GES - Earnings call transcript Q2 2020

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Operator

Good day, everyone, and welcome to the Guess', Second Quarter Fiscal 2020 Earnings Conference Call.

On the call are Carlos Alberini, 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, business and financial opportunities, 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 will turn the call over to Carlos.

Carlos Alberini

Operator. you, Thank thank and for us joining Good you today. afternoon all business. pleased I in second our to quarter very several financial of expectations our our report am exceeded results, parts which

period For of X% the in X% and constant revenues we second reported increase solid growth, achieving quarter, revenue a currency. in another

for basis expenses, gross margin increase by XX% X% a increase points which XX adjusted adjusted basis period, driving combined our adjusted which The margin points, points SG&A operating an the with the XXX increase During to of profit, the revenue resulted guidance quarter. margin was expansion operating period. we for of was ahead in increase basis in operating well increased XXX partially a by the adjusted offset in in

our business comp businesses, the a Europe America line fall after of with delivered by business our direct quarter, our expectations, portion stores of e-commerce, regions, the was early considering all in performance very wholesale in even that strong for sales and were a consumer and impacted performance our positively product. North shipments our in compared includes to which in During and guidance

markets: performance expected, we Asia As three and soft Korea, the in our in major had China, Japan. was

opportunity investment continue we that and closely plans this remains environment meantime, relevant long-term the challenging, and region our Guess' the the very While our monitor remains In will we the in accordingly. offering consumer, situation and the reassess that are believe intact. product brand to to Asian very the

and the the holiday period, We and managed are fall during the for inventories seasons. effectively well-positioned

full-year forecast. on our for business our guidance the current in for confident have are and We increased second-half, trends our based the and

only China expect production year risk tariff potential our apparel total tariff to for and successfully XX% risk the the production. negotiations this expect we we increases, estimated to into through have from with We next from China minimal of impact reduce to our tariff the productive mitigated U.S. and year, vendors, in

working reduce this still to on China. are further We on our dependency

report key we made to June. our pleased our have also last progress with solid since I'm that earnings call in initiatives

then, our began strategic we October end representing Day and share with I work our you As during on when business had the at from the in across plan plan, to leaders expect an we regions of our mentioned of our York, now New team have will Analyst global functions key and company. several we

priorities event, and findings take webcast growth During we top strategic level Guess' of key profitability. and this our will to the next share to

months, principles we business continue to have operate to the take to company. our During few of our following for the creation key calls alluded the value last in advantage opportunities that previous I

update capital me allocation. Let begin on an with

value share As and redeploy incremental reducing significant we strategic we while last decision to return made our reported through dividend capital our repurchases, shareholders in the our call, to XX%. by

XX.X fiscal today, transaction over all represented able that that of convertible at of our of proceeds million disbursed, in, be the estimate net XX year. our we to believe we shares approximately XX% have beginning As been all will outstanding the repurchase shares, and million of this we from debt

shares year, XX% the cash We this impact million this XX% of by approximately impact will combined The effect flow and next the per EPS $XX of million positively retired buyback year to through by the adjusted year. our the convert reduction reach repurchases be next fiscal dividends or to and share, and accretive the year. the now $XX in transaction expect share our about $X.XX accretion of and could

that believe improve growth. We global meaningfully. omnichannel best marketplace. e-commerce upgrade business the decided infrastructure of will with We Salesforce, be our those e-commerce company platform to continue and be growth to our and capital further position prioritize for have global the this, investments able support plans, our connection significant, implement will In one rates impact that we to will and our to available the conversion the of benefits platforms we in that

and Salesforce out plan the sequencing platform, Europe for year. implementation the are to We and in roll the before end plan of of the and designing new Americas the the next currently fiscal architecture in technology

Another that in reduce been this as we to aligned have be area months with overall a few benefits resulted management we more this of has investment I expected composition our and area, have progress in initiative. own. the that we into significant made result improvement am to just pleased improvement a a in in inventory and able and expect sales, have function. for to to This targeted been our in margin inventories very and year what margin this remainder we of the improve quarter, and has next of meaningful year quality the report further

in our one of allocation part stores operation our in wholesale of review, management the we structure, its to transition Australia and in combination a brand to shareholders. enable develop the full capital market will market, have to ultimately already partners. us key this presence Also potential our Guess' to as incremental They create of our so the have decided direct the a and value for

product would like such regarding product The relates This progress you update and our in Marciano, principle I just categories, name and optimization. past that Accessories, have to second the Denim, discussed development a few. distribution Manz, certain to on as to is and

collections pleased have We the are fall very product progress holiday our and lines. with for respective and made with assortments our

months. before, upcoming mentioned presentations new we during plan in denim install as XXX to this and denim, stores worldwide, the For happen we September-October will

is now the European our Stabio, collection Marciano, based line the team in European team and North Switzerland. Angeles, is being being in regional the Los by by conceived Regarding fully developed American

local that both customer market, confident that represent much are We believe each for strong. lines will more effectively the will and response we be consumer preferences

customer of With emerging our our customer made majority and an and referring heritage the business three have growth. products, and Generation profiles effort respect to our that for men's to Millennials the accessories groups, and I'm lines represent our C. we to our customer specific design

We assortments, Gen visual the tours store the quarter Guess' of in in U.S. over the tests C improvement to trends test and entire results consumers, X% by the also performed some adopting the were and Guess' handful the for of marketing stores an chain. the during a with encouraging in merchandising

third operating a and resources. we include I are estate to have include distribution, global and the management The in to strategies. and our addition opportunity principle, talked focused about finance, main omnichannel development, focus global human in that capabilities, pursue on and with real functions already e-commerce. IT, inventory past logistics sourcing product strategy, Other to areas which relates The have

the distribution, priority team and adoption can the focusing some productivity overseeing European optimizing practices and one the as cost from be businesses. now mature us, high North reduced in This team of logistics significantly we here. more network Americas for have and improvements including is is the and Europe, For on a our best should American assessing platform. through This

European lower-cost preparing China. few consolidation. production and made more This with consolidating and by the Regarding origin, team sourcing of is and product into America our lower-cost proud months in out development, team and on working last to countries focusing integrating North of we leadership sourcing have fabrics, key for oversight to migrating team. development assigned with this in vendor countries progress I vendors, be migrate the team our couldn't global common to particularly our

IMU these of opportunities result a efforts, we see meaningful improvement. for As

beyond profiling including capabilities, other the omnichannel improve several for data three personalized we relationship capturing, for reorganized of and looking applications we Regarding customer customer segmentation, predictive return all models implementation at real regions Salesforce, have Last, and performance function modeling, e-commerce to are teams and consistent implementing operating our estate management. requirements. approvals, the project and practices for globally including are marketing

optimization. cost relates to The I fourth principle discussed our structure

for North cost profitability last next short assuredly help As year, year in expect efficiencies structure external us savings. opportunities We our QX our implementations engaged have the such consulting a several this, cost we of this medium-term. call, result have during and on as and we identified to to our and have as some America and an improvements assessment and now plan mentioned Europe, into we implement and recommendations in completed the further of of and firm

occupancy and to at looking lease reduce time. our over also We're portfolio costs see opportunities

renegotiate that from and accessible are stores we productivity considering able as omnichannel stores. now to store online, smaller have our allow favorable and us capabilities to to completely lease assortment terms We through carry improve increase been larger a

The customer omnichannel fifth our our centricity to area relates to initiative our perfect and experience objective worldwide.

our area business strategic e-commerce across We over have the and customer We the continue see time of to improve our planning efforts a to key the in sales work. penetration of globally. significant focus part it opportunities made increase experience this board and

brand. our of regardless the offer engage seamless that ultimate Our with to experience is to customer a goal the chooses channel customer

opportunities I over in Sandeep, focus three Before on that turn see company. brands, call want our Guess' the for the our future I I and to to for big

experiential partnerships, the with placing collaborations and Guess' the relevancy business distribution new and relevancy big consumers are in at U.S. attracting both gain our Guess' those with events, younger and and Guess' brand that we of customer; with driving love customer generated different brands. competitive a global The only our our in in a countries, The consumers space. are heritage connect emerging to impacting level continues key our celebrity our is new advantage. segments engagement significant of represents which First, Today, a XXX brand brand to with is younger XX% truly

top Jennifer a for tour, at the icon, multiple XX and an summer. hours. got one in Party," now incredible a XX anticipation and a amazingly every world. on millions Lopez's resounding her performer in She and her global her Latino of XX got the consumer a Guess' in generations. performed few recent million cities, all incredible with the a brand is We of career where post exposure "It's with was success the with and all height likes impressions relevant of shows during My million community followers through ambassador groups, Guess' great She Instagram, has she over X.X tour during in and only show the with post logo is

kids, collaboration with brand We values in types Marciano displayed origin these perform the sameness. during younger game limited and led with were Nicolai by The creativity event. cars a experiential events, this last tournaments Guess' with of for that purchase, to a Regarding in and believe culture events of ID an apart and a basketball, beverage, designed brands Lot that Five collection consumer Sport, in food on music launch especially of activities sports. authenticity, engagements our multiple very us live collection available unique of and of was vintage set experiences the that artists that for rooted are world archival campus skateboarding, products at special organized weekend, moments our event including soccer, in celebrating team and headquarters capsule partnerships

customers domestically We emerging to opportunity and for a global at believe level. continue growth, that these both our represent biggest

So, have our focus by is customer that reach followings. in relationships a securing global collaborations with and partnerships strong local augmented

in grow potential. momentum we the wide efficiently experiencing as multiple top to planning all still have several while to wide offers network across is utilization. optimizing are became Second, we globally; capital efforts, and and world markets channels our space our we line Europe, our that expand very opportunities are assess and compared apparent to brand space in grow where markets, underdeveloped the multichannel example of formula great strong as momentum great it where part have A significant entire we strategic to tremendous sales still

years, global our revenues and underdeveloped few for productivity opportunity grow reach applies improve best-in-class companies our before great to investments, space. open the last we for see I of significant a e-commerce stores additional store we it bricks-and-mortar is growth multiple goes part without and in maturity. significant as regions many beyond Also as this have is very Guess' said business, can a the fleet meaningfully to our I well in which to before Yen opportunity as compared in but

that great As I and a of the have omnichannel we to we in are mentioned the process capabilities deliver earlier, experience. tools ensuring right

efficiencies structure, performance, our current excited earnings time to business spend model. and the our operating and teams productivity, opportunity. expansion processes our cost looking costs overall more growth our increase get our reduce increase and our about organizational is at with more The I margin our and across Third opportunities I

position we and we on for clear these execute double-digit reach see expansion that revenue margin on a should we As which path operating potential growth opportunities the margins. to operating have, us capitalize

convinced closing, that about In place very excited I'm our I'm to a plan and in tackle future our opportunities head-on. putting we're solid

ability to top We of team the with be to talent an have highly and our our am entire in in strong stakeholders. and confident improve the our that throughout find passion our am for and value profitability top as commitment the and all you I I significant organization this Paul and line, grow thrilled at chart. in is maximize will create our our our team to purpose journey organization

me to let call review over financials outlook. to that, the Sandeep? the and With turn Sandeep our

Sandeep Reddy

afternoon. and good you, Carlos, Thank

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

revenues quarter history. X% in quarter and highest second million, number U.S. our prior and revenue would in Second the company's like currency XXth quarter this X% were our dollars to highlight is that $XXX the up versus growth consecutive was year. constant of revenue I in

quarter. for was in top Adjusted adjusted improvement the and second primarily second driven last margins advertising X%. finished XXX basis on XXX Adjusted versus leverage. of year operating was points improvement by the in points, to gross and increase operating SG&A This margin company occupancy top an of percentage in margin second a was last XXX basis basis margin increased in of adjusted sales by last Total increased XXX million, quarter XX% last higher $XX at expenses. corporate higher by the higher our above year's Adjusted driven XX quarter. than year's profit expectations. points IMUs and on the of was operating operating points as points gross This basis year profit basis XX.X%,

and non-operating net $X.X like foreign unrealized expenses losses of that quarter compared second to I million revaluation $X.X on exposures. currency assets would million This losses on point non-operating we to non-operating in income year. to out the due of recorded last

accretion from by share transaction between EPS $X.XX of by impact $X.XX which offset in of convert statutory earnings the was high-end favorable was the timing quarter higher $X.XX $X.XX on and than some of mix wholesale Our driven from shipments and $X.XX impact up guidance the adjusted to of the at the quarter repurchases, and rate. second negative share Also tax expense per more in tax finished XX%, rate third earnings included XX% from and items. of Adjusted year, second discrete quarter. the a was non-operating last our above included diluted

Comp including constant quarter dollars U.S. for Now, X% segment. Americas for revenues in by our were dollars the sales up more positive U.S. some retail marking constant up comps. quarter finished the quarter X% of for color in e-commerce consecutive currency. in currency, in and sixth and

immaterial comps retail the and IMU's Americas' quarter the markdowns. achieved of better expansion. comps, and to consecutive due up basis SG&A better quarter operating Positive comps marking impact wage eight offset by in quarter. XX were by quarter driven pressure partially through on the conversion margins de-leverage in UPT. This E-commerce margin positive was operating expanded had and an points, for higher

driven wholesale operating specialty XXX take and performance and Americas Staying in were IMU. department business. a by in the business. quarter I our margins the currency dollars Americas a and about the points, strong in U.S. Americas The Revenues to store region, to through want wholesale XX% in moment higher expanded basis in primarily U.S. grew constant talk continuing

and the including versus wholesale for down up last year in Comps openings, XX% positive X% currency X% constant were revenues driven revenue dollars grew U.S. in by dollars by constant in European U.S. e-commerce in comps. and new and in currency. growth store finished and quarter X%

by increase E-commerce marked XXth comps three positive the for quarter of percentage region. constant comp improved consecutive the for European quarter comps the the points. currency The

strong. continues to wholesale be Our business also very European

on currently are of season the sixth Spring/Summer consecutive track building our digit season the for are for growth. book XXXX double We order and

higher improved a markdowns basis distribution logistics IMUs XXX year. points expansion and for retail in leverage drove costs, improvement XXX cost dollars. European points that least at lower due lower lower to gross basis segment profit margin X% comp expect European the in contribute We by margin Europe now to to

of year quarter. the the the We during also than last promotional much expect to remainder period in clearance less be third

were X% comps X% down weak Japan weakness by currency. in and with markets and currency. Moving in in were We quarter. in our revenues X% is constant Korea, XX% markets to broad-based all major Asia Comps dollars in trend three in second a experienced down U.S. dollars improved including up point. E-commerce quarter up U.S. and Asia, e-commerce one in traffic the in that percentage across China constant

the Operating comps. margin points of for markdowns due the to as a the de-leverage result and Asia segment in XXX expense contracted quarter negative basis primarily higher

sell to the owned we quarter, closed to Australia and the operated During distributor. our stores wholesale transaction our Australia

impact guidance and the segment Our transaction. the the this quarter for updated third has reflect of been full-year revenues to for

quarter balance the million dollars dollars $XXX in with versus the X% This China accelerated the the onto and X% last sheet, and our accounts up increases. despite currency line currency list in sequential was constant were U.S. into million was in X% for of Inventories improvement in of $XXX in in constant growth. year. Moving another quarter was U.S. U.S. tariff achieved and X% receivable impending revenue anticipation up receipts during from

are inventory the year the our combination last year. expect balance move well a during retail to make of through channels We as outlet stock our in of excess carrying plans liquidation own this progress stores through from as some end of inventory the still and to

million excluding expenditures. This negative Free $XX our the for commission payment of of million commission fine. lower by $XX $XX million EU free was million improvement the cash driven improved a million $XX flow last EU flows by $X cash $XX so includes an versus million the fine, impact year negative capital

shares any the million ASR been under we quarter, million quarter but of may we that cost open into entered delivered shares yet during first year. the the on this of include $XX not During This not X.X at the bought does $XXX repurchased a market. million have

have million with reminder, $XXX been delivered compared the of We million compared ended to against to less million. already after quarter of expect to debt September. negative ASR of Cash to cash delivered ASR shares equivalents was the the the the end last by X.X $XXX at us and million of the $XXX the last first in year's cash $XXX million year. be beginning quarter with As quarter a balance completion

third to charges. that XXXX of for on I any fiscal the and asset assume does full-year guidance, outlook impairment out should the Moving point quarter not

increases the list is supplemental segment guidance. and sales However, any earnings in attached potential by total and company for impact for in is our included tariff comp from included for now Also revenues our the to table guidance the release.

the For expect revenues constant XXXX, to percentage point consolidated rates, quarter. a quarter will for we growth currency. we third roughly of the quarter on in fiscal exchange up At for X.X% prevailing currency to headwind estimate that the be revenue X.X be X.X%

margin be up primarily expected SG&A be IMU improvement supply to to year, gross our to chain up is an investment increase to The is Our due rate to compared expected advertising. in due primarily last initiatives. from

the We are from planning and points and basis currency. a X.X% XX operating margin impact unfavorable between quarter X% with for

$X.XX the share in second quarter. includes QX from wholesale convert planned that the to the impact the shift per The EPS Note and from of including guidance $X.XX a transaction $X.XX $X.XX currency. per shipments to a the the of share our adjusted range earnings is include of earnings repurchases. in share $X.XX The share and share, timing of negative due per quarter third impact due in accretion guidance tailwind per to

$X.X of amortization expense convertible to debt interest of adjusted million guidance transaction. cash an of includes and fees EPS related loan Our the assumption

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

up impact At constant between exchange we growth a have the three year year. to consolidated for consolidated on currency. point to X% be percentage expect revenue negative We currency rates the in for prevailing X.X% estimate and revenues

due IMUs both full-year, up be investment compensation. to Europe, in improved to the as performance-based expect the in in Europe. well For increase The and is rate margins up in gross due be Americas to and distribution an logistics for costs SG&A as expected as adjusted advertising as the well we year to lower

adjusted Our to XX%. is rate for tax be estimated the year

XX a foreign and currencies We impact our margin and are guidance points at X.X% with that operating margin prevailing X.X% roughly planning negative and assumes will adjusted basis currency between rates. operating on remain

earnings $X.XX the estimated $X.XX range to this Adjusted accretion in includes headwind and convert is share per currency, share $X.XX planned in the transaction. from $X.XX of repurchases with and due

guidance interest cash of EPS an million of adjusted includes Our and amortization assumption $X.X loan expense.

the adjusted our prior $X.XX our As $X.XX guidance currency represents new of with year's XX% headwind EPS. a $X.XX. of The a year was reminder over increase to for a guidance high-end now last

$XX infrastructure Please support key This incremental for to expected is technology prior. at from of in year our support the $XX includes investments investments and on to was the the platform remodels growth. openings, this from that range is the our development store in long-term contemplated CapEx of our to the million and year. store to not force down rollout beginning that $XXX sales note million million

As on by the cash last lower I earlier the addition working excluding million expenditures. flow improved over the in first-half. capital of free $XX and This improvement inventory driven in commission million to EU $XX call, by in management was mentioned impact year the capital fine our

expect similar in capital cash management benefits in the a the second-half lower see We to due to of free and capital working year expenditures. from flow continued improvement

be on by on the payable Directors September approximately quarter, outflow close as quarterly approved share $XX for lower million. dividends $X.XXXX Board shareholders of earlier to per at of dividend XX, year cash business In this, a the call, our will addition last XXXX. of to the has Carlos current than the record mentioned of In

With for company's open that, the up remarks conclude I the call questions. will and your

Operator

[Operator Instructions] Riley from first Our question comes from FBR. Susan Thank Anderson you. B.

now is Your open. line

Susan Anderson

Hi. for Hi, so Thanks see job much good continued to nice my quarter, strong taking the question. on evening. Nice performance. the

Carlos Alberini

you. Thank

Susan Anderson

higher performance? curious step like the the And was baked for why mentioned the on it driving was second fourth quarter And the retail, to expect down, guess quarter? year then into Op should to strong the I year-over-year quarter, you guidance wondering margin Americas I also more for that, then third guess third get we looks the I after curious, what the markdowns quarter? also and was in I that

Sandeep Reddy

Hi, Sandeep. Susan. It's

Susan Anderson

Sandeep. Hi,

Sandeep Reddy

doing? you are How

Susan Anderson

Good.

Sandeep Reddy

take think I [technical on So, I'll I Americas there's difficulty]. first the it think, two question, pieces your to really,

second-half note One of and think very of well, comp by our a was was was year, our was AUR you through the right year to through very actually the went improvement if the in year, and the that things big performance driver important the that and quarter, last I as driven inventory a as the in into through lean second year. got right positions last we performance

well, about inventory carrying, We that the about was the that good margins level actually think that are started similar last I we to on level, there inventory of Americas we're meant again, the we year and Now improving in essentially last pressure feel frankly, sufficient this quarter. very, experiencing as slight table, to had year, demand, I lost more normalized as the but lean sure potentially that in we into the very low that trends QX don't we business. this that clearing marketplace do year, seeing of AUR pretty but a as business. we're came markdown the it's the dynamic very at markdowns, a out had healthy because sales This and why a left on actually we came which of on we is was of fulfill but feel inventory made and the cadence now the expected think into and quarter inventory, and you're we over are the to into rate

we're about you Op the talking that margin compared the on and had, last Susan, think I about second X% you talking question were I year. guide, to X.X%, X.X% think to And

if third point of the shipments timing shifting on quarter high because that quarter expanding quarter, timing the at take into to actually have into in the experienced in benefit important quarter second you the note The second is that the $X.XX wholesale we end. third the put back of the third it of from margins least worth and would timing and our quarter been

quarter that's but looking take really a feel company third we consideration about basis. I So, the the the an and you're so at of important on the dynamic good into year, itself, performance in far when think full-year by to

guidance, which in in guidance and XX So, reflected when that comfortable basis X.X, I is look a the in we right the raising material business are is the currency, now direction, you pretty especially X.X lost because full-year full-year our think at improvement that's going guidance, to points guidance. the in and we feel we really to

Susan Anderson

If could looks dissipate if really so that's like helpful. improvement your one know pressure, there. it the bit get to-date third maybe any follow-up you China, better? far could give quarter third seeing I on you're Asia, I just ask there's seen of I seeing Great, you've if some a quarter little color don't on guess, or from maybe some in guide weakness you're that kind of if

Carlos Alberini

Susan, Yes, this Carlos. is

take me Let that.

softness. Just Asia us, is obviously some seeing a big opportunity for but also are we

during me this kind a call, I we different let the address about this of last like think in history, talked but make pieces. little three to of Just bit

is the The first Asia. one about environment in

means a bit opportunity. and doing is let there, business our one me for for little we this about are and what second the about The then talk it, long-term the what

of environment. the primarily trends sudden in driven beginning a change in major wasn't Chinese New Asian saw it We at the stores. the the Japan. by year; just lower a change me into was customer happened let so with and in sudden Year, And weak the this have, but China, was that and we Korea our markets traffic after right start very three So, the big this also

those stores, The when customer those to into intensely any in or indicators with was is and to to average saw of we show conversion times, is our went consistent we they what this not our so and of with store, traffic just in specific additional We traffic type metrics responding are during we macro as value, in per then still drive clear very performance saw we all things one key units that key public very the believe is the order this that to past, we coming product, completely seem sales the transaction brand markets, all that rates such a the stores. see that is the in this or follow those and customary believe more issue. a didn't that we that when and the of

We customer for weak also a type that is know we not stores, are the in and especially many even same is into that that this we there we experiencing so Japan department know understand just about that fact. that know us, space Korea trends, in same the and of operate traffic companies

this us. together all and say, So, you put we definitely "Okay, not

do met our we to spend improve have team. with significant big we I visited had China opportunities. the a weeks the However, opportunity business?" team and I time with great what few ago, there really saw and a to team, a can We and

amazed then is in the all, energy, was customer, young a vibrant and of China, on; a inspiring, the a in social Many sharing product. very stores. stores, big lot opportunity saw a own with they cloths and the and are are I on tremendous trying interaction is saw customers with which I others, with I Guess' eyes is very this in there, my lot just This how it of our First excitement brand completely exciting. is of

speed-to-market now that to really but are will right they specific have issues accuracy initiatives. much markets, customer more more can the product to, much those We that are product the of opportunities sizing, a all fits; and we styling, think that and including specific that don't respond type working on very for are with prints, we we develop markets,

of entire that also don't expect layout to We fitting as that activities you could revisiting would part considering the that, experience. think in currently we're many including We as but the omnichannel include, that all don't technological this the we issues digital are addition of store. of have, rooms and the kind opportunities We and have capabilities we seeing. that the are have customer also

are there of is that So membership, even do and really that big the us. the for stores, a which while things improve customer in is lot experience opportunity a can loyalty to we

analysis customers we we We there offer response are what to opportunity integrate that online. great and data join here to an seeing believe when also is with we do membership, this

-- marketing, to brand on is the we some impact markets could with in is and going much we local the partnerships more here into groups there and working with Last that local the our have hard at coordinate even level. but do of to a into markets, least, their more bring lot very team and that that fact, relationships we not think that team be can much having very those

going we're going -- is perform in Kong, big Taiwan, very to that So, from in there. there's China tour we and send going example, that perform, group here, we be going team, are doing going that represented exciting to in November, group be to with have to Macau, are is and a with XXrising, born is there are Hong for Chengdu, with to October, the going September Nicolai's to a called group then and and are Brothers, to in to and from they -- tour are this and October a there, which and collaboration events, prior they Higher this their they is so going them, relationship

I thing the then is would teams. last about And say

have addition and this direction. We right applies those a I lead is to in expertise that us this I I time. in been think for tenure, have there an and to have we the the in in that that mentioned, tremendous markets, people major tremendous expertise those all very have to markets doing the incredible feel markets They really team, long

potential opportunity change our long-term mean? does a this not does keep all looking what we long-term, So the and as in obviously at us company eyes. business; this for represents a that Asia Just big

doors We have XXX in of have base now. about we China, for a stores, right good example,

more can franchisees then opportunity the work with grow tier our minimize so the X cities, brand deployment develop to and we and have because X potential really have to in of we quickly. space capital business tier we but still model can We the

in very to be So, course, going meantime, the of we're careful.

that potential trends reassessing investment we to are make are capital true the our and based plans, plan we on We that decisions and see.

bit absolutely for the to little softness over single there, think you have of yes, business, support going the and here I here brand with are through a that, look overall, So just positioned think incredible now, the opportunity that, are every -- we an day. overall we is potential at when how but that a I we going

Susan Anderson

quarter. Thanks the Great, all for good next that's very details. Nice luck and job helpful. again,

Carlos Alberini

Susan. you, Thank

Operator

from comes question Jefferies. Janine next Our Stichter from

now line open. Your is

Janine Stichter

of better bit little that a than feel help think and the some Hi, move good ended maybe you afternoon, us parameters how we expecting, question expected, would inventory, where like you to have regionally? quarter it nice through just A and it to like much then you're breaks down where to about have maybe if on how see the the ended versus progress. on feels you kind into more

Carlos Alberini

how just be yes, me very add, aggressive I'm initiative, company, an my I inventories big complex are comments embraced team. with let -- Yes, how company. effectively, this this this proud incredibly is and but -- here. in put It through. credit, have a amazed and been sure months back the not team start seven plan much it's and am energy to have my really now will and we the just has a it's for I Sandeep coming so for incredible and and we accomplishing, happy the just company a at pretty the to to that monitored managed I'm is is is but

and I that we So, that two we at looked we the we needed think do. in big were with there have it's inventory things position said the to inventories, may -- past, had,

inventory, in was address to the was was One and the composition a time, desirable. in what that of, owned at there the we not lot

and make a residual we plans So still liquidated, that, and from all to really we put today have we in plan way Sandeep that a we place, really mentioned inventory and some that have for just find had be even it. to

on healthy on can at the we what on just make replicated; we we more putting sell than that never as second to we same think emphasis only but the and to brand, of don't thing and it's also is how not critical mistakes, us. more I performance, even buy don't an to is The thing margins' own, sure duplicate and and what so is big opposed liquidation sure we that buy think impact the important those plan most we more and we a making lot this are we and that and those processes, that probably margins, because how has we about this

So, we are in that process.

progress that we We are so made very the have far. happy with

single we we just and ended in well, looking than anticipating the way a second about only It's year quarter obsessed what better well, originally originally thought absolutely than as what You place at we are place this that we end we a the are may being in are right; to it we thought, better now day. every it. and frankly, this do

Sandeep Reddy

is will to so to big very -- have encouraging of we first our progress a Europe the and at as composition, six a the to add, talked And to year. work especially first-half, in of year by where think pretty that in a Asia, regional mentioned as better inventories into and we terms because in under like asked the in of more color. the have been Susan, doing I in regions back-half far been challenged they some going came I be to sales just really you in levels about the we the made good on feel and into year, about were Janine, months, and what's in so Americas we lot do work earlier think the get of think I that's place end business, we that year of Asia for where of the the decelerated well the to the inventory answer the Europe we driver be being performance are. that's beginning of When we I my and more inventory trends compared still thought

that some gives are So at. color I think things where overall, when for you think you about the different regions,

Janine Stichter

of And wholesale, even in done years? just how on that's of versus us department that, sense timing until follow-up you newer coming was a the though you Okay, some from the very that one shift, terms accounts where of can putting the growth stores there last much but couple helpful. is Americas specialty the great, said quick of then traditional give you've is some

Carlos Alberini

first Yes, so European is also includes clarification, Americas the wholesale. Jenny, it not also $X.XX but the just

with And are shipments as coming Wear, thing, early had to Urban these we brand in very and our are like had have and back partners, more with partners today, good our businesses. with And we that, that the of are healthy, and is do such into both seeing businesses which we the that a meaning the to in addition that strong well retailers, other with that very just wholesale for Outfitters, retailers health younger seeing another significant Pacific consumer strength that So and fuelled has some pretty relevancy wonderful traditional business. growing. company Americas, has whom, very with respect business Macy's, traction the in very this Sand is

expectations we our So but of we the pretty the wholesale not is that with also are with as very seeing top only line, very this product well. are much our also business, in healthy pleased sell-throughs because line profitability is

margins and our major So this are a of has impact obviously IMUs up.

Janine Stichter

Great, thank you.

Carlos Alberini

Thank you.

Operator

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

is now open. Your line

John Kernan

of Europe across and and congrats lot North peers America both a your outperforming Yes, quarter. retail, Carlos, this Sandeep good afternoon, on in

Sandeep Reddy

John. you, Thank

Carlos Alberini

Thank you.

John Kernan

rejoined as just and have margin sounds and you're sounds then I overlaps starting you since questions quarter the a Thanks. this year and but see only follow-up you that confidence have excited margin also well. for not expansion learned what may you forward, Sandeep, going line, see about top talked increased the the Carlos, And beyond. company, and to to efficiencies the to next say structure. biggest Can structure and like you cost play on couple your most, I you where some on it you've us, you SG&A opportunity talk out arrived the for

Carlos Alberini

thank John. Yes, you,

company top, This about the if grow those but is right very that, think P&L, here to are words, the world. fact penetrate there the spite have it a the I again. opportunity is can big I sizable business, to I typical And big time has to big time are that at continue the drive but and done operating continues that margin revenues. think in definitely you three things think of Guess' that's, we think

detail $X lot a billion continue and we countries, opportunities and work and continue to a talked about white brand of a to space. have So see to business, lot with different of and to we penetration grow, I we did opportunities as at $X.X looking see that, grow, the billion

first that is is expand just margins, leverage doable thing much and finding I we So can and line get growth more operating very to obviously, if do. top a think to

okay, done has of with lower migration labor now opportunity lot The margins, of second China on well growth. And I that, what and do and I'm there's from about a the think you we going thing done do into is big we're would a markets. gross lower that the think, next, margins in team IMU, cost great I talking job origin think but about IMU still

things a I can of product. designs opportunity within do a of think more using fabrics We that then accessory see a different other the there of is across we And and fabric lot we common that lot I the opportunities in but costs platforming in efficiently. the also have. think lot of organizationally, makeup

three in very have now, regions doing Right different teams we different things. similar

have completely We not integrated. that vendor basis are

already there's great on So this whole is the world do can it. thing and we that lot a in we're that

team this very in a way. is have a driving progressive that and aggressive We

about tools this thinking some be way of what would whole go that that addition with use implement, allocations able are the require also we opportunity. we we of looking with this identify of product that, part of is are with inventories after require we And the that to the we at consultant the making tools. managing And new to are you of see look and work this and doing lot how world. opportunities, a And sure we of that and kind we will additional efficiencies In to to effective that at buy. use a

lower in result should situation. this and markdowns, stock and out lower of So

you're distribution and operating can opportunities are meet enhance that big then the that many a of whole addition corporate structure, logistics particular the that run on transition we for referring are we're the logistics then world you are are at nothing There that stores distribution area, there across maximize cost we and and P&L, So had the allocate of with things to whole how in area that one when rates. to at opportunities, there. year, And look a are see how inside that able that we that all double-digit be and and last as together, we issues some get looking in put labor you going to and to well. there hours conversion Europe it to customer looking sales we There lot whole And optimize obviously inside structure. demands we and to in how but to. opportunities And we I'm looking margin as if to the see we well. dramatically be could has change starting

John Kernan

Got it.

recovery think first in margin Looking profitability forward year of logistics to one-time give go quite we as some back the into the about how half European should year? this certainly is the we October know when in you type just the some disruption Sandeep, in impressive, and you Europe I left wondering us of and more detail. half

Sandeep Reddy

for think a first thing that's we think, saw margins. margins now. right say, direction, I to eight the and was one a great have actually I costs that the picked here, probably the we expect, European the points from in basis look I of point question, already quarter expansion quarter. this about And logistics beginning tailwind particular of say starting on I'd it's this the margins And Yes, time actually the the in XXX only up we're John. being think in quarters We alone just halfway at this and costs XXX if but to logistics points up now we've in year, basis that we've tailwind the the but updated with from margin said year, that you going

of stores, were to going definitely a dollars, profit and we retail So into is we quarter quarter go we improvement more the beyond The to logistics which through seen more costs. good comp when because in and into just the gross rate as second a position are were year. and there's the we same we've able the on the the expect they're ourselves year, at see third during inventories, as and promotional go and sales the growing, the to with expect We got we leverage, the more see drive IMU helping. less growing lot of we our rest leverage of

margins where year. in I to we about good excited European very potential very to margin are that the the just all business, a mentioned see we're the recover last and we going year, drivers So this lost of lot

John Kernan

and where terms then And final just line inventory, confident helpful. overall it's just and and you direction like are going it environment. on sounds the you're buying in really question how top guys That's of

wondering, free you. with try to at inventory end be relatively should we just line year. just model of as the Thank in flow sales the So cash the

Sandeep Reddy

the much I inventories sales see towards back Yes, potential by relatively as think the of half are But we do to the John you already. carrying we in is more inventory the of the year. we aligned what and better second already because last see move year quarter, back-half, were too

than actually So and are the terms growth be to as we go an sales half. relative potentially outpacing and dollars lower the year see where we in prior back to inventory an should actually should of inventory

Carlos Alberini

that's the lower what and say managing is One owned trying ideal be way at own than that, just would trying inventories the the thing in doing in that and looking inventory. not be last are just company what we're to about we're to are future, we we year's past to forget and the

would is to was that was So the on excess the carrying reduction that based sell see in produce may company more you you not inventory itself be it that it expect was completely could much because than that the strength inventories necessary what producing.

John Kernan

you. it, Got thank

Carlos Alberini

Thank you, John.

Operator

from comes question Saad next from Omar Our ISI. Evercore

Your now open. line is

Westcott Rochette

Omar. that Urban. and know mentioned good and bit the doing, you that which continue to footlocker the is C about Or reach store Very rolling plan how of you like you out how strong you're quarter environment Gen that do many The customer, wanted time, I've I on This noticed in store to ago. and customer. you stores more on for for But already that tests deeper PSON you on have? dig the little customer in guys. do incorporate reach specific something into think aligned first wouldn't Westcott in customer? a to I that it Thanks, kind I years thought continuing to reception as is you that have also

Carlos Alberini

frankly, question and it's particular to Yes, we a good this study topic. continue

the what response And Definitely For of C good now, are big profiles of groups and in with Gen are being the customer of from, customer. participate developing the may of group. doing rapport have we that this side we having and about I'm is customers three for occasions through created partnerships are we one partnership in, that for can that thinking customers the and brand on that we that some really this participate is looking opportunity at team this product driving lifestyle how those of efforts brand customer the done is the them is us. for now and marketing

that took was we just have when comes done the to product available. Now, it test, already we the

that went convenient it's not So that new we okay, said, this for we and design, and let's products there test. go

We we of type gave was for. change line that took with product is And away in the images, of the with that previous were the selected stores and space that looking compelling. some of of visual this or and a and available, other and more to but customer was get outside changed from propense the talking penetration to products then what that product on were we results presentations, this more very based product, only for the that of and stores whole It's the limited the we're number about type visuals marketing sale. more

taking that all type analyzing shop, then how they customer how really or and what an activities different, trying segmentation where participate So behave, about is data, understand is That being said, with this Heritage all they and the the are after or about because of we whether Millennial it customer. areas Generation that we doing data not key in. just the customer, talking customer to the and we obviously thing think here going are customer this those there C it's capturing alignment

necessary doing different in taste And personalized the that that Heritage and case, customer, think if that marketing other than the that example. this product personalized very from because we for believe lifestyles are is we is and necessary, that then

portion customers addition So, and to as partnerships are what saying, do we assortment preparing type we are the is that, the okay, in designers are that as our line line in do specifically includes our of a meaning core a won team designed allocating doing result, we be and of when doing well. that to this plans, brand we what for what

Westcott Rochette

Awesome. That sounds really great.

very tell us conversion, and focus big new is e-commerce think where you into of to-date? Thank line. is e-commerce seemingly is you are think the you And your can main back-end it leverage kind points something new that of rolling your today you and platform, that out you to your one, you is CRM, it think improve two, inventory Where penetration the so you. do as haven't app can what today, about to

Carlos Alberini

sure. Yes,

our of the have with penetration, is penetration said in that sales. about past direct-to-consumer starting we XX% So I our think

is this a and global So, It's low. number. very

XX%. numbers about are here, are think looking at you best-in-class If we XX% companies between that and

we comparison very that are has a business. have we it's brand an Now, licensees, a because apples-and-apples not wholesale significant

us. not can integrated that for opportunity we to a compare retailer, know it is it's vertically us penetration, that being said, comes to you there that when just but this a So tremendous

is have much other at maintain our platform saw And that we market response tools you the And things started that in looking a it time. that the designed as definitely platform opportunities faster Salesforce is when a is So we outside, house. such look built and best is at and performance; had today. offers in we among one that we that completely the e-commerce for

our search. use and that segmentation improve have top over of books that which more to They can control that. They run can We to search customer visual be have don't with artificial personalization, can algorithms recommendations We we do price infrastructure all our on like access be do improve significantly to. has today be effective complete intelligence able we sitting to the group to business. anything our on merchandising the today

industry told pretty at a this, rates know about half when we things the completely we is if compare to one rate what rate, an of So just improved. hadn't we're increased were trending And our significant I you of the today, bottom the lot compare, even probably a of have when is. conversion be conversion the significant going to that most any that line can but that money is abandonment industry, to we there drive we are

with what doing So we're the imagine we that traffic, that same be means, today. business double the could doing

feel team is and what next of year. So or brand territory, world Americas, driving because we're incredible this we look know architecture to we want the time with after and at that some don't end just just to like the want want done one convert to starting go we we but it, an a is to we over going initially, it's investment before that entire one be looking both the we that going us, time, this to will for have great be are we take Europe

Westcott Rochette

the impact and that be going I'm is investments you question thinking cadence half, capital over improvement years? one of investment the Just make those your on the is, margin, sure a next to percentage will year two both some as margin the that and

Carlos Alberini

Yes, no, it's a great question.

already capital this to included year our going guidance. is to to that be capital in It's So application the is and necessary the for with our respect required implement platform. the

to to requirements doesn't CapEx we but is than for to million, opportunities some cut up able I $XX capital are that before. higher This that other $X end this number upper million, going spend took the to a that, million some think the and find bit is $XX little we year. of the we were imply of from

the this capital $XX on this have of we that believe And some in Salesforce the million return the for is you So of we is type is done way, of more insane, this on And year. that structure magnitude. size comfortable There said, of next be kind going and ongoing works, to the conversion being yes, about on basis impact if is but with going growth hit ways. compensation the same numbers max are this there's That for an we multiple cost can rate see. to it's some the year. the

Westcott Rochette

look to October. forward All right. and Thanks a guys. lot also Congratulations

Carlos Alberini

Thank you Yes, so much. you. thank

Operator

Telsey comes Dana Our Advisory next Telsey from question Group. from

Your line is open. now

Dana Telsey

Good see to afternoon, everyone, and nice the progress.

Carlos Alberini

Yes, are thank Dana? you How you.

Dana Telsey

Good. How are you?

Carlos Alberini

Great.

Dana Telsey

those these new It tests, order seems what's whether you're Where the denim like rolling tests, have see customer that it's Z these were changes obviously where on what X%, them you are the doing that you're denim cost of denim in up Gen the they lot of globally do to and quickly with a you've made enhance with are stores these doing and presentations. out? some with you're the you testing, doing how you test around nice stores tests,

Carlos Alberini

Yes.

tests far very so not So, the costly. are

If you just think we so test, products, everything forth. using about the Z was had, and that Gen including including imagine,

didn't denim, test. who in the way we at to company very a was would a and respected as it frankly category. denim comes you know that So presented the presented be were insignificant. in expect are, brand frankly we we and or a to We dominant as costs to a company take category continue denim heart, be that are not this to When

doing into kind we the all stores. bringing of like are that is So back presentation

used want we and have them, them we back. You now know, to

and hit feel So talking question, just -- we that the just about global, is this about XXX This beginning. is your to we are going to your stores.

total to also season, We critical it's and category are only do a overall, bring going and per close a in, for to just we know and is and get but next a to more customer as transaction enhance very, increase the to very presentation experience is to great but so sale. giving we the forth, not units us the strategic whole category that

do we thousand we're year, number, be about few but introducing very we now. to are So, not we capital XXX are that is about a it's talking our hundred able or cost to included for stores this XXX dollars are excited this. big The stores total -- and in that a the

Dana Telsey

And you book denim? holiday, see see seems and like the the strong do in order you Europe. remains do it. it of how How and denim, growth Got the fall

Carlos Alberini

Yes.

early stores You and have in about we a too work couple but But only of in of are assortment we didn't are presentation. There will now going time And The and done test the feel some seeing we that just of signs early. this it's it's how know, And of and that we we see are initially September denim we not of installations And lot women even excited. on things we we see the this things denim, are happen denim, October. lot to out, that we to on a did a that we have towards encouraging end is have applies both the new to assortment And exciting that for work. an will men. us. the are how very have. felt

Dana Telsey

Thank you.

Carlos Alberini

you, Thank Dana.

Operator

call We Carlos the At no questions closing turn further remarks. queue. to time, in will back for this have I

Carlos Alberini

you, thank Yes, operator.

thank terrific We You way feel for quarter, Asia. in know, you had in We wanted to a say today. I the that's we softness are experiencing spite here. we of to just all of participating that you great the results second had

to grow channels, in and and to our in momentum Americas business Europe gain all thrive continues profitability. business Our continues

We and great to go to couldn't and plan team but a continue over So, opportunities good in are feel our I and good with very, grow we margins we putting for together us, have we be them, a big of all be to to we to have our report you. business. honest progress, operating our very on able feel attack about more that excited company those front still time, be to and

you So, a day. Have analyst thank in for you and day, great October we again, to hope our for see participating.

Operator

concludes and That today's gentlemen. ladies you, you for Thank call. conference participation. Thank your

may disconnect. You now

Guess' (GES) 28 Aug 192020 Q2 Earnings call transcript