Guess?, Inc. (GES)

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Guess' Inc. (GES)

F3Q2013 Results Earnings Call

November 28, 2012 4:30 PM ET


Paul Marciano - Chief Executive Officer

Dennis Secor - Chief Financial Officer

Nigel Kershaw - VP, Finance and Treasurer

Russell Bowers - Chief Financial Officer, North America Retail


Erinn Murphy - Piper Jaffray

Omar Saad - ISI Group

Alex Pham - Wedbush Securities

Joseph Parkhill - Morgan Stanley

Dana Telsey - Telsey Advisory Group

Eric Beder - Brean Capital

Diana Katz - Lazard Capital Markets

David Glick - Buckingham Research Group

Janet Kloppenburg - JJK Research

Susan Sansbury - Miller Tabak

Dorothy Lakner - Caris & Company

Paula Torch - Avondale Partners

Betty Chen - Wedbush Securities



Good day, everyone. And welcome to the Guess? Third Quarter Fiscal 2013 Earnings Conference Call. On the call today are Paul Marciano, Chief Executive Officer; Dennis Secor, Chief Financial Officer; Nigel Kershaw, VP, Finance and Treasurer; and Russell Bowers, Chief Financial Officer of North America Retail.

During today’s call, the company will be making forward-looking statements, including comments regarding future plans and financial outlook. The company’s actual results may differ materially from current expectations based on the risk factors including in the company’s quarterly and annual reports filed with the SEC.

And now, I’d like to turn the call over to Mr. Paul Marciano.

Paul Marciano

Thank you. Good afternoon and thank you for joining us today. Our third quarter earnings were consistent with our guidance. However, we did experience some pressure on our product margin during the quarter.

Even as we continue to face uncertainty in a macro economic environment around the globe, we were able to offset much of that with lower expenses than expected and delivered earnings per share of $0.43 for the quarter.

In our North American business, our comp trends have improved since the second quarter. We saw strong performance in the third quarter from our men apparel line, which was a best performing category in our stores. Women can shops in knit stop and outerwear due to warm weather.

Accessories improved during the quarter but continue to slightly underperform. However, we have seen a strong recovery in our accessory business during November, specifically in the back half of the months including Thanksgiving weekend. I believe that this momentum together with the improvement to our product assortment will carry on to the holiday.

Going forward, we continue to improve the performance of our stores. To deliver this we’re shortening our development cycle and the last portion of our next year buy has been left open to quickly react to trends.

Our strategy is to be fashion leader in product categories where we have a competitive advantage such as denim and dresses. Finally, we are evaluating our real estate carefully and plan to close some underperforming stores during the fiscal year and next year.

We continue to make significant marketing investments to engage and connect to our existing and potential customers. This quarter, we have increased our marketing and advertising by approximately 50%.

We have seen tremendous growth in social media, where we almost doubled our fan base from 2.3 million to 4.3 million year-to-date. We are also very pleased with our result of our global collaboration with Tiësto, a top world known DJ. We see such effort contributing to the progress in our e-commerce sales, which are up double-digit in the quarter and up 33% over Black Friday weekend.

In Europe, we made progress in our weaker business even as overall economic environment has worsened. The wholesale channel in Europe and Italy specifically, is generally more fragmented and the customer base is more vulnerable to contraction in this economic environment. We’re seeing sign of this contraction with our Italian multi-brand wholesale customers in our next season booking.

On the other hand, in our stores in Europe we continue to build on the comp momentum for the second quarter and achieve flat comp for the third quarter. We were also very pleased with the growing business in Russia and Germany, two major markets in Europe. Russia specifically was up more than 100% in the third quarter and next season orders are up 50% and 18% also in Germany.

In Asia, we grew revenues by 16% and opened 21 stores and 45 concessions during the quarter. Our South Korean and Greater China business, both posted growth rate in the double digits.

During the quarter we signed the strategic licensing partner in China. They are well-established retail operator with more than 2,400 stores across China, and they will have accelerated an expansion in the north.

I’m confident about the expansion and we accelerate in new markets with the Guess? brand in India, Russia, Poland and as just recently a joint venture in Brazil. We plan to open our first JV store in São Paulo, Brazil in June 2013. Japan, which I was last week, will also be a new direct market for us, we plan to enter in fall 2013.

Our job is to run the company well, to think strategically and act tactically, to generate growth without sacrificing return on invested capital and by doing all these things create value for our shareholders.

In conclusion, as always, protecting the brand is our most important assets and we meant on all fact in consideration even if it’s painful from time-to-time. We have confidence in our brand. We have confidence in our ability to continue generating above average return on our invested capital. And we have confidence in our company’s future. Thank you. Dennis?

Dennis Secor

Thank you, Paul, and good afternoon. Third quarter net earnings declined 45% to $37 million and diluted earnings per share were $0.43 down 39%, compared to $0.71 per share in last year’s third quarter. Third quarter revenues declined 2% to $629 million and in constant dollars revenues increased 1%.

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