Guess storefront

Guess Inc. is feeling the effects of the coronavirus

In the most recent quarter, the pandemic cost the apparel, accessories and footwear retailer $160 million. 

“The COVID-19 crisis has had a material impact on our company, including our operations and our financial results,” Carlos Alberini, chief executive officer of Guess, said in a statement Wednesday morning. “I couldn’t be more proud of our teams around the world as they acted decisively, quickly and strongly to control what could be controlled and demonstrated a level of commitment, leadership and empathy that is unparalleled.”

Revenues across all geographies fell during the three-month period ending May 2, with total revenues coming in at $260 million, down from $536 million the same time last year. Even traffic to the company’s e-commerce business was lower during the quarter. Meanwhile, the company’s bottom-line profit loss widened to $160 million, compared with a loss of $20.5 million a year earlier. 

Earlier this year, Guess closed 127 stores in China to prevent the spread of the coronavirus. By mid-March, as the virus made its way around the world, the retailer was forced to close all brick-and-mortar locations in North America and Europe. At the time, the company said stores would remain closed for about two weeks, or until March 27. 

As of Wednesday, roughly 677 of the company’s 1,141 directly operated stores have reopened, including all stores in Asia, more than 400 stores in Europe and 180 stores in North America. Alberini said current quarter-to-date sales at reopened stores are about 75 percent in North America and 70 percent in Europe, compared with the same time last year. 

In addition, the company said it has plans to permanently close roughly 100 stores in North America and China over the next 18 months.

“The recent store performance and expected demand under our new normal model make very clear that our store portfolios around the world could be optimized to increase profitability,” Alberini said on Wednesday morning’s conference call with analysts. The ceo added that approximately 70 percent of store leases globally are set to expire in the next three years, “which also gives us significant negotiation power for future renewals.”

Despite the anticipation of permanent store closures in the near term, Alberini said there is still an opportunity to expand the fleet at a later date.

“There are going to be store expansion opportunities in many areas as landlords want an incredible brand to be represented in their centers,” Alberini said. “And I’m sure that there are going to be very good opportunities to go into new real estate for us.

“I want to make sure I make this point very strongly because we believe in stores and we think that [stores are] an important piece of our success,” Alberini continued. “We think that there is no better way to represent the brand than with a great, well-positioned and well-merchandised store. And this has always been part of our big representation of the brand. And we also think that stores are the number-one customer acquisition vehicle that we have. So overall, we will continue to support having a very strong presence in stores.”

In the meantime, to minimize losses and protect liquidity, Alberini said his team is reevaluating every aspect of the business. 

“In addition to postponing our decision related to the payment of the quarterly dividend, we were able to reduce expenses, adjust inventory levels and purchases, lower capital expenditures and extend vendor payment terms to react to the crisis,” Alberini said.

Guess also began furloughing associates in March, drew down on a $212 million credit facility, implemented salary reductions for management and corporate-level associates, began suspending rent payments in April and said it would reduce capital spend and inventory purchases in the near term. 

“The one area that we protected in terms of discretionary spending is our digital platform,” Kathryn Low Anderson, chief financial officer of Guess, said on the conference call. “We believe this investment will have a very high and rapid return.”

Executives on the call said at present e-commerce represents about 13 percent of total sales, but the company is expecting that number to grow to 18 percent by the end of the year. 

Other opportunities for growth include the company’s outerwear and activewear categories.

“Looking forward, the building blocks of our long-term strategy are still intact,” Alberini said. “We remain focused on enhancing our omnichannel platform centered around the consumer and are accelerating our efforts to gain efficiencies across our global operations and rationalize our store portfolios. I fully expect to be on the other side of this crisis with a more efficient business model, a more focused and consistent global brand strategy and a more nimble and agile organization.”

The company is not providing forward-looking guidance, but said it expects sales trends to be similar in the second quarter. 

Shares of Guess, which closed down 19.98 percent to $10.21 a piece Wednesday, are down approximately 30 percent year-over-year. 

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