Guess?, Inc.

Good day, everyone, and welcome to the guest third quarter fiscal 2023 earnings conference call. I would like to turn the call over to Fabrice Benarouch, 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 Albirini, 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 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 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 our third quarter results, which exceeded our expectations for revenues, adjusted operating profit, and adjusted operating margin. Our performance continues to be impacted by the adverse currency environment due to the strong U.S. dollar. As a result, our revenues decreased by almost 2% in U.S. dollars during the period while growing 10% in constant currency, driven primarily by the strength of our business in Europe. We delivered a 9.1% adjusted operating margin and $58 million in adjusted operating profits. Once again, Paul and I are very proud of our teams around the world, who continue to manage the business very effectively, navigating through a challenging environment and growing market share in multiple markets. Our approach has not changed. We continue to focus on what we can control, paying close attention to inventories, which we continue to buy solely based on expected customer demand, and managing costs tightly in spite of the current inflationary conditions. and our approach is working. Our company continues to perform well in spite of these non-controllable factors. We currently estimate that the impact of FX alone this year will contribute to a reduction of our operating profit of $60 million and to an EPS reduction of $1.15 for the year. We are very proud of the work being done by our team and want to commend our associates for their great work and outstanding contributions. Thank you all for your dedication to our company. Starting with our performance by business, our Europe segment had a solid performance in the period, reporting a 2% revenue decline in U.S. dollars and a strong 17% increase in constant currency, driven by our wholesale and retail businesses, which continue to gain market share in a challenging environment. Once again, the weaker euro had a significant impact on our quarterly results, contributing to a 19% decrease in operating profit for the segment in the period. Dennis will provide more color on this later in the call. Our Americas retail segment reported a 2% revenue decline and a 53% decrease in operating profit due to gross margin contraction coupled with an expense increase in the period. This performance was consistent with our expectations and reflected the comparison against strong results in last year's third quarter due to unusually high levels of full-price selling resulting from high demand and low inventory levels. Our Americas wholesale segment reported a 10% decline in revenues and a 41% decrease in operating profit as we experienced increased order cancellations and higher customer accommodations as retailers worked through their overall higher inventory levels. Our Asia segment reported a 10% revenue increase in U.S. dollars and a 28% increase in constant currency, as we experienced favorable comps in many of our markets in the region given last year's store closures or reduced activity due to COVID restrictions. During the period, we were able to break even in this segment as a result of the revenue increase coupled with gross margin expansion and effective expense management. Our licensing segment had another solid performance this quarter, reporting a 4% revenue growth driven by strong performance of handbags. Regarding product performance, we continue to benefit from our global line of products across all categories, where product performance is very consistent across most global markets since we launched the global line. While our business has historically capitalized on sales of denim products during the back-to-school season, This year we saw a deceleration in sales of casual products and at leisure, and a continued acceleration of sales of dressy products, as the customer is more focused on going out, traveling, and socializing versus staying home. As a result, we delivered solid results with the dressy assortment within our collections, including dresses from both Guess and Marciano. While our collections of sweaters and outerwear are very strong this season, We believe that the warmer than usual temperatures in both North America and Europe have impacted demand temporarily. We expect to see increased sales of these products during the upcoming months. Our sales of accessory products are growing faster than the rest of the business and therefore increasing in penetration. Strong product classifications here include handbags, travel accessories, and small leather goods for women and men, eyewear, watches, and fragrances. As we approach the end of our fiscal year, I want to spend a few minutes discussing how we are tracking against our strategic business plan. Today, despite results of our efforts being masked by the current macroeconomic environment, including unprecedented currency headwinds, our company and business model have been transformed. At the center of this transformation is our critical brand elevation initiative. As you know, Paul and the product teams have done an incredible job transforming the product and have made significant progress over the last few years in elevating our brands. This work remains ongoing as we continue to execute on our vision for the brands through our products, our images, our marketing, our stores and websites, and most importantly, our ability to deliver an outstanding customer experience. Across the 25 product categories that we focus on, This team has significantly improved quality, including fabrics, trims, and make, reduced SKU development, and increased productivity significantly. And this team has surgically priced every product based on its respective customer perceived value, which has enabled us to raise prices thoughtfully and drive AUR increases in our business last year and this year. We believe that the work that we have done also helps to differentiate our product and insulate us somewhat from that part of the market that may be overly reliant on heavy discounting to dry volume. The work that Paul and the product and creative teams have done truly represents the greatest transformation that we have embarked on at Guess in many years. To support this product enhancement, we have also invested significantly in tools and infrastructure during the last three years. and have improved our capabilities meaningfully to optimize data collection and reporting, customer engagement, segmentation, personalization, frequency of shopping and conversion. Regarding our digital transformation, we continue to make good progress on optimizing the new platform utilization and the implementation of our new CRM solution. We remain on track with the rollout of this suite in Europe by the end of this year. and now we expect its rollout in North America early next year. As planned, we just completed the development of a new client selling app and are launching it in Europe as we speak. And last but not least, we have updated our store fleet around the world meaningfully, remodeling many stores and opening new locations, particularly in Europe and North America. I will now touch on our supply chain initiatives. As we have shared on previous calls, our strategy this year has been to order products earlier to mitigate the supply chain challenges that began last year. This strategy has served us well, as we have been able to meet our wholesale customers' demands, solidifying our relationship with them as a reliable partner. We delivered more products than we had anticipated in the quarter, as there has been considerable interest for early shipments from our customer base in Europe. As we have said before, we continue to order product based on anticipated customer demand. We have not been ordering more. We have been ordering earlier. As we expected, supply chains are recovering from last year's disruptions, and the product can now travel faster and arrive at destinations more in line with the historical timelines. We entered the quarter with 19% higher inventory levels than a year ago. a deceleration from the second quarter, and we expect that gap to narrow further by the end of the year. Roughly half of the increase was due to earlier receipts and the other half due to cost increases as a result of investments in quality and sustainability, inflationary factors, and the impact of currency. We are working on reducing production and transportation timelines for next year to tighten our inventory investment and increase turnover. With respect to freight costs, we are continuing to manage our model carefully with an eye on cost optimization. We have significantly reduced our air freight usage this year, resulting in meaningful cost reductions thus far. And we are also seeing some relief in option cargo rates, which has and will provide us with some modest benefits for the last quarter of this year. Finally, I want to touch on our sustainability efforts. Sustainability remains a key focus for our brand, and we are committed to being part of the solution to climate change. In addition to other work that we are doing across the organization, we are pleased to have just completed our first new upcycled collection. This new line, which we expect will be available in the first half of next year, will exclusively use materials from recycled products that we collect in our stores, and give new life to all products returned by customers. Now, turning to our outlook for the fourth quarter, which remains largely unchanged from what we described during our last call. We expect softer consumer demand and inflationary forces to continue to impact our results this year and into next year. We also sense that with the significant inventory levels being reported in the sector, we could see heightened promotional activity over the holidays as companies seek to right-size their inventories. Absent a weakening of the U.S. dollar, currencies will also remain a strong revenue and earnings headwind for us. As we normally do, we will focus on what we can control, and we will adapt, but always with an eye on doing what is right for our brand long-term. All in all, we expect fourth quarter revenues to be down low to mid-single digits in U.S. dollars. and operating profit to exceed $100 million for the period. As it relates to fiscal year 2024 and beyond, in line with our past practice, we expect to share our plans when we report our Q4 results in March of next year. In closing, while there will always be work to be done, we are very happy with how we are positioned for the holiday period, as well as our ability to capture long-term growth opportunities. The transformation that we have been effecting during the last three years is clearly a game changer for our company. We have two strong global brands, great products, and a loyal customer base who love the Guess and Marciano brands. Our powerful business model gives us a great platform to compete effectively all around the world. And our robust capital structure gives us the opportunity to invest and drive strong returns for our shareholders. We have a great team who manages our business with discipline, controls the things that they can control, and seeks and drives opportunities to gain market share and deliver profitable growth. Paul and I are so proud of this team, of all their accomplishments, and we couldn't be more excited about our future. With that, I will pass it to Dennis to review the third quarter in more detail and provide more color about our outlook. Dennis?