Guess Inc. Acquires Rag & Bone Fashion Brand

Guess Inc.'s stock rose by 3% on Friday following the announcement of its acquisition of renowned New York-based fashion brand Rag & Bone. This marks the first acquisition in Guess's 43-year history, signifying a milestone for the clothing, footwear, and accessories maker.

Rag & Bone, known for its iconic ad campaign featuring supermodel Kate Moss, gained widespread recognition and respect within the industry. Paul Marciano, Guess co-founder and chief creative officer, expressed his admiration for the brand, stating, "Rag & Bone is a brand I have always loved and respected."

As part of the deal, Guess will assume ownership of all of Rag & Bone's operating assets. Additionally, the brand's intellectual property will be shared through a 50/50 joint venture with WHP Global, a prominent New York-based investment company specializing in consumer brands.

The agreement entails an initial payment of $56.5 million from Guess, along with a potential earnout of up to $12.8 million based on Rag & Bone's sales and earnings performance in fiscal 2024.

Through a licensing agreement, Guess will have the global rights to utilize Rag & Bone's intellectual property for product manufacturing and distribution. In return, a royalty fee will be paid for the privilege to sell licensed products in specified territories.

The deal is anticipated to conclude in the first quarter of Guess's fiscal year 2025, commencing in May. Analysts from Jefferies praised the acquisition for its strategic value, citing Guess's strong management team and capital structure. However, they maintained their neutral stance on the stock.

This acquisition signifies Guess Inc.'s commitment to expanding its brand portfolio and staying at the forefront of the fashion industry.

Guess Faces Challenges Amidst Volatile Market Conditions

Analysts are expressing concerns over the future prospects of global apparel brand, Guess. The company may experience a decline in both its top-line revenue and margins due to several factors. These include an overall decrease in consumer demand caused by the unpredictable macroeconomic environment across various regions, a potential margin reversion, and a weaker performance in the wholesale sector due to hesitant customer order patterns.

Jefferies has downgraded Guess from a buy to a hold rating, citing two main risks. Firstly, there is the possibility of a customer base that is more sensitive to price changes. Secondly, Guess has a significant exposure to the wholesale channel, which presents additional challenges.

Guess faced disappointment in its fiscal third quarter, reporting earnings that fell below expectations and subsequently reducing its guidance for the future. However, Chief Executive Carlos Alberini points out that despite softness in certain direct-to-consumer businesses, the company's strong licensing division and efficient cost management have maintained earnings at a similar level to last year.

During a call with analysts, Alberini unveiled a plan to revitalize Guess's denim legacy by launching a new line of jeans in 2024, specifically targeting male customers. This venture will prioritize sustainable manufacturing practices and incorporate a celebrity-based marketing strategy.

While Guess's stock has seen a 12% increase over the past year, it still lags behind the 23% gain made by the S&P 500 SPX index.