Guess Posts 6% Revenue Gain in Q2

Key Points

• Management’s stated expectations were exceeded.

• Adjusted earnings per share fell 38% in Q2 FY2026 compared to the prior year, constrained by rising costs and margin contraction.

• Guess? (NYSE:GES) announced a take-private transaction with delisting plans, suspended guidance, and will no longer host quarterly conference calls.

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Guess? (NYSE:GES), a global fashion retailer known for its denim and distinctive lifestyle apparel, reported Q2 FY2026 earnings on August 27, 2025. The most significant development in the report was the announcement of a proposed take-private transaction, with Authentic Brands Group and company founders planning to acquire and delist the company. In terms of results, Revenue (GAAP) climbed to $772.9 million, a 6% increase from the same period last year, outpacing both internal and external expectations. However, profit metrics lagged: Adjusted earnings per share (EPS) dropped to $0.26 from $0.42, reflecting a 38% fall and pointing to higher expenses and compressed margins. Overall, the quarter delivered revenue outperformance, but revealed underlying weaknesses in cost control and bottom-line profitability.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2026 earnings report.

About Guess? and Recent Strategic Focus

The company designs and distributes fashion apparel, handbags, accessories, and footwear for men, women, and children. Its core business revolves around the GUESS? brand, but it also manages a growing portfolio that now includes the rag & bone lifestyle brand acquired in April 2024. Operating in over 100 countries, the company balances direct-to-consumer retail stores, wholesale partnerships, and licensing arrangements to reach its customers.

Recently, it has focused on key areas: fortifying brand equity, expanding global reach, growing through strategic acquisitions, and supporting sustainability goals. Success depends upon its ability to boost customer loyalty, leverage global diversification, maintain productive sales channels, and manage integration of new businesses such as rag & bone. Maintaining adaptability and keeping the brand relevant are critical in the rapidly evolving apparel landscape.

Quarter in Review: Performance, Segments, and Notable Events

The period showed GAAP revenue growth ahead of consensus, driven mainly by strong results in Europe. European segment revenue rose 14% in the second quarter, buoyed by an 11% increase in retail comparable sales, including both in-store and e-commerce. The operating margin for this region improved to 10.6% from 9.8%, a result of better sales figures and favorable currency movements, partially offset by increased advertising and store costs.

The Americas contrasted sharply with Europe. The Americas Retail segment saw revenues down 1%, and Americas Retail comparable sales slipped 5% in the second quarter. Operating margin for the Americas Retail segment weakened from 1.5% to negative 3.7% in the second quarter, squeezed by heavier markdowns and rising expenses. Americas Wholesale also disappointed, with an 11% revenue drop. However, its operating margin for the Americas Wholesale segment ticked up slightly to 19.6%, driven primarily by higher product margin, despite absolute sales volume contraction. The Asia segment reported a 3% increase in revenue, but continued to struggle with negative retail comparable sales and an operating margin that worsened to negative 6.8% in the second quarter.

Profit margins compressed company-wide in the second quarter. Gross margin (GAAP) slid from 43.7% to 42.5%, while Adjusted operating margin fell by 1.5 percentage points. Cost pressures came from both higher direct operating expenses and increased marketing spend, which management cited as “higher expenses, including higher advertising and store costs.” The bottom line reflected these pressures: adjusted net earnings fell 40% even as revenue rose, and GAAP net earnings attributable to the company improved to $6.2 million—turning positive after a net loss in the prior-year period.

Free cash flow (non-GAAP) for the first half of FY2026 was negative $44.6 million, a steep deterioration from negative $22.96 million at this time last year. Inventory climbed to $668 million, as the company built up supply to avoid disruptions from the Red Sea crisis and to support its growing business but risks carrying excess stock. The company continues to pay a quarterly dividend, though it trimmed the payout to $0.225 per share—a sequential drop from $0.30, marking a 25% reduction.

Business Model: Channels, Products, and Integration

Guess? pursues a multi-channel model, combining direct-to-consumer retail, wholesale, and high-margin licensing of intellectual property. The direct-to-consumer channel, including both brick-and-mortar stores and e-commerce, performed well in Europe but faced modest declines in the Americas and Asia. The wholesale channel, which sells Guess? products in other retailers’ stores, saw declines in the Americas after strong gains in Q1 FY2026—a shift suggesting changing shipment timing or demand.

Licensing, which consists of revenue from GUESS? branded products like watches, fragrances, and footwear manufactured by partners, fell 10% on a GAAP basis, but continued to post very high segment operating margins above 95%, indicating low costs but pressure on overall royalty income. The rag & bone product family—covering premium denim and lifestyle apparel—was fully integrated into broader operating segments and provided some support to U.S. results. Management had previously commented on encouraging performance from the integration process.

Strategic Transactions, Guidance, and Looking Ahead

The most transformative news in the quarter was the announced agreement for the company to go private. Authentic Brands Group will acquire 51% of the company’s intellectual property, while Rolling Stockholders, including company founders, CEO Carlos Alberini, and certain of their respective trusts, foundations, and affiliates, will acquire 49% of substantially all of the company’s intellectual property and 100% of the operating assets. Shareholders outside this group will receive $16.75 per share in cash, and the stock will be delisted, pending shareholder approval. This puts future disclosure of operational metrics and performance beyond typical public market scrutiny.

Following this announcement, management suspended all financial guidance, and The company did not host a conference call in connection with its quarterly results. This makes it difficult to track future operational expectations or strategic direction beyond the take-private process.

GES continues to pay a dividend; the quarterly dividend was $0.225 per share.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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