3. 3
• GUESS was established in 1981 by the Marciano brothers
• Company headquarters is located in: Los Angeles, California
• Guess products are available primarily in factory and retail stores in the United States and Can-
ada, as well as through its Internet store at http://www.guess.com
• The company’s products are marketed under trademarks including GUESS, GUESS, GUESS
U.S.A., GUESS Jeans, GUESS and Triangle Design, Question Mark and Triangle Design,
BRAND G, a stylized G, GUESS Kids, Baby GUESS, and GUESS Collection
• They have 4800 employees
• NYSE Ticker Symbol: GES
Board of Directors:
Maurice Marciano – Chairman Emeritus
Paul Marciano – Executive Chairman and Chief Creative Officer
Victor Herrero – Chief Executive Officer and Director
Gianluca Bolla – Director
Anthony Chidoni – Director
Joseph Gromek – Director
Kay Isaacson-Leibowitz – Director
Alex Yemenidjian – Director
COMPANY INFORMATION
5. 5
2011 2015
(Dollar amount in thou-
sands) (Dollar amount in thousands)
# Days in Period 365 days 365 days
Revenue $2,487,294.00 $2,417,673.00
COGS $1,397,062.00 $1,549,788.00
Average Total Assets $1,608,526.50 $1,682,918.00
Average Working Capital $756,982.00 $827,727.00
Average Receivables $321,100.00 $246,400.00
Average Inventory $273,950.00 $335,000.00
Inventory Turnover 5.0997 4.6262
Receivables Turnover 7.7462 9.8120
Working Capital Turnover 3.2858 2.9209
Total Asset Turnover 1.5463 1.4366
Days of Inventory on-hand 71.5729 78.8979
Days of Sales Outstanding 47.1201 37.1994
Analysis
When comparing the two inventory turnover ratio, the ratio between the two analyzed periods de-
creased suggesting there is less money being tied to inventory. In return there might be a management
problem. The increase in average inventory and total assets and decrease in revenue might explain why
there is less money being tied to the product - because there is less money being tied to the increasing
amount of merchandise. When you compare Revenue and COGS, you will notice that they have a negative
inverse relationship (revenue decrease while COGS increased). This might explain the increasing days of
inventory on-hand and the decreasing total asset turnover. This points to a possibility that Guess?, Inc. Is
not selling as much as they used, thus holding the inventory longer and continuously experiencing a declin-
ing revenue. The most important ratio for this company is inventory turnover and days of inventory on-hand
because it shows how fast the company is able to get their merchandise off of their hands. You can get an
estimate of how well financially a company is doing when comparing these two ratios. And by comparing
these ratios you can say Guess?, Inc. Is experiencing an overall decline is business.
ACTIVITY RATIOS
6. 6
2011 2015
(Dollar amount in thou-
sands) (Dollar amount in thousands)
Current Assets $1,685,804.00 $1,601,405.00
Current Liabilities $619,610.00 $301,966.00
Cash $442,100.00 $483,483.00
Short Term Marketable Invest-
ments $15,100.00 $-
Receivables $358,500.00 $216,205.00
Current Ratio 2.7208 5.3033
Quick Ratio 1.3165 2.3171
Cash Ratio 0.7379 1.6011
Analysis
One thing that sticks out is the company decided to not make any short term marketable investments.
The question the rises is if the reasoning behind that is to lower their liabilities (which they have) and focus
on covering their existing debt. This might also be an effort to lower their current ratio to be attractive to po-
tential shareholders. There is a relationship between the high current ratio and no short term marketable in-
vestments, since one measurement of the current ratio is a company’s ability to meet short-term obligations.
The significantly higher cash ratio may be a sign that the company is trying to prepare for a crisis knowing
the company is continuously declining business wise. (This could also explain the to short term marketable
investments).
LIQUIDITY RATIOS
7. 7
2011 2015
(Dollar amount in thou-
sands) (Dollar amount in thousands)
Total Debt $524.00 $1,968.00
Total Assets $1,685,804.00 $1,601,405.00
Average Total Assets $1,608,526.50 $1,682,918.00
Total Shareholder’s Equity $15,100.00 $1,089,441.00
Average Total Equity $1,298,721.50 $1,129,716.00
Debt-to-assets 0.0003 0.0012
Debt-to-capital 0.0335 0.0018
Debt-to-equity 0.0347 0.0018
Financial leverage ratio 1.2385 1.4238
Analysis
The company has a negative change in the solvency ratios. First, the total debt has increased signifi-
cantly and their total assets of decreased (as well as the average total assets). Based on the pattern, aver-
age total assets will continue to decrease until at least two period’s total assets increase to a certain amount.
SOLVENCY RATIOS
8. 8
2011 2015
(Dollar amount in thou-
sands) (Dollar amount in thousands)
EBIT (Earnings Before Interest and
Taxes) $421,377.00 $145,378.00
Interest Payments $1,413,797.00 $1,283,322.00
Lease Payments $1,150,779.00 $968,923.00
Interest coverage ratio 0.2980 0.1133
Fixed charge coverage ratio 0.6130 0.4948
Analysis
The Interest coverage ratio measures the amount of times a company’s EBIT could cover its inter-
est payments. With that being said, you would want a higher interest coverage ratio. By looking at the ratio,
Guess? wouldn’t even be able to cover their interest payments by using their EBIT. That could hint that the
company in general borrows too much and does not generate enough earnings in order to pay their liabil-
ities in a timely fashion. The fact that their EBIT lowered significantly in the analyzed period hints that they
are not generating as much revenue as they should. The numerator in the fixed charge coverage ratio is the
cash flow generated by the company and the denominator is the company’s obligations, so you would want
a higher fixed charge coverage ratio. With the being said, seeing that the ratio has decreased between the
two periods show the company overall has increasing interest that they cannot pay with their decreasing net
flows.
COVERAGE RATIOS
9. 9
2011 2015
(Dollar amount in thou-
sands) (Dollar amount in thousands)
Gross Profit $1,090,232.00 $867,900.00
Revenue $2,487,294.00 $2,417,673.00
Operating Income $358,800.00 $125,912.00
Net Income $289,508.00 $94,570.00
Gross Profit Margin 0.4383 $0.36
Operating Profit Margin 0.1443 $0.05
Net Profit Margin 0.1164 $0.04
Analysis
In 2011 for every $1 the company spent they got $0.4383 in return. In 2015 for every $1 spent, $0.36
was earned in return. By comparing the two gross profit margins you can tell that the company is earning
less whenever money is spent. Either that or their material costs are too high and/or their products are
priced too low. (Or it might mean they might be overpricing their products and customers are not willing to
purchase). The decrease in the operating profit margin shows there is a weakness in their operating costs.
This might explain the announcement last year (2014) of the closure 50 stores in a possible attempt to lower
overhead and operating expenses in general. The decrease of the net profit margin shows the company is
generating enough net income and revenue in order to cover their continuously increasing expenses.
PROFITABILITY RATIOS
10. 10
2011 2015
(Dollar amount in thou-
sands)
(Dollar amount in thou-
sands)
Operating Income $358,800.00 $125,912.00
Average Total Assets $1,608,526.50 $1,682,918.00
Net Income $289,508.00 $94,570.00
EBIT $421,377.00 $145,378.00
Equity $1,066,194.00 $1,089,441.00
Average Total Equity $1,298,721.50 $1,129,716.00
Operating ROA 0.2231 0.0748
ROA 0.1800 0.0562
ROE 0.2229 0.0837
Analysis
A higher ROA means the more income generated by a given level of assets. By comparing the two
ratios the income generated by the company is continuously decreasing. In general, the company’s overall
equity and assets is lowering which would explain a lower ratio. It is also interesting to point out the EBIT in
2015 is almost 73% than the EBIT in 2011. This could hint to a revenue and earnings problem.
RETURN ON INVESTMENTS
11. 11
2011 2015
Price Per Share $0.80 $0.90
Earnings Per Share - Basic $3.14 $1.11
Earnings Per Share - Dilut-
ed $3.11 $1.11
Cash Flow Per Sale $9.20 $4.79
Sales per Share $0.74 $0.72
Book Value per Share $13.17 $11.93
P/E - Basic 0.2548 0.8108
P/E - Diluted 0.2572 0.8108
P/CF 0.0870 0.1879
P/S 1.0811 1.2500
P/BV 0.0607 0.0754
Analysis
The P/E ratio indicates how much an investor must spend to buy the stock, per dollar of earnings.
Basic EPS is the total earnings per share based on the number of shares outstanding at the time. Diluted
EPS figure reveals the earnings per-share a business would have generated if all stock options, warrants,
convertibles, and other potential sources of dilution that were currently exercisable were invoked and the
additional shares printed resulting in an increase in the total shares outstanding. Something that is interest-
ing to point out is the Basic and Diluted EPS for 2015 is the same. And interesting enough, the PPS between
2011 and 2015 rose $0.10. It could be possible the company is trying to generate more equity by raising the
price of their shares. By looking at the rest of the ratios, it matches up with the fact that GUESS? is trying to
combat the lowered consumer confidence and debit and bank credit crisis in Europe by raising the prices of
their products. This is reflected by the huge jumped of numbers between 2011 and 2015.
VALUATION RATIOS
12. 12
2011 2015
Net Income - Preferred Dividends $289,508,000.00 $94,570,000.00
Preferred Dividends - -
Cash Flow from Operations $294,503,000.00 $153,826,000.00
Ave. Number of Ordinary Shares Out. 92,513,752.20 85,142,749.50
EBITDA 421,377,000.00 $224,200,000.00
Adj. Income For Ord Shares Reflecting Dilutive
Sec. $92,115,000.00 $84,837,000.00
Weighted Ave. Ord/Pot. Shares Out. 92,513,752.20 85,142,749.50
Average Shares Outstanding 92,513,752.20 85,142,749.50
Common Dividends Declared $77,000,000.00 $247,100,000.00
Basic EPS 3.13 1.11
Diluted EPS 1.00 0.90
Cash Flow per Share 3.18 1.63
EBITDA per share 4.55 2.37
Dividends per share 0.83 2.90
Analysis
One interesting thing to point out is the rise in the dividends per share. The growth goes along with
the fluctuating WACC and dividend pattern and it reflects the increase in product prices in order to combat
against the effect of international problems (i.e. European debit/credit issues and concerned shoppers).
Next, by taking a look at the cash flow per share which measures the company’s ability to pay debt, and
grow the business, we see that it has almost decreased by 2/3 in 4 years. The company was optimistic
about their business back in 2011 compared to 2015 due to the continuing international economic problems.
These problems are reflected in their ratio. Also, since the company’s capital expenditure takes place in Italy,
the company is taking a gamble and their expenditure might not pay off as expected. As expected, the EPS
have decreased and once again, this might be due to an increased consumer concerns. In some instances,
the company had to hold promoted sales in order to combat against that (as well as simultaneously raise
prices) in order to combat against that, and we’re seeing that reflected in the Basic/Diluted EPS ratios.
PER-SHARE QUANTITIES
13. 13
2011 2015
(Dollar amount in thou-
sands)
(Dollar amount in thou-
sands)
Common Share Dividends $247,098.00 $77,360.00
NI Attributable to Common Shares $286,705.00 $93,908.00
NI Attributable to C/S Minus C/S Divi-
dends $39,607.00 $16,548.00
ROE 0.22 0.08
Dividend Payout Ratio 0.8619 0.8238
Retention Rate (b) 0.1381 0.1762
Sustainable Growth Rate 0.0308 0.0148
Analysis
With the dividend payout ratio (percentage of earnings the company pays out the shareholders as
dividends), even though the company continues to experience a fluctuation in dividends, the drop in the
dividend payout ratio is not as significant as expected. What is interesting to point out with the retention rate
(percentage of earnings that a company retains) is the increase signifies the fact that GUESS? is increasing
the price of their products in an effort to maintain stability during the current economic problems in Europe.
And in this case, a price raise in products means an increase in the percentage of earnings retained. The
growth rate (Sustainable Growth Rate) nearly decreased by 66% which means the company does not nearly
have the growth potential it did 4 years ago. Again, this matches up with their managerial view as of 2015
(pessimistic) since international factors are heavily impacting the business.
DIVIDEND-RELATED QUANTITIES
14. 14
GUESS STORE - QUEEN ST WEST, TORONTO
GUESS STORE - QUEEN ST WEST, TORONTO
GUESS KIDS - MILAN, ITALY
15. 15
kps Valua-
tion
X - Value Y - Value
0.1951 $35.70
Factor
Vari-
able Output
Shares Outstanding SO 92,290,744
Current Share Price CSP $35.70
Dividend DIV $2.68
Tax Rate TAXR 30.10%
Issued Shares ISS 137,579,379
Previously Issues Shares PREISS 136,568,091
Risk-free Rate RF 1.40%
Expected Return * RM 13.60%
Market Risk Premium ** MRP 12.20%
Growth *** GRW 12.00%
Term IY 5 Years
YTM † YTM 3.55%
Fair Value FV $600,000.00
Beta †† B 0.3146
Capital Gains Yield CGY 12.00%
Dividend Yield DIVY 1.60%
Pre-Tax Margin ††† PRETM 17.00%
Wd WD 11.88%
Cost of Debt KD 3.55%
Tax Rate TAXR 69.90%
Ws WS 0.3553
Kps KPS 0.1951
Wps WPS 0.5258
Ke KE 5.238%
Before Enterprise Value 8,170,260,409.50
Final Enterprise Value # EV 9,272,059,204.81
Ws Calculation 3,294,779,560.80
Wps Calculation 4,875,480,848.70
WACC 2011
Inputs
(WD)(KD)(TAXR) 0.2949
(WPS)KPS 10.2573
(WS)KE 1.8613
Total 12.4135
WACC – 2011
16. 16
Factor
Vari-
able Output
Shares Outstanding SO 89,631,328
Current Share Price CSP $38.12
Dividend DIV $0.80
Tax Rate TAXR 32.20%
Issued Shares ISS 138,089,021
Previously Issues Shares PREISS 137,579,379
Risk-free Rate RF 1.10%
Expected Return * RM 6.20%
Market Risk Premium ** MRP 5.10%
Growth *** GRW 4.00%
Term IY 4 Years
YTM † YTM 3.55%
Fair Value FV $1,000,000.00
Beta †† B 0.9001
Capital Gains Yield CGY 4.00%
Dividend Yield DIVY 2.20%
Pre-Tax Margin ††† PRETM 15.00%
Wd WD 10.17%
Cost of Debt KD 3.55%
Tax Rate TAXR 67.80%
Ws WS 0.3544
Kps KPS 0.0610
Wps WPS 0.6055
Ke KE 5.69%
Before Enterprise Value 8,661,272,150.84
Final Enterprise Value # EV 9,641,848,102.91
Ws Calculation 3,416,746,223.36
Wps Calculation 5,244,525,927.48
WACC 2012
Inputs
(WD)(KD)(TAXR) 0.2448
(WPS)KPS 3.6928
(WS)KE 2.0165
Total 5.9541
kps Valua-
tion
X - Value Y - Value
0.0610 $38.12
Analysis
It should be noted that the company had a supernatural growth rate of 12% in the year 2011, thus
why the hurdle rate was higher than usual. With the supernatural dividend growth during that 4-5 year pe-
riod, it possibly might have been a good idea to make a short-term investment. It should be noted that the
company currently has a 11 year (2005-2016) capital expenditure to build a new building in Florence, Italy.
Based on the dividends and WACC, the company should not make any new big investments like their new
building and should put their money towards other small investments (if needed). The increase in beta
shows how Guess,Inc.? security was riskier/unstable than usual. This might be due to end of the supernatu-
ral dividend growth and the WACC being cut more than 50%.
WACC – 2012
17. 17
Factor
Vari-
able Output
Shares Outstanding SO 85,367,984
Current Share Price CSP $30.79
Dividend DIV $2.00
Tax Rate TAXR 35.30%
Issued Shares ISS 138,812,082
Previously Issues Shares PREISS 138,089,021
Risk-free Rate RF 0.40%
Expected Return * RM 6.60%
Market Risk Premium ** MRP 6.20%
Growth *** GRW 4.00%
Term IY 3 Years
YTM † YTM 3.55%
Fair Value FV $900,000.00
Beta †† B 0.7778
Capital Gains Yield CGY 4.00%
Dividend Yield DIVY 2.60%
Pre-Tax Margin ††† PRETM 11.00%
Wd WD 7.12%
Cost of Debt KD 3.55%
Tax Rate TAXR 64.70%
Ws WS 0.3548
Kps KPS 0.1050
Wps WPS 0.5740
Ke KE 5.222%
Before Enterprise Value 6,880,241,183.95
Final Enterprise Value # EV 7,407,427,822.04
Ws Calculation 2,628,480,227.36
Wps Calculation 4,251,760,956.59
WACC 2013
Inputs
(WD)(KD)(TAXR) 0.1635
(WPS)KPS 6.0244
(WS)KE 1.8531
Total 8.0409
kps Valua-
tion
X - Value Y - Value
0.1050 $30.79
Analysis
The company’s dividends have more than doubled from the previous showing a good sign when it
comes to future dividend payouts, which might explain the increase in the WACC. The Beta this year also
decreased which shows the company’s security will be less volatile than the market. If long-time/big invest-
ments wanted to be made, it wise to wait to make such decisions since the WACC is fluctuating. The com-
pany should focus on other things. Another reason for the fluctuating hurdle rate might be due to the current
bonds (the building in Florence) currently issued and how close to maturity they are. Based on also viewing
their activity ratios, it would be wise to wait until their bonds reach maturity to make any investments.
WACC – 2013
18. 18
Factor
Vari-
able Output
Shares Outstanding SO 84,962,345
Current Share Price CSP $34.16
Dividend DIV $0.80
Tax Rate TAXR 32.30%
Issued Shares ISS 139,245,729
Previously Issues Shares PREISS 138,812,082
Risk-free Rate RF 0.50%
Expected Return * RM 7.00%
Market Risk Premium ** MRP 6.50%
Growth *** GRW 4.00%
Term IY 2 Years
YTM † YTM 3.55%
Fair Value FV $600,000.00
Beta †† B 0.5764
Capital Gains Yield CGY 4.00%
Dividend Yield DIVY 3.00%
Pre-Tax Margin ††† PRETM 9.00%
Wd WD 6.09%
Cost of Debt KD 3.55%
Tax Rate TAXR 67.70%
Ws WS 0.3565
Kps KPS 0.0634
Wps WPS 0.5825
Ke KE 4.247%
Before Enterprise Value 7,644,134,426.32
Final Enterprise Value # EV 8,140,111,414.83
Ws Calculation 2,902,313,705.20
Wps Calculation 4,741,820,721.12
WACC 2014
Inputs
(WD)(KD)(TAXR) 0.1464
(WPS)KPS 3.6943
(WS)KE 1.5141
Total 5.3549
kps Valua-
tion
X - Value Y - Value
0.0634 $34.16
Analysis
Following the trend, their WACC goes up and down every year. A new question arises - why is the
WACC fluctuating? Not only that, their dividends have been fluctuating ever since the end of the super divi-
dend growth. It should also be noted that the FV for their capital expenditure now matches the FV in 2011.
WACC – 2014
19. 19
Factor
Vari-
able Output
Shares Outstanding SO 85,323,154
Current Share Price CSP $25.98
Dividend DIV $0.90
Tax Rate TAXR 32.00%
Issued Shares ISS 139,559,000
Previously Issues Shares PREISS 139,245,729
Risk-free Rate RF 0.80%
Expected Return * RM 9.20%
Market Risk Premium ** MRP 8.40%
Growth *** GRW 5.90%
Term IY 1 Years
YTM † YTM 3.55%
Fair Value FV $600,000.00
Beta †† B 0.6461
Capital Gains Yield CGY 5.90%
Dividend Yield DIVY 3.30%
Pre-Tax Margin††† PRETM 6.00%
Wd WD 4.08%
Cost of Debt KD 3.55%
Tax Rate TAXR 68.00%
Ws WS 0.3644
Kps KPS 0.0936
Wps WPS 0.5948
Ke KE 6.227%
Before Enterprise Value 5,834,299,580.34
Final Enterprise Value # EV 6,082,464,116.28
Ws Calculation 2,216,695,540.92
Wps Calculation 3,617,604,039.42
WACC 2015
Inputs
(WD)(KD)(TAXR) 0.0985
(WPS)KPS 5.5695
(WS)KE 2.2694
Total 7.937
kps Valua-
tion
X - Value Y - Value
0.0936 $25.98
WACC – 2015
Analysis
One interesting thing is even though the WACC is lower than 2013, the Beta in this year is higher
than in 2013. One reason behind that might because of the uncertainty of the dividends as the difference
between them every year varies greatly. Also, the dividends did not reach at least $2.00, just like the other
years when the WACC and dividends rose. Based on the current trend it is reasonable to say dividends will
decrease as well as the WACC. A final note is mention is when this upward/downward trend will discontin-
ue? As mentioned before, there is only one more year left until maturity on their bonds issues in 2005, so
next year we might be seeing something completely different.
21. 21
In 2011, despite negative economics factors, the company’s managerial view is optimistic.
The problem with GUESS? is since the majority of their international operations are conducted
in currencies other than the U.S. dollar, they continue to experience significant volatility in the glob-
al currency markets. Currency fluctuations can have a significant impact on the translation of their
international revenues and earnings into U.S. dollar amounts. They even experienced an overall
negative impact on the translation of their international revenues. Also, it is anticipated that there will
be a potential inflationary pressure on raw materials, labor, freight, or other commodities (i.e. oil), that
could begin to negatively impact the cost of product purchases. To mitigate some of those effects, the
company has plans to do so via price.
Global expansion continues to be the center of attention of their growth strategy. They expect
to continue expanding in Europe and Asia as well as implement newer store concepts in North Amer-
ica. GUESS? will be putting greater focus on their accessories line and expansion of their accesso-
ries store concept. One thing to point out is they see significant market opportunities in Asia and are
dedicating capital and human resources to support the region’s growth and development.
This view does correspond with the analysis I performed because the translation of their inter-
national operations into U.S. currency do reflect in their financial ratios and WACC. The effect of cost
of product purchases also explains the low inventory ratios.
MD&A – 2011
The company’s managerial view remains unchanged from 2011.
There are still inflationary pressures on raw materials, labor, freight, and other commodities.
The company has been able to mitigate the impact of product inflation through promoted sales/dis-
counts, price increases on select items, and supply chain initiatives. It is uncertain whether or not this
will continue to be successful. They now have to be careful since increased retail prices could lead to
reduce customer demand. There has also been relatively weaker levels of consumer confidence and
a highly promotional condition among retailers for some time now. The European sovereign debt and
bank credit issues affected the business, particularly in the more penetrated countries in Southern
Europe. The company experienced an overall positive impact on the translation of their international
revenues and earnings compared to the prior fiscal year.
This view does not correspond with the analysis I performed, and that may be due to the termi-
nation of a supernatural dividend growth (WACC). The WACC significantly dropped from the previous
year. However, it does correspond with the focus on international growth since their current capital
expenditure is a new facility in Italy, which emphasizes their international growth.
MD&A – 2012
22. 22
The company’s managerial view remains unchanged.
The debit and credit issues in Europe continues to affect consumer confidence and discre-
tionary spending in those countries, which in turn has a great impact on their multi-brand wholesale
channel, particularly in Italy. Inflationary pressures are still being experienced and there has been an
overall negative impact of the translation of their international revenues and earnings for the fiscal
year.
This corresponds with my analysis since the positive impact on the translation of their inter-
national revenues and earnings from the last fiscal period (2012) are reflect in the 2013 WACC (in-
crease from last period). With that being said, it should be expected that since there is a debit and
credit issue in Europe and a negative impact of the translation of their international revenues, we can
expect that the WACC for next year will decrease significantly. It is also interesting to point out that It-
aly, where their new facility is being built, is being negatively affected by the Europe debit/credit crisis,
so it is interesting to point out how things will turn out in the upcoming years.
MD&A – 2013
The company’s managerial view has changed to neutral.
As previous years, the volatile economic and market conditions and cautious consumer be-
havior remains the same. The problems in Europe still continue to affect business, which have had
and may continue to have negative impact on the business. There has been a positive impact on the
translation of their international revenues and earnings for the fiscal year ended February 1, 2014
compared to the prior fiscal year. It should also be pointed out that product margins in Europe where
not significantly impacted as a result of exchange rate fluctuations compared to the prior fiscal year.
Just as expected, the WACC for this period has dropped due to the negative impact of the
translation of international revenues and earnings from the last period. We cannot expect the hurdle
rate for the following year to follow the current pattern due to that fact that the managerial view has
changed and the economic factors have not changed. It should be interesting to see how this affects
the future years since the company is no longer optimistic, but now neutral. Also, as the maturity on
their bonds (the facility in Italy) and the completion of their project approaches, the crisis in Europe
may impact business even more.
MD&A – 2014
23. 23
The managerial view is pessimistic.
In North America, highly promotional conditions among retailers and softer mall traffic may per-
sist for some time. The continuing problems in Europe still have a negative impact on their business.
Also, the geopolitical tension in Russia and Ukraine has impacted economic sentiment and could
continue to negatively impact their business. Additionally, there is evidence of a more cautious con-
sumer in China and South Korea. Product margins in Canada and Europe were negatively impacted
by exchange fluctuations, as well as an overall negative impact on the translation of international
revenues and earnings from operations. If the U.S. dollar remains strong relative to the fiscal 2015
foreign exchange rates, it is expected that foreign exchange will have a significant negative impact
on their fiscal 2016 revenues and operations results as well as international cash and other balance
sheet items.
This strongly corresponds with my analysis since the all of the factors described above have
severely negatively impacted their financial ratios. Also, the WACC for 2015 has risen from the
previous year (positive impact on the translation of international and revenues and earnings), con-
tinuing the fluctuating pattern. The increasing international problems is greatly negatively impacting
GUESS?’s business. One thing that should be interesting to see is if these conditions are improved,
can we see a positive change with the company?
MD&A – 2015
25. 25
Board of Directors is composed of seven directors, five of whom qualify as independent direc-
tors. The Board affirmatively determines that directors have no direct or indirect material relationship
with the company. The Board considers whether the transactions were at arm’s length in the ordinary
course of business and whether the transactions were consummated on terms and conditions similar
to those of unrelated parties.
Board uses the following categorical standards to determine director independence 1
:
(1) not being a present or former employee, or having an immediate family member as an executive
officer, of the Company within the past three years;
(2) not personally receiving, or having an immediate family member receive, during any twelve-month
period within the last three years, more than $120,000 of direct compensation from the Company oth-
er than (a) for Board or committee service, pension or other forms of deferred compensation for prior
service or (b) by an immediate family member for services as an employee of the Company (other
than as an executive officer);
(3) not (a) being a current partner or employee of a firm that is the Company’s internal or external
auditor; (b) having an immediate family member who is a current partner of such a firm; (c) having
an immediate family member who is a current employee of such a firm and personally works on the
Company’s audit; or (d) being within the last three years or having an immediate family member who
was within the last three years a partner or employee of such a firm and personally worked on the
Company’s audit within that time;
(4) not being employed, or having an immediate family member employed, within the past three years
as an executive officer of another company where now or at any time during the past three years any
of the Company’s present executive officers serve or served on the other company’s compensation
committee;
(5) not being an executive officer or employee, or having an immediate family member who is an
executive officer, of a company that makes or made payments to, or receives or received payments
from, the Company, for property or services in an amount which, in any of the past three fiscal years,
exceeds or exceeded the greater of $1 million, or 2% of the other company’s consolidated gross reve-
nues;
(6) not being an executive officer of a charitable organization of which the Company has within the
preceding three years made any contributions to that organization in any single fiscal year that ex-
ceeded the greater of $1 million, or 2% of the charitable organization’s consolidated gross revenues;
(7) not accepting directly or indirectly any consulting, advisory, or other compensatory fee from the
Company or any of its subsidiaries, provided that compensatory fees do not include the receipt of
fixed amounts of compensation under a retirement plan (including deferred compensation) for prior
service with the Company (provided that such compensation is not contingent in any way on contin-
ued service); and
(8) not being an affiliated person of the Company or any of its subsidiaries.
The Board has the following committees: Audit, Compensation, and Nominations and Gov-
ernance Committee. The Independent Directors are apart of two committees, no less and no more.
Every properly submitted shareholder nominations for candidates for membership on the Board is
considered. The Nominating and Governance Committee will evaluate a prospective nominee sug-
gested by any shareholder in the same manner and against the same criteria as any other prospec-
tive nominee identified by the Nominating and Governance Committee from any other source. They
seek to achieve a balance of knowledge, experience, and capability on the Board. GUESS?’s Gov-
ernance Guidelines provide that the Board should be free to determine, in any manner that it deems
best for the Company from time to time, whether the role of Chairman of the Board and Chief Exec-
utive Officer (“CEO”) should be separate. The company also follows the NYSE’s listing standards for
“corporate governance guidelines.” 2
CORPORATE GOVERNANCE
31. 31
WACC Notes
*Expected Return based on Capital Gains Yield and Expected Dividends Yield
**Expected Return used in calculation based on two other factors (see above)
***Growth based on information provided on an outside financial media
†Swap-fixed rate
††Historical Beta calculated using historical data from U.S. Treasury and
Guess?,Inc.
†††Pre-tax margin based on information provided by NASDAQ
#EV based on performing arithmetic using the WS and WPS
– Expected return calculation based on calculating capital gains yield
– Pre-tax is based on historical average data
– Weights for WACC is based on using before-tax and marginal tax rate
– Enterprise Value is based on using pre-tax and marginal tax rate (Wd)
NOTES
Corporate Governance Notes
1
Source:
https://www.sec.gov/Archives/edgar/data/912463/000104746915004955/a2224834zdef14a.
htm#toc_dg46401_1
2
Full information found at:
http://investors.guess.com/phoenix.zhtml?c=92506&p=irol-govGuidelines
