Guess makes first acquisition in its 43-year history with deal to acquire trendy New York brand Rag & Bone

By Ciara Linnane

Guess is buying a company that generated about $250 million in revenue in 2023

Guess Inc.'s stock rose 3% on Friday after the clothing, footwear and accessories maker said it has agreed to acquire trendy New York-based fashion brand Rag & Bone, which had 2023 revenue of about $250 million.

It's the first acquisition made by Guess (GES) in its 43-year history, said Paul Marciano, Guess co-founder and chief creative officer. Rag & Bone earned notoriety with its first ad campaign, which featured supermodel Kate Moss. "Rag & Bone is a brand I have always loved and respected," Marciano said in a statement.

Under the terms of the deal, Guess will own all of the brand's operating assets and will share its intellectual property with WHP Global, a New York-based investment company with a portfolio of consumer brands, via a 50/50 joint venture.

Guess will contribute $56.5 million up front and be on the hook for up to $12.8 million in an incremental earnout, based on Rag & Bone reaching certain levels of sales and of earnings before interest, taxes, depreciation and amortization in fiscal 2024.

Guess and the joint venture will enter into a licensing agreement that gives Guess the right to use Rag & Bone's intellectual property to make products worldwide and sell licensed products in specified territories in exchange for a royalty fee.

The deal is expected to close in the first quarter of Guess's fiscal 2025, which begins in May.

Jefferies analysts said the deal is "strategically sound," given a strong management team and capital structure at Guess, but said that they remain sidelined on the stock.

"While [Guess] is a leading global apparel brand, we believe the company could face continued top-line and margin pressure via overall softer consumer demand as a result of the volatile macro backdrop across multiple regions, margin reversion, and weaker wholesale performance (driven by cautious customer order patterns)," analysts led by Corey Tarlowe said.

Jefferies has a hold rating on the stock after downgrading it from buy in early January, citing the dual risks of a more price-sensitive customer and wholesale channel exposure.

In November, Guess posted weaker-than-expected earnings for its fiscal third quarter and cut its guidance.

"Overall, a strong licensing business combined with a disciplined approach to cost management offset softness in some of our direct-to-consumer businesses and drove earnings from operations for the company that were flat to last year's performance," Chief Executive Carlos Alberini said at the time.

On Guess's call with analysts, Alberini flagged a plan to reclaim the company's denim legacy with the 2024 launch of a new Guess jeans offering that will target the male customer. The brand will be centered on sustainable manufacturing and feature a celebrity marketing strategy.

The stock has gained 12% in the last 12 months, while the S&P 500 SPX has gained 23%.

-Ciara Linnane

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02-16-24 1337ET

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