GUESS HIT WITH TWO CLASS ACTION LAWSUITS

Byline: Kristi Ellis

LOS ANGELES — Beleaguered Guess Inc. was slapped with two class action lawsuits on Tuesday, four days after announcing it was restating the first three quarters of fiscal 2000 due to accounting errors and would not meet its financial targets for the just-ended fiscal year.
Milberg Weiss Bershad Hynes & Lerach LLP, and Cauley Geller Bowman & Coates LLP both filed separate class action lawsuits on behalf of shareholders against Guess in U.S. District Court for the Central District of California.
The law firms accused Guess of embarking on a “campaign to conceal the adverse financial condition of the company and thereby avoid a complete collapse in the price of Guess shares.”
The complaints allege that as Guess’s inventory increased between Feb.14, 2000 and Jan. 26, 2001, the price of Guess shares fell from the $28 to $33 range to the $18 to $20 range, and it became obvious that they could not successfully complete the sale of 4.5 million shares in their planned secondary offering for expected returns of approximately $120 million (or $27 per share).
They further claim that the alleged Guess campaign involved orchestrating a “soft landing” of the stock through a Nov. 9 press release that over-projected quarterly earnings. Additionally, Guess said in that release that it would record a loss of over $4.7 million related to below-cost sales of inventory and a charge of $5.4 million to increase reserves for impaired or worthless inventory.
Calling the allegations “completely erroneous,” Maurice Marciano, Guess co-chairman and co-chief executive, told WWD that neither he nor the company had been served with the lawsuit as of 4 p.m., Pacific Standard Time.
“The company has acted promptly each time it had any news which had to be public,” said Marciano in an interview. “We have never tried to conceal anything.
“The most important thing for us is the trust of all the shareholders,” he said. “I do wish quite a few things didn’t happen but as soon as we uncovered the mistakes, we made them public and took care of it.”
As reported, in a prerecorded announcement on the Web Monday, Marciano explained that errors were made by the company’s accounting staff in part because it failed to account for inventory when it moved a distribution facility to Louisville, Ky., from Los Angeles.
Guess said it now expects to report a loss of 27 to 31 cents a share for the fourth quarter that ended Dec. 30. Analysts had been looking for the company to earn 7 cents a share. The results will include nonrecurring charges of about $14 million for inventory write-down charges, store closings and other expenses.
Analysts have said that they are confident in the assertion that the accounting mistakes were not intentionally made and that Carlos Alberini, Guess’s new president and chief operating officer, can rebuild the company’s credibility on Wall Street.

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