board member of the Company, collectively, beneficially own approximately 38% of our outstanding shares of common stock as of April 4, 2025. In connection with share repurchases by the Company, in April 2023 we entered into voting agreements (as amended in March 2024, the “Voting Agreements”) with each of Maurice Marciano and Paul Marciano pursuant to which they have each agreed to vote a specified portion of their shares of common stock (exceeding 42.75% of their aggregate voting power of shares of our common stock as of the date of the voting agreements) in any stockholder action in accordance with the votes of all of the other stockholders of the Company. The sale or prospect of the sale of a substantial number of the shares beneficially owned by Messrs. Paul or Maurice Marciano could have an adverse impact on the market price of our common stock.
Additionally, in connection with the proposal from WHP Global to acquire all of the outstanding shares of our Common Stock, except for shares held by each of the Proposed Rollover Shareholders, the Special Committee consented, subject to certain restrictions, to the Proposed Rollover Shareholders engaging in discussions among or between themselves or third parties to consider or pursue a Proposed Transaction. Following this consent, on April 2, 2025, the Proposed Rollover Shareholders entered into a Joint Filing Agreement in which they agreed to the joint filing on behalf of each of them of statements on Schedule 13D with respect to the Company’s securities.
These individuals, including each of Maurice Marciano and Paul Marciano on their own behalf or the Proposed Rollover Shareholders’ behalf as a group, may have different interests than our other stockholders or among themselves and, accordingly, they may seek to direct the operations of our business in a manner contrary to the interests of our other stockholders. As long as the Proposed Rollover Shareholders beneficially own and have voting power over a significant percentage of our common stock, if aligned, they may effectively be able to: (i) elect our directors; (ii) amend or prevent amendment of our Restated Certificate of Incorporation or Bylaws; (iii)
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effect or prevent a merger, sale and/or purchase of assets or other corporate transactions; and (iv) control the outcome of any other matter submitted to our stockholders for vote.
Their stock ownership, together with the anti-takeover effects of certain provisions of applicable Delaware law and our Restated Certificate of Incorporation and Bylaws, may discourage acquisition bids or allow the Proposed Rollover Shareholders to delay or prevent a change in control that may be favored by our other stockholders, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our common stock price.
ITEM 1B. Unresolved Staff Comments.
None.
ITEM 1C. Cybersecurity.
Risk Management and Strategy
We have developed and integrated into our overall risk management program an information security program that is designed to address material risks from cybersecurity threats. Our program includes policies and procedures that identify how security measures and controls are developed, implemented and maintained. A cybersecurity risk assessment, based on an internationally recognized methodology, is conducted annually.
The cybersecurity risk assessment process includes three parts: (1) identification of assets such as information, services, software and their dependencies, (2) an assessment of the criticality of the assets based on factors of confidentiality, integrity and availability, and (3) an assessment of other criteria to determine the impact a threat can have on each asset and the likelihood that such a threat occurs. Based on the risk assessment process, risk-based analysis, and using an internationally recognized information security framework as a reference, security controls are chosen.
Specific controls that are used to some extent as part of the information security program include endpoint threat detection and response, privileged access management, logging and monitoring involving the use of security information and event management with monitoring by a security operations center, multi-factor authentication, firewalls and intrusion detection and prevention, vulnerability and patch management, and security awareness training for employees and long-term consultants. Third-party security firms are used in different capacities to provide or operate some of these controls and technology systems, including cloud-based platforms and services. For example, we have used third parties to conduct independent assessments, such as vulnerability scans and penetration testing. We use a variety of processes to address cybersecurity threats related to the use of third-party technology and services , including pre-acquisition diligence, imposition of contractual obligations, and performance monitoring.
We have a written incident response plan that uses a severity classification process to identify incidents to escalate to executive management and determine whether the impact of the incident is material. We also conduct periodic trainings and tabletop exercises to enhance incident response preparedness. We are a member of an industry cybersecurity intelligence and risk sharing organization. Employees undergo initial cyber security awareness training when hired and maintenance cybersecurity awareness training annually.
To date, we do not believe that known risks from cybersecurity threats, including as a result of any previous cybersecurity incidents that we are aware of, have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations or financial condition. However, we can give no assurance that we have detected or protected against all cybersecurity incidents or cybersecurity threats. Please refer to “—Risks Related to Data Privacy and Cybersecurity” in “Item 1A. Risk Factors” of this Annual Report for additional information about the risks we face associated with cybersecurity threats.
Governance
The Chief Information Security Officer (“CISO”) is the management position with primary responsibility for the development, operation, and maintenance of our information security program, which includes cybersecurity. Our CISO has cybersecurity experience that includes being a lead auditor for ISO/IEC 27001 and ISO 22301 with knowledge of both operations and governance. He previously served as Chief Technology Officer for an international managed security service provider, during which time he served as Virtual CISO, Incident
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manager and security auditor for several multinational companies. We have established a Cybersecurity Steering Committee to provide a management-level oversight of cybersecurity. The Cybersecurity Steering Committee reviews the annual risk assessment and provides comments on the overall information security program. Oversight of the information security program at the Board level sits with the Audit Committee . The Audit Committee is informed of cybersecurity-related risks through the CISO providing quarterly updates on the information security program and more frequently as circumstances require.
ITEM 2. Properties.
During fiscal 2025, the Company closed on the sale and leaseback of its U.S. distribution center based in Louisville, Kentucky. As of February 1, 2025, all of our principal facilities were leased with the exception of our administrative office based in Florence, Italy. Certain information concerning our principal facilities as of February 1, 2025 is set forth below:
Location
Use
Approximate
Area in
Square Feet
Lugano (Bioggio)/Stabio, Switzerland
Principal executive and administrative offices, global design, sourcing, marketing and licensing facilities, sales offices and showrooms used by our Europe segment and Corporate support group
Los Angeles, California, United States
Executive and administrative offices, supporting design, sourcing and licensing facilities, sales offices and warehouse facilities used by our Americas Wholesale, Americas Retail, and Corporate support group
Piacenza, Italy
Distribution and warehousing facilities used by our Europe segment
Venlo, Netherlands
Distribution and warehousing facilities used by our Europe segment
Louisville, Kentucky, United States
Distribution and warehousing facility used by our Americas Wholesale and Americas Retail segments
Jasin/Katowice, Poland
Distribution and warehousing facilities and administrative offices used by our Europe segment
Montreal/Toronto/Vancouver, Canada
Administrative offices, showrooms and warehouse facilities used by our Americas Wholesale and Americas Retail segments
Florence, Italy
Administrative office used by our Europe segment
Commerce, California, United States
Distribution and warehousing facilities used by rag & bone
Seoul, South Korea
Administrative and sales offices, design facilities and showrooms primarily used by our Korean subsidiary
New York City, New York, United States
rag & bone corporate office
Shanghai, China
Administrative offices used by our Asia segment
Our U.S. distribution center is a fully automated facility based in Louisville, Kentucky. We have transitioned to a third-party logistics provider to operate our U.S. distribution center as of the second quarter of fiscal 2025. Distribution of our products in Canada is handled primarily from two leased facilities based in Montreal, Quebec. Distribution of our products in Europe is handled by third-party distributors. Additionally, we utilize several third-party operated distribution warehouses that service the Asia region.
In addition to our principal properties, we lease our showrooms, advertising, licensing, sales and merchandising offices, remote distribution and warehousing facilities and retail and factory outlet store locations under non-cancelable operating lease agreements expiring on various dates through August 2044.
We believe our existing facilities are well maintained, in good operating condition and are adequate to support our present level of operations.
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Certain of our properties are owned by entities that are owned by or for the respective benefit of Paul Marciano, our Chief Creative Officer and a member of our Board of Directors, and his brother, Maurice Marciano, who was a member of our Board of Directors until his retirement in September 2023. Please refer to “Note 15 - Related Party Transactions” of the notes to our consolidated financial statements included in this Annual Report for disclosures about our related party transactions and “Item 9B. Other Information―Recent Transactions” for information on our recent amendment to our North American Corporate Headquarters lease.
ITEM 3. Legal Proceedings.
Refer to “Note 16 - Commitments and Contingencies” of the notes to our consolidated financial statements included in this Annual Report for disclosures about our legal and other proceedings.
ITEM 4. Mine Safety Disclosures.
Not applicable.
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market and Shareholder Information
Since August 8, 1996, our common stock has been listed on the New York Stock Exchange under the symbol “GES.” On April 4, 2025, there were 287 holders of record of our common stock.
On April 3, 2025, we announced that our Board of Directors has approved a quarterly cash dividend of $0.30 per share on our common stock. The cash dividend will be payable on May 2, 2025 to shareholders of record as of the close of business on April 16, 2025. Decisions on whether, when and in what amounts to continue making any future dividend distributions will remain at all times entirely at the discretion of our Board of Directors, which reserves the right, in its sole discretion, to change or terminate our dividend practices at any time and for any reason without prior notice. The payment of cash dividends in the future will be based upon a number of business, legal and other considerations, including changes in our financial position, capital allocation plans (including a desire to retain or accumulate cash), capital spending plans, stock purchase plans, acquisition strategies, strategic initiatives, debt payment plans (including a desire to maintain or improve credit ratings on our debt securities), debt covenant requirements, pension funding or other benefits payments.
Share Repurchase Program
Our share repurchases during each fiscal month of the fourth quarter of fiscal 2025 were as follows:
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 1
November 3, 2024 to November 30, 2024
Repurchase program 1
Employee transactions 2
December 1, 2024 to January 4, 2025
Repurchase program 1
Employee transactions 2
January 5, 2025 to February 1, 2025
Repurchase program 1
Employee transactions 2
Total
Repurchase program 1
Employee transactions 2
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1 In March 2024, the Board of Directors authorized a new $200 million share repurchase program. Repurchases 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 and the program may be discontinued at any time, without prior notice.
2 Consists of shares surrendered to, or withheld by, us in satisfaction of employee tax withholding obligations that occur upon vesting of restricted stock awards granted under our 2004 Equity Incentive Plan, as amended.
Performance Graph
The Stock Price Performance Graph below compares our cumulative stockholder return with that of the S&P 500 Index (a broad equity market index) and the S&P 1500 Apparel Retail Index (a published industry index) over the five fiscal years beginning February 1, 2020. The return on investment is calculated based on an investment of $100 at market close on February 1, 2020, with dividends, if any, reinvested. Past performance is not necessarily indicative of future performance.
COMPARISON OF FIVE YEAR TOTAL RETURN
AMONG GUESS?, INC.,
S&P 500 INDEX AND S&P 1500 APPAREL RETAIL INDEX
Period Ended
Company/Market/Peer Group
Guess?, Inc.
S&P 1500 Apparel Retail Index
S&P 500 Index
ITEM 6. [Reserved.]
ITEM 7. 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 Annual Report, we are referring to Guess?, Inc. and its subsidiaries on a consolidated basis.
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Business Update, Market Trends and Uncertainties
Macroeconomic conditions, including declines in consumer spending, inflation, higher interest rates, foreign exchange rate fluctuations and the impacts of the ongoing wars in Ukraine and Gaza are continuing to negatively impact our business.
We continue to carefully monitor global and regional developments and respond appropriately. We also continue to strategically manage expenses in order to protect profitability and mitigate, to the extent possible, the residual effect of supply chain disruptions, including the Red Sea crisis. Additionally, we continue to monitor changes in policy impacting global trade, including tariff regulation. For example, on April 2, 2025, the United States announced a new universal baseline tariff of 10%, plus an additional country-specific tariff for select trading partners, on all U.S. imports. Tariffs have the potential to significantly raise the cost of our products. Additionally, retaliatory tariffs imposed by other countries on U.S. exports could adversely impact demand for our products in international markets. The duration and scope of these conditions cannot be predicted, and therefore, any anticipated negative financial impact to our operating results cannot be reasonably estimated.
Business Segments
Our businesses are grouped into five reportable segments: Europe, Americas Retail, Americas Wholesale, Asia and Licensing. Our Europe, Americas Retail, Americas Wholesale and Licensing reportable segments are the same as their respective operating segments. Certain components of our Asia operating segment are separate operating segments based on region, which have been aggregated into the Asia reportable segment for disclosure purposes. On April 2, 2024, we completed our acquisition of rag & bone and have integrated rag & bone into our existing segments.
We evaluate segment performance based primarily on revenues and earnings (loss) from operations before corporate performance-based compensation costs, asset impairment charges, net gains (losses) on lease modifications, separation charges, transaction costs, restructuring charges, gain on sale of assets and certain non-recurring credits (charges), if any. The Europe segment includes our retail, e-commerce and wholesale operations in Europe and the Middle East. The Americas Retail segment includes our retail and e-commerce operations in the Americas. The Americas Wholesale segment includes our wholesale operations in the Americas. The Asia segment includes our retail, e-commerce and wholesale operations in Asia and the Pacific. The Licensing segment includes the worldwide licensing operations. The business segment operating results exclude corporate overhead costs, which consist of shared costs of the organization, asset impairment charges, net gains (losses) on lease modifications, separation charges, transaction costs, restructuring charges, on sale of assets and certain non-recurring credits (charges), if any. Corporate overhead costs are presented separately and generally include, among other things, the following unallocated corporate costs: accounting and finance, executive compensation, corporate performance-based compensation, facilities, global advertising and marketing, human resources, information technology and legal. We believe this segment reporting reflects how our business segments are managed and how each segment’s performance is evaluated by our chief operating decision maker to assess performance and make resource allocation decisions. Information regarding these segments is summarized in “Note 18 - Segment Information” of the notes to our consolidated financial statements included in this Annual Report.
Products
We derive our net revenue from the sale of GUESS?, G by GUESS (GbG), GUESS Kids, GUESS JEANS, MARCIANO and rag & bone apparel and certain accessories and our licensees’ products through our worldwide network of directly-operated and licensed retail stores, wholesale customers and distributors, as well as our online sites. We also derive royalty revenue from worldwide licensing activities.
rag & bone Acquisition
On April 2, 2024, we and WHP Global completed the previously announced acquisition of New York-based fashion brand rag & bone. Under the terms of the agreement, we contributed $57.1 million toward the purchase of rag & bone, in addition to contributions from WHP Global. As a result, we now own all of the rag & bone operating assets, and we and WHP Global each own 50% of the joint venture that owns the rag & bone intellectual property. As of April 2, 2024, we integrated rag & bone into our existing segments.
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Foreign Currency Volatility
Since the majority of our international operations are conducted in currencies other than the U.S. dollar (primarily the euro, British pound, Canadian dollar, Chinese yuan, Japanese yen, Korean won, Mexican peso, Polish zloty, Russian rouble and Turkish lira), currency fluctuations can have a significant impact on the translation of our international revenues and earnings (loss) into U.S. dollars.
Some of our transactions, primarily those in Europe, Canada, South Korea, China, Hong Kong and Mexico are denominated in U.S. dollars, Swiss francs, British pounds and Russian roubles, exposing them to exchange rate fluctuations when these transactions (such as inventory purchases or periodic lease payments) are converted to their functional currencies. As a result, fluctuations in exchange rates can impact the operating margins of our foreign operations and reported earnings (loss) and are largely dependent on the transaction timing and magnitude during the period that the currency fluctuates. When these foreign exchange rates weaken versus the U.S. dollar at the time the respective U.S. dollar denominated payment is made relative to the payments made in the comparable period, our product margins have been and could continue to be unfavorably impacted.
In addition, there are certain real estate leases denominated in a currency other than the functional currency of the respective entity that entered into the agreement (primarily Swiss francs, Russian roubles and Polish zloty). As a result, we may be exposed to volatility related to unrealized gains or losses on the translation of present value of future lease payment obligations when translated at the exchange rate as of a reporting period-end.
During fiscal 2025, the average U.S. dollar rate was stronger against the euro, Canadian dollar, Chinese yuan, Japanese yen, Korean won, Mexican peso, Russian rouble and Turkish lira and weaker against the British pound and Polish zloty, compared to the average rate in fiscal 2024. Overall, this had an unfavorable impact on the translation of our international revenues and earnings from operations during fiscal 2025 compared to the prior year.
If the U.S. dollar strengthens relative to the respective fiscal 2025 foreign exchange rates, foreign exchange could negatively impact our revenues and operating results, as well as our international cash and other balance sheet items during fiscal 2026, particularly in Europe (primarily with the euro, British pound, Turkish lira and Russian rouble), Canada and Mexico. Alternatively, if the U.S. dollar weakens relative to the respective fiscal 2025 foreign exchange rates, our revenues and operating results, as well as our other cash balance sheet items, could be positively impacted by foreign currency fluctuations during fiscal 2026, particularly in these regions. At roughly prevailing exchange rates, we expect currencies to represent a headwind on revenues for fiscal 2026.
We enter 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 7A. Quantitative and Qualitative Disclosures About Market Risk” of this Annual Report.
Inflation Impacts
Our financial results have been and may continue to be impacted by inflationary pressures affecting our overall cost structure, including transportation, employee compensation, raw materials and other costs. We estimate certain of our costs are impacted by inflation and other factors as follows:
Transportation. Our inbound and outbound transportation costs vary by the method of shipping, including air, ocean and ground. Each of these methods may be impacted by various factors, including inflation and other considerations, such as an imbalance between the overall freight capacity on the marketplace and demand, as well as geopolitical conflicts. Compared to pre-pandemic levels, the increase in our transportation costs was primarily attributable to higher inbound freight costs.
Employee Compensation. We have been impacted by the ongoing shortage of available qualified candidates for employment, as well as increases in compensation to attract and retain employees. We continue to evaluate our compensation and benefit offerings to be competitive with the current market and evaluate strategies to be more effective and efficient at all levels within the organization, including how to best serve our customers.
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Raw Materials. The costs of raw materials for our products have increased, both as a result of inflation and our ongoing initiatives to improve the quality and sustainability of our products. In addition, because a significant portion of our products are manufactured in other countries, declines in the relative value of local currencies versus the U.S. dollar have exacerbated many of these pricing pressures.
We seek to minimize the impact of inflation by continuously optimizing our supply chain, including logistics, as well as efficiently managing our workforce. It is difficult to determine the portion of cost increases solely attributable to inflation versus other factors, such as the cost of improvements to our products and imbalances in the supply chain.
These increased costs have negatively impacted our margins and expenses. Continued inflationary and other pressures could further impact our gross margin and selling, general and administrative expenses as a percentage of net sales if the sales price of our products does not increase with higher costs. Furthermore, prolonged inflationary conditions have had and could continue to have an adverse impact on consumer discretionary spending, which has negatively impacted our sales and results and could continue to negatively impact our sales and results in the future. In addition, inflation could materially increase the interest rates on any future debt we may incur.
We expect inflationary pressures will persist in the near term. The extent to which such pressures may impact our business depends on many factors, including our customers’ ability and willingness to accept price increases, our ability to improve our margins and potential downward pricing pressures if our competitors do not also raise their prices. Please refer to “Part I., Item 1A. Risk Factors” of this Annual Report for further information on the potential impacts and risk associated with inflation.
Russia-Ukraine War
We are currently operating in Russia through our wholesale and retail channels, and we have immaterial wholesale operations through local wholesale partners in Ukraine. Our operations in Russia are operated primarily through Guess? CIS, LLC (“Guess CIS”), a wholly-owned Russian subsidiary. Guess CIS currently operates 45 retail stores in Russia and acts as a distributor for our wholesale partners in Russia. We also operate in Russia through other local wholesale partners where customers can either buy directly in store or online. Prior to February 2022, we also sold directly to retail customers in Ukraine and Belarus through our European online store. The local distributor through which we operate in Ukraine does not operate in the Russian-controlled Crimea, Donetsk, Kherson, Luhansk or Zaporizhzhia regions of Ukraine.
Our operations in Russia, Belarus and Ukraine represented less than 4% of our total revenue for both fiscal 2025 and fiscal 2024, with our operations in Russia comprising over 90% of this total revenue. As of February 1, 2025, our total assets in Russia, all of which are held by Guess CIS, represented slightly less than 2% of our total assets, consisting primarily of leasehold right of use assets, store inventory, furnishings and fixtures, and receivables. We only maintain inventory in Russia in an amount sufficient for operating our Russian retail stores. We do not maintain inventory or hold any other significant assets in Belarus or Ukraine. We do not rely, directly or indirectly, on goods sourced in Russia, Belarus or Ukraine. Other than such labor and services necessary to conduct our direct operations in Russia in the ordinary course of business, we do not rely, directly or indirectly, on services sourced in Russia, Belarus or Ukraine.
There has been no material impact to our existing operations as a result of the ongoing war in Ukraine, although we are limited in our ability to expand our business in Russia due to the U.S. ban on new investments in Russia described below under “―Impact of Economic Sanctions and Trade Restrictions.” With respect to our supply and distribution channels, we have experienced increased costs and transit times associated with deliveries related to our Russia operations, due in part to new procedures and economic sanctions screening implemented in response to the war in Ukraine and the imposition of related economic sanctions. These costs and delays have not materially impacted our business or results of operations. Additionally, retail deliveries for online orders to Ukraine and Belarus have been suspended since February 2022 due to increased logistics costs and other difficulties in delivering to these regions. While we intend to re-open online orders to Ukraine and Belarus when appropriate, the suspension of these shipments has not had, and is not anticipated to have, a material impact on our business or results of operations. Our wholesale partner in Ukraine partially suspended its operations at the outset
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of the war; however, sales were re-opened in July 2022, and our business and results of operations were not materially impacted.
Impact of Economic Sanctions and Trade Restrictions
Our Russian operations are subject to various economic sanctions and export controls targeting Russia, Belarus, and the Russian-controlled regions of Ukraine (Crimea, Donetsk, Kherson, Luhansk and Zaporizhzhia). These measures may include: (i) blocking sanctions prohibiting dealings with various Russian senior government officials, and companies in various sectors important to the Russian economy, including major Russian financial institutions; (ii) expanded sectoral sanctions related to designated Russian entities’ ability to raise capital; (iii) the disconnection of certain Russian and Belarusian banks from the SWIFT financial messaging network; (iv) a ban on new investment in Russia; (v) a ban on the provision of certain services in Russia in the areas of accounting, trust formation, management consulting , quantum computing, architecture, engineering and in relation to the maritime transport of Russian-origin crude oil and petroleum products; (vi) bans on the import into the United States of certain Russian origin products, including various energy products; (vii) bans or certain other restrictions on the conduct of business or investment activity in the Russian-controlled Crimea, Donetsk, Kherson, Luhansk and Zaporizhzhia regions of Ukraine; and (viii) restrictions on the export of various products to Russia and Belarus, including certain dual-use industrial and commercial products, and luxury goods. Additionally, certain logistics operators have imposed bans on direct air deliveries to Russia and restrictions on land deliveries to and from Russia, Belarus and Ukraine, none of which have had a material impact on our operations to date. We assessed the applicability of these economic sanctions and trade restrictions based on internal assessments of relevant regulations and concluded our existing operations in Russia and Belarus have not been materially affected by these economic sanctions and trade restrictions, although we are limited from further expansion of our business in Russia. All of our deliveries (both wholesale and retail) undergo economic sanctions screening, including screening for maximum product value of $300 and €300 per item and of shipments to sanctioned final recipients.
Our assessment of the impact of the various sanctions and export control measures targeting Russia, Belarus and the Russian-controlled regions of Ukraine is subject to the following uncertainties and assumptions:
• The duration and extent of the war in Ukraine;
• The impact of economic sanctions and trade restrictions targeting Russia and Belarus, and the possibility that such economic sanctions or trade restrictions may be expanded, or new economic sanctions or trade restrictions may be imposed;
• The possibility of significant exchange rate volatility related to the Russian rouble;
• Potential disruptions of normal cash flow resulting from the removal of Russian and Belarusian banks from the SWIFT financial messaging network and regulations of the Russian and Belarusian governments;
• Disruptions of transport access to and from Russia, Belarus or Ukraine; and
• The suspension of our online retail shipments to Belarus and Ukraine.
We continue to assess all of our operations in Russia to ensure compliance with applicable economic sanctions, including most notably the U.S. ban on new investment in Russia.
See “Item 1A. Risk Factors— Our business may also be affected by existing or future economic sanctions and export controls targeting Russia and other responses to Russia's invasion of Ukraine” of this Annual Report for additional information.
We are actively monitoring the situation in Ukraine. While the extent to which our future operations in Russia, Belarus and Ukraine will be impacted by the ongoing war is impossible to predict, the impact is not expected to be material to our results of operations, financial condition or cash flows.
Strategy
Our strategic vision and implementation plan for execution includes several key priorities to drive revenue and operating profit growth. These priorities are: (i) organization and talent; (ii) growth; (iii) brand relevancy; (iv) customer centricity and digital expansion; (v) product excellence; and (vi) optimization, efficiency, profitability and return on invested capital; each as further described below:
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Organization and Talent. We plan to have a best-in-class team of highly engaged and strongly committed individuals capable to lead and take our Company to the next level of growth and value creation.
Growth. We intend to leverage our infrastructure and capabilities, as well as the strength of our brands, to drive revenue growth. We will focus on increasing the productivity of our existing network, growing organically in existing and new markets, pursuing brand extensions and category expansions and considering opportunities that leverage our global infrastructure and network of licensees and wholesale partners.
Brand Relevancy. We continue to optimize our core brand architecture to be relevant with our three target consumer groups: Heritage, Millennials and Generation Z. We have developed and launched one global line of product for all 25 categories we represent. We seek to elevate our Guess and Marciano brands and improve the quality and sustainability of our products, allowing us to realize more full-priced sales and rely less on promotional activity. We continue to use unique go-to-market strategies and execute celebrity and influencer partnerships and collaborations as we believe that they are critical to engage more effectively with a younger and broader audience. The addition of rag & bone to our brand portfolio will allow us to reach a very attractive customer base that is complimentary to that of our Guess and Marciano brands.
Customer Centricity and Digital Expansion. We continue to place the customer at the center of everything we do. We plan to implement processes and the necessary tools and platforms to provide our customers with a seamless omni-channel experience and expand our digital business.
Product Excellence. We believe product is a key factor for success in our business. We strive to design and make great products and will extend our product offering to provide our customers with products that support the different occasions of their lifestyles. We will seek to better address local product needs.
Optimization, Efficiency, Profitability and Return on Invested Capital. We intend to operate at the highest level of efficiency and effectiveness. We plan to invest in our infrastructure and leverage technology and data analytics to improve our operations and decision making. We will always seek high margin, profitable businesses, free cash flow generation and high return on invested capital. We will also seek to improve profitability through business and portfolio optimization.
Capital Allocation
We plan to continue to prioritize capital allocation toward investments that support growth and infrastructure, while remaining highly disciplined in the way we allocate capital across projects, including new store development, store remodels, technology and logistics investments and others. When we prioritize investments, we will focus on their strategic significance and their return on invested capital expectations. We also plan to manage product buys and inventory ownership rigorously and optimize overall working capital management consistently. In addition, we plan to continue to return value to shareholders through dividends and share repurchases, as appropriate, and we will consider opportunistic strategic acquisitions of brands and businesses that leverage our global infrastructure and network of licensees and wholesale partners.
In April 2023, we issued $275 million aggregate principal amount of convertible senior notes due 2028 (the “Initial 2028 Notes”) and retired approximately $184.9 million aggregate principal amount of the 2.00% senior convertible notes due 2024 (the “2024 Notes”) in a private offering. During the first quarter of fiscal 2024, in connection with the April 2023 exchange and subscription offering related to the 2024 Notes and the Initial 2028 Notes, we repurchased approximately 2.2 million shares of our common stock for $42.8 million, including excise tax, through broker-assisted market transactions, pursuant to our 2021 Share Repurchase Program (as defined below).
In January 2024, we issued $64.8 million principal amount of convertible senior notes due 2028 (the “January Additional 2028 Notes”) in privately negotiated exchange and subscription agreements with a limited number of holders of our 2024 Notes. As part of these January 2024 transactions, we exchanged approximately $67.1 million of our 2024 Notes for approximately $64.8 million of the January Additional 2028 Notes. In addition, we concurrently repurchased approximately 0.9 million shares of our common stock for $21.3 million, including excise tax, through broker-assisted market transactions, pursuant to our 2021 Share Repurchase Program.
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In March 2024, we issued $12.1 million principal amount of convertible senior notes due 2028 (the “March Additional 2028 Notes,” together with the “January Additional 2028 Notes,” the “Additional 2028 Notes”; collectively with the “Initial 2028 Notes,” the “2028 Notes”) in a privately negotiated exchange and subscription agreement with a holder of our 2024 Notes. As part of this March 2024 transaction, we exchanged approximately $14.6 million of our 2024 Notes for approximately $12.1 million of the March Additional 2028 Notes. In addition, we concurrently repurchased approximately 0.3 million shares of our common stock for $10.3 million through broker-assisted market transactions, pursuant to our 2024 Share Repurchase Program (as defined below). Immediately following the closing of this transaction, approximately $33.5 million of the 2024 Notes remained outstanding, which were settled upon maturity during April 2024. We also repurchased shares of our common stock in open market transactions totaling $50.5 million, including excise tax, during fiscal 2025.
Retail Comparable Sales
We report National Retail Federation calendar retail comparable sales on a quarterly basis for our retail businesses which include the combined results from our brick-and-mortar retail stores and our e-commerce sites. We also separately report the impact of e-commerce sales on our retail comparable sales metric. As a result of our omni-channel strategy, our e-commerce business has become strongly intertwined with our brick-and-mortar retail store business. Therefore, we believe that the inclusion of e-commerce sales in our retail comparable sales metric provides a more meaningful representation of our retail results.
Sales from our brick-and-mortar retail stores include purchases that are initiated, paid for and fulfilled at our retail stores and directly-operated concessions as well as merchandise that is reserved online but paid for and picked up at our retail stores. Sales from our e-commerce sites include purchases that are initiated and paid for online and shipped from either our distribution centers or our retail stores as well as purchases that are initiated in a retail store, but due to inventory availability at the retail store, are ordered and paid for online and shipped from our distribution centers or picked up from a different retail store.
Store sales are considered comparable after the store has been open for 13 full fiscal months of direct operations. 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 fiscal months. Stores that are permanently closed or temporarily closed for more than seven days in any fiscal month are excluded from the calculation in the fiscal month that they are closed. E-commerce sales are considered comparable after the online site has been operational in a country for 13 full fiscal months and exclude any related revenue from shipping fees. These criteria are consistent with the metric used by management for internal reporting and analysis to measure performance of the store or online sites. Definitions and calculations of retail comparable sales used by us may differ from similarly titled measures reported by other companies.
Executive Summary
Overview
Net earnings attributable to Guess?, Inc. decreased 69.5% to $60 million, or diluted earnings per share (“EPS”) of $0.77, for fiscal 2025, compared to $198 million, or diluted EPS of $3.09, for fiscal 2024.
During fiscal 2025, we recognized a net loss of $61 million on the fair value remeasurement of derivatives; $7 million in separation charges; $7 million in asset impairment charges; $6 million in transaction costs; $3 million of amortization of debt discount related to our 2028 Notes; $2 million loss on extinguishment of debt; $1 million for certain professional service and legal fees and related (credits) costs; $25 million for certain discrete income tax adjustments; $15 million gain on the sale of our U.S. distribution center and settlement of related interest rate swap; and $1 million in net gains on lease modifications (a combined $44 million negative impact after considering the related income tax benefit of $2 million of these adjustments, or a $1.19 per share negative impact after also adjusting for the dilutive impact of the 2028 Notes under the if-converted method, based on the bond hedge contracts in place). Excluding the impact of these items, adjusted net earnings attributable to Guess?, Inc. was $105 million and adjusted diluted EPS was $1.96 for fiscal 2025. References to financial results excluding the impact of these items are non-GAAP measures and are addressed below under “—Non-GAAP Measures.”
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Highlights of our performance for fiscal 2025 compared to the prior year are presented below, followed by a more comprehensive discussion under “Results of Operations” (references to constant currency results are non-GAAP measures and are addressed under “—Non-GAAP Measures.”):
Operations
• Total net revenue increased 7.9% to $3.0 billion for fiscal 2025, compared to $2.8 billion in the prior year. In constant currency, net revenue increased by 10.5%.
• Gross margin (gross profit as a percentage of total net revenue) decreased 60 basis points to 43.4% for fiscal 2025, compared to 44.0% in the prior year.
• Selling, general and administrative (“SG&A”) expenses as a percentage of total net revenue (“SG&A rate”) increased 350 basis points to 37.9% for fiscal 2025, compared to 34.4% in the prior year. SG&A expenses increased 18.9% to $1.1 billion for fiscal 2025, compared to $954 million in the prior year.
• We recognized asset impairment charges of $7 million for each of fiscal 2025 and fiscal 2024.
• During fiscal 2025, we recognized net gains on lease modifications of $1 million, compared to $2 million in the prior year.
• Oper ating margin decreased 370 basis points to 5.8% for fiscal 2025, compared to 9.5% in the prior year. The decrease in operating margin was driven primarily by 400 basis points due to higher expenses, including a net positive impact from the settlement of a previously-disclosed stockholder derivative lawsuit recognized in the prior year, separation charges, transaction costs, and higher store and advertising costs, 70 basis points from the impact of newly acquired businesses and a 30 basis point unfavorable currency impact, partially offset by 70 basis points of higher revenues, 60 basis points from higher initial markups and 50 basis points from the gain on sale of assets. Earnings from operations was $174 million for fiscal 2025, compared to $263 million in the prior year.
• Other expense, net (including interest income and expense and loss on extinguishment of debt) totaled $93 million for fiscal 2025, compared to $27 million in the prior year.
• The effective income tax rate was 12.0% for fiscal 2025, compared to 10.8% in the prior year. The change in income tax rate was primarily due to our write off of the long-term transition tax liability reserve on the deemed repatriation of foreign earnings and the related accrued interest as a result of the 2017 Tax Cuts and Jobs Act (the “Tax Reform”) in the United States resulting in the recognition of an income tax benefit of $25 million during fiscal 2025, partially offset by a benefit recognized during fiscal 2024 related to the consolidation of certain business functions into Switzerland and, to a lesser extent, adjustments from an intra-entity transfer of intellectual property rights from certain U.S. entities to a wholly-owned Swiss subsidiary during fiscal 2024.
Key Balance Sheet Accounts
• We had $187.7 million in cash and cash equivalents and $0.8 million in restricted cash as of February 1, 2025, compared to $360.3 million in cash and cash equivalents at February 3, 2024.
◦ We had $2.5 million in outstanding borrowings under our term loans as of February 1, 2025, compared to $12.1 million as of February 3, 2024, and $170.3 million in outstanding borrowings under our credit facilities as of February 1, 2025, compared to $21.7 million as of February 3, 2024.
◦ In March 2024, we issued approximately $12.1 million principal amount of the March Additional 2028 Notes in exchange for approximately $14.6 million of our then-existing 2024 Notes. Immediately following the closing of this transaction, approximately $33.5 million of the 2024 Notes remained outstanding, which were settled upon maturity during April 2024 for $33.3 million in cash and 122,313 shares of common stock.
◦ During fiscal 2025, in connection with the exchange and subscription offerings related to the 2024 Notes and the 2028 Notes in March 2024, we repurchased approximately 2.6
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million shares of our common stock for $60.8 million, including excise tax, through broker-assisted market transactions.
◦ Dividends paid to shareholders during fiscal 2025, which included a special dividend of $2.25 per share on our common stock, were $184.6 million.
◦ In April 2024, we and WHP Global completed the previously announced acquisition of New York-based fashion brand rag & bone. Under the terms of the agreement, we contributed $57.1 million toward the purchase of rag & bone, in addition to contributions from WHP Global. As a result, we now own all of the rag & bone operating assets, and we and WHP Global jointly own the rag & bone intellectual property.
• Inventory increased by $96.4 million, or 20.7%, to $562.6 million as of February 1, 2025, from $466.3 million at February 3, 2024. On a constant currency basis, inventory increased by $123.5 million, or 26.5%. The increase was mainly driven by our rag & bone acquisition as well as the impact of the acceleration of inventory receipts to mitigate the impact of the Red Sea crisis.
• Accounts receivable consists of trade receivables relating primarily to our wholesale business in Europe and, to a lesser extent, to our wholesale businesses in the Americas and Asia, royalty receivables relating to our licensing operations, credit card and retail concession receivables related to our retail businesses and certain other receivables. Accounts receivable increased by $76.4 million, or 24.3%, to $391.2 million as of February 1, 2025, compared to $314.8 million at February 3, 2024. On a constant currency basis, accounts receivable increased by $96.4 million, or 30.6%. The increase was driven by higher wholesale shipments in Europe and the United States as well as our rag & bone acquisition.
Global Store Count
In fiscal 2025, together with our partners, we opened 101 new stores worldwide, consisting of 55 stores in Europe and the Middle East, 28 stores in Asia and the Pacific, nine stores in the United States, two stores in Canada and seven stores in Central and South America (excluding the stores acquired as a result of the rag & bone acquisition). Together with our partners, we closed 93 stores worldwide, consisting of 44 stores in Europe and the Middle East, 35 stores in Asia and the Pacific, nine stores in the United States, two stores in Canada and three stores in Central and South America. As a result of our acquisition of the operating assets of rag & bone during the first quarter of fiscal 2025, we acquired 36 stores, consisting of 34 stores in the United States and two stores in Europe.
We ended fiscal 2025 with 1,597 stores and 318 concessions worldwide, comprised as follows:
Stores
Concessions
Region
Total
Directly
Operated
Partner Operated
Total
Directly
Operated
Partner Operated
United States
Canada
Central and South America
Total Americas
Europe and the Middle East
Asia and the Pacific
Total
Of the total 1,597 stores, 1,284 were GUESS? stores, 184 were GUESS? Accessories stores, 63 were G by GUESS (GbG) stores, 39 were rag & bone stores, 21 were MARCIANO stores, five were GUESS JEANS and one was a Babylon store.
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Results of Operations
Fiscal 2025 Compared to Fiscal 2024
Consolidated Results
The following presents our condensed consolidated statements of income (in thousands, except per share data):
Fiscal 2025
Fiscal 2024
$ change
% change
Net revenue
Cost of product sales
Gross profit
SG&A expenses
Asset impairment charges
Net gains on lease modifications
Gain on sale of assets
Loss on equity method investment
Earnings from operations
Interest expense, net
Loss on extinguishment of debt
Other expense, net
Earnings before income tax expense
Income tax expense
Net earnings
Net earnings attributable to noncontrolling interests
Net earnings attributable to Guess?, Inc.
Net earnings per common share attributable to common stockholders:
Basic
Diluted
Effective income tax rate
Net Revenue . Net revenue increased by $219 million or 8%, compared to fiscal 2024. Currency translation fluctuations relating to our non-U.S. operations unfavorably impacted net revenue by $72 million compared to the prior year. In constant currency, net revenue increased by 10%. The increase in constant currency net revenue was driven by $244 million due to the impact of newly acquired businesses, $106 million due to higher wholesale shipments, $11 million of higher royalties, $10 million due to the impact of net new store openings and $7 million of higher e-commerce revenues, partially offset by $46 million of impact for each of the negative comparable store sales and the impact of the additional week in the prior year.
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Gross Margin. Gross margin decreased 0.6% for fiscal 2025, compared to fiscal 2024 . The de crease in gross margin was driven mainly by 70 basis points due to higher store occupancy costs and 30 basis points from the impact of newly acquired businesses, partially offset by 60 basis points of higher initial markups.
Gross Profit. Gross profit increased by $78 million, or 6%, for fiscal 2025 compared to fiscal 2024 . The in crease in gross profit was driven by $97 million from newly acquired businesses, $42 million from higher revenues and $17 million from higher initial markups, partially offset by $30 million due to the unfavorable impact of currency, including $32 million of unfavorable currency translational impact, $22 million due to the impact of the additional week in the prior year and $21 million of higher store occupancy costs.
Distribution costs, including labor, inbound freight charges, purchasing costs and related overhead, related to supplying inventory to store locations within our retail business are included in cost of product sales. We also include net royalties received on our inventory purchases of licensed product as a reduction to cost of product sales. We generally exclude wholesale-related distribution costs from gross margin, including them instead in SG&A expenses. Additionally, we include retail store occupancy costs in cost of product sales. As a result, our gross margin may not be comparable to that of other entities. To ensure expenses are separated appropriately, we track activities at each distribution center location and record the costs associated with our shipments of goods either as cost of sales or as SG&A expenses, accordingly.
SG&A Rate. Our SG&A rate increased 3.5% for fiscal 2025, compared to fiscal 2024. The unfavorable change in SG&A rate was driven mainly by 360 basis points due to higher expenses, including a net positive impact from the settlement of a previously-disclosed stockholder derivative lawsuit recognized in the prior year, separation charges, transaction costs, higher store and advertising costs, 40 basis points from the impact of newly acquired businesses and 30 basis points of unfavorable currency impact, partially offset by 60 basis points from higher revenues.
SG&A Expenses. S G&A expenses increased by $181 million, or 19%, for fiscal 2025, compared to fiscal 2024. The increase in SG&A expenses was driven mainly by $94 million from the impact of newly acquired businesses, $110 million of higher expenses, including a net positive impact from the settlement of a previously-disclosed stockholder derivative lawsuit recognized in the prior year, separation charges, transaction costs, higher store and advertising costs, and $13 million due to higher revenues, partially offset by $12 million due to the impact of the additional week in the prior year . Currency translation fluctuations relating to our foreign operations favorably impacted SG&A expenses by $16 million.
Asset Impairment Charges. During each of fiscal 2025 and fiscal 2024, we recognized $7 million of asset impairment charges related primarily to impairment of property and equipment related to certain retail locations resulting from under-performance and expected store closures. Currency translation fluctuations relating to our foreign operations favorably impacted asset impairment charges by $0.1 million during fiscal 2025.
Net Gains on Lease Modifications. During fiscal 2025 and fiscal 2024, we recorded net gains on lease modifications of $1 million and $2 million , respectively, related primarily to the early termination of lease agreements for certain retail locations.
Gain on Sale of Assets. There was a $14 million gain on the sale of assets resulting from the sale and leaseback of our U.S. distribution center during fiscal 2025.
Operating Margin. Operating margin decreased 3.7% to 5.8% for fiscal 2025, compared to 9.5% in fiscal 2024. The decrease in operating margin was driven primarily by 400 basis points due to higher expenses, including a net positive impact from the settlement of a previously-disclosed stockholder derivative lawsuit recognized in the prior year, separation charges, transaction costs, and higher store and advertising costs, 70 basis points from the impact of newly acquired businesses and a 30 basis point unfavorable currency impact, partially offset by 70 basis points of higher revenues, 60 basis points from higher initial markups and 50 basis points from the gain on sale of assets.
Earnings from Operations. As a result of the foregoing, earnings from operations were $174 million for fiscal 2025, compared to $263 million in fiscal 2024. Currency fluctuations relating to our foreign operations unfavorably impacted earnings from operations by $16 million .
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Interest Expense, Net . Interest expense, net was $18 million for fiscal 2025, compared to $10 million in fiscal 2024. The increase in interest expense, net was due primarily to a higher weighted average interest rate as well as a higher level of debt, compared to fiscal 2024.
Loss on Extinguishment of Debt. During fiscal 2025, we recorded a loss of $2 million related to the partial extinguishment of our 2024 Notes, compared to a loss of $12 million related to the partial extinguishment of our 2024 Notes during fiscal 2024.
Other Expense, Net. Other expense, net, was $73 million for fiscal 2025, compared to $5 million for fiscal 2024. The change was primarily due to the fair value remeasurement of derivatives related to our 2028 Notes and the related convertible note hedge resulting in a net unrealized loss of $61 million during fiscal 2025, a net gain on sale of other assets in fiscal 2024, and higher net realized losses from foreign currency exposures compared to fiscal 2024, partially offset by higher net realized and unrealized gains on foreign exchange currency contracts compared to fiscal 2024.
Income Tax Expense. Income tax expense for fiscal 2025 was $10 million, or a 12% effective income tax rate, compared to $25 million, or a 10.8% effective income tax rate, in fiscal 2024. The change in income tax rate was primarily due to the write off of the long-term transition tax liability reserve on the deemed repatriation of foreign earnings and the related accrued interest as a result of the Tax Reform resulting in the recognition of an income tax benefit of $25.4 million during fiscal 2025, partially offset by a benefit recognized during fiscal 2024 related to the consolidation of certain business functions into Switzerland and, to a lesser extent, adjustments from an intra-entity transfer of intellectual property rights from certain U.S. entities to a wholly-owned Swiss subsidiary 2024.
Net Earnings Attributable to Noncontrolling Interests. Net earnings attributable to noncontrolling interests for fiscal 2025 was $10 million, net of taxes, compared to $13 million, net of taxes, in fiscal 2024.
Net Earnings Attributable to Guess?, Inc. Net earnings attributable to Guess?, Inc. for fiscal 2025 decreased $138 million, compared to fiscal 2024. Diluted EPS decreased $2.32 for fiscal 2025, compared to fiscal 2024. We estimate a positive impact from share buybacks of $0.03 and a negative impact from currency of $0.23 on diluted EPS for fiscal 2025 when compared to fiscal 2024.
Refer to “—Non-GAAP Measures” for an overview of our non-GAAP, or adjusted, financial results for fiscal 2025 and fiscal 2024. Excluding the impact of the non-GAAP items included in the reconciliation table under “—Non-GAAP Measures,” adjusted net earnings attributable to Guess?, Inc. decreased $70 million and adjusted diluted EPS decreased $1.18 for fiscal 2025 compared to fiscal 2024. We estimate our share buybacks had a positive impact of $0.10 and currency had a negative impact of $0.28 on adjusted diluted EPS during fiscal 2025 when compared to fiscal 2024.
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Information by Business Segment
The following presents our net revenue and earnings from operations by segment (dollars in thousands):
Fiscal 2025
Fiscal 2024
$ change
% change
Net revenue:
Europe
Americas Retail
Americas Wholesale
Asia
Licensing
Total net revenue
Earnings from operations:
Europe
Americas Retail
Americas Wholesale
Asia
Licensing
Reconciliation to total earnings from operations:
Corporate overhead
Asset impairment charges
Net gains on lease modifications
Gain on sale of assets
Total earnings from operations
Operating margins:
Europe
Americas Retail
Americas Wholesale
Asia
Licensing
Total Company
Europe
Net revenue from our Europe segment increased by $54 million for fiscal 2025, compared to fiscal 2024. In constant currency, net revenue increased by 7% compared to fiscal 2024 . The increase was driven mainly by $66 million due to higher wholesale revenue, $32 million from positive retail comparable store sales, $13 million from the impact of newly acquired businesses, $11 million of higher e-commerce revenues and $9 million due to net new store openings, partially offset by $50 million of unfavorable currency translation impact and $30 million due to the impact of the additional week in the prior year . Retail comparable sales (including e-commerce) increased 3% in U.S. dollars and 6% in constant currency compared to the prior year. The inclusion of our e-commerce sales positively impacted the retail comparable sales percentage by 1% in U.S. dollars and a minimal amount in constant currency. Our retail sales in Turkey, a relatively small market, had an outsized impact on our retail comparable sales (including e-commerce), contributing a positive impact of 1% in U.S. dollars and 2% in constant currency, largely due to the current hyper-inflation environment in Turkey. As of February 1, 2025, we directly operated 570 stores in Europe compared to 543 stores at February 3, 2024, excluding concessions, which represents a 5% increase from the prior year.
Operating margin decreased 2.1% for fiscal 2025, compared to fiscal 2024. The decrease in o perating margin was driven primarily by 330 basis points from higher expenses, including advertising and store costs, 40
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basis points of unfavorable currency impact and 30 basis points from the impact of newly acquired businesses, partially offset by 120 basis points due to the favorable impact of higher revenues and 60 basis points from higher initial markups.
Earnings from operations from our Europe segment decreased by $26 million for fiscal 2025, compared to fiscal 2024. The decrease in operating profit was driven mainly by $52 million from higher expenses, including advertising and store costs, $12 million from unfavorable currency impacts, including a $13 million unfavorable translation impact, partially offset by $28 million of higher revenues and $10 million of higher initial markups.
Americas Retail
Net revenue from our Americas Retail segment increased by $42 million for fiscal 2025, compared to fiscal 2024. Currency translation fluctuations relating to our non-U.S. retail stores and e-commerce sites unfavorably impacted net revenue by $9 million. In constant currency, net revenue increased by 7% compared to the prior year. The increase in net revenue in constant currency was driven by $131 million due to our newly acquired businesses, partially offset by $64 million due to negative retail comparable store sales, $8 million due to net store closures, $7 million due to the impact of the additional week in the prior year and $6 million of lower e-commerce revenues . Retail comparable sales (including e-commerce) decreased 12% in U.S. dollars and 11% in constant currency compared to the prior year. The inclusion of our e-commerce sales had a minimal impact on the retail comparable sales percentage in both U.S. dollars and constant currency. As of February 1, 2025, we directly operated 409 stores in the Americas compared to 356 stores at February 3, 2024, excluding concessions, which represents a 15% increase from the prior year.
Operating margin decreased 7.0% for fiscal 2025, compared to fiscal 2024 . The decrease was driven primarily by 410 basis points from the unfavorable impact of negative comparable store sales, 190 basis points from higher expenses, including store costs, and 50 basis points from the impact of newly acquired businesses, partially offset by 100 basis points from initial markups.
Earnings from operations from our Americas Retail segment decreased by $49 million for fiscal 2025, compared to fiscal 2024 . The change was driven primarily by $38 million of lower revenues and $14 million of higher expenses, including higher store costs, partially offset by $8 million of higher initial markups.
Americas Wholesale
Net revenue from our Americas Wholesale segment increased by $126 million for fiscal 2025, compared to fiscal 2024. In constant currency, net revenue increased by 65% compared to the prior year. The increase in net revenues in constant currency was driven by $92 million from the impact of newly acquired businesses and $42 million from higher shipments in the U.S. and, to a lesser extent, Mexico. Currency translation fluctuations relating to our non-U.S. wholesale businesses unfavorably impacted net revenue by $4 million.
Operating margin decreased 7.0% for fiscal 2025, compared to fiscal 2024. The decrease in operating margin was driven mainly by 630 basis points from the impact of newly acquired businesses, 110 basis points of higher expenses and 100 basis points from lower product margin, partially offset by 170 basis points from higher revenues.
Earnings from operations from our Americas Wholesale segment increased by $11 million for fiscal 2025, compared to fiscal 2024. Approximately $16 million of the increase was due to higher shipments and $6 million from the impact of newly acquired businesses, partially offset by $4 million due to higher expenses and $3 million from lower product margin.
Asia
Net revenue from our Asia segment decreased by $14 million for fiscal 2025, compared to fiscal 2024. In constant currency, net revenue decreased by 2% compared to the prio r year. The decrease in net revenue in constant currency was driven by $15 million due to negative retail comparable store sales, $9 million of unfavorable currency translation fluctuations and $6 million due to the impact of the additional week in the prior year , partially offset by $9 million of net new store openings and $8 million from the impact of newly acquired businesses. Retail comparable sales (including e-commerce) decreased 14% in U.S. dollars and 11% in constant
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currency compared to the prior year. The inclusion of our e-commerce sales negatively impacted the retail comparable sales percentage by 1% in both U.S. dollars and constant currency.
Operating margin decrease d 2.1% for fiscal 2025, compared to fiscal 2024. The decrease in operating margin was driven mainly by 240 basis points from higher expenses, including store costs, 150 basis points from negative retail comparable store sales and 60 basis points from lower product margin, partially offset by 230 basis points from net new store openings.
Earnings from operations from our Asia segment decreased by $6 million for fiscal 2025, compared to fiscal 2024 . The decrease was driven mainly by $6 million of higher expenses, $4 million from negative retail comparable store sales and $2 million from lower product margin, partially offset by $6 million of net new store openings. Currency translation fluctuations relating to our Asia operations had a minimal impact on earnings from operations.
Licensing
Net royalty revenue from our Licensing segment increased by $11 million for fiscal 2025, compared to fiscal 2024 , mainly driven by higher royalties in our fragrance, footwear and handbags categories as well as the key money amortization for our handbag license renewal, partially offset by lower royalties in outerwear, following the internalization of that product category.
Earnings from operations from our Licensing segment increased by $10 million for fiscal 2025, compared to fiscal 2024 . The increase was driven b y the favorable impact to earnings from higher revenues.
Corporate Overhead
Unallocated corporate overhead increased by $43 million for fiscal 2025, compared to fiscal 2024, primarily due to $18 million of higher advertising costs, a net $14 million positive impact from the settlement of a previously-disclosed stockholder derivative lawsuit recognized in the prior year, $7 million of separation charges related to the transition of the operation of our U.S. distribution center and $5 million of higher transaction costs in connection with the rag & bone acquisition.
Fiscal 2024 Compared to Fiscal 2023
The comparison of results of operations for fiscal 2024 to fiscal 2023 has been omitted from this Form 10-K, but can be referenced in “Part II., Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Form 10-K for fiscal 2024, filed with the SEC on April 1, 2024.
Non-GAAP Measures
The financial information presented in this Annual Report includes non-GAAP financial measures, such as adjusted net earnings attributable to GUESS?, adjusted diluted net earnings per share attributable to common stockholders and constant currency information. For fiscal 2025 and fiscal 2024, the adjusted results exclude the impact of certain professional service and legal fees and related (credits) costs, transaction costs in connection with our acquisition of rag & bone, separation charges related to the transition of the operations of our U.S. distribution center, gain on the sale of our U.S. distribution center and settlement of the related interest rate swap, asset impairment charges, net gains on lease modifications, loss on extinguishment of debt, non-cash amortization of debt discount of our convertible senior notes, fair value remeasurement of derivatives related to the 2028 Notes and the related convertible note hedge, the related income tax effects of the foregoing items and the impact from certain discrete income tax adjustments related primarily to the write off of the long-term transition tax liability reserve on the deemed repatriation of foreign earnings and the related accrued interest as a result of the Tax Reform, a benefit recognized related to the consolidation of certain business functions into Switzerland and, to a lesser extent, adjustments from an intra-entity transfer of intellectual property rights from certain U.S. entities to a wholly-owned Swiss subsidiary, in each case where applicable. The weighted average diluted shares outstanding used for adjusted diluted EPS also excludes the dilutive impact of the Notes, based on the bond hedge contracts in place. These non-GAAP measures are provided in addition to, and not as an alternative for, our reported GAAP results.
These items affect the comparability of our reported results. The financial results are also presented on a non-GAAP basis, as defined in Section 10(e) of Regulation S-K of the SEC , to exclude the effect of these items.
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We have excluded these items from our adjusted financial measures primarily because we believe these items are not indicative of the underlying performance of our business and the adjusted financial information provided is useful for investors to evaluate the comparability of our operating results and our future outlook (when reviewed in conjunction with our GAAP financial statements).
A reconciliation of reported GAAP results to comparable non-GAAP results follows (in thousands, except per share data):
Fiscal 2025
Fiscal 2024
Reported GAAP net earnings attributable to Guess?, Inc.
Certain professional service and legal fees and related (credits) costs 1
Transaction costs 2
Separation charges 3
Asset impairment charges 4
Net gains on lease modifications 5
Loss on extinguishment of debt 6
Amortization of debt discount 7
Fair value remeasurement of derivatives 8
Gain on sale of assets 9
Discrete income tax adjustments 10
Income tax impact from adjustments 11
Total adjustments affecting net earnings attributable to Guess?, Inc.
Adjusted net earnings attributable to Guess?, Inc.
Net earnings per common share attributable to common stockholders:
GAAP diluted
Certain professional service and legal fees and related (credits) costs 1,12
Transaction costs 2,12
Separation charges 3,12
Asset impairment charges 4,12
Net gains on lease modifications 5,12
Loss on extinguishment of debt 6,12
Amortization of debt discount 7,12
Fair value remeasurement of derivatives 8
Gain on sale of assets 9,12
Discrete income tax adjustments 10
Convertible notes if-converted method 13
Adjusted diluted
Weighted average common shares outstanding attributable to common stockholders:
GAAP diluted
Adjusted diluted 12
1 Adjustments represent certain professional service and legal fees and related (credits) costs which we otherwise would not have incurred as part of our business operations.
2 Adjustments represent transaction costs in connection with the rag & bone acquisition which we otherwise would not have incurred as part of our business operations.
3 Adjustments represent separation charges related to the transition of the operation of our U.S. distribution center, which was formerly owner-operated, to a third-party logistics provider.
4 Adjustments represent asset impairment charges related primarily to impairment of property and equipment related to certain retail locations resulting from under-performance and expected store closures.
5 Adjustments represent net gains on lease modifications related primarily to the early termination of certain lease agreements.
6 Adjustments represent loss on extinguishment of debt from a portion of the exchanged 2024 Notes in April 2023 and March 2024.
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7 In April 2023, January 2024 and March 2024, we issued $275 million, $65 million and $12 million principal amount of 3.75% convertible senior notes due 2028 in private offerings, respectively. The debt discount resulted from: (1) the modification accounting for a portion of the exchanged 2024 Notes in April 2023, and (2) recognized embedded derivative liability for the issuance of Additional 2028 Notes. The debt discount will be amortized as non-cash interest expense over the term of the 2028 Notes.
8 Adjustments represent changes in fair value of the equity-linked derivatives associated with the 2028 Notes.
9 Adjustments represent the gain on the sale of assets related to our U.S. distribution center within earnings from operations and the settlement of the related interest rate swap within other income (expense).
10 Adjustments in fiscal 2025 represent discrete income tax items related primarily to our $19.6 million long-term transition tax liability reserve on the deemed repatriation of foreign earnings recorded during fiscal 2018 as a result of the Tax Reform. During the three months ended February 1, 2025, we wrote off the liability previously recorded and the related accrued interest resulting in the recognition of an income tax benefit of $25.4 million. Adjustments in fiscal 2024 represent discrete income tax items related primarily to a benefit recognized during the third quarter of fiscal 2024 related to the consolidation of certain business functions into Switzerland and, to a lesser extent, adjustments from an intra-entity transfer of intellectual property rights from certain U.S. entities to a wholly-owned Swiss subsidiary.
11 The income tax effect of certain professional service and legal fees and related (credits) costs, transaction costs in connection with the acquisition of rag & bone, separation charges related to the transition of the operation of our U.S. distribution center, asset impairment charges, net gains on lease modifications, loss on extinguishment of debt, amortization of debt discount and gain on sale of assets related to our U.S. distribution center and the settlement of the related interest rate swap was based on our assessment of deductibility using the statutory income tax rate (inclusive of the impact of valuation allowances) of the tax jurisdiction in which the charges were incurred.
12 Adjustments include the related income tax effect based on our assessment of deductibility using the statutory income tax rate (inclusive of the impact of valuation allowances) of the tax jurisdiction in which the charges were incurred.
13 We excluded the dilutive impact of the Notes at stock prices below $40.65 and $37.43 for the 2024 Notes and the 2028 Notes, respectively, based on the bond hedge contracts in place that will deliver shares to offset dilution. At stock prices in excess of $37.43 for the 2028 Notes, we would have an obligation to deliver additional shares in excess of the dilution protection provided by the bond hedges.
Our discussion and analysis herein also includes certain constant currency financial information. Foreign currency exchange rate fluctuations affect the amount reported from translating our 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. We provide 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, retail comparable sales and earnings (loss) from operations on a constant currency basis, operating results for the current-year period are translated into U.S. dollars at the average exchange rates in effect during the comparable period of the prior year. To calculate balance sheet amounts on a constant currency basis, the current year 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 from the functional currency of that entity when exchange rates fluctuate.
In calculating the estimated impact of currency fluctuations (including translational and transactional impacts) on other measures such as earnings (loss) per share, we estimate 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, translate the estimated foreign earnings (loss) at the comparable prior-year rates and consider 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. The constant currency information presented may not be comparable to similarly titled measures reported by other companies.
Liquidity and Capital Resources
We use our liquidity globally primarily to fund our working capital, occupancy costs, interest and principal payments on our debt, remodeling and rationalization of our retail stores, shop-in-shop programs, concessions, systems, infrastructure, compensation expenses, other existing operations, expansion plans, international growth and potential acquisitions and investments. Generally, our working capital needs are highest during the late summer and fall as our inventories increase before the holiday selling period. In addition, in the United States, we need liquidity for payment of dividends to our stockholders and to fund share repurchases, if any.
During fiscal 2025, we relied primarily on trade credit, available cash, real estate and other operating leases, finance leases, proceeds from our credit facilities and term loans and internally generated funds to finance our
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operations. We anticipate we will be able to satisfy our ongoing cash requirements for the foreseeable future, including at least the next 12 months, for working capital, capital expenditures, payments on our debt, finance leases and operating leases, as well as lease modification payments, potential acquisitions and investments, expected income tax payments, dividend payments to stockholders and share repurchases, if any, primarily with cash flow from operations and existing cash balances as supplemented by borrowings under our existing credit facilities and proceeds from our term loans and other indebtedness, as needed.
In May 2022, we entered into a €250 million revolving credit facility through a European subsidiary, which replaced certain European short-term borrowing arrangements. In June 2024, we amended the revolving credit facility to, among other things, expand the borrowing capacity under the credit agreement by €100 million to €350 million. As of February 1, 2025, we had approximately $222.7 million of remaining borrowing capacity on this facility. In December 2022, we entered into an amendment of our senior secured asset-based revolving credit facility, which increased borrowing capacity from $120 million to $150 million and extended the maturity date of the credit facility to December 20, 2027. In March 2024, we amended the senior secured asset-based revolving credit facility to increase the total borrowing capacity under the facility by $50 million to $200 million. As of February 1, 2025, we had approximately $170.6 million of borrowing capacity on this facility. (Such arrangements are described further in “Note 9 - Borrowings and Finance Lease Obligations” of the notes to our consolidated financial statements included in this Annual Report.)
Due to the seasonality of our business and cash needs, we may increase borrowings under our established credit facilities or enter new credit facilities from time-to-time during the next 12 months and beyond. If we experience a sustained decrease in consumer demand, we may require access to additional credit, which may not be available to us on commercially acceptable terms or at all.
In April 2023, we issued $275 million aggregate principal amount of the Initial 2028 Notes in exchange for approximately $184.9 million of our then-existing 2024 Notes in a private offering. In January 2024, we issued $64.8 million principal amount of the January Additional 2028 Notes in exchange for approximately $67.1 million of our then-existing 2024 Notes in a private offering. In March 2024, we issued approximately $12.1 million principal amount of the March Additional 2028 Notes in exchange for approximately $14.6 million of our then-existing 2024 Notes in a private offering. In April 2024, upon maturity of the 2024 Notes, we settled the remaining $33.5 million principal amount of our then-existing 2024 Notes. We expect to settle the principal amount of our 2028 Notes in fiscal 2029 in cash and any excess in shares. Our outstanding 2028 Notes may be converted at the option of the holders as described in “Note 11 - Convertible Senior Notes and Related Transactions” of the notes to our consolidated financial statements included in this Annual Report. As of February 1, 2025, none of the conditions allowing holders of the 2028 Notes to convert had been met. In addition, pursuant to the terms of the 2028 Notes, if our stock trading price exceeds 130% of the conversion price of the 2028 Notes (approximately $22.12 per share as of February 1, 2025) for at least 20 trading days during the 30 consecutive trading-day period ending on, and including, the last trading day of any calendar quarter, holders of the 2028 Notes would have the right to convert their convertible notes during the next calendar quarter.
In accordance with the terms of the indentures governing the 2028 Notes, we are required to adjust the conversion rate and the conversion price of the 2028 Notes for quarterly dividends exceeding $0.225 per share, respectively. In connection with our regular quarterly dividend announced on April 3, 2025, we expect to adjust the conversion price (which is expected to decrease) of the 2028 Notes in accordance with the terms of the indenture governing the 2028 Notes. Corresponding adjustments are expected to be made to the strike prices with respect to the convertible note hedges and the warrants entered into by the Company in connection with the offerings of the 2028 Notes, each of which will be decreased in accordance with the terms of the applicable convertible note hedge confirmations and warrant confirmations. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, in the manner and subject to the terms and conditions provided in the indenture governing the 2028 Notes. The convertible note hedge transaction we entered into in connection with our issuance of the 2028 Notes is expected generally to reduce the potential dilution upon conversion of the 2028 Notes and/or offset any cash payments we are required to make in excess of the principal amount of the 2028 Notes that are converted, as the case may be. (Such arrangements are described further in “Note 11 - Convertible Senior Notes and Related Transactions” of the notes to our consolidated financial statements included in this Annual Report.)
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The OECD has released certain guidelines, including the Base Erosion and Profit Shifting “Pillar 2” guidelines. The OECD Pillar 2 guidelines address the increasing digitalization of the global economy, re-allocating taxing rights among countries. The European Union, many other member states and various other governments have adopted, or are in the process of adopting, Pillar 2, which calls for a global minimum tax of 15% to be effective for tax years beginning in 2024. The OECD guidelines published to date include transition and safe harbor rules around the implementation of the Pillar 2 global minimum tax. We are monitoring developments and evaluating the impacts these new rules will have on our tax rate, including eligibility to qualify for these safe harbor rules.
We had a balance related to the Tax Reform transition tax included in other long-term liabilities of $19.6 million (excluding related interest) as of February 3, 2024. The liability was released during fiscal 2025 due to the expiration of the federal statute of limitation for the assessment of the tax liability. Refer to “Note 13 - Income Taxes” of the notes to our consolidated financial statements included in this Annual Report for further detail.
We have historically considered the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested. As a result of the Tax Reform, we had a substantial amount of previously taxed earnings that could be distributed to the United States without additional U.S. taxation. As of February 1, 2025, we determined that approximately $300.0 million of such foreign earnings are not indefinitely reinvested. The incremental tax cost to repatriate these earnings to the United States is immaterial. We intend to indefinitely reinvest the remaining earnings from our foreign subsidiaries for which a deferred income tax liability has not already been recorded. We continue to evaluate our plans for reinvestment or repatriation of unremitted foreign earnings and regularly review our cash positions and determination of indefinite reinvestment of foreign earnings. If we determine that all or a portion of such foreign earnings are no longer indefinitely reinvested, we may be subject to additional foreign withholding taxes and U.S. state income taxes, beyond the one-time transition tax.
As of February 1, 2025, we had cash and cash equivalents of $187.7 million, of which approximately $36.7 million was held in the United States. Excess cash and cash equivalents, which represent the majority of our outstanding cash and cash equivalents balance, are held primarily in overnight deposit, short-term time deposit accounts and money market accounts. As of February 1, 2025, we had roughly $399 million of available global borrowing capacity, bringing our combined cash, cash equivalents and borrowing capacity to approximately $587 million . Refer to “Part I., Item 1A. Risk Factors” in this Annual Report 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.
Fiscal 2025 Compared to Fiscal 2024
Operating Activities
Net cash provided by operating activities was $121.7 million for fiscal 2025, compared to $330.4 million for fiscal 2024, or a decrease of $208.7 million. The deterioration was driven primarily by unfavorable changes in working capital and lower cash earnings, partially offset by the upfront cash payment received related to a handbag license renewal.
Investing Activities
Net cash used in investing activities was $113.2 million for fiscal 2025, compared to $75.1 million for fiscal 2024. Net cash used in investing activities primarily related to existing store remodeling programs, retail expansion and, to a lesser extent, technology and other infrastructure, as well as investment in business acquisitions, partially offset by the proceeds from the sale of our U.S. distribution center.
The increase in cash used in investing activities was driven primarily by our rag & bone acquisition during fiscal 2025 compared to fiscal 2024. During fiscal 2025, we opened 58 directly-operated stores compared to 30 directly-operated stores that were opened in the prior year.
Financing Activities
Net cash used in financing activities was $165.5 million for fiscal 2025, compared to $168.8 million for fiscal 2024. The improvement of $3.3 million was primarily due to higher net borrowings, partially offset by the
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payment of a special cash dividend, lower proceeds from the exchange of convertible senior notes and related transactions, and repayments of convertible senior notes during fiscal 2025 compared to fiscal 2024.
Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash
Changes in foreign currency translation rates decreased our reported cash, cash equivalents and restricted cash balance by $14.8 million during fiscal 2025 compared to a decrease of $1.9 million during fiscal 2024. Refer to “Foreign Currency Volatility” for further information on fluctuations in exchange rates.
Working Capital
As of February 1, 2025, we had net working capital (including cash and cash equivalents) of $418.0 million, compared to $433.9 million at February 3, 2024. Our primary working capital needs are for payments for inventories, salaries and wages, and the current portion of lease liabilities.
Inventory increased by $96.4 million, or 20.7%, to $562.6 million as of February 1, 2025, from $466.3 million at February 3, 2024. On a constant currency basis, inventory increased by $123.5 million, or 26.5%, when compared to February 3, 2024. The increase was mainly driven by our rag & bone acquisition as well as the impact of the acceleration of inventory receipts to mitigate the impact of the Red Sea crisis.
The accounts receivable balance consists of trade receivables relating primarily to our wholesale business in Europe and, to a lesser extent, to our wholesale businesses in the Americas and Asia, royalty receivables relating to our licensing operations, credit card and retail concession receivables related to our retail businesses and certain other receivables. Accounts receivable increased by $76.4 million, or 24.3%, to $391.2 million as of February 1, 2025, compared to $314.8 million at February 3, 2024. On a constant currency basis, accounts receivable increased by $96.4 million, or 30.6%, when compared to February 3, 2024. As of February 1, 2025, approximately 50% of our total net trade receivables and 62% of our European net trade receivables were subject to credit insurance coverage, certain bank guarantees or letters of credit for collection purposes. Our credit insurance coverage contains certain terms and conditions specifying deductibles and annual claim limits.
Fiscal 2024 Compared to Fiscal 2023
The comparison of cash flows from operations for fiscal 2024 to fiscal 2023 has been omitted from this Form 10-K, but can be referenced in “Part II., Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Form 10-K for fiscal 2024, filed with the SEC on April 1, 2024.
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Material Cash Requirements
The following summarizes our material cash requirements for known contractual and other obligations as of February 1, 2025 and the effects such obligations are expected to have on liquidity and cash flow in future periods (in thousands):
Payments due by period
Total
Less than
1 year
1-3 years
3-5 years
More than
5 years
Contractual Obligations:
Short-term borrowings
Convertible senior notes, net 1,2
Long-term debt, excluding convertible senior notes, net 1
Finance lease obligations 1
Operating lease obligations 1,3
Purchase obligations 4
Benefit obligations 5
Total
Other commercial commitments 6
1 Includes interest payments.
2 In fiscal 2024 and fiscal 2025, we issued the 2028 Notes in private offerings. Refer to “Note 11 - Convertible Senior Notes and Related Transactions” of the notes to our consolidated financial statements included in this Annual Report for further detail.
3 We have elected the practical expedient to not separate non-lease components from lease components in the measurement of liabilities for our directly-operated real estate leases. As such, this amount reflects operating lease costs that are considered in the measurement of the related operating lease liabilities, which may include fixed payments related to rent, insurance, property taxes, sales promotion, common area maintenance and certain utility charges, where applicable. This does not include variable lease costs that are excluded from the measurement of the operating lease liabilities, such as those charges that are based on a percentage of annual sales volume or estimates. In fiscal 2025, these variable charges totaled $109.3 million. Refer to “Note 10 - Lease Accounting” of the notes to our consolidated financial statements included in this Annual Report for further detail.
4 Purchase obligations represent open purchase orders for raw materials and merchandise at the end of the fiscal year. These purchase orders can be impacted by various factors, including the scheduling of market weeks, the timing of issuing orders, the timing of the shipment of orders and currency fluctuations.
5 Includes expected payments associated with the deferred compensation plan and the Supplemental Executive Retirement Plan through fiscal 2055.
6 Consists of standby letters of credit for rent guarantees, workers’ compensation and general liability insurance.
Excluded from the above table of material cash requirements is the noncurrent liability for unrecognized tax benefits, including penalties and interest, of $40.3 million. This liability for unrecognized tax benefits has been excluded because we cannot make a reliable estimate of the period in which the liability will be settled, if ever.
The above table also excludes current liabilities (other than short-term borrowings) as these amounts will be paid within one year and certain long-term liabilities that do not require cash payments.
Off-Balance Sheet Arrangements
Other than certain obligations and commitments included in the table above, we did not have any material off-balance sheet arrangements as of February 1, 2025.
Capital Expenditures
Gross capital expenditures totaled $86.1 million, before deducting lease incentives of $2.8 million, for fiscal 2025. This compares to gross capital expenditures of $74.2 million, before deducting lease incentives of $2.1 million, for fiscal 2024.
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When we prioritize investments, we will focus on their strategic significance and their return on invested capital expectations. We will consider opportunistic strategic acquisitions of brands and businesses that leverage our global infrastructure and network of licensees and wholesale partners. See “―General―rag & bone Acquisition” in this Item 7 above for information about our acquisition of rag & bone.
Dividends
On April 3, 2025, we announced a regular quarterly cash dividend of $0.30 per share on our common stock. The cash dividend will be payable on May 2, 2025 to shareholders of record as of the close of business on April 16, 2025.
Decisions on whether, when and in what amounts to continue making any future dividend distributions will remain at all times entirely at the discretion of our Board of Directors, which reserves the right, in its sole discretion, to change or terminate our dividend practices at any time and for any reason without prior notice. The payment of cash dividends in the future will be based upon a number of business, legal and other considerations, including changes in our financial position, capital allocation plans (including a desire to retain or accumulate cash), capital spending plans, stock purchase plans, acquisition strategies, strategic initiatives, debt payment plans (including a desire to maintain or improve credit ratings on our debt securities), debt covenant requirements, pension funding or other benefits payments.
Share Repurchases
During fiscal 2022, the Board of Directors authorized a program (the “2021 Share Repurchase Program”) to repurchase, from time-to-time and as market and business conditions warrant, up to $200 million of our common stock. During fiscal 2023, the Board of Directors expanded its repurchase authorization by $100 million, leaving a new capacity of $249.0 million at that time. In January 2024, the Board of Directors expanded the repurchase authorization by approximately $1.4 million to cover the repurchases associated with the issuance of the January Additional 2028 Notes. As of February 3, 2024, we had no remaining authority under the 2021 Share Repurchase Program to purchase our common stock. In March 2024, the Board of Directors authorized the 2024 Share Repurchase Program.
During fiscal 2025, we repurchased 2,600,569 shares under the 2024 Share Repurchase Program at an aggregate cost of $60.8 million, including excise tax. During fiscal 2024, we repurchased 3,153,339 shares under the 2021 Share Repurchase Program at an aggregate cost of $64.1 million, including excise tax. During fiscal 2023, we repurchased 8,985,603 shares under the 2021 Share Repurchase Program at an aggregate cost of $186.7 million, which is inclusive of the shares repurchased under the 2022 accelerated share repurchase agreement. As of February 1, 2025, we had remaining authority under the 2024 Share Repurchase Program to purchase $139.8 million of our 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.
Borrowings and Finance Lease Obligations and Convertible Senior Notes
In April 2023, we issued $275 million aggregate principal amount of Initial 2028 Notes and retired approximately $184.9 million aggregate principal of 2024 Notes in a private offering. In January 2024, we issued $64.8 million principal amount of January Additional 2028 Notes in exchange for approximately $67.1 million of 2024 Notes in a private offering. In March 2024, we issued $12.1 million principal amount of March Additional 2028 Notes in exchange for approximately $14.6 million of 2024 Notes in a private offering. Immediately following the closing of the March 2024 transaction, approximately $33.5 million in aggregate principal amount of the 2024 Notes remained outstanding, which were settled in April 2024 upon maturity of the 2024 Notes.
Refer to “Note 11 - Convertible Senior Notes and Related Transactions” of the notes to our consolidated financial statements in this Annual Report for disclosures about our Notes and related transactions.
In addition, refer to “Note 9 - Borrowings and Finance Lease Obligations” of the notes to our consolidated financial statements included in this Annual Report for disclosures about our borrowings and finance lease obligations.
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Supplemental Executive Retirement Plan
On August 23, 2005, our Board of Directors 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 us, in certain prescribed circumstances.
As a non-qualified pension plan, no dedicated funding of the SERP is required; however, we have 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 $63.8 million and $63.4 million as of February 1, 2025 and February 3, 2024, respectively, and were included in other assets in our consolidated balance sheets. As a result of changes in the value of the insurance policy investments, we recorded unrealized gains (losses) of $2.2 million, $1.1 million and $(5.7) million in other income (expense) during fiscal 2025, fiscal 2024 and fiscal 2023, respectively. The projected benefit obligation was $33.8 million and $37.7 million as of February 1, 2025 and February 3, 2024, respectively, and was included in accrued expenses and other long-term liabilities in our consolidated balance sheets depending on the expected timing of payments. SERP benefit payments of $1.9 million and $2.1 million were made during fiscal 2025 and fiscal 2024, respectively.
Employee Stock Purchase Plan
Our qualified employee stock purchase plan (“ESPP”) allows qualified employees (as defined in the ESPP) to participate in the purchase of designated shares of our common stock at a price equal to 85% of the lower of the closing price at the beginning or end of each quarterly stock purchase period. We have 4,000,000 shares of common stock registered under the ESPP. During fiscal 2025, 39,161 shares of our common stock were issued pursuant to the ESPP at an average price of $13.39 per share for a total of $0.5 million.
Critical Accounting Policies and Estimates
The Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States, which require management to make estimates and assumptions that affect the reported amounts of the assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates and judgments on its historical experience, an evaluation of current market trends as of the reporting date and other relevant factors, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management evaluates its estimates and judgments on an ongoing basis including those related to the allowances for doubtful accounts, sales return and markdown allowances, valuation of inventories, share-based compensation, income taxes, recoverability of deferred income taxes, unrecognized income tax benefits, the useful life of assets for depreciation and amortization, evaluation of asset impairment (including goodwill and long-lived assets, such as property and equipment and operating lease right-of-use (“ROU”) assets), pension obligations, workers’ compensation and medical self-insurance expense and accruals, derivative valuation, litigation reserves, restructuring expense and accruals, convertible senior notes and accounting for business combinations.
We believe that the following significant accounting policies involve a higher degree of judgment and complexity. In addition to the accounting policies mentioned below, refer to “Note 1 - Description of the Business and Summary of Significant Accounting Policies and Practices” of the notes to our consolidated financial statements included in this Annual Report for other significant accounting policies.
Allowances for Doubtful Accounts
In the normal course of business, we grant credit directly to certain wholesale customers after a credit analysis is performed based on financial and other criteria. Accounts receivable are recorded net of an allowance for doubtful accounts. We maintain allowances for doubtful accounts for estimated losses that result from the inability of our wholesale customers to make their required payments. We base our allowances on analysis of the aging of accounts receivable at the date of the financial statements, assessments of historical and current collection trends, an evaluation of the impact of current economic conditions and whether we obtained credit insurance or
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other guarantees which are not considered freestanding against the related account receivable balances. Management performs regular evaluations concerning the ability of its customers to make required payments and records a provision for doubtful accounts based on these evaluations.
Sales Return Allowances
We accrue for estimated sales returns in the period in which the related revenue is recognized. To recognize the financial impact of sales returns, we estimate the amount of goods that will be returned based on historical experience and current trends and reduce sales and cost of sales accordingly. Our policy allows retail customers in certain regions a grace period to return merchandise following the date of sale. Substantially all of these returns are considered to be resalable at a price that exceeds the cost of the merchandise. We include the allowance for sales returns in accrued expenses and the estimated cost associated with such sales returns within other current assets in our consolidated balance sheets.
Markdown Allowances
Costs associated with customer markdowns are recorded as a reduction to revenues and any amounts unapplied to existing receivables are included in accrued expenses. Historically, these markdown allowances resulted from seasonal negotiations with our wholesale customers, as well as historical trends and the evaluation of the impact of current economic conditions.
Inventory Reserves
Inventories are valued at the lower of cost (primarily weighted average method) or net realizable value. We continually evaluate our inventories by assessing slow moving product as well as prior seasons’ inventory. Net realizable value of aged inventory is estimated based on historical sales trends for each product line category, the impact of market trends, an evaluation of economic conditions, available liquidation channels and the value of current orders relating to the future sales of this type of inventory. We closely monitor off-price sales to ensure the actual results closely match initial estimates. Estimates are regularly updated based upon this continuing review.
Share-Based Compensation
We recognize compensation expense for all share-based awards granted based on the grant date fair value. The fair value of each stock option is estimated on the grant date using the Black-Scholes option-pricing model and involves several assumptions, including the risk-free interest rate, expected volatility, dividend yield and expected life. The risk-free interest rate is based on the U.S. Treasury yield curve in effect for the expected term of the option at the time of grant. The expected stock price volatility is determined based on an average of both historical volatility and implied volatility. Implied volatility is derived from exchange traded options on our common stock. The expected dividend yield is based on our history and expectations of dividend payouts. The expected life is determined based on historical trends. Compensation expense for nonvested stock options and stock awards/units that are not subject to performance-based vesting conditions is recognized on a straight-line basis over the vesting period. We have elected to account for forfeitures as they occur.
In addition, we have granted certain nonvested units that require certain minimum performance targets to be achieved in order for these awards to vest. Vesting is also subject to continued service requirements through the vesting date. Compensation expense for performance-based awards that vest in increments is recognized based on an accelerated attribution method. If the minimum performance targets are not forecasted to be achieved, no expense is recognized during the period.
We have also granted certain nonvested stock units which are subject to market-based performance targets in order for these units to vest. Vesting is also subject to continued service requirements through the vesting date. The grant date fair value for such nonvested stock units was estimated using a Monte Carlo simulation that incorporates option-pricing inputs covering the period from the grant date through the end of the performance period. Compensation expense for such nonvested stock units is recognized on a straight-line basis over the vesting period, regardless of whether the market condition is satisfied.
Certain restricted stock units vest immediately but are considered contingently returnable as a result of certain service conditions. Compensation expense for these types of restricted stock units is recognized on a straight-line basis over the implied service period.
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Derivatives
Foreign Exchange Currency Contracts
We operate in foreign countries, which exposes us to market risk associated with foreign currency exchange rate fluctuations. We have entered into certain forward contracts to hedge the risk of foreign currency rate fluctuations. We have elected to apply the hedge accounting rules in accordance with authoritative guidance for certain of these hedges.
Our primary objective is to hedge the variability in forecasted cash flows due to the foreign currency risk. Various transactions that occur primarily in Europe, Canada, South Korea, China, Hong Kong and Mexico are denominated in U.S. dollars, British pounds and Russian roubles and thus are exposed to earnings risk as a result of exchange rate fluctuations when converted to their functional currencies. These types of transactions include U.S. dollar-denominated 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. Further, there are certain real estate leases which are denominated in a currency other than the functional currency of the respective entity that entered into the agreement (primarily Swiss francs, Russian roubles and Polish zloty). As a result, we may be exposed to volatility related to unrealized gains or losses on the translation of present value of future lease payment obligations when translated at the exchange rate as of a reporting period-end. We enter 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. We do not hedge all transactions denominated in foreign currency.
U.S. dollar forward contracts are used to hedge forecasted merchandise purchases over specific months. Changes in the fair value of the U.S. dollar forward contracts for anticipated U.S. dollar merchandise purchases designated as cash flow hedges are recorded as a component of accumulated other comprehensive income (loss) (“AOCL”) within stockholders’ equity and are recognized in cost of product sales in the period which approximates the time the hedged merchandise inventory is sold.
Periodically, we may also use foreign exchange currency contracts to hedge the translation and economic exposures related to our net investments in certain of our international subsidiaries. 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 AOCL within stockholders’ equity and are not recognized in earnings (loss) until the sale or liquidation of the hedged net investment.
We also have foreign exchange currency contracts that are not designated as hedging instruments for accounting purposes. Changes in fair value of foreign exchange currency contracts not designated as hedging instruments are reported in net earnings (loss) as part of other income (expense).
Interest Rate Swap Agreements
We are exposed to interest rate risk on our floating-rate debt. We have entered into interest rate swap agreements for certain of these agreements to effectively convert our 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 our floating-rate debt, thus reducing the impact of interest rate changes on future interest payment cash flows. We have elected to apply the hedge accounting rules in accordance with authoritative guidance for certain of these contracts. Changes in the fair value of interest rate swap agreements designated as cash flow hedges are recorded as a component of AOCL within stockholders’ equity and are amortized to interest expense over the term of the related debt.
Periodically, we may also enter into interest rate swap agreements that are not designated as hedging instruments for accounting purposes. Changes in the fair value of interest rate swap agreements not designated as hedging instruments are reported in net earnings (loss) as part of other income (expense).
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.
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Equity-Linked Instrument
In connection with the exchange and subscription offerings related to the convertible senior notes in January 2024 and March 2024, we concluded that the purchased options to hedge the conversion feature for the Additional 2028 Notes issued in fiscal 2024 and fiscal 2025 no longer qualify for the derivative scope exception for contracts indexed in an entity’s own equity. As a result, these contracts are accounted for as derivative assets, including the portion related to the reclassification of the pre-existing options purchased in April 2023, which had previously been recorded in paid-in capital in our consolidated balance sheets. We include derivative assets within other assets in our consolidated balance sheets. The derivative assets are required to be measured at fair value with changes in fair value recorded in earnings (loss). Changes in fair value of these derivative assets are reported in net earnings (loss) as part of other income (expense).
Income Taxes
We account for uncertainty in income taxes in accordance with authoritative guidance, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of an income tax position taken or expected to be taken in an income tax return. For those benefits to be recognized, an income tax position must be more likely than not to be sustained upon examination by taxing authorities. We also follow authoritative guidance provided on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
Our continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. As required under applicable accounting rules, we accrue an amount for our estimate of additional income tax liability which, more likely than not, we will incur as a result of the ultimate resolution of income tax audits (“uncertain tax positions”). We review and update the estimates used in the accrual for uncertain income tax positions, as appropriate, as more definitive information or interpretations become available from taxing authorities, upon completion of income tax audits, upon receipt of assessments, upon expiration of statutes of limitation, or upon occurrence of other events. The results of operations and financial position for future periods could be impacted by changes in assumptions or resolutions of tax audits.
Deferred income tax assets and liabilities are determined based on differences between financial reporting bases and income tax bases of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred income tax asset or liability is expected to be realized or settled. Deferred income tax assets are reduced by valuation allowances if we believe it is more likely than not that some portion or the entire asset will not be realized.
We have historically considered the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested. As a result of the Tax Reform, we had a substantial amount of previously taxed earnings that could be distributed to the United States without additional material U.S. taxation. We continue to evaluate our plans for reinvestment or repatriation of unremitted foreign earnings and regularly review our cash positions and determination of permanent reinvestment of foreign earnings. If we determine that all or a portion of such foreign earnings are no longer indefinitely reinvested, we may be subject to additional foreign withholding taxes and U.S. state income taxes, beyond the one-time transition tax. For example, as of February 1, 2025, we determined that approximately $300.0 million of such foreign earnings are no longer indefinitely reinvested. The incremental tax cost to repatriate these earnings to the United States is immaterial. We intend to indefinitely reinvest the remaining earnings from our foreign subsidiaries for which a deferred income tax liability has not already been recorded. It is not practicable to estimate the amount of income tax that might be payable if these earnings were repatriated due to the complexities associated with the hypothetical calculation.
We completed an intra-entity transfer of intellectual property rights from a U.S. entity to a wholly-owned Swiss subsidiary, more closely aligning our intellectual property rights with our business operations. This transaction resulted in a taxable gain and income tax expense in the United States. The U.S. taxable gain and income tax expense generated by this intercompany transfer of intellectual property was primarily offset by the recognition of a deferred income tax asset in the Swiss subsidiary.
We are subject to an income tax on global intangible low-taxed income (“GILTI”). GILTI is an income tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. Companies subject to
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GILTI have the option to account for the income tax as a period cost if and when incurred, or factor such amounts into the measurement of deferred income taxes. We have elected to account for GILTI as a period cost.
Valuation of Goodwill, Intangible and Other Long-Lived Assets
We assess the impairment of our long-lived assets (related primarily to goodwill, property and equipment and operating lease ROU assets), which requires us to make assumptions and judgments regarding the carrying value of these assets on an annual basis, or more frequently if events or changes in circumstances indicate that the assets might be impaired. For goodwill, determination of impairment is made at the reporting unit level which may be either an operating segment or one level below an operating segment if discrete financial information is available. Two or more reporting units within an operating segment may be aggregated for impairment testing if they have similar economic characteristics. We have established four reporting units for goodwill impairment testing, which include Europe Wholesale, Europe Retail (both components within the Europe segment), the Americas Retail segment and the Americas Wholesale segment. For long-lived assets (other than goodwill), the majority relate to our retail operations which consist primarily of regular retail and flagship locations. We consider each individual regular retail location as an asset group for impairment testing, which is the lowest level at which individual cash flows can be identified. The asset group includes leasehold , furniture, fixtures and equipment, computer hardware and software, operating lease ROU assets including lease acquisition costs and certain long-term security deposits, and excludes operating lease liabilities. We review regular retail locations in penetrated markets for risk once the locations have been opened for at least one year in their current condition, or sooner as changes in circumstances require. We believe that waiting at least one year, unless a change in circumstances requires an earlier review, allows a location to reach a maturity level where brand awareness has been established and a more comprehensive analysis of financial performance can be performed. We also evaluate risk for retail locations that are expected to be in the foreseeable future. We have flagship locations which are used as a regional marketing tool to build brand awareness and promote our current product. Provided the flagship locations continue to meet appropriate criteria, for these locations is tested by evaluating cash flows at a reporting unit level.
An asset is considered to be impaired if we determine that the carrying value may not be recoverable based upon our assessment of the asset’s ability to continue to generate earnings from operations and positive cash flow in future periods or if significant changes in our strategic business objectives and utilization of the assets occurred. If the assets are considered to be impaired, an impairment charge is recognized representing the amount by which the carrying value of the assets exceeds the fair value of those assets. We use estimates of market participant rents to calculate fair value of lease ROU assets and discounted future cash flows of the asset group to quantify fair value for other long-lived assets. These nonrecurring fair value measurements are considered Level 3 inputs as defined in “Note 21 - Fair Value Measurements” of the notes to our consolidated financial statements included in this Annual report. The impairment loss calculations require management to apply judgment estimating, among other things, market participant rents, future cash flows, and the discount rates that reflect the risk inherent in future cash flows. Future expected cash flows for assets in regular retail locations are based on management’s estimates of future cash flows, which include sales and gross margin growth rate assumptions, over the remaining lease period or expected life, if shorter. For expected location , we will evaluate whether it is necessary to shorten the useful life for any of the assets within the respective asset group. We will use this revised useful life when estimating the asset group’s future cash flows. We consider historical trends, expected future business trends and other factors when estimating the future cash flow for each regular retail location. We also consider factors such as: the local environment for each regular retail location, including mall traffic and competition; our ability to implement strategic initiatives; and the ability to control variable costs such as cost of sales and payroll and, in some cases, lease costs. 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 that could be material to our results of operations.
Pension Benefit Plan Actuarial Assumptions
In accordance with authoritative guidance for defined benefit pension and other postretirement plans, an asset for a plan’s overfunded status or a liability for a plan’s underfunded status is recognized in the consolidated balance sheets; plan assets and obligations that determine the plan’s funded status are measured as of the end of our fiscal year; and changes in the funded status of defined benefit postretirement plans are recognized in the year
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in which they occur. Such changes are reported in other comprehensive income (loss) as a separate component of stockholders’ equity
Our pension obligations and related costs are calculated using actuarial concepts within the authoritative guidance framework and are considered Level 3 inputs as defined in “Note 21 - Fair Value Measurements” of the notes to our consolidated financial statements included in this Annual Report. We use the corridor approach to amortize unrecognized actuarial gains or losses over the average remaining service life of active participants. The life expectancy, estimated retirement age, discount rate, estimated future compensation and expected return on plan assets are important elements of expense and/or liability measurement. These critical assumptions are evaluated annually which enables expected future payments for benefits to be stated at present value on the measurement date. If actual results are not consistent with actuarial assumptions, the amounts recognized for the defined benefit plans could change significantly. Refer to “Note 14 - Defined Benefit Plans” of the notes to our consolidated financial statements included in this Annual Report for detail regarding our defined benefit plans.
Litigation Reserves
Estimated amounts for claims that are probable and can be reasonably estimated are recorded as liabilities in the consolidated balance sheets. As additional information becomes available, we assess the potential liability related to new claims and existing claims and revise estimates as appropriate. As new claims arise or existing claims evolve, such revisions in estimates of the potential liability could materially impact the results of operations and financial position.
Convertible Senior Notes
In April 2019, we issued $300 million principal amount of the 2024 Notes in a private offering. Prior to January 30, 2022, certain convertible debt instruments that may be settled in cash on conversion were required to be separately accounted for as liability and equity components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. Accordingly, in accounting for the issuance of the 2024 Notes, we separated the 2024 Notes into liability and equity components. The liability component was recorded at fair value, which was derived from a valuation technique used to calculate the fair value of a similar liability without an associated convertible feature. The carrying amount of the equity component, which was recognized as a debt discount, represented the difference between the proceeds from the issuance of the 2024 Notes and the fair value of the liability component of the 2024 Notes. In accounting for the debt issuance costs related to the issuance of the 2024 Notes, we allocated the total amount incurred to the liability and equity components based on their relative values. Debt issuance costs attributable to the liability component were recorded as a contra-liability and are presented net against the 2024 Notes balance on our consolidated balance sheets. These costs were amortized to interest expense using the effective interest method over the term of the 2024 Notes.
On January 30, 2022, we adopted the authoritative guidance which simplifies the accounting for convertible instruments and contracts in an entity’s own equity using the modified retrospective method. Following adoption, the equity component was eliminated and recorded as an adjustment to retained earnings. In addition, we derecognized the remaining unamortized debt discount on the 2024 Notes. Debt issuance costs were recorded as a contra-liability and are presented net against the 2024 Notes balance on our consolidated balance sheets. These costs were amortized to interest expense using the effective interest method over the term of the 2024 Notes. As of February 1, 2025, there were no 2024 Notes outstanding.
In April 2023, we issued $275 million aggregate principal amount of Initial 2028 Notes and retired approximately $184.9 million aggregate principal of 2024 Notes in a private offering. In January 2024, we issued $64.8 million aggregate principal amount of January Additional 2028 Notes and retired approximately $67.1 million aggregate principal of 2024 Notes in a private offering. In March 2024, we issued $12.1 million aggregate principal amount of March Additional 2028 Notes and retired approximately $14.6 million aggregate principal of 2024 Notes in a private offering. In connection with the transactions in January 2024 and March 2024, we determined that the conversion feature embedded in the Additional 2028 Notes failed to satisfy the requirements for the derivative scope exception for contracts indexed in our own stock. As a result, the conversion feature embedded in the Additional 2028 Notes required bifurcation and is accounted for as a derivative. Our accounting policy is to present the embedded derivative on the same line item as the host instrument. The embedded derivative is required to be remeasured each reporting period with changes in fair value recorded in
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earnings. Changes in fair value of the embedded derivative are reported in net earnings (loss) as part of other income (expense).
Refer to “Note 11 - Convertible Senior Notes and Related Transactions” of the notes to our consolidated financial statements included in this Annual Report for details on the Notes.
Recently Issued Accounting Guidance
Refer to “Note 2 - New Accounting Guidance” of the notes to our consolidated financial statements included in this Annual Report for disclosures about recently issued accounting guidance.
