Guess?, Inc.

Good day, everyone, and welcome to the guest fourth quarter and fiscal 2021 earnings conference call and five-year strategic plan update. On the call are Carlos Albarini, Chief Executive Officer, Katie Anderson, Chief Financial Officer, and Fabrice Benarouch, VP of Finance and Investor Relations. 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 outlook, including with respect to the company's fiscal 2025 strategic plan. 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. Comments will also reference certain non-GAAP or adjusted measures. Gap reconciliations and descriptions of these measures can be found in today's earning release and accompanying presentation materials posted earlier today on the investor relations section of guest.com. Now I would like to turn the call over to Carlos.

Thank you, operator. Good afternoon and thank you all for joining us. Our agenda today will include general comments regarding our fourth quarter and fiscal year financial results. and an update to our strategic plan, after which we will open the call for your questions. In addition to our press release, we have posted a five-year strategic plan update presentation onto our investor section at guest.com. We encourage you to view the materials along with the commentary when we discuss the strategic plan during our prepared remarks. We are very pleased with our fourth quarter earnings performance. which was significantly ahead of our expectations. In the period, we delivered adjusted earnings per share of $1.18 compared to $1.22 last year. While our revenues were 23% below last year and in line with our expectations, our digital businesses accelerated more than what we had anticipated, posting a 38% revenue increase in North America and Europe, and our licensing business also outperformed. Offsetting these improvements were lowered retail revenues due to additional store closures and restrictions, mostly in Europe and Canada, and an anticipated shift in wholesale shipments in Europe into Q1. In spite of the revenue decline, we managed our business well and delivered an adjusted operating margin of 11.4% in the period, only 70 basis points below last year. The main driver of the outperformance for the quarter was our gross margin, which increased 240 basis points versus last year. With this performance, we closed a challenging but rewarding year for our company. While we experienced a significant revenue contraction of 30% in the year due to the pandemic, we were very proactive and led the business carefully, managing inventories well and controlling expenses tightly. All considered, we were able to reverse our first quarter adjusted operating loss of $109 million to close the year with an adjusted operating profit of $20 million. We ended the year in a good inventory position. We have the right product, and our ownership is appropriate to service our business well in the new fiscal year. As with the rest of our industry, we have experienced disruption in our supply chain, both to sourcing and transportation, which has caused some delays in product deliveries globally. Given the fact that we were operating with restrictions in some regions, we were able to appropriately allocate the product to service our demand. These conditions have resulted in limited supply, contributing to less promotional activity across the industry from which we are benefiting. In addition to time, these delays caused an increase in transportation costs. Of course, we have been prioritizing shipments and choosing alternative transportation options to minimize this cost. We believe that the port congestion delays, including the recent event in the Suez Canal, will be normalized by the summer, and we have made provisions to anticipate the receipt of goods wherever possible to mitigate further delays. During the year, we prioritized our investments in our digital and omnichannel initiatives and rationalized our global store footprint and expense structure. We also returned value to our shareholders via dividends and we purchased $39 million of our shares. We closed the year with a strong balance sheet with $469 million in cash. I'm encouraged by our trends entering the new year. It is clear that the customer is responding well to our products and assortments. Our digital channels are accelerating, our wholesale business shows we are gaining market share, and when our stores are open, they are performing well with solid product sell-throughs. Our customer traffic is showing sequential improvement while still significantly below pre-COVID levels. At the same time, our conversion continues to meaningfully exceed pre-COVID levels. In the U.S., we are experiencing a considerable acceleration in our direct-to-consumer businesses since the stimulus checks were announced. We are confident in our business as we emerge from this pandemic. As vaccination levels increase across different countries in the upcoming months, as we have seen in the US, the consumer will be inspired to venture out and buy new clothes. Our product assortment is ideal for post-pandemic business in our industry. I believe that lifestyles have been forever altered by the pandemic and casualization is here to stay. I am pleased that we expanded our line to include categories like a leisure and essentials to support this lifestyle. But we also have rich assortments of dressier apparel and accessories for multiple occasions, which will resonate as our customers begin to socialize again. Before I turn the call to Katie to review our financial performance in more detail, let me just say that I strongly believe this was a year of test of character, proof of courage and adaptability for all of us. At Guess, we flourish in times like this. There is a strength of character that is present in the guest DNA. Our founders had this since day one, and Paul has that same strength and commitment for our company, our team, and our guest brand today, something he demonstrates every single day with his work. The proof of courage in guests is evident with every decision we make, always running the business with a long-term view. leading our team with a clear vision to build the company and the value of our brand for the next generation, not just the next quarter. Our capacity to adapt to each and every change in the industry and the business has been validated by the multiple business model changes our company has endured successfully over the last 40 years. From a denim category assortment to a lifestyle offering and brand image, from owned businesses to licensed ones, from wholesale to retail, from a domestic business to a global one, from bricks and mortar retail to an omnichannel model. I strongly believe that our company's ability to adapt to change is the foundation of our business success and value creation. I will now pass the call to Katie, and I will return to review and update our five-year strategic plan. Katie?

Thank you, Carlos. Good afternoon, everyone. I'm happy to report that we finished this fiscal year strong. with our fourth quarter earnings significantly exceeding our expectations, despite higher COVID resurgences across the globe. With revenue in line with our outlook, but margins significantly higher than expected, we were able to deliver $74 million in adjusted operating profit. We saw operating profit increases the prior year in all of our business segments, except for Europe, which was significantly impacted by government-mandated store closures and a shift in wholesale shipments. We also saw nice momentum in our e-commerce business, which was up 38% for the quarter in North America and Europe versus 19% in Q3 and 9% in Q2. Now let me take you through the details. Fourth quarter revenues were $648 million, down 23% in U.S. dollars and 26% in constant currency. Stronger than expected momentum in our European digital business and an increase in licensing revenue was offset by the impact of continued COVID resurgences. The impact of temporary store closures on our sales versus prior year for the total company during the quarter was about 10%, mostly in Europe, but also in Canada. We had some anticipated shifts in European wholesale shipments, which were worth about 6% of total company sales to prior year. Excluding these two factors, the 23% Q4 sales decline would have been a decline of about seven. Now let me get into the detail on sales performance by segment. In America's retail, revenues were down 24% in constant currency, where negative store comps and temporary and permanent store closures were partially offset by growth in our e-commerce business. Store comps in the US and Canada were down 21% in constant currency, slightly better than Q3, which was down 23%, as continued sequential improvement in US sales was offset by softening in Canada due to traffic declines as a result of the pandemic. The underlying trend in the US showed even greater recovery, However, the business was hurt by restrictions on capacity and consumers avoiding crowds on what are typically the busiest shopping days of the year. In fact, if we remove the five super high volume days in Q4 from the sales calculation, our Q4 store sales comp in the US and Canada would have been about 5% better than what we reported. In Europe, revenues were down 32% in constant currency. As you know, the region started experiencing increased lockdowns and operating restrictions at the end of Q3, which continued through the end of the fourth quarter and remain in place today. Store comms for Europe were down 26% in constant currency, significantly impacted by the increase in COVID levels in that region. Our e-commerce sales, however, accelerated nicely in the fourth quarter and helped to mitigate some of these headwinds. As Carlos mentioned, the wholesale business in Europe in Q4 was down to prior year as a result of the planned shift in shipments for the spring-summer collection into next year. In Asia, store comps were down 22% in constant currency, driven by a resurgence of the virus in some of those markets, like Korea. Our America's wholesale business was down 14% in constant currency, compared to down 34% last quarter and 49% in Q2, still under pressure from the deceleration in demand, but showing vast improvement quarter to quarter. Licensing revenues were strong, up 12% the prior year in Q4, driven by a continuing recovery in the business, but also some timing in sales. Gross margin for the quarter was 42.6%, 240 basis points higher than prior year. Our product margin increased 140 basis points this quarter, primarily as a result of higher IMU as well as lower promotions. Occupancy rate decreased 100 basis points as a result of rent relief and business mix, partially offset by due leverage and sales. This quarter, we booked roughly $15 million in rent credits for fully negotiated rent relief deals across Europe, North America, and Asia. There are still some negotiations with our landlords that are outstanding, and we are also extending our conversations with landlords to address this second round of closures. Adjusted SD&A for the quarter was $202 million compared to $237 million in the prior year, a decrease of 35 million, or 15%, and better than our expectations. We continue to benefit from changes to our expense structure, lower advertising spend, and a decrease in expenses related to permanent store closures versus last year. In addition, there were some one-time benefits from government subsidies, mainly in Europe, which were partially offset by higher variable expenses related to the growth of our e-commerce business. Adjusted operating profit for the fourth quarter was $74 million, versus $102 million in Q4 of last year. Our fourth quarter adjusted tax rate was 7% down from 17% last year, driven by the mix of statutory earnings. Inventories were $389 million, down 1% in U.S. dollars and down 5% in constant currency versus last year. Our inventory levels in Europe were artificially high due to the timing of inventory receipts and the increase in in-transit inventory due to the transit delays that Carlos mentioned earlier. We ended the year with $469 million in cash versus $285 million in the prior year, and we had an incremental $272 million in borrowing capacity. Capital expenditures for the year were $19 million, down from $62 million prior year. Free cash flow for the year was $183 million, an increase of $50 million versus $133 million last year. This year we benefited from lower capital expenditures, extended payment terms with our vendors, and unpaid rent. In addition, last year's outflow included the non-recurring payment of the $46 million European Commission fine. This was a strong finish to a tough year. For the fiscal year, we lost almost $800 million or 30% of our sales versus prior year as a result of the pandemic. However, we were still able to maintain positive adjusted operating profit of $20 million, $130 million lower than prior year, allowing for only 16% of those lost revenues to flow through to our bottom line. This demonstrates the tremendous control that we have over what we can control in a super dynamic global environment. This year, we expanded product margins, executed over $30 million in rent abatement and relief, cut SG&A by over 20%, and managed our capital very tightly. All the while, we had our eye on the future of our brand, positioning this company to win as we emerge from the pandemic. We returned value to our shareholders, reinstating our dividend in Q3 and completing $39 million of share repurchases at an average price of $10.00. And while COVID will remain a near-term headwind, there is reason to be hopeful as vaccines roll out. Now let's talk about our near-term future. Given the continued level of uncertainty in the current environment, we are not going to provide formal guidance. However, I will walk you through how we are thinking about the first quarter. I'm going to anchor our comparisons to the pre-COVID Q1 of fiscal year 2020, which ended May 4th, 2019. as this past year's fiscal first quarter is clearly not a normalized comparison. We expect first quarter revenues to be down in the high single digits to fiscal year 2020, as pandemic-related shutdowns and traffic declines are partially offset by continued momentum in our global e-commerce business and the favorable timing of our wholesale shipments in Europe. Quarter to date, we have seen sales comps at our retail locations of down 4% in the U.S. and Canada, down 19% in Europe, and down 22% in Asia. Our business in Europe continues to be impacted by government mandated store closures. Currently, we have over 240 stores closed with approximately 400 additional stores with reduced operating hours. E-commerce growth has continued to accelerate and is up 58% to prior year for the quarter to date in North America and Europe. Lastly, as discussed, Q1 will benefit from the shift of wholesale shipments in Europe for the spring-summer collection from Q4 of this past year. We estimate that the negative impact of the temporary store closures will roughly offset the positive impact of the wholesale timing for the quarter. In terms of profit, adjusted gross margin in the first quarter is expected to be around 200 basis points better than fiscal quarter 2020, driven primarily by business mix as well as improved IMUs. We anticipate that this margin expansion will be offset by an increase in adjusted SG&A expenses as a percent of sales, as deleverage from lost revenue will be partially offset by the cost savings initiatives rolled out over the last year. For full fiscal year 2022, we expect revenues down in the high single digits to the fiscal year 2020, barring COVID shutdowns past Q1. This includes the resumption of a normal cadence for product development and shipments for European wholesale. As you may recall, in response to the pandemic last year, we made the strategic decision to elongate the fall-winter season shipping window and cancel the development of the pre-spring-summer line. We are not planning on repeating this in fiscal 2022. With that, I'll hand it back to Carlos to talk about the five-year strategic business plan.