General

Unless the context indicates otherwise, when we refer to "we," "us", "our" or the "Company" in this Form 10-Q, we are referring to Guess?, Inc. ("GUESS?") and its subsidiaries on a consolidated basis.

Important Notice Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, including documents incorporated by reference herein, contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may also be contained in the Company's other reports filed under the Securities Exchange Act of 1934, as amended, in its press releases and in other documents. In addition, from time to time, the Company through its management may make oral forward-looking statements. These statements relate to analyses and other information based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects and proposed new products, services, developments or business strategies. These forward-looking statements are identified by their use of terms and phrases such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "pending," "plan," "predict," "project," "will," and other similar terms and phrases, including references to assumptions.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed. These forward-looking statements may include, among other things, statements relating to our expected results of operations, the accuracy of data relating to, and anticipated levels of, future inventory and gross margins, anticipated cash requirements and sources, cost containment efforts, estimated charges, plans regarding store openings and closings, plans regarding business growth and international expansion, e-commerce, business seasonality, results of litigation, industry trends, consumer demands and preferences, competition, currency fluctuations, estimated tax rates, results of tax audits and other regulatory proceedings, raw material and other inflationary cost pressures, consumer confidence and general economic conditions. We do not intend, and undertake no obligation, to update our forward-looking statements to reflect future events or circumstances. Such statements involve risks and uncertainties, which may cause actual results to differ materially from those set forth in these statements. Important factors that could cause or contribute to such difference include those discussed under "Part I, Item 1A. Risk Factors" contained in the Company's most recent Annual Report on Form 10-K for the fiscal year ended January 28, 2012 and in our other filings made from time to time with the Securities and Exchange Commission ("SEC") after the date of this report.

Business Segments

The Company's businesses are grouped into five reportable segments for management and internal financial reporting purposes: North American Retail, Europe, Asia, North American Wholesale and Licensing. Information relating to these segments is summarized in Note 7 to the Condensed Consolidated Financial Statements. Management evaluates segment performance based primarily on revenues and earnings from operations. The Company believes this segment reporting reflects how its five business segments are managed and each segment's performance is evaluated. The North American Retail segment includes the Company's retail operations in North America. The Europe segment includes the Company's wholesale and retail operations in Europe and the Middle East. The Asia segment includes the Company's wholesale and retail operations in Asia. The North American Wholesale segment includes the Company's wholesale operations in North America and export sales to Central and South America. The Licensing segment includes the worldwide licensing operations of the Company. The business segment operating results exclude corporate overhead costs, which consist of shared costs of the organization. These costs are presented separately and generally include, among other things, the following unallocated corporate costs: information technology, human resources, global advertising and marketing, accounting and finance, executive compensation, facilities and legal.

Products

We derive our net revenue from the sale of GUESS?, GUESS by MARCIANO, GUESS Kids and G by GUESS men's and women's apparel, and our licensees' products through our worldwide network of retail stores, wholesale customers and distributors, as well as our on-line sites. We also derive royalty revenues from worldwide licensing activities.

Recent Global Economic Developments

Economic and market conditions have become increasingly volatile and uncertain in many markets around the world and consumer behavior remains cautious. In North America, the relatively weaker levels of consumer confidence and the highly promotional conditions among retailers may persist for some time. In Europe, sovereign debt and bank credit issues continue to affect the capital

markets of various European countries and have resulted in reduced consumer confidence and discretionary spending in those countries. These conditions in Europe have begun to affect our business, particularly in the more penetrated countries in Southern Europe.

The Company anticipates that inflationary pressures on raw materials, labor, freight and other commodities including oil, experienced in fiscal 2012 and during the first quarter of fiscal 2013 may stabilize in the future but continue to negatively impact the cost of product purchases in fiscal 2013, particularly in the first half of the fiscal year. Although overall, the Company has been able to mitigate the impact of product inflation through reduced promotional markdowns, price increases on select items and supply chain initiatives, there can be no assurances that these actions will continue to be successful. In addition, increased retail prices could lead to reduced customer demand.

We also continue to experience significant volatility in the global currency markets. Since the majority of our international operations are conducted in currencies other than the U.S. dollar (primarily the euro, Canadian dollar and Korean won), currency fluctuations can have a significant impact on the translation of our international revenues and earnings into U.S. dollar amounts. During the first quarter of fiscal 2013, the average U.S. dollar rate was stronger against these currencies versus the average rate in the comparable prior-year period. This had an overall negative impact on the translation of our international revenues and earnings for the three months ended April 28, 2012 compared to the same prior-year period.

In addition, some of our transactions that occur in Europe, Canada and South Korea are denominated in U.S. dollars, Swiss francs and British pounds, exposing them to exchange rate fluctuations when converted to their functional currencies. These transactions include U.S. dollar denominated purchases of merchandise, U.S. dollar and British pound intercompany liabilities and certain sales, operating expenses and tax liabilities denominated in Swiss francs. Fluctuations in exchange rates can impact the profitability of our foreign operations and reported earnings and are largely dependent on the transaction timing and magnitude during the period that the currency fluctuates. The Company enters into derivative financial instruments to offset some but not all of the exchange risk on certain foreign currency transactions. In addition, some of the derivative contracts in place will create volatility during the fiscal year as they are marked-to-market according to the accounting rules. Based on fluctuations in currency rates during the first quarter of fiscal 2013, the Company's results were unfavorably impacted by the net revaluation of our foreign currency contracts and balances and resulted in a net revaluation loss recorded in other expense during the three months ended April 28, 2012. Continued volatility in the global currency markets could result in further revaluation gains or losses in future periods.

Long-Term Growth Strategy

Despite the difficult economic conditions described above, our key long-term strategies remain unchanged. Global expansion continues to be the cornerstone of our long-term growth strategy. Our combined revenues outside of the U.S. and Canada represented almost half of the total Company's revenues for the three months ended April 28, 2012, compared to one-fifth in fiscal 2005. We expect to continue to expand in both our existing European and Asian markets. At the same time, we plan to develop markets in emerging countries like China, Brazil, Russia and India and expand our G by GUESS concept both domestically and internationally. Our goal is also to drive growth by enhancing the productivity of our existing operations.

Expanding our retail business across the globe is key to executing on our global growth strategy. We see opportunities to increase the number of GUESS? branded retail stores in Europe and Asia. In North America and South Korea, we also see store growth opportunities with our G by GUESS concept. We will continue to regularly assess and implement initiatives that we believe will build brand equity, grow our business and enhance long-term profitability in each region, including investing in advertising and marketing programs to build awareness and drive customer traffic to our stores and websites.

In Europe, over the long-term, we will continue to focus on developing new markets in Northern and Eastern Europe where our brand is well known but still under-penetrated and expand on our success in Western and Southern Europe. We plan to continue to develop important European markets such as Germany and Russia. We have flagship stores in key cities such as Paris, Barcelona, Dusseldorf, London and Milan. Together with our licensee partners, we opened 28 stores in the first three months of fiscal 2013 and plan to continue our international expansion in Europe by opening approximately 90 retail stores in total during fiscal 2013, about one third of which will be operated directly by us.

Our North American Retail growth strategy is to increase retail sales and profitability by expanding our network of retail stores and improving the productivity and performance of existing stores. We will continue to emphasize our newer G by GUESS store concept and our e-commerce channel. During the first quarter of fiscal 2013, we opened six retail stores and we currently plan to open approximately 35 retail stores in total across all concepts in the U.S. and Canada during fiscal 2013, with roughly half under the G by GUESS brand. In addition, we plan to remodel key existing locations as part of the roll-out of our new store designs.

We see significant market opportunities in Asia and we are dedicating capital and human resources to support the region's growth and development. We and our partners have opened flagship stores in key cities such as Seoul, Shanghai, Hong Kong, Macau, Taipei and Beijing and we have partnered with licensees to develop our business in the second tier cities in this region. During fiscal 2012, we launched our newer G by GUESS store concept in South Korea where we have 61 locations as of April 28, 2012. Our strategy in South Korea, with a combined 323 stores and concessions at April 28, 2012, is to continue to improve productivity and expand distribution for both our GUESS? and G by GUESS branded locations. We and our partners opened 24 stores and 33 concessions during the first three months of fiscal 2013 across all of Asia and plan to open between 140 and 150 retail stores in total across all concepts in Asia during fiscal 2013.

The Company's investments in capital for the full fiscal year 2013 are planned between $115 million and $130 million (after deducting estimated lease incentives of approximately $10 million). The planned investments in capital are primarily for expansion of our retail businesses in Europe and North America and store remodeling programs in North America.

Other

The Company operates on a 52/53-week fiscal year calendar, which ends on the Saturday nearest to January 31 of each year. The three months ended April 28, 2012 had the same number of days as the three months ended April 30, 2011.

The Company reports National Retail Federation ("NRF") calendar comparable store sales on a quarterly basis for our stores in the U.S. and Canada. A store is considered comparable after it has been open for 13 full months. If a store remodel results in a square footage change of more than 15%, or involves a relocation or a change in store concept, the store is removed from the comparable store base until it has been opened at its new size, in its new location or under its new concept for 13 full months.

Executive Summary

The Company

Net earnings attributable to Guess?, Inc. decreased 37.6% to $26.6 million, or diluted earnings of $0.30 per common share, for the quarter ended April 28, 2012, compared to net earnings attributable to Guess?, Inc. of $42.7 million, or diluted earnings of $0.46 per common share, for the quarter ended April 30, 2011.

Highlights of the Company's performance for the quarter ended April 28, 2012 compared to the same prior-year period are presented below, followed by a more comprehensive discussion under "Results of Operations":

† Total net revenue decreased 2.2% to $579.3 million for the quarter ended April 28, 2012, from $592.2 million in the same prior-year period. In constant U.S. dollars, revenues increased by 0.1%.

† Gross margin (gross profit as a percentage of total net revenues) declined 130 basis points to 40.6% for the quarter ended April 28, 2012, compared to 41.9% in the same prior-year period, due to a higher occupancy rate partially offset by higher overall product margins.

† Selling, general and administrative ("SG&A") expenses increased 10.6% to $195.9 million for the quarter ended April 28, 2012, compared to $177.1 million in the same prior-year period. SG&A expense as a percentage of revenues ("SG&A rate") increased by 390 basis points to 33.8% for the quarter ended April 28, 2012, compared to 29.9% in the same prior-year period, driven primarily by higher legal fees and higher selling and distribution costs.

† Earnings from operations declined 44.8% to $39.1 million for the quarter ended April 28, 2012, compared to $70.9 million in the same prior-year period. Operating margin declined 520 basis points to 6.8% for the quarter ended April 28, 2012, compared to 12.0% in the same prior-year period.

† Other income, net, (including interest income and expense) totaled $0.9 million for the quarter ended April 28, 2012, compared to other expense, net, of $9.1 million in the same prior-year period.

† The effective income tax rate increased 250 basis points to 32.0% for the quarter ended April 28, 2012, compared to 29.5% in the same prior-year period.

† The Company had $490.0 million in cash and cash equivalents and short-term marketable securities as of April 28, 2012, up $48.2 million, compared to $441.8 million as of April 30, 2011. The Company invested $92.0 million to repurchase approximately 3.2 million shares of its common stock during the fourth quarter of fiscal 2012.

† Accounts receivable, which relates primarily to the Company's wholesale business in Europe, and to a lesser extent, to its wholesale businesses in North America and Asia and its international licensing business, decreased by $41.9 million, or 11.1%, to $335.5 million at April 28 2012, compared to $377.4 million at April 30, 2011. On a constant dollar basis, accounts receivable decreased $12.6 million, or 3.3%.

† Inventory increased by $33.5 million, or 11.1%, to $334.2 million as of April 28, 2012, compared to $300.7 million as of April 30, 2011. When measured in terms of finished goods units, inventory volumes increased by 16.2% as of April 28, 2012, when compared to April 30, 2011.

North American Retail

Our North American Retail segment, comprising North American full-priced retail stores, factory outlet stores and e-commerce, increased revenues by $4.3 million, or 1.8%, to $251.8 million during the quarter ended April 28, 2012, compared to $247.5 million in the same prior-year period. The increase was driven primarily by a larger store base, partially offset by negative comparable store sales of 5.5% for our combined U.S. and Canadian stores (negative 5.1% in local currency, which excludes the unfavorable translation impact of currency fluctuations relating to our Canadian retail stores).

North American Retail earnings from operations decreased by $1.6 million, or 8.8%, to $17.0 million for the quarter ended April 28, 2012, compared to $18.6 million in the same prior-year period. Operating margin decreased 80 basis points to 6.7% for the quarter ended April 28, 2012, compared to 7.5% for the same prior-year period. The decrease was driven by occupancy deleverage, given the negative comparable store sales, and a higher SG&A rate, partially offset by higher product margins. The higher SG&A rate was driven mainly by higher overhead costs and increased investments in advertising and marketing, partially offset by the leveraging of store selling expenses. The product margin improvement resulted from lower markdowns and selective price increases, partially offset by the negative impact of product cost inflation.

In the quarter, we opened six new stores in the U.S. and Canada and closed seven stores. At April 28, 2012, we directly operated 503 stores in the U.S. and Canada, comprised of 193 full-priced GUESS? retail stores, 126 GUESS? factory outlet stores, 69 G by GUESS stores, 61 GUESS? Accessories stores and 54 GUESS by MARCIANO stores. This compares to 484 stores as of April 30, 2011.

Europe

In Europe, revenue decreased by $20.4 million, or 9.7%, to $189.8 million for the quarter ended April 28, 2012, compared to $210.2 million in the same prior-year period. In local currency, revenues decreased by 4.6%. The increase in revenues from the expansion of our directly operated retail business (where comparable store sales declined in the high single digits) was more than offset by lower revenues from our European wholesale business and the unfavorable currency translation impact on revenue resulting from fluctuations in foreign currency rates. The decrease in our wholesale business was due primarily to lower accessories sales. At April 28, 2012, we directly operated 191 stores in Europe compared to 154 stores at April 30, 2011, excluding concessions, which represents a 24.0% increase over the prior-period end.

Earnings from operations from our Europe segment decreased by $20.7 million, or 62.4%, to $12.5 million for the quarter ended April 28, 2012, compared to $33.2 million in the same prior-year period. Operating margin declined 920 basis points to 6.6% for the quarter ended April 28, 2012, compared to 15.8% for the same prior-year period. The decline in operating margin was driven by lower wholesale jewelry shipments, higher selling and distribution expenses, an overall deleveraging of expenses caused by a decline in wholesale shipments and additional costs to restructure our business. Operating margin was also negatively impacted by lower gross margins, driven primarily by a higher occupancy rate due to retail expansion and negative comparable store sales.

Asia

In Asia, revenue increased by $4.7 million, or 7.9%, to $64.8 million for the quarter ended April 28, 2012, compared to $60.1 million in the same prior-year period. In constant dollars, net revenue increased by 8.5%, driven by growth in our Greater China business. In local currency, revenues in our South Korea business increased slightly compared to the same prior-year period though were more than offset by the unfavorable currency translation impact on revenue resulting from fluctuations in foreign currency rates. We continued to expand our operations in the region, where we and our partners opened 24 stores and 33 concessions during the quarter ended April 28, 2012.

Earnings from operations from our Asia segment decreased by $1.2 million, or 17.3%, to $5.9 million for the quarter ended April 28, 2012, compared to $7.1 million for the same prior-year period. Operating margin decreased 270 basis points to 9.1% for the quarter ended April 28, 2012, compared to 11.8% for the same prior-year period. The decline in operating margin was driven by a higher SG&A rate due to retail expansion and higher infrastructure investments to support our future growth in this region and a higher occupancy rate resulting from a greater mix of retail business. These decreases were partially offset by higher product margins due mainly to channel and product mix.

North American Wholesale

Our North American Wholesale segment revenue decreased by $1.7 million, or 3.8%, to $43.9 million for the quarter ended April 28, 2012, from $45.6 million in the same prior-year period. In constant dollars, net revenue decreased by 2.2%. The lower revenues resulted primarily from decreases in our U.S. and Canadian wholesale businesses.

North American Wholesale earnings from operations decreased by $1.8 million, or 15.9%, to $9.3 million for the quarter ended April 28, 2012, compared to $11.1 million in the same prior-year period. Operating margin decreased 300 basis points to 21.3% for the quarter ended April 28, 2012, compared to 24.3% for same prior-year period, due primarily to lower gross margins.

Licensing

Our Licensing royalty revenue increased slightly to $28.9 million for the quarter ended April 28, 2012, compared to $28.8 million in the same prior-year period, driven by royalties from higher sales in our handbags, outerwear and fragrance categories, partially offset by lower sales in watches.

Earnings from operations from our Licensing segment decreased by $0.7 million, or 2.8%, to $24.6 million for the quarter ended April 28, 2012, compared to $25.3 million in the same prior-year period. The decrease was driven by higher advertising expenses.

Corporate Overhead

Corporate overhead expenses increased by $5.7 million, or 23.6%, to $30.1 million for the quarter ended April 28, 2012, from $24.4 million in the same prior-year period. The increase was driven primarily by higher legal fees.

Global Store Count

In the first quarter of fiscal 2013, together with our partners, we opened 60 new stores worldwide, consisting of 28 stores in Europe, 24 stores in Asia, six stores in the U.S. and Canada and two stores in Central and South America. Together with our partners, we closed 24 stores worldwide, consisting of 12 stores in Europe and the Middle East, seven stores in the U.S. and Canada and five stores in Asia.

We ended the first quarter of fiscal 2013 with 1,595 stores worldwide, comprised as follows:

                                               Directly
Region                       Total Stores   Operated Stores   Licensee Stores
United States and Canada              503               503                 -
Europe and the Middle East            577               191               386
Asia                                  442                48               394
Central and South America              73                25                48
Total                               1,595               767               828

This store count does not include 376 concessions located primarily in South Korea and Greater China because of their smaller store size in relation to our standard international store size. Of the total 1,595 stores, 1,088 were GUESS? stores, 304 were GUESS? Accessories stores, 103 were G by GUESS stores and 100 were GUESS by MARCIANO stores.

RESULTS OF OPERATIONS

Three months ended April 28, 2012 and April 30, 2011

NET REVENUE. Net revenue decreased by $12.9 million, or 2.2%, to $579.3 million for the quarter ended April 28, 2012, from $592.2 million for the quarter ended April 30, 2011. In constant U.S. dollars, revenues increased by 0.1% as currency translation fluctuations relating to our foreign operations unfavorably impacted net revenue by $13.7 million compared to the same prior-year period. The increases in revenue from expansion of our retail businesses in North America and Europe and growth in our Asian operations were offset by lower European wholesale shipments and negative comparable store sales in North America and Europe.

Net revenue from our North American Retail operations increased by $4.3 million, or 1.8%, to $251.8 million for the quarter ended April 28, 2012, from $247.5 million in the same prior-year period. This increase was due primarily to a larger store base, partially offset by negative comparable store sales of 5.5% for our combined U.S. and Canadian stores (negative 5.1% in local currency, which excludes the unfavorable translation impact of currency fluctuations relating to our Canadian retail stores). The store base increased by an average of 19 net additional stores during the quarter ended April 28, 2012 compared to the prior-year quarter, resulting in a net 6.1% increase in average square footage. Currency translation fluctuations relating to our non-U.S. retail stores unfavorably impacted net revenue in our North American Retail segment by $1.4 million.

Net revenue from our Europe operations decreased by $20.4 million, or 9.7%, to $189.8 million for the quarter ended April 28, 2012, from $210.2 million in the same prior-year period. In local currency, revenues decreased by 4.6% versus the same comparable period. The increase in revenues from the expansion of our directly operated retail business (where comparable store sales declined in the high single digits) was more than offset by lower revenues from our European wholesale business and the unfavorable currency translation impact on revenue resulting from fluctuations in foreign currency rates. The decrease in our wholesale business was due primarily to lower accessories sales. At April 28, 2012, we directly operated 191 stores in Europe compared to 154 stores at April 30, 2011, excluding concessions, which represents a 24.0% increase over the prior-period end. Currency translation fluctuations relating to our Europe operations unfavorably impacted net revenue in our Europe segment by $11.2 million.

Net revenue from our Asia operations increased by $4.7 million, or 7.9%, to $64.8 million for the quarter ended April 28, 2012, from $60.1 million in the same prior-year period. In constant dollars, net revenue increased 8.5% over the same comparable period, driven by growth in our Greater China business. In local currency, revenues in our South Korea business increased slightly compared to the same prior-year period though were more than offset by the unfavorable currency translation impact on revenue resulting from fluctuations in foreign currency rates. We continued to grow our Asia business, where we and our partners opened 24 stores and 33 concessions during the quarter ended April 28, 2012. Currency translation fluctuations relating to our Asia operations . . .