Guess?, Inc. Reports Fiscal Year 2022 Second Quarter Results
Guess?, Inc. (NYSE: GES) today reported financial results for its second quarter ended July 31, 2021.
Carlos Alberini, Chief Executive Officer, commented, “We are very pleased with our performance this quarter, which significantly exceeded our earnings expectations. Compared to the second quarter of fiscal 2020, the LLY period, we expanded operating margin by over 700 basis points to 13.9%. Our revenues for the quarter finished down 8% versus LLY. The entire decline was due to a timing shift of European wholesale shipments into the third quarter and the impact of permanent store closures. We achieved this result in spite of the pandemic and being significantly less promotional in all of our direct-to-consumer businesses. Our operating profit growth was strong, up 90% to LLY. This resulted in earnings per share of $0.91, versus $0.35 in the LLY period.”
Paul Marciano, Co-Founder and Chief Creative Officer, added, “During the quarter we made great progress on our brand elevation strategy. This is a very ambitious project that touches almost every aspect of our business. The work that our teams have put into this has been extraordinary, and I want to thank them for their great contributions to this key initiative for our Company and our future.”
Mr. Alberini concluded, “Based on our progress, we now expect to deliver our 10% operating margin goal in the current year and are raising our expectations to reach 12% by fiscal year 2024, which would yield a return on invested capital of over 30% and adjusted earnings per share of around $3.50. The Guess brand has significant white space for revenue growth, and we are confident in our ability to reach our $2.8 billion revenue target by fiscal 2024. We continue to prioritize returning value to our shareholders and announced today that our Board has approved an increase of our existing share buyback program to $200 million. Overall, I could not be more excited about our future.”
Adjusted Amounts
This press release contains certain non-GAAP, or adjusted, financial measures. References to “adjusted” results exclude the impact of (i) asset impairment charges, (ii) net gains on lease modifications, (iii) certain professional service and legal fees and related (credits) costs, (iv) certain separation charges, (v) non-cash debt discount amortization on our convertible senior notes, (vi) the related income tax effects of the foregoing items, as well as the impact from changes in the income tax law on deferred income taxes in certain tax jurisdictions, net income tax settlements and adjustments to specific uncertain income tax positions, and (vii) certain discrete income tax adjustments, in each case where applicable. A reconciliation of reported GAAP results to comparable non-GAAP results is provided in the accompanying tables and discussed under the heading “Presentation of Non-GAAP Information” below.
Second Quarter Fiscal 2022 Results Compared to Second Quarter Fiscal 2020
For the second quarter of fiscal 2022, the Company recorded GAAP net earnings of $61.1 million, a 141.1% increase from $25.3 million for the second quarter of fiscal 2020. GAAP diluted EPS increased 160.0% to $0.91 for the second quarter of fiscal 2022, compared to $0.35 for the second quarter of fiscal 2020. The Company estimates a positive impact from its share buybacks of $0.11 and a minimal impact from currency on GAAP diluted EPS in the second quarter of fiscal 2022 when compared to the second quarter of fiscal 2020.
For the second quarter of fiscal 2022, the Company’s adjusted net earnings were $64.1 million, a 133.7% increase from $27.4 million for the second quarter of fiscal 2020. Adjusted diluted EPS increased 152.6% to $0.96, compared to $0.38 for the second quarter of fiscal 2020. The Company estimates its share buybacks had a positive impact of $0.13 and currency had a minimal impact on adjusted diluted EPS in the second quarter of fiscal 2022 when compared to the second quarter of fiscal 2020.
Net Revenue. Total net revenue for the second quarter of fiscal 2022 decreased 8.0% to $628.6 million, from $683.2 million in the second quarter of fiscal 2020. In constant currency, net revenue decreased by 10.8%.
Earnings from Operations. GAAP earnings from operations for the second quarter of fiscal 2022 increased 90.0% to $87.4 million (including $0.4 million net gains on lease modifications, $1.5 million in non-cash impairment charges taken on certain long-lived store related assets and a $0.3 million favorable currency translation impact), from $46.0 million (including $1.5 million in non-cash impairment charges taken on certain long-lived store related assets) in the second quarter of fiscal 2020. GAAP operating margin in the second quarter of fiscal 2022 increased 7.2% to 13.9%, from 6.7% in the second quarter of fiscal 2020, driven primarily by lower markdowns, lower occupancy costs and higher initial markups. The negative impact of currency on operating margin for the quarter was approximately 30 basis points.
For the second quarter of fiscal 2022, adjusted earnings from operations increased 84.9% to $88.6 million, from $47.9 million in the second quarter of fiscal 2020. Adjusted operating margin increased 7.1% to 14.1%, from 7.0% in the second quarter of fiscal 2020, driven primarily by lower markdowns, lower occupancy costs and higher initial markups.
Second Quarter Fiscal 2022 Results Compared to Second Quarter Fiscal 2021
For the second quarter of fiscal 2022, the Company recorded GAAP net earnings of $61.1 million, as compared to a GAAP net loss of $20.4 million for the second quarter of fiscal 2021. GAAP diluted EPS increased to $0.91 for the second quarter of fiscal 2022, compared to a GAAP diluted loss per share of $0.31 for the same prior-year quarter. The Company estimates a positive impact from its share buybacks and currency of $0.03 and $0.01, respectively, on GAAP diluted EPS in the second quarter of fiscal 2022 when compared to the prior-year quarter.
For the second quarter of fiscal 2022, the Company’s adjusted net earnings were $64.1 million, as compared to the Company’s adjusted net loss of $0.6 million for the second quarter of fiscal 2021. Adjusted diluted EPS increased to $0.96, compared to adjusted diluted loss per share of $0.01 for the same prior-year quarter. The Company estimates its share buybacks had a positive impact of $0.03 and currency had a minimal impact on adjusted diluted EPS in the second quarter of fiscal 2022 when compared to the prior-year quarter.
Net Revenue. Total net revenue for the second quarter of fiscal 2022 increased 57.7% to $628.6 million, from $398.5 million in the same prior-year quarter. In constant currency, net revenue increased by 51.1%.
Earnings (Loss) from Operations. GAAP earnings from operations for the second quarter of fiscal 2022 increased to $87.4 million (including $0.4 million net gains on lease modifications, $1.5 million in non-cash impairment charges taken on certain long-lived store related assets and a $2.3 million favorable currency translation impact), from a GAAP loss from operations of $14.3 million (including $0.9 million net gains on lease modifications and $12.0 million in non-cash impairment charges taken on certain long-lived store related assets) in the same prior-year quarter. GAAP operating margin in the second quarter of fiscal 2022 increased 17.5% to 13.9%, from negative 3.6% in the same prior-year quarter, driven primarily by overall leveraging of expenses. The positive impact of currency on operating margin for the quarter was approximately 30 basis points.
For the second quarter of fiscal 2022, adjusted earnings from operations increased to $88.6 million, from an adjusted operating loss of $0.9 million in the same prior-year quarter. Adjusted operating margin increased 14.3% to 14.1%, from negative 0.2% in the same prior-year quarter, driven primarily by overall leveraging of expenses.
Six-Month Period Fiscal 2022 Results Compared to Six-Month Period Fiscal 2020
For the six months ended July 31, 2021, the Company recorded GAAP net earnings of $73.1 million, compared to $3.9 million for the six months ended August 3, 2019. GAAP diluted EPS was $1.10 for the six months ended July 31, 2021, compared to $0.05 for the six months ended August 3, 2019. The Company estimates a net positive impact from its share buybacks and its prior year convertible notes transaction of $0.16 and a negative currency impact of $0.06 on GAAP diluted EPS for the six months ended July 31, 2021 when compared to the six months ended August 3, 2019.
For the six months ended July 31, 2021, the Company recorded adjusted net earnings of $78.0 million, compared to $7.8 million for the six months ended August 3, 2019. Adjusted diluted EPS was $1.17, compared to $0.10 for the six months ended August 3, 2019. The Company estimates its share buybacks and its prior year convertible notes transaction had a net positive impact of $0.20 and currency had a negative impact of $0.06 on adjusted diluted EPS during the six months ended July 31, 2021 when compared to the six months ended August 3, 2019.
Net Revenue. Total net revenue for the first six months of fiscal 2022 decreased 5.8% to $1.15 billion, from $1.22 billion for the six months ended August 3, 2019. In constant currency, net revenue decreased by 8.3%.
Earnings from Operations. GAAP earnings from operations for the first six months of fiscal 2022 was $114.0 million (including $2.6 million net gains on lease modifications, $1.9 million in non-cash impairment charges taken on certain long-lived store related assets and a $1.9 million unfavorable currency translation impact), compared to $21.5 million (including $3.3 million in non-cash impairment charges taken on certain long-lived store related assets) for the six months ended August 3, 2019. GAAP operating margin for the first six months of fiscal 2022 increased 8.1% to 9.9%, from 1.8% for the six months ended August 3, 2019, driven primarily by lower occupancy costs, higher initial markups and lower markdowns. The negative impact of currency on operating margin for the first six months of fiscal 2020 was approximately 50 basis points.
For the six months ended July 31, 2021, adjusted earnings from operations was $114.5 million, compared to $25.5 million for the six months ended August 3, 2019. Adjusted operating margin improved 7.9% to 10.0% for the six months ended July 31, 2021, from 2.1% for the six months ended August 3, 2019, driven primarily by lower occupancy costs, higher initial markups and lower markdowns.
Six-Month Period Fiscal 2022 Results Compared to Six-Month Period Fiscal 2021
For the six months ended July 31, 2021, the Company recorded GAAP net earnings of $73.1 million, compared to GAAP net loss of $178.0 million for the six months ended August 1, 2020. GAAP diluted EPS was $1.10 for the six months ended July 31, 2021, compared to GAAP diluted loss per share of $2.72 during the same prior-year period. The Company estimates a net positive impact from its share buybacks and its prior year convertible notes transaction and currency of $0.05 and $0.10, respectively, on GAAP diluted EPS for the six months ended July 31, 2021 when compared to the same prior-year period.
For the six months ended July 31, 2021, the Company recorded adjusted net earnings of $78.0 million, compared to an adjusted net loss of $119.6 million for the six months ended August 1, 2020. Adjusted diluted EPS was $1.17, compared to adjusted loss per share of $1.83 during the same prior-year period. The Company estimates its share buybacks and its prior year convertible notes transaction and currency had a net positive impact of $0.05 and $0.09, respectively, on adjusted diluted EPS during the six months ended July 31, 2021 when compared to the same prior-year period.
Net Revenue. Total net revenue for the first six months of fiscal 2022 increased 74.4% to $1.15 billion, from $658.8 million in the same prior-year period. In constant currency, net revenue increased by 66.6%.
Earnings (Loss) from Operations. GAAP earnings from operations for the first six months of fiscal 2022 was $114.0 million (including $2.6 million net gains on lease modifications, $1.9 million in non-cash impairment charges taken on certain long-lived store related assets and a $1.6 million favorable currency translation impact), compared to GAAP loss from operations of $176.8 million (including $0.4 million net gains on lease modifications and $64.9 million in non-cash impairment charges taken on certain long-lived store related assets) in the same prior-year period. GAAP operating margin in fiscal 2022 increased 36.7% to 9.9%, from negative 26.8% in the same prior-year period, driven primarily by overall leveraging of expenses. The impact of currency on operating margin was minimal for the six months ended July 31, 2021.
For the six months ended July 31, 2021, adjusted earnings from operations was $114.5 million, compared to adjusted loss from operations of $109.5 million for the six months ended August 1, 2020. Adjusted operating margin improved 26.6% to 10.0% for the six months ended July 31, 2021, from negative 16.6% in the same prior-year period, driven primarily by overall leveraging of expenses.
Outlook
Given the current circumstances regarding the coronavirus (or “COVID-19”) crisis and its uncertain impact on our operations, we are not providing detailed guidance for the third quarter or the full fiscal year ending January 29, 2022. We expect revenues in the third quarter of fiscal 2022 to be slightly negative to flat versus the third quarter of fiscal 2020 as pandemic-related traffic declines are almost offset by continued momentum in our global e-commerce business and the favorable shift of European wholesale shipments from the second quarter into the third quarter.
For the full fiscal year 2022, assuming no additional COVID-related shutdowns past the second quarter, we expect revenues to be down mid-single digits versus fiscal 2020 and operating margin to reach approximately 10.0%. The expectations for the full year also assume a return to a normal cadence of product development for our European wholesale business. These comparisons are versus the pre-pandemic periods from two fiscal years prior in order to provide a more normalized comparison.
COVID-19 Second Quarter Business Update
The COVID-19 pandemic is continuing to impact the Company’s businesses. During the second quarter of fiscal 2022, the Company experienced lower net revenue compared to the second quarter of fiscal 2020 as it remained challenged by lower demand, capacity restrictions and temporary store closures. In light of the current environment, we continue to strategically manage expenses in order to protect profitability.
During the second quarter of fiscal 2022, the Company gradually reopened its stores that were closed at the end of the first quarter of fiscal 2022 due to COVID-19 restrictions. The overall impact resulted in stores being closed for approximately 5% of the total days during the second quarter of fiscal 2022, primarily in Europe and Canada. As of July 31, 2021, 100% of our stores were open.
Dividend
The Company’s Board of Directors has approved a quarterly cash dividend of $0.1125 per share on the Company’s common stock. The dividend will be payable on September 24, 2021 to shareholders of record as of the close of business on September 8, 2021.
Share Repurchase
The Company announced today that its Board of Directors has authorized a program to repurchase, from time-to-time and as market and business conditions warrant, up to $200 million of its common stock. The newly authorized $200 million program includes $48 million remaining under the Company's previously authorized $500 million 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.
Presentation of Non-GAAP Information
The financial information presented in this release includes non-GAAP financial measures, such as adjusted results, constant currency financial information, free cash flows and return on invested capital. For the three months and six months ended July 31, 2021, August 1, 2020 and August 3, 2019, the adjusted results exclude the impact of certain professional service and legal fees and related (credits) costs, certain separation charges, asset impairment charges, net gains on lease modifications, non-cash amortization of debt discount on the Company’s convertible senior notes, the related income tax effects of the foregoing items, as well as the impact from changes in the income tax law on deferred income taxes in certain tax jurisdictions, net income tax settlements and adjustments to specific uncertain income tax positions, as well as certain discrete income tax adjustments, where applicable. These non-GAAP measures are provided in addition to, and not as alternatives for, the Company’s reported GAAP results.
The Company has excluded these items from its adjusted financial measures primarily because it believes these items are not indicative of the underlying performance of its business and the adjusted financial information provided is useful for investors to evaluate the comparability of the Company’s operating results and its future outlook (when reviewed in conjunction with the Company’s GAAP financial statements). A reconciliation of reported GAAP results to comparable non-GAAP results is provided.
This release also includes certain constant currency financial information. Foreign currency exchange rate fluctuations affect the amount reported from translating the Company’s foreign revenue, expenses and balance sheet amounts into U.S. dollars. These rate fluctuations can have a significant effect on reported operating results under GAAP. The Company provides constant currency information to enhance the visibility of underlying business trends, excluding the effects of changes in foreign currency translation rates. To calculate net revenue and earnings (loss) from operations on a constant currency basis, actual or forecasted 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. The constant currency calculations do not adjust for the impact of revaluing specific transactions denominated in a currency different from the functional currency of that entity when exchange rates fluctuate. However, in calculating the estimated impact of currency on our earnings (loss) per share for our actual or forecasted results, the Company estimates gross margin (including the impact of merchandise-related hedges) and expenses using the appropriate prior-year rates, translates the estimated foreign earnings at the comparable prior-year rates, and excludes the year-over-year earnings impact of gains or losses arising from balance sheet remeasurement and foreign currency contracts not designated as merchandise hedges. The constant currency information presented may not be comparable to similarly titled measures reported by other companies.
The Company also includes information regarding its free cash flows in this release. The Company calculates free cash flows as cash flows from operating activities less (i) purchases of property and equipment and (ii) payments for property and equipment under finance leases. Free cash flows are not intended to be an alternative to cash flows from operating activities as a measure of liquidity, but rather to provide additional visibility to investors regarding how much cash is generated for discretionary and non-discretionary items after deducting purchases of property and equipment and payments for property and equipment under finance leases. Free cash flow information presented may not be comparable to similarly titled measures reported by other companies. A reconciliation of reported GAAP cash flows from operating activities to the comparable non-GAAP free cash flow measure is provided.
The Company also includes information regarding its return on invested capital (or “ROIC”) in this release. The Company defines ROIC as adjusted net operating profit after income taxes divided by two-year average invested capital. The Company believes ROIC is a useful financial measure for investors in evaluating how efficiently the Company deploys its capital. The Company’s method of calculating ROIC may differ from other companies’ methods and, therefore, might not be comparable.
Investor Conference Call
The Company will hold a conference call at 4:45 pm (ET) on August 25, 2021 to discuss the news announced in this press release. A live webcast of the conference call will be accessible at www.guess.com via the “Investor Relations” link. The webcast will be archived on the website for 30 days.
About Guess?
Guess?, Inc. designs, markets, distributes and licenses a lifestyle collection of contemporary apparel, denim, handbags, watches, eyewear, footwear and other related consumer products. Guess? products are distributed through branded Guess? stores as well as better department and specialty stores around the world. As of July 31, 2021, the Company directly operated 1,046 retail stores in the Americas, Europe and Asia. The Company’s partners and distributors operated 551 additional retail stores worldwide. As of July 31, 2021, the Company and its partners and distributors operated in approximately 100 countries worldwide. For more information about the Company, please visit www.guess.com.
Forward-Looking Statements
Except for historical information contained herein, certain matters discussed in this press release or the related conference call and webcast, including statements concerning the potential actions and impacts related to the COVID-19 pandemic; statements concerning the Company’s future outlook including with respect to the third quarter and full year of fiscal 2022 as well as fiscal 2024; statements concerning the Company’s expectations, goals, future prospects, global cost reduction opportunities, longer-term operating margin, revenue, EPS and ROIC expectations, capital allocation plans, cash needs and current business strategies and strategic initiatives; and statements expressing optimism or pessimism about future operating results and growth opportunities are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements, which are frequently indicated by terms such as “expect,” “could,” “will,” “should,” “goal,” “strategy,” “believe,” “estimate,” “continue,” “outlook,” “plan,” “create,” “see,” and similar terms, are only expectations, and involve known and unknown risks and uncertainties, which may cause actual results in future periods to differ materially from what is currently anticipated. Factors which may cause actual results in future periods to differ materially from current expectations include, among others: our ability to maintain our brand image and reputation; domestic and international economic or political conditions, including economic and other events that could negatively impact consumer confidence and discretionary consumer spending; the continuation or worsening of impacts related to the COVID-19 pandemic, including business, financial, human capital, litigation and other impacts to the Company and its partners; our ability to successfully negotiate rent relief or other lease-related terms with our landlords; our ability to maintain adequate levels of liquidity; changes to estimates related to impairments, inventory and other reserves, including the impact of the CARES Act, which were made using the best information available at the time; changes in the competitive marketplace and in our commercial relationships; our ability to anticipate and adapt to changing consumer preferences and trends; our ability to manage our inventory commensurate with customer demand; risks related to the timing and costs of delivering merchandise to our stores and our wholesale customers; unexpected or unseasonable weather conditions; our ability to effectively operate our various retail concepts, including securing, renewing, modifying or terminating leases for store locations; our ability to successfully and/or timely implement our growth strategies and other strategic initiatives; our ability to successfully implement or update information technology systems, including enhancing our global omni-channel capabilities; our ability to expand internationally and operate in regions where we have less experience, including through joint ventures; risks related to our convertible senior notes issued in April 2019, including our ability to settle the liability in cash; our ability to successfully or timely implement plans for cost reductions; our ability to effectively and efficiently manage the volume and costs associated with our European distribution centers without incurring shipment delays; our ability to attract and retain key personnel; obligations or changes in estimates arising from new or existing litigation, income tax and other regulatory proceedings; risks related to the complexity of the Tax Reform, future clarifications and legislative amendments thereto, as well as our ability to accurately interpret and predict its impact on our cash flows and financial condition; the risk of economic uncertainty associated with the United Kingdom’s departure from the European Union (“Brexit”) or any other similar referendums that may be held; the occurrence of unforeseen epidemics, such as the COVID-19 pandemic; other catastrophic events; changes in U.S. or foreign income tax or tariff policy, including changes to tariffs on imports into the U.S.; accounting adjustments to our unaudited financial statements identified during the completion of our annual independent audit of financial statements and financial controls or from subsequent events arising after issuance of this release; risk of future non-cash asset impairments, including goodwill, right-of-use lease assets and/or other store asset impairments; restructuring charges; our ability to adapt to new regulatory compliance and disclosure obligations; risks associated with our foreign operations, such as violations of laws prohibiting improper payments and the burdens of complying with a variety of foreign laws and regulations (including global data privacy regulations); risks associated with the acts or omissions of our third party vendors, including a failure to comply with our vendor code of conduct or other policies; risks associated with cyber-attacks and other cyber security risks; risks associated with our ability to properly collect, use, manage and secure consumer and employee data; risks associated with our vendors’ ability to maintain the strength and security of information technology systems; and changes in economic, political, social and other conditions affecting our foreign operations and sourcing, including the impact of currency fluctuations, global income tax rates and economic and market conditions in the various countries in which we operate. In addition to these factors, the economic, technological, managerial, and other risks identified in the Company’s most recent annual report on Form 10-K and other filings with the Securities and Exchange Commission, including but not limited to the risk factors discussed therein, could cause actual results to differ materially from current expectations. The current global economic climate, length and severity of the COVID-19 pandemic, and uncertainty surrounding potential changes in U.S. policies and regulations may amplify many of these risks. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Guess?, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Loss)
(amounts in thousands, except per share data)
Three Months Ended
July 31, 2021
August 1, 2020
August 3, 2019
$
%
$
%
$
%
Product sales
$
606,691
96.5
%
$
386,392
97.0
%
$
664,678
97.3
%
Net royalties
21,933
3.5
%
12,147
3.0
%
18,542
2.7
%
Net revenue
628,624
100.0
%
398,539
100.0
%
683,220
100.0
%
Cost of product sales
334,538
53.2
%
251,511
63.1
%
417,554
61.1
%
Gross profit
294,086
46.8
%
147,028
36.9
%
265,666
38.9
%
Selling, general and administrative expenses
205,617
32.8
%
150,293
37.7
%
218,175
32.0
%
Asset impairment charges
1,501
0.2
%
11,969
3.0
%
1,504
0.2
%
Net gains on lease modifications
(420
)
(0.1
%)
(885
)
(0.2
%)
—
—
%
Earnings (loss) from operations
87,388
13.9
%
(14,349
)
(3.6
%)
45,987
6.7
%
Other income (expense):
Interest expense
(6,009
)
(1.0
%)
(5,941
)
(1.5
%)
(4,951
)
(0.7
%)
Interest income
461
0.1
%
436
0.1
%
313
0.0
%
Other income (expense), net
(1,001
)
(0.1
%)
5,548
1.4
%
(6,355
)
(0.9
%)
Earnings (loss) before income tax expense
80,839
12.9
%
(14,306
)
(3.6
%)
34,994
5.1
%
Income tax expense
17,692
2.9
%
6,386
1.6
%
8,818
1.3
%
Net earnings (loss)
63,147
10.0
%
(20,692
)
(5.2
%)
26,176
3.8
%
Net earnings (loss) attributable to noncontrolling interests
2,085
(0.3
%)
(334
)
(0.1
%)
854
0.1
%
Net earnings (loss) attributable to Guess?, Inc.
$
61,062
9.7
%
$
(20,358
)
(5.1
%)
$
25,322
3.7
%
Net earnings (loss) per common share attributable to common stockholders:
Basic
$
0.94
$
(0.31
)
$
0.36
Diluted
$
0.91
$
(0.31
)
$
0.35
Weighted average common shares outstanding attributable to common stockholders:
Basic
64,336
65,177
70,508
Diluted
66,074
65,177
71,356
Effective income tax rate
21.9
%
(44.6
)%
25.2
%
Adjusted selling, general and administrative expenses1:
$
205,508
32.7
%
$
147,937
37.1
%
$
217,770
31.9
%
Adjusted earnings (loss) from operations1:
$
88,578
14.1
%
$
(909
)
(0.2
%)
$
47,896
7.0
%
Adjusted net earnings (loss) attributable to Guess?, Inc.1:
$
64,078
10.2
%
$
(639
)
(0.2
%)
$
27,414
4.0
%
Adjusted diluted earnings (loss) per common share attributable to common stockholders1:
$
0.96
$
(0.01
)
$
0.38
Adjusted effective income tax rate1:
22.0
%
156.2
%
28.2
%
______________________________________________________________________
See page 22 for footnotes.
Guess?, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Loss)
(amounts in thousands, except per share data)
Six Months Ended
July 31, 2021
August 1, 2020
August 3, 2019
$
%
$
%
$
%
Product sales
$
1,105,168
96.2
%
$
633,709
96.2
%
$
1,182,551
96.9
%
Net royalties
43,458
3.8
%
25,081
3.8
%
37,360
3.1
%
Net revenue
1,148,626
100.0
%
658,790
100.0
%
1,219,911
100.0
%
Cost of product sales
642,982
56.0
%
477,533
72.5
%
772,296
63.3
%
Gross profit
505,644
44.0
%
181,257
27.5
%
447,615
36.7
%
Selling, general and administrative expenses
392,301
34.1
%
293,581
44.5
%
422,820
34.6
%
Asset impairment charges
1,942
0.2
%
64,941
9.9
%
3,279
0.3
%
Net gains on lease modifications
(2,565
)
(0.2
%)
(429
)
(0.1
%)
—
—
%
Earnings (loss) from operations
113,966
9.9
%
(176,836
)
(26.8
%)
21,516
1.8
%
Other income (expense):
Interest expense
(11,935
)
(1.0
%)
(11,403
)
(1.7
%)
(6,210
)
(0.5
%)
Interest income
835
0.1
%
1,046
0.2
%
674
0.1
%
Other expense, net
(3,702
)
(0.4
%)
(14,032
)
(2.2
%)
(4,284
)
(0.4
%)
Earnings (loss) before income tax expense (benefit)
99,164
8.6
%
(201,225
)
(30.5
%)
11,696
1.0
%
Income tax expense (benefit)
23,147
2.0
%
(19,995
)
(3.0
%)
6,101
0.5
%
Net earnings (loss)
76,017
6.6
%
(181,230
)
(27.5
%)
5,595
0.5
%
Net earnings (loss) attributable to noncontrolling interests
2,949
0.2
%
(3,206
)
(0.5
%)
1,647
0.2
%
Net earnings (loss) attributable to Guess?, Inc.
$
73,068
6.4
%
$
(178,024
)
(27.0
%)
$
3,948
0.3
%
Net earnings (loss) per common share attributable to common stockholders:
Basic
$
1.13
$
(2.72
)
$
0.05
Diluted
$
1.10
$
(2.72
)
$
0.05
Weighted average common shares outstanding attributable to common stockholders:
Basic
64,185
65,446
75,216
Diluted
65,933
65,446
76,155
Effective income tax rate
23.3
%
9.9
%
52.2
%
Adjusted selling, general and administrative expenses1:
$
391,114
34.0
%
$
290,762
44.1
%
$
422,143
34.6
%
Adjusted earnings (loss) from operations1:
$
114,530
10.0
%
$
(109,505
)
(16.6
%)
$
25,472
2.1
%
Adjusted net earnings (loss) attributable to Guess?, Inc.1:
$
77,951
6.8
%
$
(119,552
)
(18.1
%)
$
7,798
0.6
%
Adjusted diluted earnings (loss) per common share attributable to common stockholders1:
$
1.17
$
(1.83
)
$
0.10
Adjusted effective income tax rate1:
23.2
%
4.6
%
48.4
%
______________________________________________________________________
See page 22 for footnotes.
Guess?, Inc. and Subsidiaries
Reconciliation of GAAP Results to Adjusted Results
(dollars in thousands)
The reconciliations of reported GAAP selling, general and administrative expenses to adjusted selling, general and administrative expenses, reported GAAP earnings (loss) from operations to adjusted earnings (loss) from operations, reported GAAP net earnings (loss) attributable to Guess?, Inc. to adjusted net earnings (loss) attributable to Guess?, Inc. and reported GAAP income tax expense (benefit) to adjusted income tax expense (benefit) follows:
Three Months Ended
July 31,
2021
August 1,
2020
August 3,
2019
Reported GAAP selling, general and administrative expenses
$
205,617
$
150,293
$
218,175
Certain professional service and legal fees and related credits (costs)2
(109
)
151
(405
)
Separation charges3
—
(2,507
)
—
Adjusted selling, general and administrative expenses1
$
205,508
$
147,937
$
217,770
Reported GAAP earnings (loss) from operations
$
87,388
$
(14,349
)
$
45,987
Certain professional service and legal fees and related (credits) costs2
109
(151
)
405
Separation charges3
—
2,507
—
Asset impairment charges4
1,501
11,969
1,504
Net gains on lease modifications5
(420
)
(885
)
—
Adjusted earnings (loss) from operations1
$
88,578
$
(909
)
$
47,896
Reported GAAP net earnings (loss) attributable to Guess?, Inc.
$
61,062
$
(20,358
)
$
25,322
Certain professional service and legal fees and related (credits) costs2
109
(151
)
405
Separation charges3
—
2,507
—
Asset impairment charges4
1,501
11,969
1,504
Net gains on lease modifications5
(420
)
(885
)
—
Amortization of debt discount6
2,781
2,598
2,449
Discrete tax adjustments7
81
8,061
—
Income tax impact from adjustments8
(1,036
)
(4,380
)
(2,266
)
Total adjustments affecting net earnings (loss) attributable to Guess?, Inc.
3,016
19,719
2,092
Adjusted net earnings (loss) attributable to Guess?, Inc.1
$
64,078
$
(639
)
$
27,414
Reported GAAP income tax expense
$
17,692
$
6,386
$
8,818
Discrete tax adjustments7
(81
)
(8,061
)
—
Income tax impact from adjustments8
1,036
4,380
2,266
Adjusted income tax expense1
$
18,647
$
2,705
$
11,084
Adjusted effective income tax rate1
22.0
%
156.2
%
28.2
%
______________________________________________________________________
See page 22 for footnotes.
Guess?, Inc. and Subsidiaries
Reconciliation of GAAP Results to Adjusted Results (Continued)
(dollars in thousands)
Six Months Ended
July 31,
2021
August 1,
2020
August 3,
2019
Reported GAAP selling, general and administrative expenses
$
392,301
$
293,581
$
422,820
Certain professional service and legal fees and related credits (costs)2
(1,187
)
(139
)
(677
)
Separation charges3
—
(2,680
)
—
Adjusted selling, general and administrative expenses1
$
391,114
$
290,762
$
422,143
Reported GAAP earnings (loss) from operations
$
113,966
$
(176,836
)
$
21,516
Certain professional service and legal fees and related (credits) costs2
1,187
139
677
Separation charges3
—
2,680
—
Asset impairment charges4
1,942
64,941
3,279
Net gains on lease modifications5
(2,565
)
(429
)
—
Adjusted earnings (loss) from operations1
$
114,530
$
(109,505
)
$
25,472
Reported GAAP net earnings (loss) attributable to Guess?, Inc.
$
73,068
$
(178,024
)
$
3,948
Certain professional service and legal fees and related (credits) costs2
1,187
139
677
Separation charges3
—
2,680
—
Asset impairment charges4
1,942
64,941
3,279
Net gains on lease modifications5
(2,565
)
(429
)
—
Amortization of debt discount6
5,562
5,197
2,662
Discrete tax adjustments7
228
170
—
Income tax impact from adjustments8
(1,471
)
(14,226
)
(2,768
)
Total adjustments affecting net earnings (loss) attributable to Guess?, Inc.
4,883
58,472
3,850
Adjusted net earnings (loss) attributable to Guess?, Inc.1
$
77,951
$
(119,552
)
$
7,798
Reported GAAP income tax expense (benefit)
$
23,147
$
(19,995
)
$
6,101
Discrete tax adjustments7
(228
)
(170
)
—
Income tax impact from adjustments8
1,471
14,226
2,768
Adjusted income tax expense (benefit)1
$
24,390
$
(5,939
)
$
8,869
Adjusted effective income tax rate1
23.2
%
4.6
%
48.4
%
______________________________________________________________________
See page 22 for footnotes.
Guess?, Inc. and Subsidiaries
Consolidated Segment Data
(dollars in thousands)
Three Months Ended
% change
July 31,
2021
August 1,
2020
August 3,
2019
August 1,
2020
August 3,
2019
Net revenue:
Americas Retail
$
186,297
$
110,065
$
198,966
69
%
(6
%)
Americas Wholesale
49,858
20,285
41,902
146
%
19
%
Europe
322,723
205,851
340,509
57
%
(5
%)
Asia
47,813
50,191
83,301
(5
%)
(43
%)
Licensing
21,933
12,147
18,542
81
%
18
%
Total net revenue
$
628,624
$
398,539
$
683,220
58
%
(8
%)
Earnings (loss) from operations:
Americas Retail
$
37,916
$
(4,704
)
$
5,957
(906
%)
536
%
Americas Wholesale
12,944
1,688
8,422
667
%
54
%
Europe
51,417
20,795
51,594
147
%
(0
%)
Asia
(4,847
)
(3,367
)
(4,800
)
44
%
1
%
Licensing
20,154
11,511
15,547
75
%
30
%
Total segment earnings from operations
117,584
25,923
76,720
354
%
53
%
Corporate overhead
(29,115
)
(29,188
)
(29,229
)
(0
%)
(0
%)
Asset impairment charges
(1,501
)
(11,969
)
(1,504
)
(87
%)
(0
%)
Net gains on lease modifications
420
885
—
(53
%)
Total earnings (loss) from operations
$
87,388
$
(14,349
)
$
45,987
(709
%)
90
%
Operating margins:
Americas Retail
20.4
%
(4.3
%)
3.0
%
Americas Wholesale
26.0
%
8.3
%
20.1
%
Europe
15.9
%
10.1
%
15.2
%
Asia
(10.1
%)
(6.7
%)
(5.8
%)
Licensing
91.9
%
94.8
%
83.8
%
GAAP operating margin for total Company
13.9
%
(3.6
%)
6.7
%
Certain professional service and legal fees and related (credits) costs1, 2
0.0
%
(0.0
%)
0.1
%
Separation charges1, 3
0.1
%
0.6
%
—
%
Asset impairment charges1, 4
0.2
%
3.0
%
0.2
%
Net gains on lease modifications1, 5
(0.1
%)
(0.2
%)
—
%
Adjusted operating margin for total Company1
14.1
%
(0.2
%)
7.0
%
______________________________________________________________________
See page 22 for footnotes.
Guess?, Inc. and Subsidiaries
Consolidated Segment Data
(dollars in thousands)
Six Months Ended
% change
July 31,
2021
August 1,
2020
August 3,
2019
August 1,
2020
August 3,
2019
Net revenue:
Americas Retail
$
341,832
$
184,649
$
375,389
85
%
(9
%)
Americas Wholesale
95,288
46,160
88,107
106
%
8
%
Europe
564,575
312,324
550,564
81
%
3
%
Asia
103,473
90,576
168,491
14
%
(39
%)
Licensing
43,458
25,081
37,360
73
%
16
%
Total net revenue
$
1,148,626
$
658,790
$
1,219,911
74
%
(6
%)
Earnings (loss) from operations:
Americas Retail
$
58,190
$
(41,377
)
$
4,145
(241
%)
1,304
%
Americas Wholesale
24,499
3,312
16,236
640
%
51
%
Europe
55,615
(23,611
)
35,267
(336
%)
58
%
Asia
(6,655
)
(26,144
)
(8,003
)
(75
%)
(17
%)
Licensing
39,585
21,605
32,191
83
%
23
%
Total segment earnings (loss) from operations
171,234
(66,215
)
79,836
(359
%)
114
%
Corporate overhead
(57,891
)
(46,109
)
(55,041
)
26
%
5
%
Asset impairment charges
(1,942
)
(64,941
)
(3,279
)
(97
%)
(41
%)
Net gains on lease modifications
2,565
429
—
498
%
Total earnings (loss) from operations
$
113,966
$
(176,836
)
$
21,516
(164
%)
430
%
Operating margins:
Americas Retail
17.0
%
(22.4
%)
1.1
%
Americas Wholesale
25.7
%
7.2
%
18.4
%
Europe
9.9
%
(7.6
%)
6.4
%
Asia
(6.4
%)
(28.9
%)
(4.7
%)
Licensing
91.1
%
86.1
%
86.2
%
GAAP operating margin for total Company
9.9
%
(26.8
%)
1.8
%
Certain professional service and legal fees and related (credits) costs1, 2
0.1
%
0.0
%
0.0
%
Separation charges1, 3
0.0
%
0.4
%
—
%
Asset impairment charges1, 4
0.2
%
9.9
%
0.3
%
Net gains on lease modifications1, 5
(0.2
%)
(0.1
%)
—
%
Adjusted operating margin for total Company1
10.0
%
(16.6
%)
2.1
%
______________________________________________________________________
See page 22 for footnotes.
Guess?, Inc. and Subsidiaries
Constant Currency Financial Measures
(dollars in thousands)
Three Months Ended
July 31, 2021
August 1, 2020
% change
As
Reported
Foreign
Currency
Impact
Constant
Currency
As
Reported
As
Reported
Constant
Currency
Net revenue:
Americas Retail
$
186,297
$
(3,448
)
$
182,849
$
110,065
69
%
66
%
Americas Wholesale
49,858
(1,722
)
48,136
20,285
146
%
137
%
Europe
322,723
(18,375
)
304,348
205,851
57
%
48
%
Asia
47,813
(2,690
)
45,123
50,191
(5
%)
(10
%)
Licensing
21,933
—
21,933
12,147
81
%
81
%
Total net revenue
$
628,624
$
(26,235
)
$
602,389
$
398,539
58
%
51
%
July 31, 2021
August 3, 2019
% change
As
Reported
Foreign
Currency
Impact
Constant
Currency
As
Reported
As
Reported
Constant
Currency
Net revenue:
Americas Retail
$
186,297
$
(937
)
$
185,360
$
198,966
(6
%)
(7
%)
Americas Wholesale
49,858
25
49,883
41,902
19
%
19
%
Europe
322,723
(16,224
)
306,499
340,509
(5
%)
(10
%)
Asia
47,813
(1,834
)
45,979
83,301
(43
%)
(45
%)
Licensing
21,933
—
21,933
18,542
18
%
18
%
Total net revenue
$
628,624
$
(18,970
)
$
609,654
$
683,220
(8
%)
(11
%)
Guess?, Inc. and Subsidiaries
Constant Currency Financial Measures
(dollars in thousands)
Six Months Ended
July 31, 2021
August 1, 2020
% change
As
Reported
Foreign
Currency
Impact
Constant
Currency
As
Reported
As
Reported
Constant
Currency
Net revenue:
Americas Retail
$
341,832
$
(5,437
)
$
336,395
$
184,649
85
%
82
%
Americas Wholesale
95,288
(2,913
)
92,375
46,160
106
%
100
%
Europe
564,575
(36,587
)
527,988
312,324
81
%
69
%
Asia
103,473
(6,134
)
97,339
90,576
14
%
7
%
Licensing
43,458
—
43,458
25,081
73
%
73
%
Total net revenue
$
1,148,626
$
(51,071
)
$
1,097,555
$
658,790
74
%
67
%
July 31, 2021
August 3, 2019
% change
As
Reported
Foreign
Currency
Impact
Constant
Currency
As
Reported
As
Reported
Constant
Currency
Net revenue:
Americas Retail
$
341,832
$
(1,307
)
$
340,525
$
375,389
(9
%)
(9
%)
Americas Wholesale
95,288
294
95,582
88,107
8
%
8
%
Europe
564,575
(25,745
)
538,830
550,564
3
%
(2
%)
Asia
103,473
(3,078
)
100,395
168,491
(39
%)
(40
%)
Licensing
43,458
—
43,458
37,360
16
%
16
%
Total net revenue
$
1,148,626
$
(29,836
)
$
1,118,790
$
1,219,911
(6
%)
(8
%)
Guess?, Inc. and Subsidiaries
Selected Condensed Consolidated Balance Sheet Data
(in thousands)
July 31,
2021
January 30,
2021
August 1,
2020
August 3,
2019
ASSETS
Cash and cash equivalents
$
458,914
$
469,110
$
327,970
$
131,060
Receivables, net
299,915
314,147
246,471
292,985
Inventories
430,289
389,144
419,427
484,236
Other current assets
74,771
60,123
80,069
59,226
Property and equipment, net
210,515
216,196
240,081
302,906
Restricted cash
230
235
228
519
Operating lease right-of-use assets
727,636
764,804
766,853
900,062
Other assets
254,631
252,109
229,630
231,210
Total assets
$
2,456,901
$
2,465,868
$
2,310,729
$
2,402,204
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of borrowings and finance lease obligations
$
21,193
$
38,710
$
42,321
$
32,554
Current operating lease liabilities
214,392
222,800
235,749
213,912
Other current liabilities
479,567
501,029
452,410
426,886
Long-term debt and finance lease obligations
79,924
68,554
66,069
35,512
Convertible senior notes, net
264,604
258,614
252,988
242,055
Long-term operating lease liabilities
623,040
662,657
659,118
747,791
Other long-term liabilities
138,084
144,004
143,225
125,915
Redeemable and nonredeemable noncontrolling interests
25,779
25,837
20,581
22,707
Guess?, Inc. stockholders’ equity
610,318
543,663
438,268
554,872
Total liabilities and stockholders’ equity
$
2,456,901
$
2,465,868
$
2,310,729
$
2,402,204
Guess?, Inc. and Subsidiaries
Condensed Consolidated Cash Flow Data
(in thousands)
Six Months Ended
July 31,
2021
August 1,
2020
August 3,
2019
Net cash provided by (used in) operating activities
$
42,976
$
40,685
$
(22,957
)
Net cash used in investing activities
(20,806
)
(11,970
)
(33,868
)
Net cash provided by (used in) financing activities
(26,639
)
13,585
(18,549
)
Effect of exchange rates on cash, cash equivalents and restricted cash
(5,732
)
1,070
(4,042
)
Net change in cash, cash equivalents and restricted cash
(10,201
)
43,370
(79,416
)
Cash, cash equivalents and restricted cash at the beginning of the year
469,345
284,828
210,995
Cash, cash equivalents and restricted cash at the end of the period
$
459,144
$
328,198
$
131,579
Supplemental information:
Depreciation and amortization
$
27,918
$
32,250
$
37,225
Total lease costs (excluding finance lease cost)
$
138,364
$
147,058
$
180,307
Guess?, Inc. and Subsidiaries
Reconciliation of Net Cash Provided By Operating Activities to Free Cash Flow
(in thousands)
Six Months Ended
July 31,
2021
August 1,
2020
August 3,
2019
Net cash provided by (used in) operating activities
$
42,976
$
40,685
$
(22,957
)
Less: Purchases of property and equipment
(21,601
)
(10,099
)
(34,551
)
Less: Payments for property and equipment under finance leases
(2,911
)
(1,859
)
(1,202
)
Free cash flow
$
18,464
$
28,727
$
(58,710
)
Guess?, Inc. and Subsidiaries
Retail Store Data
Global Store and Concession Count
Stores
Concessions
Region
Total
Directly
Operated
Partner
Operated
Total
Directly
Operated
Partner
Operated
As of July 31, 2021
United States
245
244
1
1
—
1
Canada
74
74
—
—
—
—
Central and South America
106
71
35
29
29
—
Total Americas
425
389
36
30
29
1
Europe and the Middle East
745
524
221
44
44
—
Asia and the Pacific
427
133
294
263
91
172
Total
1,597
1,046
551
337
164
173
As of August 1, 2020
United States
259
257
2
1
—
1
Canada
79
79
—
—
—
—
Central and South America
110
72
38
27
27
—
Total Americas
448
408
40
28
27
1
Europe and the Middle East
742
515
227
38
38
—
Asia and the Pacific
432
161
271
303
115
188
Total
1,622
1,084
538
369
180
189
As of August 3, 2019
United States
287
285
2
1
—
1
Canada
80
80
—
—
—
—
Central and South America
111
71
40
27
27
—
Total Americas
478
436
42
28
27
1
Europe and the Middle East
726
510
216
37
37
—
Asia and the Pacific
520
216
304
337
162
175
Total
1,724
1,162
562
402
226
176
Guess?, Inc. and Subsidiaries
Adjusted Earnings Per Share for the Fiscal Year
(in thousands)
FY2020
FY2024E*15
Reported GAAP net earnings attributable to Guess?, Inc.
$
95,975
Certain professional service and legal fees and related (credits) costs2
(857
)
Separation charges3
438
Asset impairment charges4
9,977
Amortization of debt discount6
7,558
Income tax impact from adjustments8, 9
(8,055
)
Total adjustments affecting net earnings attributable to Guess?, Inc.
9,061
Adjusted net earnings attributable to Guess?, Inc.1
$
105,036
GAAP earnings per share
$
1.33
$
3.36
Certain professional service and legal fees and related (credits) costs2
$
(0.01
)
$
—
Separation charges3
$
—
$
—
Asset impairment charges4
$
0.12
$
—
Amortization of debt discount6
$
0.08
$
0.14
Income tax impact from adjustments8,9
$
(0.07
)
$
—
Adjusted earnings per share1
$
1.45
$
3.50
______________________________________________________________________
* Amounts represent estimates for future fiscal years.See page 22 for footnotes.
Guess?, Inc. and Subsidiaries
Return on Invested Capital for the Fiscal Year
(in thousands)
FY2019
FY2020
FY2020
2-Year
Average
FY2023E
FY2024E
FY2024E
2-Year
Average
Total assets10
$
1,649,205
$
2,428,962
$
2,039,084
$
2,747,000
$
2,953,000
$
2,850,000
Less: Cash and cash equivalents
(210,460
)
(284,613
)
(247,537
)
(634,000
)
(806,000
)
(720,000
)
Less: Operating right-of-use assets10
—
(851,990
)
(425,995
)
(760,000
)
(764,000
)
(762,000
)
Less: Accounts payable
(286,657
)
(232,761
)
(259,709
)
(333,000
)
(346,000
)
(339,500
)
Less: Accrued expenses
(252,392
)
(204,096
)
(228,244
)
(208,000
)
(209,000
)
(208,500
)
Add: Accrual for European Commission fine11
45,619
—
22,809
—
—
—
Average invested capital
$
945,315
$
855,502
$
900,408
$
812,000
$
828,000
$
820,000
FY2020
FY2024E
Reported GAAP earnings from operations
$
140,671
$
335,000
Less: Certain professional service and legal fees and related (credits) costs2
(857
)
—
Add: Asset impairment charges4
9,977
—
Add: Separation charges3
438
—
Adjusted earnings from operations12
$
150,229
$
335,000
Less: Asset impairments4
(9,977
)
—
Less: Other income (expense), net
(2,529
)
(1,400
)
Less: Income tax expense13
(29,886
)
(83,400
)
Adjusted net operating profit after taxes1
$
107,837
$
250,200
Non-GAAP return on invested capital14
12
%
31
%
______________________________________________________________________
See page 22 for footnotes.
Guess?, Inc. and Subsidiaries
Footnotes to Condensed Consolidated Financial Data
Footnotes:
1
The adjusted results reflect the exclusion of certain professional service and legal fees and related (credits) costs, certain separation charges, asset impairment charges, net gains on lease modifications, non-cash amortization of debt discount on the Company’s convertible senior notes, the related income tax impacts of these adjustments, as well as certain discrete income tax adjustments, where applicable. A complete reconciliation of actual results to adjusted results is presented in the “Reconciliation of GAAP Results to Adjusted Results.”
2
Amounts recorded represent certain professional service and legal fees and related (credits) costs, which the Company otherwise would not have incurred as part of its business operations.
3
Amounts represent certain separation-related charges due to headcount reduction in response to the pandemic and due to the separation of our former Chief Executive Officer.
4
Amounts represent asset impairment charges related primarily to impairment of operating lease right-of-use assets and property and equipment related to certain retail locations resulting from lower revenue and future cash flow projections from the ongoing effects of the COVID-19 pandemic and expected store closures.
5
Amounts recorded represent net gains on lease modifications related primarily to the early termination of certain lease agreements.
6
In April 2019, the Company issued $300 million principal amount of 2.00% convertible senior notes due 2024 (the “Notes”) in a private offering. The Company has separated the Notes into liability (debt) and equity (conversion option) components. The debt discount, which represents an amount equal to the fair value of the equity component, is amortized as non-cash interest expense over the term of the Notes. Estimates of adjusted earnings per share for the full fiscal year 2024 exclude the amortization anticipated to be recorded in those years as such amounts are known. The Company has not assumed any potential share dilution related to the convert or related warrants.
7
Amounts represent discrete income tax adjustments related primarily to the impacts from cumulative valuation allowances and the income tax benefits from an income tax rate change due to net operating loss carrybacks.
8
The income tax effect of certain professional service and legal fees and related (credits) costs, separation charges, asset impairment charges, net gains on lease modifications and the amortization of debt discount was based on the Company’s 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.
9
During fiscal year 2020, the Company recorded the impact from changes in the tax law on deferred taxes in certain tax jurisdictions, net tax settlements and adjustments to specific uncertain tax positions.
10
During fiscal year 2020, the Company adopted a comprehensive new lease standard which superseded previous lease guidance. The standard requires a lessee to recognize an asset related to the right to use the underlying asset and a liability that approximates the present value of the lease payments over the term of contracts that qualify as leases under the new guidance. The adoption of the standard resulted in the recording of operating lease right-of-use assets and operating lease liabilities.
11
During fiscal year 2019, the Company recognized a charge of €39.8 million ($45.6 million) related to a fine by the European Commission related to its inquiry concerning potential violations of European Union competition rules by the Company.
12
The adjusted earnings from operations for fiscal year 2020 reflect the exclusion of certain items which the Company believes are not indicative of the underlying performance of its business.
13
Income taxes are calculated using the adjusted effective income tax rate for fiscal year 2020 of 21.7% and a projection of 25% for the fiscal 2024 effective income tax rate.
14
The Company defines return on invested capital (or "ROIC") as adjusted net operating profit after taxes divided by two-year average invested capital.
15
The Company is unable to predict future amounts for items excluded for non-GAAP for fiscal year 2024, with the exception of amounts related to the amortization of debt discount, as these expenditures and credits are inconsistent in amount and frequency and certain elements used to estimate such items have not yet occurred or are out of the Company's control. As such, the Company has not considered any future charges in the accompanying GAAP outlook.
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