Guess?, Inc.

Good day, everyone, and welcome to the guest's first quarter fiscal 2023 earnings conference call. I would now like to turn the call over to Fabrice Banderouche, Vice President of Finance and Investor Relations. Please go ahead.

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 Denis Sikor, Interim 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 currency fluctuations, the coronavirus pandemic, and the war in Ukraine. 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. GAAP reconciliations and descriptions of these measures can be found in today's earnings release. Now, I will turn it over to Carlos.

Thank you, Fabrice. Good afternoon, everyone, and thank you for joining us today. I am very pleased to report a great start to the year with a strong first quarter performance that exceeded expectations for both top line and operating profit, despite a challenging environment. Our revenues grew 14%, and in constant currency grew 21%. We delivered a 7% adjusted operating margin, and our adjusted earnings from operations increased 61% from last year, reaching $41.7 million. All segments contributed to our revenue growth, and our adjusted operating margin expansion of 200 basis points was driven equally by improved gross margin and expense leverage. We continue to navigate a dynamic environment that includes higher inbound freight and product costs, a weaker euro, and increased wages. Our associates across the world are executing effectively, capturing opportunities to grow our business, increase our bottom line, and deliver value to our shareholders. Paul and I want to thank our great teams who worked together with an unwavering passion to build on our vision for this amazing brand and company. I will now share some color on our first quarter results. Our retail business in America grew revenues by 7% in the period and delivered strong gross margin expansion. As with the rest of our industry, we experienced meaningful expense pressure due to increased wages and inflation, as well as invested in services and marketing. Altogether, this resulted in almost five points of deleverage in the period. We are adjusting our model to mitigate these factors and do not expect this much deleverage going forward. Our Americas wholesale segment had another great quarter, with both revenue growth and earnings growth of over 50%. Our Europe segment exceeded our expectations achieving top-line growth of 14% and operating earnings that was four times higher than last year's. Our retail business in Europe enjoyed a full period with open stores compared to significant closures in the same year-ago period and was the primary driver for the great results of this segment. We had strong margin performance and effective expense management, which also contributed to the growth in profitability. While the Europe wholesale business had lower revenues in the quarter as a result of timing shifts in the business and currency impact, I am pleased that the business continues to trend well with the fall-winter 22 campaign closing up 14% and the pre-spring-summer 23 campaign starting strong with a positive response to the collections and the prospects for another double-digit performance. Not surprisingly, Given COVID-related shutdowns in China, our performance in Asia was significantly impacted in the quarter, but we were still able to deliver top and bottom line results consistent with last year's. Finally, our licensing business achieved revenue growth of over 22% as the business continues to benefit from our strong brand momentum and as many of our licensees deliver product from prior orders that had not been shipped due to the supply chain disruptions plaguing the industry. Turning to our product performance, Paul and our creative and merchant teams have done an extraordinary job repositioning our product offering and the customer is responding well to the new collections. As you know, our brand elevation strategy focused on enhancing the styling and quality of our products across categories with a focus on key products to address our main customer groups serving their lifestyles and purchase occasions. Our global line is performing extremely well across all markets, and the consistent performance by products, including bestsellers across regions and channels, is a clear proof that our customer is responding positively to the assortment and our strategy is working well. In women's, we have seen that our customer has a renewed desire to get out and participate in social events and travel. As a result, we are having great success with dresses, where we have introduced significant newness in fabrications, textures, prints, and silhouettes. We are also seeing strong performance in woven tops, dressy sweaters, pants, and special outerwear pieces. In addition, she is buying accessories to complete the outfit. Our handbags are flying off the shelves. and we are having a difficult time keeping inventory available to meet demand. The beautiful colors we offer that coordinate back to the apparel lines to complement the outfit at very compelling prices make the offering extraordinary. Here also we have increased the quality of the product with additional fabrications and elevated trims and packaging. Several other categories and accessories are also performing well, including women's travel accessories, belts, men's bags, women's and men's eyewear, and others. Consistent with women's, our men's business has shown strength in dressy products such as woven shirts, outerwear, blazers, and pants. And our Marciano brand was on fire during the quarter. We saw strong double-digit sales growth in every region as our customers responded positively to the new products we introduced monthly in stores, online, and at wholesale. Here again, dresses have been a driving force. We are offering many sophisticated fabrications, including silk prints and charmeuse in several styles, leather and jacquard sweaters. All at prices well below what you will find in the luxury market for comparable products. I believe there is nothing like it in the market today. I have said it before. Guess is a true lifestyle brand that offers an enormous range of products to our core customers to support their lifestyle, and the multiple occasions they shop for. It is at times like the present one when we can leverage the power of that product range and go from a casual offering to a much dressier and elevated one without compromising the DNA of our brand. To elevate the brand image in our stores, we are remodeling multiple locations and opening new stores that offer a more elevated customer experience including the use of our new customer analytics tool, omnichannel capabilities, better floor design and space allocation, bigger fitting rooms and seating accommodations, and more spacious shopping areas. This year, we plan to open 60 new stores in North America and Europe and plan to remodel 370 additional locations between the two regions. Considering the stores that we opened and remodeled last year, By the end of fiscal year 23, we will have 750 locations out of 950, or 80% of the total stores, updated. Regarding our digital transformation and CRM, we continue to make good progress in optimizing the new platform utilization and the implementation of our Customer 360 solution. This solution covers several areas that in the past were either not addressed or the solutions were not effectively integrated. They include a new CRM platform that allows us to see all information related to our customers in one screen from a single data depository. A new segmentation tool which allows us to work on dynamic customer segmentations to easily identify common characteristics among our customer base given multiple variables. a new marketing tool to engage our customers by personalizing their experience through automated communications and multi-step journeys, and a Customer 360 in-store clienteling app. Our plan is to finalize this implementation in Europe and integrate the system into North America by year-end. Regarding our supply chain, The disruptions caused by the pandemic are still very present and continue to impact cost, supply, and inventory availability. The most recent lockdowns in China due to COVID and the energy crisis exacerbated by the war in Ukraine have complicated things further. While we have seen some relief in poor congestion and transportation costs, based on further cost increases due to oil constraints and inflationary forces, we are assuming prices will remain consistent with the current environment for the remainder of the year. Our teams have done an extraordinary job addressing the complexities of the global operating environment and mitigating challenges to secure the appropriate inventory to support our business. We closed the quarter with inventories up 20%, and much of the increase relates to in-transit inventory growth and orders that we placed earlier to support our business and avoid late deliveries. We are very pleased with the composition of our inventory right now, and we feel that we have made the right moves to ensure monthly deliveries are protected for both our direct-to-consumer and wholesale businesses. As I reflect on our results for this quarter and what they mean for the rest of this year and our future, it tells me one thing very clearly. Our strategy is working, and our new business model is sustainable. Our first quarter results further demonstrate the benefits of a globally diversified business and the power of the transformation we are executing, which is benefiting from the brand elevation I discussed earlier as we combine higher prices with increased full price selling. We drive significant efficiencies in our product development and sourcing functions, and we deliver increased store profitability as a result of our footprint optimization initiative. As we look to the rest of this year, our expectations for revenues remain in line with our prior guidance. An operating margin is slightly lower due to some factors in the macro environment, mostly currencies, that have changed significantly since we last spoke in March. We now expect revenues to grow by 4% in U.S. dollars, or 10% in constant currency. We continue to see opportunities to grow our business through increased sales productivity and market share gains, category expansion, digital business growth, and expanding our store fleet. In addition, we plan to deliver a 10.3% adjusted operating margin. This compares to the 10.5% that we were targeting for this year back in March, which includes 100 basis points of currency pressures. I strongly believe our outlook for this year confirms that our model is highly sustainable. If this year's currencies were at last year's levels, we would be looking at revenues growing at 10% and reaching $2,850,000,000, an adjusted operating margin at 11.3%, with earnings reaching roughly $320,000,000. Looking further out to fiscal 2024, we remain confident in our goals to reach $2.8 billion in revenues and achieve a 12% operating margin absent further currency headwinds, as our assumptions for more normalized costs and plans for increased operational efficiencies remain intact. In addition to all that we are doing in our business to drive growth, we also continue to be committed to returning capital directly to our shareholders through our dividends and share repurchases. During the first quarter, we repurchased over 500,000 shares in open market transactions for a total amount of $11.7 million. This was in addition to entering into a $175 million accelerated share repurchase program that should be fully executed by the end of July 2022. We feel strongly about our cash flow generation power and our balance sheet. We just announced the completion of a new 250 million euro revolving credit facility to support our European business. With this, our total borrowing capacity will reach over $450 million. The new facility contains a feature by which the interest rate will benefit us with the achievement of specific sustainability goals, which demonstrate how committed we are to integrate the concept of sustainability into our operations. In closing, As I look back to the last couple of years and the challenges that the pandemic brought to the business and our lives, I can't stop reflecting on how this company and this team embraced change and adapted to a completely new way of thinking and a new way to run our business. Paul and I couldn't be more proud of our teams across the world, and we want to thank you deeply for your great passion and strong contributions. And with these great teams, We are very well positioned to continue to grow our company and capture significant market share. We have an amazing brand that is enjoying strong momentum globally. We have the best product we have ever had across all 25 categories we do business in, great marketing and customer awareness globally, a powerful distribution network leveraging all channels, and a greatly diversified business model. And this is a model that is delivering double-digit operating margins and a high return on invested capital. We'll remain focused on managing our business carefully and continuing to deliver for all our shareholders. With that, I want to more formally welcome Dennis Seeker back to our guest family. It is a great pleasure to work with you again, Dennis. Let me now pass it to you to review our financials and outlook in more detail. Thank you.