Guess?, Inc.

Good day, everyone, and welcome to the guest's first quarter fiscal 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To participate, you will need to press star 1-1 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, simply press star 1-1 again. Please note that this event is being recorded. I would now like to turn the call over to Fabrice Benarouch, Senior Vice President of Finance, Investor Relations, and Chief Accounting Officer. Please proceed.

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, Denis Sikor, Interim Chief Financial Officer, and Alberto Toni, our incoming 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. Gas 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, and thank you all for joining us for our Q1 fiscal 2026 quarterly conference call. We are pleased to report our Q1 operating results that came in ahead of expectations across key financial metrics, reflecting the successful integration of Rag & Bone and continued momentum in our guest wholesale businesses across Europe and the Americas. Discipline expense management, combined with a better than expected top line, enabled us to report operating results ahead of our guidance range, narrowing our loss for the quarter. In the period, we grew our business in U.S. dollars by 9%, despite a currency headwind that consumed about 2.5 points of growth. The majority of that growth came from the acquisition of Rag & Bone, which added nine percentage points to our top-line constant currency growth, reflecting a full quarter of ownership this year versus just one month in the prior year period. Our core gift business also contributed, adding about three points of constant currency growth, driven by higher shipments in our wholesale operations across Europe and the Americas. This gains more than offset softer results in Asia and in our America's retail channel. Licensing revenue declined versus the prior year, creating a modest headwind in the period. For guests, our European wholesale business was the largest contributor of this growth, posting a mid-teen growth rate in the quarter. Our products continue to perform well among our wholesale partners in that region, And we believe that we are being rewarded for ensuring reliable product deliveries despite some of the recent supply chain challenges. We shared on our last call that we are mitigating the supply chain risk caused by the Red Sea crisis by bringing in products early. We are not buying more. We are buying earlier. This near-term working capital investment bore fruit during the quarter. protecting our partners and our businesses as we were able to ship larger volumes than we had anticipated for the quarter, mainly driven by the availability of the product. In our European retail stores, revenues came in slightly below our expectations, posting a constant currency comp decrease of 4% as a decline in store traffic more than offset improved conversion, improved AUR, and better units per transaction. In the Americas wholesale business, the guest brand delivered double digit top line growth, surpassing our expectations for the quarter. Similar to Europe, we were also able to deliver more product earlier to our partners than what we had planned. And for the year, we expect this business to grow modestly. In the Americas retail business, Our performance improved in the latter part of the quarter and exceeded our expectations. While traffic headwinds remained our key productivity challenge, we were able to offset some of that with improved conversion. As a result, we closed the period with a net 10% constant currency comp sales decline for the quarter. Our business in Asia continues to face headwinds and fell short of our expectations this quarter, with revenues declining by over 20%, with significant weakness in the greater China market. Consistent with what we shared with you on our last call, we are continuing to look for a partner to take on our business in this market, and we have been contracting our operations here, including headcount reductions, store closings, and ceasing to purchase product for future seasons. Sales declined in most of our Asian businesses, and store traffic remains the key driver of the comp sales decline in our stores there. And finally, in our licensing business, royalties declined slightly more than we had planned. Royalties declined in fragrances and footwear, while handbags royalties grew. Moving next to our product performance, results varied by region and category throughout the quarter. In Europe, Women's apparel sales increased, driven by strong performance in activewear and sweaters. In accessories, fragrances and watches delivered positive comps. In the Americas, the business was negative across most categories, with women's activewear and watches performing well. Turning to Rag & Bone, the business significantly outperformed our expectations for the quarter, driven primarily by strong wholesale shipments. Rag & Bone performance in the retail stores and online also outperform our expectations. Paul has been working hard with many of our licensee partners to add new product categories into our Rag & Bone assortment. As we shared before, we already signed a new handbag license, and that business is doing well. We also have new license deals at various stages of completion in watches, fragrances, and eyewear, and we are excited about the prospects for those categories in the future. Moving now to the rest of the P&L, we delivered total company gross margin of 39.9%, 200 basis points lower than last year, and also below our expectations going into the quarter. About 70% of that change was driven by business mix. mainly lower royalty income and a higher contribution from wholesale, which naturally carries lower product margins. There was a modest headwind due to increased promotional activity, and that amount was fully offset by improvements in initial merchandise margins. Currencies were also a modest headwind to our margins during the period. Total company SG&A increased 11% year over year, with the integration of rag and bone driving the majority of that increase. In the quarter, we reported an adjusted operating loss of $26 million and an adjusted operating loss margin of 4%, both of which represented improvements over our expectations for the quarter. And we delivered an adjusted loss per share of 44 cents, also an improvement over our expectations. Before I update you on our strategic initiatives, let me spend a few moments discussing tariffs and how we believe they may impact our business and our outlook. On last quarter's call, in our discussion of tariffs, we shared a few important aspects of our business. First, roughly 75% of our business is done outside of the United States and therefore not directly impacted by the tariffs. The remaining 25% of directly produced and distributed products represents roughly $200 million in annual purchases. Both our GIST and Rag & Bone sourcing teams have undertaken a massive effort to move a substantial amount of our production out of China to other markets. We also reworked costs with vendors and pricing with retail customers. As a result of this effort, We expect that the year-over-year impact of tariffs on our margins this year will be less than $10 million. And we have achieved that with very minimal price increases. That $10 million is fully incorporated in the outlook that we are providing today. So that is the cost impact to our P&L based on what we know today. The tariffs have also sparked renewed fears of inflation or recession, but we have not attempted to predict how they may affect the consumer's appetite to spend their disposable income. Now, I would like to turn to our strategic direction and provide an update on several key initiatives underway across the business. On our last call, I outlined the key strategic initiatives that our teams are driving to grow our business, strengthen our organization, improve brand awareness and customer engagement to increase retail productivity, build a more efficient infrastructure, and optimize our business model to improve profitability and return on investment capital. Today, I will walk you through the progress that we are making against some of these priorities, starting with one of our most immediate focus areas, retail productivity. One of the key challenges for our business over the last several years has been the decline in customer traffic into our stores and to our websites. Those trends have persisted in the U.S. and Asia for some time, and we are now seeing similar patterns emerge in our European retail business. To address this, We are rolling out a range of initiatives aimed at re-engaging customers and driving higher traffic across both physical and digital channels. We continue to see a significant opportunity to increase brand awareness and customer engagement through increased marketing investment. We are in the middle of a project working with General Idea, which is a consulting firm, to craft a new market vision to transform our social media strategy that we believe will reignite our brand relevance and awareness with today's consumer. Nicolai Marciano is our internal lead for this project. We are beginning with the implementation of several initiatives as we speak, including the reorganization of our teams, the deployment of new practices, and increasing investment into social channels and relationships with influencers and other collaborations to attract a younger audience. In addition, we recently launched a customer loyalty program in Europe, thus far in just two markets, Italy and Poland, and the learnings and results from this implementation have been very, very positive. In those markets, among our loyalty customers, we saw increases in revenues from those customers of roughly 36%. We also saw that those customers returned to the stores with greater frequency and they spent more per visit. Our plan is now to roll this program out to more countries in the region, starting next with Germany, Austria, and Spain, with additional markets to come online later in the year. As we continue to sign up more customers into our database and we gain insights into their shopping habits, We are investing in improving our customer insights capabilities using AI power tools. Next, there is an opportunity in how we buy. Over the past several years, we have been very successful in driving IMU improvements across our apparel lines. In order to drive production costs down, it necessitated a larger and earlier commitment of our production volumes. therefore leaving less open to buy later in the year. Undoubtedly, that resulted in missing certain trends, sacrificing a level of revenues for the extra IMU points. We think there is an opportunity to better balance that going forward. Our team is developing fast track capabilities within our supply chain to more quickly replenish bestsellers and inject additional product into the market as trends develop in the season. We used to operate in this manner several years ago and had success, primarily in North America. We are implementing this again with our Spring-Summer 26 collection, with our goal, ultimately, to leave 50% of our buy open after we place our initial order. We are also looking closely at pricing. Over the past several years, we implemented a strategy to elevate our brand and raise the perception of our brand among consumers. That initiative was anchored in building more quality into our products, including better fabrications, better make, and better embellishments. While the program was successful in many ways, Our recent analysis of pricing suggests that some of our legacy customers were not able to make that journey with us. It's also reflective of what we have experienced with today's consumer, who tends to be quite sensitive to pricing. Our plan now is to rebalance our product assortment to increase our penetration and offering of opening price points products. And finally, We think our existing clustering model is too rigid, not addressing the unique dynamics of individual stores, not leaving store management with enough flexibility to assort stores based on the unique dynamics of their particular store. One store may attract a more casual customer, while another may appeal to one that is looking for a more dressy outfit. whether patterns may be different as well, necessitating a different assortment based on seasonality. Our new model will create that greater flexibility to allow managers more autonomy to assort their stores based on the unique characteristics of that store's customer. As part of this effort, we will also challenge the product categories to be offered in each store to optimize the product assortment and the space allocation based on expected productivity per square foot. Visual merchandising standards will be improved as well to optimize navigation throughout the stores and ease of shopping. Improving retail productivity for us is the highest priority that we have today. Just as a point of reference, a 10% improvement in sales in our retail stores company-wide would represent roughly $140 million in incremental revenue and around $70 million in incremental operating profit. Thus far, the early reads on these initiatives have been encouraging. In both North America and Europe, so far in the second quarter, we have seen sequential improvements in conversion rates, with both regions posting sequential improvements in retail comps. Another area of opportunity for us to improve profitability in our business is rationalizing our business model. Businesses are not static. They evolve and change over time. The profitability of certain channels has changed as consumer shopping behaviors have evolved. Certain categories that represented large opportunities in the past may no longer generate the returns necessary to justify the investment. that were once profitable may no longer generate appropriate levels of income. We are looking at this across all different dimensions of our business to ensure that we are making unsustaining investments that deliver solid returns to our shareholders. We are examining our store portfolio, ensuring that every store serves a strategic and financial purpose to represent the brand in the marketplace and to deliver profit in that market. We shared on our last call that in North America, we are exiting non-strategic and profitable full-price guest stores, and we are consolidating some of our infrastructure supporting that business. We expect to reduce our North America store fleet by roughly 20 stores, with some of them closing this year at their natural lease expiration. So far this year, we have closed six of these stores. We are examining unproductive businesses. Those may be regions or brands. For example, on our last call, we shared the changes that we are making in China. While we continue to believe that there is an opportunity for guests in the greater China market, given the market size and our brand's high awareness, We have not been able to make that business profitable over the many years that we have operated there. This year, we expect that business will lose roughly $20 million and we are committed to eliminating that loss for next year. We are looking for a third party partner to take over this business and we have already met with several potential candidates. In the meantime, As I said before, we are continuing to operate this business so as to minimize the negative impact on our earnings. And just to remind you, we expect these two initiatives, North America Stores and Greater China, will unlock over $30 million in operating profits starting with the next fiscal year. But there are still other dimensions of our business that we are examining. We plan to address underperforming product categories unprofitable customer relationships, unproductive SKUs, and also plan to consolidate further products at a global level, including additional categories for our factory outlet business, which are currently developed regionally. This is all to ensure that every aspect of our business is creating value. And finally is our infrastructure and its alignment to today's business. Since Guess was founded in 1981, our business has evolved dramatically. We started as a pure wholesale denim supplier in the United States with one long footprint here in Los Angeles that encompassed every aspect of our business. Over time, we grew our business by opening our own retail stores, both full price and outlets. We entered new territories, adding both operating and infrastructure functions to support those businesses. We expanded globally, adding direct resources in new countries, and ultimately developed regional centers as the business grew. We added multiple new categories, some internal, some external, and stood up the necessary infrastructure to support that expansion. We also added IT systems to support our business, and we evolved along with the consumer, adding e-commerce capabilities as the shopping habits of consumers changed over time. Today's business is far more complex across multiple dimensions and requires a more sophisticated ecosystem. We believe that we have opportunities to re-engineer those businesses to make sure that our infrastructure aligns with our business as it exists today. As an example of this, We have separate support structures that are based now in both Los Angeles and Lugano, Switzerland, one to support the North American business while the other supports our European business, performing largely the same functions. We see an opportunity to optimize these structures, creating one global center that can support both regions, taking advantage of the significant scale of our fleet and business. We believe our European support infrastructure presents a strong opportunity for consolidation and optimization. This year, our business in Europe should reach nearly $1.7 billion in sales. It's large and complex, spanning more than 35 countries with a regional center, multiple country support centers, and several logistics centers throughout the region. As it has evolved over time, It has undoubtedly created some duplication of effort where much of the same work that is done in the regional center is also replicated within the country. We see an opportunity to realign these resources where strategy is developed and set from the regional center, leaving the in-country resources to manage local execution. Logistics presents an opportunity as well. In time, Both in Europe and North America, we have added logistics capabilities and centers to address specific needs or opportunities at the time. Today, we have eight centers throughout Europe and another three in North America. Within each region, there are opportunities to consolidate and optimize these networks. Another area of opportunity is our systems environment. Our IT infrastructure has evolved similarly to our business, very organically, building and adding to a network based on the business needs of that moment, with different solutions and tools in different parts of our business. We believe that there are opportunities to restructure this and re-engineer a systems network that is more uniform and standardized globally. These are just a few of the areas that we are tackling. but they reflect a broader goal, to build a unified global platform that enables us to operate as one integrated business rather than a collection of regionally siloed operations. By centralizing what makes sense and tailoring only where necessary, we aim to support our future growth with greater agility, efficiency, and strategic alignment. Now, let me share a few thoughts on our outlook for the remainder of this year. We have updated our outlook to reflect the relatively minor changes in business trends that we experienced in Q1. For the year, we still expect our revenue growth will be driven by owning Rag & Bone for a full year, solid growth from our European wholesale business, and the conversion of our Middle East business to a joint venture. We have moderated our expectation coming from our European retail stores, giving our first quarter experience, though we do expect some improvement later in the year, giving our marketing and retail productivity initiatives that I just summarized. In addition, the US dollar has weakened over the past two months, which should result in a stronger currency tailwind on revenues. All in, we expect full-year revenues to grow in the range of 5.5% to 7.4%. For the full year, we now expect adjusted operating margin between 4.4% and 5.1% and adjusted EPS in the range of $1.32 to $1.64 a share. Dennis will share more details in just a moment. Before I turn the call over, I want to comment on our Chief Financial Officer transition. In April, we announced the appointment of Alberto Toni, a seasoned executive with more than three decades of international experience in finance and operations. His proven ability to drive performance across design-led, retail, and consumer-facing organizations will be instrumental as we sharpen our focus on operational efficiency, portfolio discipline, and long-term value creation for guests. Alberto will be based in Lugano, Switzerland, and will lead Guess's financial team globally. Dennis Seekor, interim CFO, will remain on board as executive vice president through September of 2025 to ensure a seamless leadership transition. With a deep bench of finance leaders that includes Fabrice Benarouch and several other talented executives, we are well positioned to advance our strategic priorities and deliver sustainable growth. In closing, this year we are managing through a complex environment and have made meaningful strides in advancing our operational, strategic, and financial priorities. On behalf of Paul and myself, I want to extend our appreciation to our global teams for their dedication and strong execution. As we begin fiscal year 2026, we are energized by the opportunities ahead. Our strategic focus remains on driving higher productivity across our direct-to-consumer channels and enhancing profitability through targeted business and portfolio optimization. We are firmly committed to unlocking our full potential and delivering long-term shareholder value. With that, let me welcome and pass the call to Alberto.