UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q 

☒          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the quarterly period ended October 28, 2023

OR 

☐      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to           

Commission file number: 1-11893

GUESS?, INC.

(Exact name of registrant as specified in its charter)

Delaware	95-3679695
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
Strada Regina 44
Bioggio, Switzerland CH-6934
(Address of principal executive offices and zip code)

+41 91 809 5000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	GES	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No x

As of November 27, 2023, the registrant had 53,700,294 shares of Common Stock, $0.01 par value per share, outstanding.

GUESS?, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets as of October 28, 2023 and January 28, 2023	1
	Condensed Consolidated Statements of Income — Three and Nine Months Ended October 28, 2023 and October 29, 2022	2
	Condensed Consolidated Statements of Comprehensive Income — Three and Nine Months Ended October 28, 2023 and October 29, 2022	3
	Condensed Consolidated Statements of Cash Flows — Nine Months Ended October 28, 2023 and October 29, 2022	4
	Condensed Consolidated Statements of Stockholders’ Equity — Three and Nine Months Ended October 28, 2023 and October 29, 2022	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	67
Item 4.	Controls and Procedures	69
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	70
Item 1A.	Risk Factors	70
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	72
Item 5.	Other Information	73
Item 6.	Exhibits	74

i

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements.

GUESS?, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data) 

	Oct 28, 2023		Jan 28, 2023
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	244,103	$	275,765
Accounts receivable, net	340,784		341,939
Inventories	562,386		510,899
Other current assets	81,220		83,102
Total current assets	1,228,493		1,211,705
Property and equipment, net	234,572		240,355
Goodwill	33,618		34,277
Deferred income tax assets	186,853		158,403
Operating lease right-of-use assets	657,363		636,148
Other assets	137,878		144,560
	$	2,478,777	$	2,425,448
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of borrowings and finance lease obligations	$	41,695	$	40,380
Accounts payable	292,443		289,442
Accrued expenses and other current liabilities	221,851		263,038
Convertible senior notes due 2024, net	114,985		—
Current portion of operating lease liabilities	165,420		170,192
Total current liabilities	836,394		763,052
Convertible senior notes due 2024, net	—		298,931
Convertible senior notes due 2028, net	266,551		—
Long-term debt and finance lease obligations	131,821		95,921
Long-term operating lease liabilities	538,731		528,236
Other long-term liabilities	147,637		157,403
Total liabilities	1,921,134		1,843,543
Redeemable noncontrolling interests	513		9,154
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock, $.01 par value. Authorized 10,000,000 shares; no shares issued and outstanding	—		—
Common stock, $.01 par value. Authorized 150,000,000 shares; issued 142,771,253 and 142,771,253 shares; outstanding 53,700,273 and 54,609,786 shares as of October 28, 2023 and January 28, 2023, respectively	537		546
Paid-in capital	519,959		532,398
Retained earnings	1,313,910		1,276,857
Accumulated other comprehensive loss	(153,150)		(134,073)
Treasury stock, 89,070,980 and 88,161,467 shares as of October 28, 2023 and January 28, 2023, respectively	(1,167,196)		(1,141,615)
Guess?, Inc. stockholders’ equity	514,060		534,113
Nonredeemable noncontrolling interests	43,070		38,638
Total stockholders’ equity	557,130		572,751
	$	2,478,777	$	2,425,448

See accompanying notes to condensed consolidated financial statements.

1

GUESS?, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)

	Three Months Ended				Nine Months Ended
	Oct 28, 2023		Oct 29, 2022		Oct 28, 2023		Oct 29, 2022
Product sales	$	618,130	$	605,656	$	1,800,536	$	1,790,651
Net royalties	33,040		27,747		84,944		78,915
Net revenue	651,170		633,403		1,885,480		1,869,566
Cost of product sales	360,000		364,032		1,067,882		1,082,545
Gross profit	291,170		269,371		817,598		787,021
Selling, general and administrative expenses	234,123		212,927		694,748		638,801
Asset impairment charges	1,737		1,789		6,293		5,252
Net (gains) losses on lease modifications	537		(146)		(1,894)		(1,654)
Earnings from operations	54,773		54,801		118,451		144,622
Other income (expense):
Interest expense	(5,923)		(3,453)		(15,883)		(9,741)
Interest income	3,181		636		8,557		1,629
Loss on extinguishment of debt	—		—		(7,696)		—
Other, net	(11,004)		(15,211)		(18,227)		(40,716)
Total other expense	(13,746)		(18,028)		(33,249)		(48,828)
Earnings before income tax expense (benefit)	41,027		36,773		85,202		95,794
Income tax expense (benefit)	(18,277)		11,616		(5,370)		32,743
Net earnings	59,304		25,157		90,572		63,051
Net earnings attributable to noncontrolling interests	3,603		3,322		7,643		9,284
Net earnings attributable to Guess?, Inc.	$	55,701	$	21,835	$	82,929	$	53,767
Net earnings per common share attributable to common stockholders:
Basic	$	1.04	$	0.40	$	1.53	$	0.93
Diluted	$	0.82	$	0.34	$	1.30	$	0.80
Weighted average common shares outstanding attributable to common stockholders:
Basic	53,052		53,894		53,450		57,300
Diluted	70,331		67,102		68,098		70,705

See accompanying notes to condensed consolidated financial statements.

2

GUESS?, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME

(in thousands)

(unaudited)

	Three Months Ended				Nine Months Ended
	Oct 28, 2023		Oct 29, 2022		Oct 28, 2023		Oct 29, 2022
Net earnings	$	59,304	$	25,157	$	90,572	$	63,051
Other comprehensive income (loss) (“OCI”):
Foreign currency translation adjustment
Losses arising during the period	(29,718)		(9,281)		(20,028)		(38,082)
Derivative financial instruments designated as cash flow hedges
Gains arising during the period	6,619		6,998		8,367		17,683
Less income tax effect	(749)		(862)		(984)		(2,105)
Reclassification to net earnings for gains realized	(28)		(4,171)		(6,508)		(6,947)
Less income tax effect	22		462		768		756
Defined benefit plans
Foreign currency and other adjustments	202		165		(138)		243
Less income tax effect	(18)		(15)		16		(22)
Net actuarial loss amortization	64		13		191		55
Prior service credit amortization	(40)		(22)		(119)		(67)
Less income tax effect	(2)		1		(6)		(1)
Total comprehensive income	35,656		18,445		72,131		34,564
Less comprehensive income attributable to noncontrolling interests:
Net earnings	3,603		3,322		7,643		9,284
Foreign currency translation adjustment	(3,055)		404		636		(396)
Amounts attributable to noncontrolling interests	548		3,726		8,279		8,888
Comprehensive income attributable to Guess?, Inc.	$	35,108	$	14,719	$	63,852	$	25,676

See accompanying notes to condensed consolidated financial statements.

3

GUESS?, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended
	Oct 28, 2023		Oct 29, 2022
Cash flows from operating activities:
Net earnings	$	90,572	$	63,051
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization	46,059		45,490
Amortization of debt discount	351		—
Amortization of debt issuance costs	1,305		1,303
Share-based compensation expense	14,952		16,547
Forward contract (gains) losses	(14,730)		2,301
Deferred income taxes	(22,356)		5,752
Net loss from impairment and disposition of long-term assets	7,385		6,023
Loss on extinguishment of debt	7,696		—
Other items, net	3,782		24,955
Changes in operating assets and liabilities:
Accounts receivable	(8,810)		(22,156)
Inventories	(67,363)		(155,391)
Prepaid expenses and other assets	7,626		7,663
Operating lease assets and liabilities, net	(15,142)		(23,313)
Accounts payable and accrued expenses and other current liabilities	(7,120)		5,806
Other long-term liabilities	(3,326)		551
Net cash provided by (used in) operating activities	40,881		(21,418)
Cash flows from investing activities:
Purchases of property and equipment	(52,469)		(71,729)
Purchases of investments	(3,262)		(283)
Other investing activities	(893)		43
Net cash used in investing activities	(56,624)		(71,969)
Cash flows from financing activities:
Proceeds from borrowings	117,418		196,013
Repayments on borrowings and finance lease obligations	(78,408)		(97,657)
Net proceeds from issuance of convertible senior notes	80,324		—
Proceeds from issuance of warrant	20,158		—
Purchase of convertible note hedge	(51,838)		—
Proceeds from termination of convertible senior note hedge	7,235		—
Payments for termination of common stock warrant	(1,024)		—
Debt issuance costs	(5,833)		(1,450)
Dividends paid	(46,033)		(39,344)
Noncontrolling interest capital distribution	(2,625)		(4,817)
Purchase of redeemable noncontrolling interest	(8,650)		—
Issuance of common stock, net of income tax withholdings on vesting of stock awards	2,304		2,223
Purchase of treasury stock	(42,821)		(186,747)
Net cash used in financing activities	(9,793)		(131,779)
Effect of exchange rates on cash and cash equivalents	(6,126)		(16,334)
Net change in cash and cash equivalents	(31,662)		(241,500)
Cash and cash equivalents at the beginning of the year	275,765		415,565
Cash and cash equivalents at the end of the period	$	244,103	$	174,065
Supplemental cash flow data:
Interest paid	$	15,036	$	9,308
Income taxes paid, net of refunds	$	19,742	$	18,077
Non-cash investing and financing activity:
Change in accrual of property and equipment	$	(2,864)	$	(3,636)
Assets acquired under finance lease obligations	$	2,556	$	3,772

See accompanying notes to condensed consolidated financial statements.

4

GUESS?, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

	For the three and nine months ended October 28, 2023
	Guess?, Inc. Stockholders’ Equity
	Common Stock									Treasury Stock
	Shares	Amount		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Shares	Amount		Nonredeemable Noncontrolling Interests		Total
Balance at January 28, 2023	54,609,786	$	546	$	532,398	$	1,276,857	$	(134,073)	88,161,467	$	(1,141,615)	$	38,638	$	572,751
Net earnings (loss)	—	—		—		(11,805)		—		—	—		1,111		(10,694)
Other comprehensive income (loss), net of income tax benefit of $811	—	—		—		—		(5,404)		—	—		1,309		(4,095)
Issuance of common stock under stock compensation plans	1,085,319	11		(14,519)		—		—		(1,085,319)	14,058		—		(450)
Issuance of stock under Employee Stock Purchase Plan	11,848	—		28		—		—		(11,848)	153		—		181
Share-based compensation	—	—		4,617		3		—		—	—		—		4,620
Dividends, net of forfeitures on non-participating securities	—	—		—		(12,662)		—		—	—		—		(12,662)
Share repurchases	(2,237,872)	(22)		22		—		—		2,237,872	(42,821)		—		(42,821)
Equity component value of convertible notes transactions, net	—	—		(744)		—		—		—	—		—		(744)
Sale of common stock warrant	—	—		20,158		—		—		—	—		—		20,158
Purchase of convertible note hedge	—	—		(39,397)		—		—		—	—		—		(39,397)
Termination of common stock warrant	—	—		(1,024)		—		—		—	—		—		(1,024)
Termination of convertible note hedge	—	—		7,235		—		—		—	—		—		7,235
Balance at April 29, 2023	53,469,081	$	535	$	508,774	$	1,252,393	$	(139,477)	89,302,172	$	(1,170,225)	$	41,058	$	493,058
Net earnings	—	—		—		39,033		—		—	—		2,929		41,962
Other comprehensive income, net of income tax of ($270)	—	—		—		—		6,920		—	—		2,382		9,302
Issuance of common stock under stock compensation plans	107,116	1		(811)		—		—		(107,116)	1,402		—		592
Issuance of stock under Employee Stock Purchase Plan	11,085	—		24		—		—		(11,085)	146		—		170
Share-based compensation	—	—		5,455		—		—		—	—		—		5,455
Dividends, net of forfeitures on non-participating securities	—	—		—		(16,591)		—		—	—		—		(16,591)
Purchase of redeemable noncontrolling interest	—	—		1,318		—		—		—	—		(1,223)		95
Noncontrolling interest capital distribution	—	—		—		—		—		—	—		(222)		(222)
Balance at July 29, 2023	53,587,282	$	536	$	514,760	$	1,274,835	$	(132,557)	89,183,971	$	(1,168,677)	$	44,924	$	533,821
Net earnings	—	—		—		55,701		—		—	—		3,603		59,304
Other comprehensive loss, net of income tax of ($747)	—	—		—		—		(20,593)		—	—		(3,055)		(23,648)
Issuance of common stock under stock compensation plans	105,248	1		300		—		—		(105,248)	1,380		—		1,681
Issuance of stock under Employee Stock Purchase Plan	7,743	—		29		—		—		(7,743)	101		—		130
Share-based compensation	—	—		4,870		7		—		—	—		—		4,877
Dividends, net of forfeitures on non-participating securities	—	—		—		(16,633)		—		—	—		—		(16,633)
Noncontrolling interest capital distribution	—	—		—		—		—		—	—		(2,402)		(2,402)
Balance at October 28, 2023	53,700,273	$	537	$	519,959	$	1,313,910	$	(153,150)	89,070,980	$	(1,167,196)	$	43,070	$	557,130

See accompanying notes to condensed consolidated financial statements.

5

GUESS?, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

	For the three and nine months ended October 29, 2022
	Guess?, Inc. Stockholders’ Equity
	Common Stock									Treasury Stock
	Shares	Amount		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Shares	Amount		Nonredeemable Noncontrolling Interests		Total
Balance at January 29, 2022	62,697,032	$	627	$	565,024	$	1,158,664	$	(135,549)	80,074,914	$	(966,108)	$	30,985	$	653,643
Cumulative adjustment from adoption of new accounting guidance	—	—		(43,078)		21,355		—		—	—		—		(21,723)
Net earnings	—	—		—		7,970		—		—	—		2,484		10,454
Other comprehensive loss, net of income tax of ($889)	—	—		—		—		(11,164)		—	—		(476)		(11,640)
Issuance of common stock under stock compensation plans	411,785	4		(3,608)		—		—		(411,785)	5,074		—		1,470
Issuance of stock under Employee Stock Purchase Plan	10,976	—		69		—		—		(10,976)	137		—		206
Share-based compensation	—	—		4,003		49		—		—	—		—		4,052
Dividends, net of forfeitures on non-participating securities	—	—		—		(13,659)		—		—	—		—		(13,659)
Share repurchases	(3,789,576)	(38)		38		—		—		3,789,576	(81,747)		—		(81,747)
Noncontrolling interest capital distribution	—	—		—		—		—		—	—		(4,817)		(4,817)
Equity forward contract issuance	—	—		(105,000)		—		—		—	—		—		(105,000)
Balance at April 30, 2022	59,330,217	$	593	$	417,448	$	1,174,379	$	(146,713)	83,441,729	$	(1,042,644)	$	28,176	$	431,239
Cumulative adjustment from adoption of new accounting guidance	—	—		—		433		—		—	—		—		433
Net earnings	—	—		—		23,962		—		—	—		3,478		27,440
Other comprehensive loss, net of income tax of ($69)	—	—		—		—		(9,811)		—	—		(324)		(10,135)
Issuance of common stock under stock compensation plans	290,393	3		(3,392)		—		—		(290,393)	3,628		—		239
Issuance of stock under Employee Stock Purchase Plan	13,381	—		44		—		—		(13,381)	167		—		211
Share-based compensation	—	—		6,624		3		—		—	—		—		6,627
Dividends, net of forfeitures on non-participating securities	—	—		—		(13,881)		—		—	—		—		(13,881)
Share repurchases	(5,196,027)	(52)		52		—		—		5,196,027	(105,000)		—		(105,000)
Equity forward contract settlement	—	—		105,000		—		—		—	—		—		105,000
Balance at July 30, 2022	54,437,964	$	544	$	525,776	$	1,184,896	$	(156,524)	88,333,982	$	(1,143,849)	$	31,330	$	442,173
Net earnings	—	—		—		21,835		—		—	—		3,322		25,157
Other comprehensive income (loss), net of income tax of ($414)	—	—		—		—		(7,116)		—	—		404		(6,712)
Issuance of common stock under stock compensation plans	(5,886)	—		27		—		—		5,538	(71)		—		(44)
Issuance of stock under Employee Stock Purchase Plan	11,094	—		(2)		—		—		(11,094)	143		—		141
Share-based compensation	—	—		5,862		6		—		—	—		—		5,868
Dividends, net of forfeitures on non-participating securities	—	—		—		(12,699)		—		—	—		—		(12,699)
Noncontrolling interest capital distribution	—	—		—		—		—		—	—		(1,196)		(1,196)
Balance at October 29, 2022	54,443,172	$	544	$	531,663	$	1,194,038	$	(163,640)	88,328,426	$	(1,143,777)	$	33,860	$	452,688

See accompanying notes to condensed consolidated financial statements.

6

GUESS?, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

October 28, 2023

(unaudited) 

(1)Basis of Presentation

Description of the Business

Guess?, Inc. (the “Company” or “GUESS?”) designs, markets, distributes and licenses a leading lifestyle collection of contemporary apparel and accessories for women, men and children that reflect the American lifestyle and European fashion sensibilities. The Company’s designs are sold in GUESS? owned stores, to a network of wholesale accounts that includes better department stores, selected specialty retailers and upscale boutiques and through the Internet. GUESS? branded products, some of which are produced under license, are also sold internationally through a series of retail store licensees and wholesale distributors.

Reclassifications

The Company has made certain reclassifications to prior period amounts to conform to the current period presentation within the accompanying condensed consolidated financial statements and notes to the condensed consolidated financial statements.

Interim Financial Statements

In the opinion of management, the accompanying unaudited condensed consolidated financial statements of the Company contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the condensed consolidated balance sheets as of October 28, 2023 and January 28, 2023, and the condensed consolidated statements of income, comprehensive income, cash flows and stockholders’ equity for the three and nine months ended October 28, 2023 and October 29, 2022. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and the instructions to Rule 10-01 of Regulation S-X of the United States Securities and Exchange Commission (the “SEC”). Accordingly, they have been condensed and do not include all of the information and footnotes required by GAAP for complete financial statements. The results of operations and cash flows for the three and nine months ended October 28, 2023 are not necessarily indicative of the results of operations to be expected for the full fiscal year.

These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended January 28, 2023.

Fiscal Periods

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 and nine months ended October 28, 2023 had the same number of days as the three and nine months ended October 29, 2022. All references herein to “fiscal 2023” and “fiscal 2022” represent the results of the 52-week fiscal years ended January 28, 2023 and January 29, 2022, respectively. All references herein to “fiscal 2024” represent the 53-week fiscal year ending February 3, 2024, with the extra week occurring in the fourth quarter of the year.

Business Update, Market Trends and Uncertainties

Macroeconomic conditions, including inflation, higher interest rates, foreign exchange rate fluctuations, declines in consumer spending, the impact of the war in Ukraine and the lingering effects of public health crises continue to negatively impact the Company’s businesses.

The Company continues to carefully monitor global and regional developments and respond appropriately. The Company also continues to strategically manage expenses in order to protect profitability and to mitigate, to the extent possible, the residual effect of supply chain disruptions. The duration and scope of these conditions cannot be predicted, and therefore, any anticipated negative financial impact to the Company’s operating results cannot be reasonably estimated.

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Summary of Significant Accounting Policies

The accounting policies of the Company are set forth in further detail in Note 1 to the Company's Consolidated Financial Statements contained in the Company’s fiscal 2023 Annual Report on Form 10-K. The Company includes herein certain updates to those policies.

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in the financial statements and disclosed in the accompanying notes. Significant areas requiring the use of management estimates relate to the allowances for doubtful accounts, sales return and markdown allowances, gift card and loyalty accruals, valuation of inventories, share-based compensation, income taxes, recoverability of deferred income taxes, unrecognized income tax benefits, the useful life of assets for depreciation and amortization, evaluation of asset impairment (including goodwill and long-lived assets, such as property and equipment and operating lease right-of-use (“ROU”) assets), pension obligations, workers’ compensation and medical self-insurance expense and accruals, litigation reserves and restructuring expense and accruals. These estimates and assumptions may change as a result of the impact of global economic conditions, such as the uncertainty regarding the impact of public health crises, the ongoing Russia-Ukraine conflict, global inflationary pressures, volatility in foreign exchange rates and declining consumer spending. Actual results could differ from those estimates. Revisions in estimates could materially impact the results of operations and financial position.

The Company’s operations could be impacted in ways the Company is not able to predict today. While the Company believes it has made reasonable accounting estimates based on the facts and circumstances that were available as of the reporting date, to the extent there are differences between these estimates and actual results, the Company’s results of operations and financial position could be materially impacted.

Revenue Recognition

The Company recognizes the majority of its revenue from its direct-to-consumer (brick-and-mortar retail stores and concessions as well as e-commerce) and wholesale distribution channels at a point in time when it satisfies a performance obligation and transfers control of the product to the respective customer.

The Company also recognizes royalty revenue from its trademark license agreements. The Company’s trademark license agreements represent symbolic licenses that are dependent on the Company’s continued support over the term of the license agreement. The amount of revenue that is recognized from the licensing arrangements is based on sales-based royalty and advertising fund contributions as well as specific fixed payments, where applicable. The Company’s trademark license agreements customarily provide for a multi-year initial term ranging from three to ten years and may contain options to renew prior to expiration for an additional multi-year period. The unrecognized portion of upfront payments is included in deferred royalties in accrued expenses and other long-term liabilities depending on the short or long-term nature of the payments to be recognized. As of October 28, 2023, the Company had $4.8 million and $11.8 million of deferred royalties related to these upfront payments included in accrued expenses and other current liabilities and other long-term liabilities, respectively. This compares to $4.8 million and $15.2 million of deferred royalties related to these upfront payments included in accrued expenses and other current liabilities and other long-term liabilities, respectively, at January 28, 2023. During the three and nine months ended October 28, 2023, the Company recognized $3.6 million and $10.7 million in net royalties, respectively, related to the amortization of deferred royalties. During the three and nine months ended October 29, 2022, the Company recognized $3.3 million and $10.0 million in net royalties, respectively, related to the amortization of deferred royalties.

Refer to Note 8 for further information on disaggregation of revenue by segment and country.

Allowance for Doubtful Accounts

In the normal course of business, the Company grants credit directly to certain wholesale customers after a credit analysis is performed based on financial and other criteria. Accounts receivable are recorded net of an

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allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses that may result from the inability of its wholesale customers and licensing partners to make their required payments. The Company bases its allowances on analysis of the aging of accounts receivable at the date of the financial statements, assessments of historical and current collection trends, evaluation of the impact of current and future forecasted economic conditions and whether the Company has obtained credit insurance or other guarantees. Management performs regular evaluations concerning the ability of its customers to make required payments and records a provision for doubtful accounts based on these evaluations.

As of October 28, 2023, approximately 48% of the Company’s total net trade accounts receivable and 62% of its European net trade receivables were subject to credit insurance coverage, certain bank guarantees or letters of credit for collection purposes. The Company’s credit insurance coverage contains certain terms and conditions specifying deductibles and annual claim limits. Management evaluates the creditworthiness of the counterparties to the credit insurance, bank guarantees and letters of credit and records a provision for the risk of loss on these instruments based on these evaluations as considered necessary.

The Company’s credit losses for the periods presented were not significant compared to sales and did not significantly exceed management’s estimates. Refer to Note 5 for further information on the Company’s allowance for doubtful accounts.

Recently Issued Accounting Guidance

Reference Rate Reform

The Financial Accounting Standards Board (“FASB”) issued guidance to provide temporary optional expedients to ease the potential burden in accounting for reference rate reform. This guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to certain criteria, referencing the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. The FASB issued subsequent amendments to further clarify the scope of optional expedients and exceptions to derivatives affected by the transition. The guidance is intended to help stakeholders during the global market-wide reference rate transition period.

The Company identified and modified its loans and other financial instruments with attributes directly or indirectly influenced by LIBOR. The Company determined, of its current LIBOR references as outlined in Note 9 Borrowings and Finance Lease Obligations, Note 15 Fair Value Measurements and Note 16 Derivative Financial Instruments, only the obligations under Mortgage Debt (as defined in Note 9), credit facilities and interest rate swap agreements were impacted by this guidance. In May 2023, the Company amended the terms of the Mortgage Debt for the interest rate to be based on Secured Overnight Financing Rate (“SOFR”) effective May 1, 2023. The Company also amended its existing interest rate swap agreement, resulting in a swap fixed rate of approximately 3.14%. As of October 28, 2023, the Company does not have any financial instruments with attributes directly or indirectly influenced by LIBOR.

(2)    Lease Accounting

The Company primarily leases its showrooms, advertising, licensing, sales and merchandising offices, remote distribution and warehousing facilities and retail and factory outlet store locations under operating lease agreements expiring on various dates through January 2039. The Company also leases some of its equipment, as well as computer hardware and software, under operating and finance lease agreements expiring on various dates through October 2028.

The Company’s lease agreements primarily provide for lease payments based on a minimum annual rental amount, a percentage of annual sales volume, periodic adjustments related to inflation or a combination of such lease payments. Certain retail store leases provide for lease payments based upon the minimum annual rental amount and a percentage of annual sales volume, generally ranging from 3% to 28%, when specific sales

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volumes are exceeded. The Company’s retail concession leases also provide for lease payments primarily based upon a percentage of annual sales volume, which averages approximately 25%.

In addition to the amounts as disclosed below, the Company has estimated additional operating lease commitments of approximately $19.3 million for leases where the Company has not yet taken possession of the underlying asset as of October 28, 2023. As such, the related operating lease ROU assets and operating lease liabilities have not been recognized in the Company’s condensed consolidated balance sheet as of October 28, 2023.

The components of leases are (in thousands):

		Oct 28, 2023		Jan 28, 2023
Assets	Balance Sheet Location
Operating	Operating lease right-of-use assets	$	657,363	$	636,148
Finance	Property and equipment, net	16,536		19,055
Total lease assets		$	673,899	$	655,203
Liabilities	Balance Sheet Location
Current:
Operating	Current portion of operating lease liabilities	$	165,420	$	170,192
Finance	Current portion of borrowings and finance lease obligations	6,999		6,684
Noncurrent:
Operating	Long-term operating lease liabilities	538,731		528,236
Finance	Long-term debt and finance lease obligations	10,793		13,181
Total lease liabilities		$	721,943	$	718,293

The components of lease costs are (in thousands):

		Three Months Ended				Nine Months Ended
	Income Statement Location	Oct 28, 2023		Oct 29, 2022		Oct 28, 2023		Oct 29, 2022
Operating lease costs	Cost of product sales	$	44,964	$	43,361	$	136,367	$	131,450
Operating lease costs	Selling, general and administrative expenses	6,744		6,000		19,941		18,582
Operating lease costs1	Net (gains) losses on lease modifications	537		(146)		(1,894)		(1,654)
Finance lease costs
Amortization of leased assets	Cost of product sales	9		21		61		60
Amortization of leased assets	Selling, general and administrative expenses	1,635		1,510		4,747		4,585
Interest on lease liabilities	Interest expense	179		209		577		747
Variable lease costs2	Cost of product sales	23,400		21,682		71,551		64,462
Variable lease costs2	Selling, general and administrative expenses	804		669		2,551		2,438
Short-term lease costs	Cost of product sales	92		87		241		273
Short-term lease costs	Selling, general and administrative expenses	2,015		1,722		4,306		4,600
Total lease costs		$	80,379	$	75,115	$	238,448	$	225,543

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Notes:

1During the three and nine months ended October 28, 2023 and October 29, 2022, net (gains) losses on lease modifications related primarily to the early termination of certain lease agreements. Operating lease costs for these locations prior to the early termination were included in cost of product sales.

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2During the three and nine months ended October 28, 2023, variable lease costs included certain rent concessions of approximately $0.4 million and $1.4 million, respectively, received by the Company, primarily in Europe. During the three and nine months ended October 29, 2022, variable lease costs included certain rent concessions of approximately $1.1 million and $4.6 million, respectively, received by the Company, primarily in Europe, related to the COVID-19 pandemic.

Maturities of the Company’s operating and finance lease liabilities as of October 28, 2023 are (in thousands):

	Operating Leases
Maturity of Lease Liabilities	Non-Related Parties		Related Parties		Finance Leases		Total
Fiscal 2024	$	62,999	$	2,723	$	2,806	$	68,528
Fiscal 2025	160,784		7,626		6,092