M A N A G E M E N T ' S D I S C U S S I O N A N D A N A L Y S I S
O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
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GUESS?, Inc. and Subsidiaries
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G E N E R A L
We derive our net revenue from the sale of GUESS? men's, women's, boys' and girls' apparel and our licensees' products through our
network of retail and factory outlet stores primarily in the United States, from the sale of GUESS? men's, women's, boys' and girls' apparel
worldwide to wholesale customers and distributors, from net royalties from worldwide licensing activities, from the sale of GUESS?
apparel through the retail and wholesale channels of our 60% owned Canadian subsidiary, GUESS? Canada Corporation ("GUESS?
Canada"), and from the sale of GUESS? men's, women's, boys' and girls' apparel and our licensee products through our on-line store
at www.GUESS.com.
The business segments of the Company are wholesale, retail and licensing operations. Management evaluates segment performance
based primarily on revenue and earnings from operations.
R E S U L T S O F O P E R A T I O N S
The following table sets forth actual operating results for the 2000, 1999 and 1998 fiscal years as a percentage of net revenue:
Year Ended December 31,
2 0 0 0
1999
1998
Product sales
95.2%
93.4%
92.2%
Net royalties
4.8
6.6
7.8
Total net revenue
100.0
100.0
100.0
Cost of sales
63.6
55.3
57.7
Gross profit
36.4
44.7
42.3
Selling, general and administrative expenses
29.9
28.5
30.2
Severance (recovery) related to distribution
facility relocation
(0.2)
0.5
--
Restructuring and impairment charges
1.1
--
--
Earnings from operations
5.6
15.7
12.1
Gain on disposition of property and equipment
--
(0.6)
--
Interest, net
1.8
1.6
2.7
Other, net
--
0.2
0.2
Earnings before income taxes
3.8
14.5
9.2
Income taxes
1.7
5.9
3.9
Net earnings
2.1%
8.6%
5.3%
Y E A R E N D E D D E C E M B E R 3 1 , 2 0 0 0 C O M P A R E D T O Y E A R E N D E D D E C E M B E R 3 1 , 1 9 9 9
Net Revenue
Net revenue increased $179.5 million or 29.9% to $779.2 million for the year ended December 31, 2000 from $599.7 million for the year
ended December 31, 1999.
Net revenue from retail operations increased $93.1 million or 31.1% to $392.5 million for the year ended December 31, 2000 from
$299.4 million for the year ended December 31, 1999. The increase in net revenues was attributable to the volume generated by 56
new stores coupled with a 5.8% increase in comparable store sales. While comparable store sales were strong during the first six
months of 2000, increasing 14.2%, our sales trends decelerated in the third quarter, and comparable store sales declined 3.7% in
the fourth quarter of 2000, partly due to a challenging retail environment. These lower than expected sales trends also impacted our
new stores, including the new stores in Canada and the GUESS? Kids stores.
Net revenue from wholesale operations increased $88.3 million or 33.9% to $348.9 million for the year ended December 31, 2000, from
$260.6 million for the year ended December 31, 1999. Domestic and international wholesale operations net revenue increased, for the year
ended December 31, 2000, by $61.0 million to $289.9 million and by $27.3 million to $59.0 million, respectively. Our domestic wholesale
net revenue increased primarily as a result of the increased demand for fashion products in both our women's and men's lines. International
wholesale operations net revenue increased primarily as a result of higher sales in Asia and the full-year inclusion of GUESS? Canada's
operations which contributed $20.4 million in international wholesale net revenue for the 2000 year.
