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Guess?, Inc. (GES)

F1Q2013 Results Earnings Call

May 22, 2012 4:30 PM ET


Michael Prince – Chief Operating Officer

Dennis Secor – Chief Financial Officer

Russell Bowers – CFO, North American Retail


Shreya Jawalkar – Jefferies

Jeff Klinefelter – Piper Jaffray

Robbie Ohmes – Bank of America

Omar Saad – ISI Group

Betty Chen – Wedbush

Eric Beder – Brean Murray

Diana Katz – Lazard

Margaret Whitfield – Sterne, Agee

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Janet Kloppenburg – JJK Research

John Kernan – Cowen

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Good day, everyone. And welcome to the Guess? First Quarter Fiscal 2013 Earnings Conference Call. On the call are 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 would like to turn the call over to Michael Prince. Please proceed.

Michael Prince

Thank you and good afternoon. Before I begin our review, those of you on our last quarterly call will remember that Paul is working on our global three-day conference of licensees and partners that kicks off here in LA tomorrow. This is celebration to Guess? brand in our 30-year history with well over 1,000 people in attendance.

Now, moving to the first quarter, we are pleased to deliver revenues that exceeded top end of our guidance range and margins that were stronger than we had anticipated on our last earnings call. Overall, our performance resulted in earnings of $0.30 per share.

In North America Retail, the progress we made last year in our women’s apparel business continued, as it is still the best performing category in the Guess? stores. Sales of women tops have been very strong, and both dresses and denim continue to perform well.

We’ve seen an excellent response to our 30th Anniversary Capsule and to the events that we held in our stores, as well as the global coverage we received from bloggers, fashion magazines and online media.

We also continue to gain traction in social media. In the last year, our Facebook likes have more than doubled and on Twitter, we doubled our followers in just about six months.

G by GUESS performed very well in the first quarter. Once again posting positive comps and we are continuing to secure attractive real estate for expansion of this concept. Our GUESS by MARCIANO business was challenging in the quarter and we are working on making improvements there.

Overall in retail, we continue to manage with lower markdowns, our best Q1 performance in six years and that led to higher product margins compared to a year ago, despite the overhang of increased cost related to cotton.

Our biggest challenge in retail remains traffic which continued to be down just as we had expected, this led to a comp decline in the quarter and put pressure on our overall retail segment profitability.

In Europe, our business remains stable and overall performed consistently with our expectations. We experienced declines in our more mature markets given economic challenges in the South, while we grew our business in newer growth markets like Germany and Russia, both of which these markets posted double-digit topline increases.

We grow our owned retail business in Europe, where our topline performance was stronger than we had anticipated, as comp store headwinds were less severe that we had planned. As expected, sales in our wholesale business were down compared to last year, as the impacts of the weak economy, particularly in Italy and France impacted our shipments.

In Asia, we effectively met our earnings expectations for the quarter tough on slightly lower revenues than we had planned. Our business in Korea was softer than we had expected, with a more competitive marketplace and with cooler temperatures that were not conducive to our assortment. Comp trends in Korea were negative at the beginning of the quarter but we saw significant improvement in April. In the quarter our China business exceeded our plans offsetting some of the softness in Korea, and we continue to be encouraged by the opportunity in this market.

Finally, our licensees, they faced many of the same economic challenges as we did. They experienced a stronger quarter than we had anticipated with royalty that grew slightly in the quarter. While it’s only been a couple of months since we last spoke, our major priorities for this remain unchanged. We made excellent progress during the first quarter.

One of our primary areas of focus for this year is expanding our marketing efforts to drive traffic, acquire new customers and support our brand positioning. We are working especially hard on our men and accessories categories to match last year’s improvements in women’s. We plan to deliver a consistent message across all channels and support that with clearly defined product stories that reinforce our fashion authority.

We are putting those key items into our windows, onto our [drive isles], onto our homepage, as well as external marketing. We also want to reinforce Guess? as the denim authority and plan to introduce new launches in fits and provide an even higher level of service in this critical category.

CRM remains another top priority with continued emphasis on customer segmentation and loyalty building. We plan to invest more in social media and digital advertising this year, including collaborations with bloggers and entertainment personalities.

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