Guess?, Inc. (GES)

GES 
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Guess?, Inc. (GES)

F2Q10 Earnings Call

August 26, 2009 4:30 pm ET

Executives

Paul Marciano – Vice Chairman and CEO

Dennis Secor – SVP, CFO, Principal Financial and Accounting Officer

Carlos Alberini – President and COO

Analysts

Eric Beder – Brean Murray

Omar Saad – Credit Suisse

Randy Konik – Jefferies & Co.

Stephanie Wissink – Piper Jaffray

Christine Chen – Needham & Company

Janet Kloppenburg – JJK Research

Chi Lee – Morgan Stanley

Betty Chen – Wedbush Morgan

Holly Guthrie – Boenning & Scattergood

Margaret Whitfield – Sterne, Agee & Leach

Susan Sansbury – Miller Tabak

Presentation

Operator

Welcome to the Guess second quarter fiscal 2010 conference call. Before we get started, please note that the company will be making forward-looking statements during this call including comments regarding future plans and outlook. 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 second quarter of fiscal year 2010. Also joining me are Maurice Marciano, Carlos Alberini and Dennis Secor.

We are extremely pleased with our second quarter financial results. We did exceed our expectations but we also did second quarter record in both revenues and earnings. This is a significant accomplishment especially considering the current economic environment and the challenges caused by foreign currency. We believe this result clearly underscores the power of the Guess? brand and highlights the strength of the diversified business model to deliver strong results in the current environment.

Moreover, these results are a testament to the skill of our management team and their ability to quickly adapt to change and respond in a way that preserves our margin as well as well as our integrity and solid financial position. The strong steps we took nearly nine months ago concerning our inventories, our expenses and our capital with very strong discipline are clearly evident in today’s results.

The second quarter we succeeded in growing our business increasing in constant dollars by more than 9%. More importantly, we achieved that growth in a very profitable way. We delivered profit margin flat to last year and controlled our expenses very effectively. We expanded our operating margins very significantly and delivered earnings per share of $0.64, a 14% increase over last year.

Europe’s performance was key to our results. Our efforts there to deliver products earlier were very successful, far exceeding our expectations as well. Our products are hitting the market faster and positioning us to benefit from early seasonal demand.

For the quarter Europe local currency revenue increased by 35% with most European businesses posting an increase over last year. We leveraged our expense base in a significant way which drove an improvement in our operating margin.

In our North American retail business we also exceeded our expectations as we posted a modest increase in profit in spite of the negative comps. With strong inventory management and strong expense control we improved product margin and expanded operating margin from a year ago.

Regarding our international business, global expansion continued to be a major priority for us. Today’s results validate the tremendous potential of the Guess? brand on the international stage. We believe now more than ever that we can continue to gain global market share and that our brand can achieve worldwide recognition as the economy recovers. We strongly believe that our future growth must be linked to retail expansion in the global market.

Europe again is a high priority for retail expansion so we will continue to make investments there to support that future growth. By the end of the fiscal year we plan to directly operate 75 retail stores in that region. We are also making key investments to support both retail operations as well as our wholesale business in Europe.

In Asia we remain committed to develop the Guess? brand in China where we see a long-term opportunity. Our management team is in place and focused on refining our model, growing our business and improving our results in the region. Multiple challenges exist in that region so we are very conscious of any major investments.

Outside of North America we opened 62 stores year-to-date and plan to open another 49 stores by the end of the fiscal year.

Last, regarding our infrastructure we are continuing to improve our global supply chain where we are investing in strong strategic relationships and partnerships with key vendors. We are also investing in technology to support operations, enhance efficiency and improve the customer experience both in our stores and on the e-commerce sites.

We definitely feel that the conditions are stabilized in a number of ways but that doesn’t mean the crisis is over and there will be no doubt some challenges are ahead.

Thank you. Dennis will take you through the numbers of Q2.

Dennis Secor

Thank you Paul and good afternoon. Total second quarter revenues increased 1% to $522 million. In constant dollars the growth was about 9%. This increase was driven by Europe where revenues grew 21% despite the stronger U.S. dollar. Revenues benefited from a sales shift as we continued to distribute products earlier in Europe. The shift was higher than we previously expected and totaled $29 million for the quarter.

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