Guess?, Inc. (GES)

GES 
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Guess, Inc. (GES)

F3Q09 Earnings Call

December 4, 2008 4:30 pm ET

Executives

Paul Marciano - Vice Chairman of the Board, Chief Executive Officer

Dennis Secor - Chief Financial Officer, Senior Vice President, Principal Financial and Accounting Officer

Carlos Alberini - President, Chief Operating Officer, Director

Maurice Marciano - Chairman of the Board

Analysts

Jeff Klinefelter - Piper Jaffray

Christine Chen - Needham & Company

Eric Beder - Brean Murray & Co.

Todd Slater - Lazard Capital

Betty Chen - Wedbush Morgan Securities

Chi Li - Morgan Stanley

Presentation

Operator

Good day and welcome to Guess third quarter fiscal 2009 conference call. Before we get started, please note that the company will be making forward-looking statements during this call, including regarding future plans and guidance. The company’s actual results may differ materially from current expectations based on risk factors included in the company’s quarterly and annual reports filed with the SEC.

Now for opening remarks and introductions, I would like to turn the call over to Paul Marciano, Chief Executive Officer of the company. Please go ahead.

Paul Marciano

Thank you. Good afternoon and thank you for joining us today to discuss Guess' financial results for the third quarter of fiscal year 2009. Also joining me are Maurice Marciano, Carlos Alberini, and Dennis Secor.

I am pleased to report another quarter of solid financial performance in a very challenging environment. We grew our revenue by 13% and our earnings by 10% during the period. We managed the business with strong discipline, controlling inventories well, adjusting our expense structure to adapt swiftly to these unprecedented market conditions.

For Q3 of fiscal 2009, our consolidated revenue reached $528 million, a record third quarter for our company. Our earnings grew 10%, representing our 21st consecutive quarter of earnings growth and we increased our EPS by 11% to $0.69 compared to $0.62 a year ago.

Each of the business segments increased revenues during the quarter. In our retail segments, [inaudible] increased revenue by 12% in the quarter with our comp store sales down 0.8%. The profitability of our North American retail business was negatively affected by a decline in customer traffic and highly promotional environment. We began the quarter with positive comp sales growth in August and then comps softened in September but still remained positive. The slowing trend continued in October when we saw comps drop to negative single-digits. All of this cumulated in a third quarter comp of 0.8 negative. This performance was against a positive 15.8% comp in the third quarter a year ago.

Regarding store openings, during the quarter we opened 50 new stores in North America across all concepts. We plan to open seven additional stores during the fourth quarter for a total of 57 new stores in the U.S. and Canada for this year.

About e-commerce, we made this business a top priority with key investments in infrastructure, a strong management team, and several systems upgrades. In the third quarter, we achieved another strong growth with an increase of revenue of nearly 30%. This followed a second quarter where we increased revenue by almost 60%.

We see the e-commerce business as a vital part of our global brand strategy. The website gives our customers a window to the world of Guess Brand and their lifestyle. We know today that our customer performs significant research online before visiting our stores and so how we represent our brand and our site is key to our marketing strategy as a company.

For Europe, overall we were pleased with our results in Europe, again with a backdrop of tumbling economy in U.K. and Spain. Our business increased revenues by 17% in the first quarter, reaching $186 million for that period. Our after-hour business was the strongest as our wholesale revenue increased by more than 50% comparing to the year before. We opened a total of 34 stores direct or with our partners and ended the quarter with 54 owned stores.

In the wholesale segment, which includes North America wholesale and Asia operation, we increased our revenue by 2% in the quarter. This performance in Asian business more than offset a small decline in our North American wholesale business.

During the quarter, we opened eight new stores in China and Korea, bringing our freestanding store count in this market to 71 stores. We plan to open another eight stores in the fourth quarter, supporting our long-term strategy to penetrate China and continue to build the brand in Korea.

Our Korean stores fostered positive double-digit comps in the quarter but because of the strength of the dollar relative to the Korean Won, this translated into negative dollar comp.

In our licensing business, sales of our product were once again very strong due to our watch, jewelry, handbag, and footwear businesses. The licensing business grew nearly 25% for the quarter as the menswear brand on a global basis continued to be strong.

With that all-in, this downturn is presenting a good opportunity for what we know the best, which is denim. Denim is our DNA as a company. So far this year, it has represented about 30% of our North American apparel business comparing to 27% during the same period last year. We believe our product assortment and [inaudible] are perfectly positioned for customers in that category both domestically and international markets, especially in a fashion denim.

Last week in a trip to Asia and three weeks ago in Europe, I personally observed a real slow-down in premium denim priced above $180. I strongly believe that the world of denim has changed dramatically during the last few months. I think reality is knocking on the door. The [average price] for non-premium denim is between $80 to $120 for brand name and for premium between $120 and $165, and this is exactly where Guess is at.

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