Guess?, Inc.

Good day, everyone, and welcome to the guest first quarter fiscal 2024 earnings conference call. I would like to turn the call over to Fabrice Benarouch, Senior Vice President of Finance, Investor Relations, and Chief Accounting Officer.

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 outlooks. 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 reconciliation 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. We are very pleased with our start to the new fiscal year, with first quarter results that highlight the power of our highly diversified business model and the strength of our global distributions. Our team delivered better than expected revenues, operating profit, and earnings per share. These results were driven by stronger than expected performance from our businesses in Europe, Asia, and from our America's wholesale segment, which coupled with strong cost controls and improved product margin performance helped to more than offset softness in our America's retail business. Our earnings performance against last year was impacted by increased occupancy, COVID subsidies that did not reoccur this year, and the continued negative currency trends. With that said, our team continues to manage the business very effectively, focusing on what we can control and funding our business based on expected customer demand. Paul and I are very pleased with our team's performance I want to thank everyone for their hard work and valuable contributions. As we look at the different parts of our business globally, our Europe segment continued to outperform during the quarter, posting a 5% increase in revenues in constant currency and 2% in U.S. dollars. The growth was driven by a double-digit increase in comp store sales in the region, partially offset by a revenue decrease in our wholesale business, due to early shipments in Q4 of last year of our spring-summer collection. We reported a 14% revenue decrease in our Americas retail business, primarily driven by slower customer traffic and conversion. Based on the softer performance and uncertain consumer spending environment, we are now managing the Americas segment with a more cautious view of the business for the remainder of the year. We had planned for our America's wholesale business revenues to be down year over year due to the timing of shipments, which were heavily weighted to the first quarter in the prior year. While revenues declined 25% for the quarter, this was better than expected. Our Asia business also performed ahead of expectations, achieving a 26% revenue increase and mid-single-digit comp sales growth in the quarter, as we drove a stronger business in South Korea and the greater China region reopened post-COVID, which resulted in increased consumer activity. Lastly, our licensing business also performed in line with our expectations. The business was driven by the performance of handbags, eyewear, footwear, watches, and fragrances. Our product performance this quarter differed by territory. In the Americas business, As temperatures were below normal seasonal levels, we had success with cold weather products, such as sweaters and other wear, and were challenged with dresses, including Marciano, shorts, denim, and knit tops. In Europe, we saw strong performance across the board, with the best results achieved by accessories, driven by handbags, small leather goods, men's bags, and jewelry. Women, men, and kids all posted strong sales growth with the best product categories being outerwear, dresses, including a stellar performance in Marciano, woven shirts, activewear, and pants. In Asia, our best performing categories included footwear, accessories, women's and kids' products. As we look around the world at our operating environment today, Most markets are impacted to different degrees by lower consumer confidence, high consumer debt and interest rates, increasing costs, and higher inventory levels across the industry. Consistent with how our teams have approached operating the business during uncertain times in the past, we continue to focus on those things that are within our control. In line with this approach, we are maintaining a relentless focus on brand elevation, managing inventories tightly, and controlling costs aggressively while we also work to capitalize on the multiple growth opportunities that we see for our business. First, regarding our brand elevation strategy, our teams are continuing to deliver high-quality products across all categories with a more focused and productive assortment and a commitment to sustainability. Our goal here is to provide a consistent brand representation across all markets to our global line of products and powerful global marketing campaigns, and to deliver extraordinary value to our customers. Embedded in our brand elevation strategy is our goal to maximize full price selling and minimize promotional activities. We expect to accomplish this by buying carefully and pricing every product based on its customers' perceived value. Turning to inventory management, We are committed to reducing our inventory investment with a goal of ending the fiscal year with inventories about 10% below last year. Recall that last year, we had made an early investment in inventory to mitigate delays created by the supply chain disruptions experienced during the pandemic period. This alone represents about four to six weeks of supply in our inventory ownership that we will not have this year, and that will contribute to our goal to lower inventory levels and improve inventory turnover. In addition, we are strictly placing product orders in line with expected customer demand in order to avoid excess buying. Next, we continue to focus on closely managing our variable expenses and working to do more with less, including eliminating redundancies across our operating infrastructure and increasing automation. We are pleased with our cost management performance in the first quarter considering the inflationary environment we are navigating, and we see opportunities for improvement during the remainder of the year to further reduce expenses, including those for inbound freight, store selling costs, and others. During our previous earnings call, I mentioned the big opportunity that we see to grow the business long term, leveraging our infrastructure and capabilities and the strength of the guest and Marciano brands. We see an opportunity to achieve this growth over time by prioritizing four key initiatives. First, increasing the sales productivity of the network that we currently own, including our direct-to-consumer licensing and wholesale channels. Second, growing organically in existing and new markets by opening new stores, expanding existing ones, and gaining new clients. exploring further brand extensions that capitalize on the strength of the guest and Marciano brands. And fourth, we'll be looking for opportunities that leverage our global infrastructure and our network of licensees and wholesale partners. Speaking about that first initiative to increase the sales productivity of our current network, we have a number of efforts underway this year. Among them, We are increasing the penetration of more casual products and opening price point items in our collections to capture increased market share. We are also strengthening the assortment of our seasonal pre-collection offerings so our wholesale customers can order product earlier and optimize time on floor for each product. And we are concentrating our open to buys among tighter assortments so we buy each best seller item with greater conviction to maximize sales. Finally, we are identifying opportunities to internalize businesses that are currently licensed. We already internalized many retail stores in South Korea that were previously run by a third party. Our results here have been strong. We are now planning to internalize our current licensed business with G3, consisting of design, development, and distribution of outerwear and dresses in North America. These are businesses that represent $50 million annually at wholesale. We think that we can run these businesses internally and more profitably, as these are categories that we are already developing and distributing, and they represent big businesses currently for us. As a result, we will not be renewing our license with G3, which expires this coming December. At the same time that we are directing efforts towards brand elevation, inventory and cost management, and future growth opportunities, we are also ensuring that we have ample financial flexibility to support our business effectively and return value to our shareholders. The recent refinancing of our convertible bonds provided us with additional capacity and extended maturities for our debt. We have a strong capital structure, and we expect to generate about $150 million of free cash flow this year. Regarding returning value to our shareholders, we recently repurchased 2.2 million shares of our stock, resulting in a cumulative repurchase of over 34 million shares since early 2019, representing over 40% of the then shares outstanding and a cumulative investment of $600 million. And today we announced that our board has approved an increase to our quarterly dividend of 33%, from 22.5 cents per share to 30 cents per share. This demonstrates the confidence that we have in our diversified business model and our ability to leverage its power to sustain strong cash flows in the future. Looking out to the rest of the year, we remain confident in our business and the plans that we are executing against. As a result, we are reaffirming our positive outlook for the fiscal year. We continue to see top-line growth in the low single digits, solid profit performance, and strong cash flow generations. Dennis will dive more into the details of our outlook for the second quarter and the second half of the year in just a moment. Before I turn the call over to Dennis, I want to comment on our Chief Financial Officer transition. As you know, we recently announced that Marcus Newbrand will join guests as our new CFO. We are excited to welcome Marcus into our team. He brings a strong background to the role, and very relevant experience from his successful 17-year career at Hugo Boss. As you know, Dennis will remain with us through March of next year to support a smooth transition, and I appreciate all his contributions to our company and our team. I would also like to take this opportunity to congratulate Fabrice on his recent promotion and expanded responsibilities. We are very fortunate to have a strong finance team in place, as we continue to execute on our growth strategy moving forward. As I close today, I would like to reflect on the strength of the business and the position of our brands in the global consumer and retail market. During my first 10 years with Guess between 2000 and 2010, I was part of an exciting journey where the business grew and evolved steadily and very profitably, creating significant value for our shareholders. As we grew into multiple businesses, products, and geographies, the business model became very rich, like a puzzle, where each piece contributed to the success of the whole and helped leverage mutual synergies. Paul envisioned this big puzzle first, and he worked very hard with our global teams to execute an ambitious plan to make that vision a reality. But this work is ongoing. I couldn't have imagined four years ago when I returned to Guess how much the business and the world that we operate in would continue to change. Throughout the history of the company, our team has embraced change head on, and our team today has adapted to a new world of shopping, a new way of working, and how we prioritize and live our lives. Today, our company operates in over 100 countries, capitalizing on a true multichannel distribution, developing and selling products across 25 different categories and depending on an amazing global team of 12,500 associates and numerous exceptional licensees, landlords, and wholesale partners. Our model is highly diversified and is capable of delivering superior returns on invested capital. Our brands have strong momentum and we see abundant opportunities for growth to make the puzzle much bigger. Most importantly, We have an exceptional leadership team, highly capable and greatly committed to delivering excellent results. We have done it before and we will do it again. Personally, I feel incredibly fortunate to be part of this exceptional team once again, working in partnership with Paul, our great leaders, and the rest of our dedicated team. Together, we are determined to leverage the strength of our highly diversified business model drive continuous growth, and deliver strong returns to our shareholders. This combination gives me strong confidence in our ability to realize the potential that lies before us. And that is why I couldn't be more excited about this next chapter of our journey together and can't wait to report on our progress to you in the future. With that, let me pass the call to Dennis. Dennis?