GES - Earnings call transcript Q1 2019

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Operator

Good day, everyone and welcome to the Guess First Quarter Fiscal 2019 Earnings Conference Call.

On the call are Victor Herrero, Chief Executive Officer; and Sandeep Reddy, Chief Financial Officer.

During today's call, the company will be making forward-looking statements, including comments regarding future plans, strategic initiatives, capital allocation and short and long-term financial outlook. The company's actual results may differ materially from current expectations based on risk factors included in today's press release and the company's quarterly and annual reports filed with the SEC.

Now, I would like to turn the call over to Mr. Herrero. Victor

Victor Herrero

above Today, and our share Sandeep our first year. all everyone. operating our for will reported of for quarter margin, end the are profit adjusted finished full-year detail we later, afternoon, And increasing sales, that adjusted the our we Good guidance. high our as guidance the earnings fiscal per current

results The turnaround region, majority in of while started and Asia first a is that the will Europe made Americas allocate to are company on we our quarter track, the continue European results where and the investment to that and in the our superior. pleased year on are capital Asian sales strong our progress trend we of last returns growth significant profitability improving in We continued our retail.

the in up marks this above was US and e-commerce, the constant with and this region, Let’s XX% grew an year. quarter merchandising a weather the for was currency, successful growth the driven to quarter strategic European earlier XXth new dollars adverse impact start including from in of in by and organization. was revenues the increase despite comps, initiatives an US currency. implementation momentum soft consecutive our up Europe. in constant for by by sales and X% in comp wholesale the of the our X% The and and revenues openings in to from start our Easter positive continuing and quarter increase XX% The European slightly expectation unfavorable positive of quality store very dollar comp elevate

including a Spain, we stores directly operated Italy, and Finland, in quarter, Russia, Europe net on the Poland. seven France, opened Turkey, During basis,

Our very business to be continued strong. European wholesale

costs order the China. pressure strategic digit progress margin wholesale to of European fall/winter wholesale contracted revitalize Venlo. by these the we costs third long-term season expected of region our distribution consecutive in invest European volume related points, closed pressure growth from infrastructure and than for wholesale were primarily growth the initiative center as our on and to higher logistics the of being have now the to our double XXX our of XXXX adapting basis distribution to in locked incremental the distribution move continued initial European in book to distribution ahead the We extending segment to The plans. due

Japan, up e-commerce, by and and Moving to in currency. Revenue openings. Chinese and comps up Asia, and the new including Chinese in New was store by Year. in particularly revenues quarter Greater were in impact region dollar constant in Year. positive China XX% in were excluding Performance comps, shift shift US timing the XX% impact driven the from by currency after New These XX% first constant of the helped US quarter timing XX% strong dollars the positive favorable was of in growth in in even the up of

Alibaba, opened Hangzhou. We X first we headquarters we I China. in and adjacent is Fuzhou, Northeast, opened tell Southeast. more quarter, in net in the in Wenzhou Shenzhen, and the on stores the mall about stores a Hangzhou. shopping want opened During XX the Asia the in South [indiscernible], to in operated opened in their the you Harbin basis, Central; in Haikou Northwest, including directly East, to store store The in in by Hangzhou the stores the in Shiyan

be as on very strong. to on Tmall call, are Our And Alibaba I partnership we mentioned their previous growth thrilled with continues with our platform.

brands. in existing This for the brands with Most are few brand experiment with unique of this mall Alibaba partners by in in this in will Alibaba with chosen new one on We their opportunity physical our them collaborate the as business, us enhance our retail international Tmall insight experiential have that online-only physical of e-commerce will mall. provide physical stores. stores is both that been believe we to and consumer us for a

true an online and that Moving model integrates both omni-channel the a to offline experience.

that we Finally, points expansion Asia. segment operating the margins the quarter basis are making of of very the in pleased sixth consecutive XXX improved Asia the quarter this in margin

executing can As business you Asia. our are in build strategic initiatives on a see, we very major well to

X% and Comp quarter, were Retail, including currency. to e-commerce, sales, quarter for X% X% Americas in in US decreased revenue constant up in Turning X% for in the currency. dollar and dollar the constant US

progress on than improving in improvement in through This the quarter rent markdowns, basis and our quarter the fourth is was a this quarter comps very Retail AURs. delivered Americas for significantly was higher in margins. last with less We achieved year made being negotiating better IMUs, while satisfying what in greater profitability achieved even and While than reductions. these point operating the were comps XXX very us sequentially exciting, positive we that promotional lower

years, negotiate As of a our now to share want are the close an either I expiration very rent kickout or have reductions. next reminder, a us in about. ample [ph] giving we three lease to flexibility leases a two-third almost something excited continue that to

data to intelligence our make adapting behavior more CIO. experience and report that innovative products higher digital our consumer globe Guess? the be to are of strategic which will hub. innovation Office, with efforts Guess? digital launch to This global office We will leverage directly from way the on is is new embrace me oversight technology such ongoing the is to a multiple the Office consolidating new customer retail seamless. transforming that digital the technological solutions the idea and and importance technology Digital The purchase across Digital environment,

newest and last vintage May opportunities throwback our capsule unique sold to collections presents Gen archives. from We social a Another began messaged to events the share inspired Guess? completely I the to Los two the which the excitement brand an event would Farmers called and Angeles. Market. Farmers which Market lines collection day. do Market, cues showcase is out like collection, intend around our from and This through QX. Events The with are The exciting Farmers inside on the in innovative two-day new build in more update brand. concept event before. year this media of held seeing was Zs night like XXs and we fully nature event We One Millennials. thing connect or ComplexCon to XXs to participated more about has

repurchased million. During we approximately million for shares the quarter, X.X USDXX

have that trading is our told we As we I believe the opportunity below have when financial to stock intrinsic you value. the before, seize strength its

profit with the both to Americas continue to are both to forward quarter, and digit expected Asia strong remaining Retail of continue to and expected very lot improve runway top are for generate a growth in operating markets. Looking Sandeep? line double Europe second to

Sandeep Reddy

Thank you, afternoon. Victor and good

measures. today's During measures. or of earnings reconciliations GAAP release refer this conference such to certain call, for or our adjusted Please non-GAAP comments reference descriptions

expansion for impact by minus driven for increase quarter margins aforementioned basis Adjusted higher sales million, revenue the to our than by margin costs, operating gross in by First operating up percentage Adjusted highlight operating IMUs, from XX.X%, loss gross our mainly on the and basis operating to of additional X% last $XX gross by loss fiscal today expenses including higher expansion, pressure press at the XX basis center restated constant refer and an less like year by that dollars offset versus million, for roughly quarter. segment, in to margin consecutive points, growth. foreign in European were expenses revenues increased from impact up including basis margin points. would the consecutive XXXX was this $XXX driven and growth I margin purposes. to US finished Total was in of first start a last related currency SG&A de-leverage of by offset the XX% prior primarily for fourth of This an versus negative improvement the distribution logistics quarter distribution of quarter quarter lower XX Please better in XXX Europe. SG&A. in driven as points segments rents, company X.X%, release XXX of markdowns sales, year, X% of the of new company. information comparable increase our currency Adjusted was partially seventh negative points advertising occupancy by from Venlo. increased and a adjusted

the represents roughly Our per XX%, end adjusted in unfavorable rate of first up quarter per per Adjusted the improvement guidance quarter diluted $X.XX. currency loss share to X% than loss loss diluted $X.XX compared a first at share was tax impact quarter. $X.XX. The from better on year's last of last share was This in of our year. X% adjusted high finished

Venlo. $XXX by currency, X% US This were quarter sequential the XX $X.X was $XXX receivable XX% on our still balance to revenues. and for shareholders versus have approved quarter in to million in in was growth to dividends million returned cash dollars Inventories less currency to wholesale $XXX have of in This prior of negative the is in to constant $XX million plans year. with repurchases receipts our Free the in of shareholders and our was compared up the improvement in $XX Since increase first million quarter. million accounts prior, and constant driven and we compared dividends the up million, last months. share constant the cash ended in in another equivalents the related the last million XXXX, form to versus in US sheet, in year. versus end Moving debt flow board. $XX as net start million, support $XXX driven $XXX the new previously having and quarter, At we capital. Europe in share cash share as over $XX year’s $XXX center in last at by negative We million cash inventory driven in of well by Cash by The available a purchase of to our of returned working the end growth Asia reduction changes and distribution million, buybacks. revenue to dividend the early last million, after million. $XXX the program X% XX% currency primarily dollars in $XX million paid the after $XXX transition is billion was plan,

out includes outlook and quarter quarter. which effective the first that should a a the the to guidance standard, total in guidance, the included earnings year assume release. by not our Moving charges. point The company for adoption to supplemental revenue comp attached does is asset new full segment for became impairment table revenue and our second in Also, for and the fiscal any I XXXX of on outlook sales

driven currency, by revenue we second be strong prevailing Europe growth to fiscal For At expect up of roughly on we growth quarter the currency the in XX% expected the Asia. rates, point constant tailwind be X quarter for exchange for quarter. estimate XX.X% a to consolidated and that XXXX, will revenues percentage in

to due year, primarily to new increase aforementioned in Europe. is by the exchange, partially SG&A costs digital gross the compared from in is move supply chain be due The expected improvement cost. rate the last lower Our favorable expected related distribution from well from impact markdowns, and foreign to especially lower investment our distribution margin be to advertising up from to as IMU to an up rents the our and marketing initiatives, center distribution European to offset pressure

per the tailwind range We for per assume X.X% and margin are $X.XX and $X.XX share is from quarter buybacks. planned any share X% point basis in a the per of planning further to share share with not between does operating Earnings XX currency. an

in the adjusted for this improvement operating in Excluding increase high currency, and point guidance. XX% quarter margin EPS adjusted end XX of a a at represents the basis

estimated XX%. Our tax second is quarter the to rate for be

on be We and up currency. to for year. increase X.X% the taking between the X expect even an that the consolidated we prevailing revenues into tailwind revenue and exchange percentage closing account roughly the constant expect estimate should for be prior rates, XX-week a we noted that in in year even will stores in after growth the currency revenues in consolidated X.X% the be impact It Americas At after from comparative negative year. point

of improved to lower the we of the partially favorable offset up, in and lower Americas full digital rate Europe, For pressure be for due currency, increase expect and advertising SG&A The up expenses. margins and the both impact the by from is in costs due year, to expected the investment gross to and Europe. distribution be from year to markdowns, rents in IMUs distribution marketing pressure

tax benefits the This for our Our to tax rate -- rate estimated effective year to includes from the the of be reform. is our XX%. tax

currencies are our of of between at impact XX guidance planning margin tailwind basis our and operating roughly roughly a X.X%, assumes currency foreign We points and the adjusted rates. X.X% including prevailing remain

to the $X.XX, EPS. to our the raising end, prior per effectively included earnings impact The $X.XX our $X.XX share last to other per adjusted The year at are guidance new $X.XX our a guidance This top $X.XX roughly range We per share. of In our of increased currency. currency guidance over which per words, tailwinds. $X.XX end cents excluding higher a for adjusted includes year's by have XX% we a earnings share share. of of currency guidance of guidance tailwind $X.XX compares the to increase represents of

operating improvement and for close on to year of per questions. adjusted growth. our XX% range business in I million million, that at our to conclude of of XXXX. Excluding and the share, company's XX, remarks continue in long expansion invest guidance in our payable retail currency call represents basis higher June the the term the of to CapEx points. record for in increase as from and shareholders we EPS board $XX adjusted is will dividend has technology an up that, XX expected to and a With your of to of the a The $X.XXX quarterly Europe open Asia represents support impacts, approved margin infrastructure $XX end directors

Operator

Evercore first Instructions] Omar our And ISI. from have [Operator Saad we question with

Omar Saad

business. for the in taking Hey, see good progress question. Thanks the to Nice evening. my

a previous could there wanted to you some clarity ask investigation if was be I there that fundamental happening. helpful? ask would really controversial Any an models? update the I question, issue Guess? on any I around think provide kind was there's of Before internal

Victor Herrero

Hey, ongoing, call, mentioned as Basically, still Omar, having thank the investigation further last on is we you our are not for we comments. and asking.

Operator

to question? proceed the next Shall I

Victor Herrero

please. Yes,

Operator

Thank you.

John question next Kernan Our comes Cowen & Company. with from

John Kernan

Good afternoon, Victor, Sandeep. Congrats on the momentum.

on massive profitability year-over-year, XX was in question a down ask Americas significant Retail, comp pretty positive to obviously and year a versus last inflection QX wanted Just X change very there in well. as the

just fiscal American you've better wondering, this do the than profitability full to know at it got embedding you're that what it year point? but segment guidance I’m So as to in talked feels the retail relates Sandeep, North at point? quite EPS an this like in you've breakeven, to I opportunity

Sandeep Reddy

had driven pleased. that which is XXX quarter. I doing area I quarter, John, of the is points after the at the smallest Yeah. revenue about get year is was of the we margin less going points XX quarter. basis this of less. into first got an in better improvement fantastic, was basis by think quarter a this talked good and inventories, improvement much on. were X, to therefore Essentially, in much expansion last in quarter quarter, and really promotional. the kept kind position so with definitely mean, The first all a that markdowns look IMU we factors. feel continued first the of larger it that we we on the numbers, We the We first very year fourth we number worked expansion were much our through revenue and This a into right on things frankly is quarter, got

landlords. That's bottom the hard numbers close And say unprofitable, we that did we if is actually with were our comp renegotiating with back all the we full-year we get that a margin said we that America at on couple well a that will of rents call a ago, we go actually had comp in the So, line. would as some I expansion we've of the very then been that we months the to of guidance basis, where retail. on on thing and stores North breakeven that terms working third get to you lifted to time to which we last got did if helping the And to actually guidance, can point saw.

time lows guiding that are raised look we we've compared provided you was have lows, to topline in that you low-single down the digits, can our from actually if down at so the guidance where the see Now, up we to it guidance. last

we in to the based that seeing that the So expect obvious profitability saying it segment on trends Americas in Retail the now goes we're the business.

Victor Herrero

little for basically are well you, last time why a you've turning business. moment. around going this let know it’s where me this you Many think American I American as bit been are want I that North the few to asking think the of when quarters the think we business. to we at we're And I And turn I at moment,

think with last for three I that the consistency years. we've been mean I product

the -- our they customer or think is or like new product. our our customer I customer really having

think is the also in doing for and think as we are too much extremely doing is too of is been to I promotion I have we've that product us, you been the stores. you what looks been a because the helping that that we terms store we’ve well, think, too very merchandising, outlook, many mean years, of win of don't fresh. have continue have visual promotions this and three type also in I what we've I total the fresh consistent, -- much lot don't clearance, way and careful And important very the we

for efforts paying business. years So, in American think three I in all plus is these last that North back these we've starting things all – digital doing pay been the marketing to back

John Kernan

Okay. That’s helpful.

change in earnings dilutive just the that the fades first to and I’m distribution solely really on headwind change that in and change in that Europe, obviously beyond. into quarter. year-over-year the Just profitability if QX pretty was wondering in distribution due to was

Sandeep Reddy

Yes.

initially because something center me expansion where the have plans now together, what want much capacity pacing good problem to it's has bit, needs. to planned center of and and achieved what in when we’d talk we actually that in unit to in growth make actually distribution volume about us, have front some it's our ahead So look what's we we'd infrastructure the plus our plan fulfill put distribution terms just John, at situation we’ve for sure ways, because ourselves terms a so think, a in of as of the we that let I equip of been growth revenue

along. go making investments So we as we're

our pressure, we first We are with yes we seen some more a pressure to think it’s to adjusting and cost term. we really there's have this in cost but long cope our be infrastructure expected, going sure growth, bit long-term little quarter, and the just for the investing than

unevenness It's so, terms And question totally just these making Europe. the be expansion, in uneven of because being of our we're we’re track margins but digit for path there in some margin investments. could double on a

John Kernan

in And Asia. then space are clearly can you finally, just to white seeing talk the Victor, you

We’re Can a your the year the see accelerate, you. significantly profile your to not year what Thank Guess? brand brining as Asia pretty margin China. to line to starting just also prior you Inditex. only lot in role improved you’ve particularly top – I’m obviously wondering learned over at it but relates the well. and as

Victor Herrero

particularly Well, right both quarters. been and for ages Mainland first two several been healthy them and for to Korea has which expansion seeing comps realities, now, two a with business of good quarters I been that for course Japan consecutive kind Korea. margin starting healthy are Asia. now, we of of they've comps we've with a to see are and China realities And want say six all, John, and us think having stable apart of right I in we very are

you quarters. with in we the were Regarding last same as continue model to we the few China, mentioning

we marketplace the China, that partnership in VIP.com, any into with of existing a the stores mean, shopping apply call, pleased also inside foreign and partner, as new us I -- I think open and strong will stronger as and to one being partnership think particular my shop they treat I technology us with a in development mentioned that for lot comes with very are partner they shopping particularly trying with store new and a is projects they I'm of see and shopping we we call shop physical them with them as Tmall, retail if Tmall mall the to I always and stronger mall, be the in have. company kind really first very --

China, on trying of is very lot So pleased has benefit future I I'm -- that that. continue in from potential the think think I a for and should one. us we to

Operator

Susan comes question next Riley. from with B. Our Anderson

Susan Anderson

AUR? has I you of improved the across see drivers? in I more Americas bigger to curious nice regions? back in it turn. Or stores? your terms Has been was of kind been of the traffic been that are has curious seeing the that was Retail, guess, what part And to then mainly I also tourist really been improvement it's in Or the if all stores.

Sandeep Reddy

Yeah. you as say I'll if by bit better quarter called it's a the what was why even we’re that a I we that better, huge not look AURs year that's traffic think fourth of towards and and slightly last out clearly And the but been performance in a driver really driver improved that's But one drivers at got itself. seeing. the our business, of is

consistency, our the much earlier, and the the better been from just performance those has stores the it's we're talked I of what the are it's frankly now, is but is and across our better. only key the what it's driving about that market, drag area, inventory say think across perspective Tourist would an not a the it's and that less selling fleet. which in doing we’re more board really what’s across execution. is And basically product, it's I better that's Victor newness it's position fact The AURs.

Susan Anderson

good quarter. there issues there hear. also in weather first then know the over in And Europe, That's to I some Great. were

second with and better of sales when see curious better then growth. kind feel comps quarter do the that's kind on good -- the job you in very of the swing weather? did positioned But improved did like weather and you also see Just dramatically you

Victor Herrero

But that the I we Easter of the we of lift was but first affected I at a that significant part quarter during by quarter, the part of I part affected us weather a quarter, mean think as the in the part see of second severe Well, quarter definitely, but sales second to I as didn't the the Susan on I not don't the affected my shift think well But the want little us you first well tell as mentioned call. weather. bit --

the Europe, are we good anyways, XX performing. think is really have thing that I markets, all markets the XX

starting We are opening in this seven quarter. markets

continue will opening stores. some We

I very that, is to positive emphasize been quarters we’ve very, with think what comps. XX important is

e-commerce Our well. channel is performing

are retail happy channel several performing well wholesale Our with performing is business. our well is and we also our European confident for quarters so and and channel quite

Susan Anderson

Great. Wholesale then on segment. That's Americas one to the last good hear. And

I lower great. think gross would some up that. just give quite was the but by if lower be sales margin That op a on the were margin, driven color could you Maybe bit.

Sandeep Reddy

Yeah.

you're So think Susan, right. I

margins we the on and bit had were across revenue lower revenue strong that the I that we operating it’s strong think had growth a pretty growth. board

there. was timing, a of three of was Some Canada a strong and are US, bit the major lot little and is of it it Mexico but this pretty markets

to inventory was what some I of in had and moved the old through. gross be margins pressure from we had think that needed margins operating on we terms

lot business. the quarter. about the we're significant if actually look talking at But just and in size through you the So of that total a margins not we of the money, move movement action pressure that it business, size on on quite margin is the took it’s -- just to put the

Operator

Instructions] we our [Operator Janine with from have question And next Jefferies. Stichter

Janine Stichter

Europe. get guidance color the like tweaked on to just comp wanted slightly there downwards. more some just you I Looks

take And then you're there, guiding outlook. just like the provide mid-singles licensing, down excluding you for don’t why the it the in cost can So you changes, accounting year. updated on color any the looks

color segment by when Just start product and impact category see we give to any can that you positively? should

Sandeep Reddy

Yeah.

So we comp touch. just Janine, yeah, down on the took guidance, a it

last our the business revenue from have just just of think little why the happening look entire front what is it expectations really guidance Europe pretty in – time we our singles still about cognizant low currency and feel and last and on it for we to actually X.X%. I marketplace low to I that's the we I X% you'll but X% in think the mid for We're a we company had feel got constant note if -- in went X.X% guidance singles. at and the has what's think bit, year, revenue included, for good single moderating of confident and X% X.X% year being to you the time actually that this been to

fall/winter also So we took is demonstrates up way driven company in by is think being consecutive the ’XX that third over lot digit a Europe by it's confidence revenues basically revenue I total some you and sales momentum season the points. projections And our because guidance in our the this by full the a that X.X in recognized and wholesale campaign business doing We extremely our increase now. giving right double had there. well of we're of

other And general think was feeling your good -- pretty Europe. question in on licensing. about really revenues So I in

one think a change we partly had if this adjust is So licensing, in I to stabilized the pretty that, the full first recognition pretty the like seeing XX% in again due when in there feel we what We plus pretty you saw on but have year we I the good something reported, first last confident quarter. on for in year kind as think the good standard and board. actually but through year think now. confident what us we're through seems had and why, that's momentum are business. But we we're pretty some you quarter, we went so I extrapolate and quarter. the of at It's timing product this licensing the guidance, in it's and coming look in businesses. in the it's of that I think and was actually other year reflects in you performance we licensing specific up It's than business the front the across the for think that based and number, category. accounting not right I X% broad expect lower said revenue It's It's to that it but the our we've before,

Operator

to confirm follow-up just And Janine, have do you questions? any

Janine Stichter

No. That’s all. Thank you.

Operator

Ladies We And Thank today's thank gentlemen, thank have concludes you. further questions this no time. And conference. this you for we participating. and you. at

disconnect. You now may

Guess' (GES) 30 May 182019 Q1 Earnings call transcript