Guess?, Inc.

Good day, everyone, and welcome to the Guest Second Quarter Fiscal 2022 Earnings Conference Call. I would like to turn the call over to Fabrice Benrouch, Vice President of Finance and Investor Relations.

Thank you, Operator. Good afternoon, everyone, and thank you for joining us today. On the call today with me are Carlos Alberini, Chief Executive Officer, and Katie Anderson, 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 outlook, including potential impacts from the coronavirus pandemic. 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 tied 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 earnings release. Before turning the call to Carlos, I would like to mention that we will be participating in a Fireside Chat at the Goldman Sachs Annual Global Retailing Conference on Friday, September 10th at 3.20 p.m. Eastern. We hope to see you there. Now to Carlos.

Thank you, Fabrice. Good afternoon, everyone, and thank you for joining us today. We are very proud of our team and our accomplishments. We just closed a great quarter, and we plan to review what drove our performance in detail. But most importantly, I want to share with you where we are today and how we see the future, both short and long term. Let me start with our results. For the second quarter, we reported adjusted earnings from operations of $89 million. This compares to adjusted operating earnings of $48 million for the LLY period, exceeding our pre-pandemic performance by 85%. This was well ahead of our expectations. We reported revenues of $629 million, 58% over last year and 8% below the LLY period. The entire decline to LLY was due to a timing shift of European wholesale shipments into Q3 and permanent store closures, which are accretive to operating profit. This is in spite of being significantly less promotional during the period in all of our direct-to-consumer businesses. For the quarter, we delivered a 14% adjusted operating margin. We expanded our operating margin by over 700 basis points, from 7% in the ALY period. The start of this quarter was the North America retail segment that reported an operating profit of $38 million versus $6 million in the ALLY period, an almost 540% increase. Our wholesale and licensing businesses also outperformed, and Europe and Asia delivered roughly flat operating performance to the ALLY period. Paul and I continue to be thrilled with our team's performance all over the world, adjusting and reacting seamlessly to the fluidity of the current environment. We want to give a huge shout out to our leadership team and all our associates and thank everyone for their big efforts and great contributions during this unprecedented time. We are happy to see demand recovering and stores reopened across the globe. We still see the pandemic's impact on customer traffic and on the supply chain globally. The labor market has also been impacted as companies are challenged to rehire workers, leading to labor shortages and higher wages. At Guess, we remain laser-focused on what we can control. As a global brand, we have adapted quickly to the changing levels of demand and restrictions across our markets. We are sizing our inventory buys accordingly, adjusting prices to the perceived value of our products, strategically managing promotional activity, and increasing labor rates to attract and retain top talent. We continue to keep costs very tight by eliminating redundancies and increasing efficiencies. We have been relentless in mitigating supply chain disruptions. We are strategically partnering with our vendors to accelerate deliveries when feasible, changing countries of origin when appropriate to increase speed to market, and investing in faster transportation modes when it makes sense. Our strategy is working, and our results reflect this. I am proud to share with you that we published our latest sustainability report this summer, focused on our three pillars to operate with integrity, empower our people, and protect the environment. Some highlights include reaching gender pay parity, increasing our eco-smart guest penetration to 20%, and receiving approval in our ambitious science-based targets for greenhouse gas reductions. We are confident in our actions here. In fact, we successfully passed a reasonable assurance review by a Big Four firm, making us the first in fashion to subject our ESG data to such a high level of rigor. We have increased our environmental quality score with independent shareholder services as a result of this work. Let me now spend a few minutes talking about what's going on in the different regions and channels of our business. In North America, traffic has improved sequentially each quarter but remains well below historical levels, and we continue to see higher conversion rates and higher average spend. We are in the midst of back to school, and we have solid demand for denim, activewear, and knits. We are seeing sequential sales growth for our dresses category, which was positive to LLY for the first time since the pandemic began. Both our Guess and Marciano brands are experiencing increases in sales of dressy apparel and accessories as the customer is returning to social life. We have also been successful with our handbags and wear now products, and our men's business has been particularly strong. In Europe, we had a stronger start to the second quarter, which leveled off as the Delta variant spread in many countries there. Activewear continued to outperform in this region, both for women and men. And we saw a substantial pop in denim in Q2, as well as improved demand for dresses and outerwear. We are encouraged by the progress that most countries in Europe have made with vaccination levels, and we remain optimistic about the recovery of this region in the second half of the year. In Asia, our customer traffic is the most challenged due to the virus, and the trends remain relatively consistent in Q2 versus Q1. The product categories that have performed better in this environment include sweaters, denim, and outerwear. While we have made good progress in several areas of the operation, our challenges with top-line performance remain. We are reassessing our team, and we are making leadership changes to reorganize the business today. Our e-commerce business grew 11% in North America and Europe for the quarter versus last year. Growth here was more moderate than prior quarters as we were a lot less promotional. I'm pleased that we continue to significantly improve profitability in this channel. In the back half of the year, we will be strategically investing more in marketing to support further growth in this business. Our European wholesale business is performing well. We are currently shipping our fall winter season which had orders up high single digits. As I mentioned, some of the products are delayed coming in, so they will ship in Q3 versus Q2. The spring-summer season campaign is underway, and we estimate that the order book will be higher than LLY, with strong growth, particularly in our kits and footwear collections. We're also very pleased with our Americas wholesale business. which grew 19% in sales and 54% in operating profit versus LRY. Denim had a great quarter and delivered strong performance at Macy's. We're also having success in apparel for both men and women, and accessories, particularly handbags. Our global licensing business also recorded significant revenue growth of 18% versus the LRY period. We have a big business here primarily driven by handbags, eyewear, footwear, and fragrances. Regarding our strategic plan, I want to spend a few minutes updating you on our progress with our brand elevation and customer centricity initiatives. I will start with our brand elevation strategy, which touches almost every aspect of our business. Paul has been driving this very ambitious initiative with our product and creative teams. His strong leadership and the work that the teams put into this to transform our model have been extraordinary, and many major milestones have already been conquered. Most significantly, the taste, styling, and quality of our products have been elevated, and for the first time, we are providing a global assortment that achieves a consistent representation of our brand. We are focused on higher quality and sustainability across the board, In addition, the new assortments have been priced based on the product's perceived value. Our visual merchandising and the images and photography in all the new marketing campaigns, catalogs, and websites have been optimized to showcase our brand more effectively. And our product development, marketing, visual merchandising, and buying are integrated more closely than ever before. This means that as we identify our biggest product stories These flow through to our campaigns, store windows, and floor presentations and websites. We buy deep in these key styles to increase full-price selling and maximize sales. The last important step for elevating the brand is to improve the customer experience across the guest ecosystem, including our stores, our websites, wholesale distribution, and through our licensees. We are mobilizing our field and business units to address this And we plan to upgrade our technology and tools to deliver superior service to our customers. Some examples of this upgrade in store technology include enhanced Wi-Fi networks, expanded payment methods, and mobile checkout. These projects should be complete by the end of next year. Regarding customer centricity, let me start with our customer base. As you know, we resonate across three distinct customer groups, heritage, millennial, and Generation C, and we develop our product assortment to support the unique lifestyle needs of these customers. With Gen C specifically, we have a separate strategy, including differentiated product development, marketing, and customer engagement. This is our brand partnerships group, led by Nicolai Marciano. Product collaborations and events drive this business. We had great success here pre-pandemic with key collaborations such as J Balvin. But as you can imagine, the pandemic impacted our ability to execute this event-driven marketing campaign. Now we are able to restart these collaborations. In fact, this past weekend, we had a successful event with Babylon, an influential skate and streetwear label on our campus in LA, where we hosted over 6,000 people over three days. Regarding our digital business, we continue to make progress in optimizing our user online experience via the e-commerce platform that we implemented last year. For example, in Europe, we are seeing improved conversion rates, especially from mobile, which represents over 80% of our traffic. Our average web session duration increased over 20%. Bounce rate decreased 10%. And loading time versus our previous platform is 70% faster. And during the quarter, we implemented some upgrades to the platform, resulting in an increase in our add to basket sessions of over 30%. We continue to work on implementing omnichannel capabilities in Europe, as well as upgrade North America's current capabilities. We plan to complete this project by mid-year next year. The last pillar of our customer centricity strategy relates to customer data capture, segmentation, and analytics. We have built out a high-performance platform, but we are still operating on extremely limited capacity to process and utilize our customer data. We are now working on a platform which includes powerful tools to fuel data collection, consumer insight analysis, personalized marketing, and clientele. We can use these tools to maximize sales from our existing customer base, as well as efficiently target new customers. This implementation is underway, and will be completed by next year. This will be a game changer, allowing us to use our data to unlock a ton of value. Now let me talk about our outlook. When I came back in early 2019, we identified several opportunities for value creation. At the time, the most significant of these were in margin expansion. We laid out a plan to increase operating margin by about 450 basis points to 10% in five years. We use the pandemic as an accelerator to transform our business. And not only are we expecting to reach our 10% target this year, but we are now increasing our operating margin target to 12% by fiscal year 2024, when we plan to deliver $2.8 billion in revenue. I'm excited to share with you that this would yield a return on invested capital of over 30%. I'm confident in this outlook And this is why. We see clear opportunities for revenue growth, from category expansions in areas like denim, Marciano, handbags, dresses, and outerwear, to new store development, to digital sales growth. Our margin expansion has come from concrete changes to our business model, including IME improvement, store portfolio optimization, and cost reduction. And while we are currently operating in what might be an abnormally low promotional period industry-wide, this company will never go back to the levels of promotional activity that it had pre-pandemic. Our balance sheet is in a very good position, which allows us to fund our business needs as well as return value to shareholders. We announced today that our board has authorized a share repurchase program of $200 million. In closing, when I was invited to come back to Guess, I came back with high expectations. I knew that the company had an amazing global brand with tremendous potential, and I felt that I could contribute to realize that potential. But, like Steve Jobs said, I couldn't connect the dots looking forward, and I had to trust my gut. When I look back at what happened in the last two and a half years, I couldn't be more proud of what we have accomplished in the face of a pandemic, of my partnership with Paul and of the transformation of our business into a company with an elevated global brand and a strong business model. This is a company that is poised to gain significant market share, a company ready to deliver high return invested capital fueled by high margins and a capital life model, a company with an amazing team ready to take the business to the next level of growth and profitability. Today, I am thrilled to connect the dots looking backward, and I couldn't be happier. I trusted my gut to come back to my home. With that, let me pass it to Katie to review our financials in more detail. Katie?