Guess Inc.’s inventory rose 3% on Friday after the clothes, footwear and equipment maker mentioned it has agreed to amass stylish New York-based style model Rag & Bone, which had 2023 income of about $250 million.
It’s the primary acquisition made by Guess
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in its 43-year historical past, mentioned Paul Marciano, Guess co-founder and chief artistic officer. Rag & Bone earned notoriety with its first advert marketing campaign, which featured supermodel Kate Moss. “Rag & Bone is a model I’ve all the time cherished and revered,” Marciano mentioned in a press release.
Beneath the phrases of the deal, Guess will personal the entire model’s working property and can share its mental property with WHP World, a New York-based funding firm with a portfolio of shopper manufacturers, through a 50/50 three way partnership.
Guess will contribute $56.5 million up entrance and be on the hook for as much as $12.8 million in an incremental earnout, based mostly on Rag & Bone reaching sure ranges of gross sales and of earnings earlier than curiosity, taxes, depreciation and amortization in fiscal 2024.
Guess and the three way partnership will enter right into a licensing settlement that provides Guess the appropriate to make use of Rag & Bone’s mental property to make merchandise worldwide and promote licensed merchandise in specified territories in trade for a royalty payment.
The deal is anticipated to shut within the first quarter of Guess’s fiscal 2025, which begins in Could.
Jefferies analysts mentioned the deal is “strategically sound,” given a robust administration crew and capital construction at Guess, however mentioned that they continue to be sidelined on the inventory.
“Whereas [Guess] is a number one world attire model, we imagine the corporate might face continued top-line and margin strain through general softer shopper demand because of the risky macro backdrop throughout a number of areas, margin reversion, and weaker wholesale efficiency (pushed by cautious buyer order patterns),” analysts led by Corey Tarlowe mentioned.
Jefferies has a maintain ranking on the inventory after downgrading it from purchase in early January, citing the twin dangers of a extra price-sensitive buyer and wholesale channel publicity.
In November, Guess posted weaker-than-expected earnings for its fiscal third quarter and lower its steerage.
“General, a robust licensing enterprise mixed with a disciplined strategy to price administration offset softness in a few of our direct-to-consumer companies and drove earnings from operations for the corporate that have been flat to final yr’s efficiency,” Chief Government Carlos Alberini mentioned on the time.
On Guess’s name with analysts, Alberini flagged a plan to reclaim the corporate’s denim legacy with the 2024 launch of a brand new Guess denims providing that may goal the male buyer. The model can be centered on sustainable manufacturing and have a celeb advertising and marketing technique.
The inventory has gained 12% within the final 12 months, whereas the S&P 500
SPX
has gained 23%.