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Guess?, Inc. (GES)

F2Q 2013 Earnings Call

August 22, 2012; 04:30 pm ET


Paul Marciano - Chief Executive Officer

Michael Prince - Chief Operating Officer

Dennis Secor - Chief Financial Officer

Russell Bowers - Chief Financial Officer, North American Retail


Erinn Murphy - Piper Jaffray & Co.

Shreya Jawalkar - Jefferies

Robby Ohmes - Bank of America/Merrill Lynch

Omar Saad - ISI Group

Betty Chen - Wedbush

Diana Katz - Lazard Capital Markets

Jonathan Hart - Buckingham Research Group

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» Guess CEO Discusses F2Q2012 Results - Earnings Call Transcript

Good day everyone and welcome to the Guess? second quarter fiscal 2013 earnings conference call. On the call are Paul Marciano, Chief Executive Officer; Michael Prince, Chief Operating Officer; Dennis Secor, Chief Financial Officer; and Russell Bowers, Chief Financial Officer, North American Retail.

During today’s call the company will be making forward-looking statements, including comments regarding future plans and financial outlook. The company’s actual results may differ materially from current expectations based on risk factors included in the company’s quarterly, annual and current reports filed with the SEC, including economic conditions, business strategies, results of litigation, tax and other similar proceedings and currency fluctuations.

Now, I’d like to turn the call over to Mr. Paul Marciano. Please proceed.

Paul Marciano

Thank you. Good afternoon and thank you for joining us today. The second quarter was both rewarding and challenging at the same time. With our national businesses offsetting North America we delivered revenue at the top end of our guidance we gave three months ago and posted earnings per share of $0.49.

In our international businesses our performance was solid. Both Europe and Asia exceeded our top line expectation despite stronger currency headwind that we had planned, which also put additional pressure in our product margin. Our licensing business also outperformed expectation, giving us continued confidence in the strength of our brand worldwide. North America was our most challenging business where traffic was down specifically in tourist location.

In Europe we exceeded our revenue directive even as the microeconomic environment remained uncertain, especially in the south, where a fall off in consumer confidence has certainly affected store traffic. We continue to make strides in growing our business outside of our more developed markets of Italy and France.

Excluding these two markets revenue increased roughly 8% and both Germany and Russia posted double digit gain in the quarter. We were pleased with our retail store performance in Europe where overall comp improved from the first quarter and we experienced an increase from July. We continue to stir up with significant white space in the region and we plan to optimize our multi-channel distribution capability and pursue growths in many markets where our brand is under distributed.

In Asia, our brand continued to gain traction and we exceeded both our top and bottom line expectation for the quarter. In South Korea, both new doors expansion and positive comp helped to drive double-digit top line growth in the quarter, a big improvement from the first quarter.

So far this year we have opened 47 stores in concession in that region. Our team executed well in that period and we continue to be optimistic about the potential for G by GUESS in South Korea, where we have already opened 60 stores in concession.

In China, our business grew by 40% in the quarter, fueled by strong positive comp. We ended the quarter with 161 stores in concession in this very important market for us and our goal is to expand another 45 location by the end of this year.

Now, North America Retail was clearly a disappointment for us. We did not experience the result that we expected. The environment continued to be very promotional and with less profit, especially during the second half of the quarter. The summer months brought a sharp decrease in visitors from Europe in the store. Business in our tourist location and especially in accessory stores were the least performing in the chain. These contributed to a comp store sales that fell short of expectations.

But regardless of traffic or tourist, the most challenging category continued to be accessories. We believe that our product line lacked value, key volume drivers and did not reflect the improvement we have made in the apparel line. We are committed to making the necessary change to reverse this trend and are working with our partner licensees to improve the product offering in our stores. In fact, the current handbag assortment in our stores is strong in my opinion and should improve the trend in that category for the holiday season and I am confident of that.

Our women apparel line continued to be the best performing category in our full price stores. The customer has responded very well to the woven top assortment that has been featured prominently in our floors, while our knit top business was soft and did not meet our expectation. We are addressing that with basic knit program at entry price.

Our denim line also continued to be successful in all our businesses, but we believe we have new opportunity in denim with new fit and printed denim. Our core customer is responding to the strategic decision to improve and elevate our product quality and position in the marketplace.

Other international places, large markets like Japan, Latin America, India and Eastern Europe remained key markets for Guess?, where we have light presence to address by either joint venture or direct operation. Our goal is to carefully invest in these new markets where we see tremendous potential for growth.

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