Guess?, Inc. (GES)

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Guess?, Inc. (GES)

F2Q09 Earnings Call

September 3, 2008 4:30 pm ET

Executives

Paul Marciano - Vice Chairman, Chief Executive Officer

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

Carlos E. Alberini - President, Chief Operating Officer, Director

Maurice Marciano - Chairman

Analysts

Jeff Klinefelter - Piper Jaffray & Co.

Christine Chen - Needham & Company

Eric Beder - Brean Murray & Co., Inc.

Margaret Whitfield - Sterne, Agee & Leach

Betty Chen - Wedbush Morgan Securities, Inc.

Presentation

Operator

Welcome to Guess? second quarter fiscal 2009 conference call. (Operator Instructions)

Before we get started, please note that the company will be making forward-looking statements during this call including and 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.

Paul Marciano

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

We are very pleased with our strong financial performance in the second quarter. Each of our business segments delivered double-digit growth combining for 33% increase in global revenue and a 44% increase in earnings, even stronger than the earnings growth we posted in the first quarter. We delivered diluted earnings per share of $0.57 a 43% increase over last year’s second quarter.

The strength of our brand worldwide was evident in a breadth of our revenue performance. Solid demand and earlier product deliveries drove European revenue up 61% for the quarter. In North American retail our comp performance was strong despite the challenging environment and we delivered 8.1% comp for the second quarter, much better than what we planned. And once again our licensees outperformed expectations with licensing growth growing 22%. We set another quarterly global revenue record reaching $550 million in the second quarter.

One of the keys of our growth strategy has been the focus on expanding international business to build a very balanced earning model. Europe has been an important part of this plan contributing significantly to our recent top and bottom line growth and we expect this to continue. Expanding in Asia is also essential part of our strategy with our current operation continuing to post strong sales and earnings growth. We expect that the investments we are making now in China also will generate strong results in the future.

Our North American retail business performed extremely well during the period and I will discuss it later in detail.

The power of our earnings model is clear in this quarterly result. We have a very balanced geographic mapping format. Europe represented 39% of total earnings, North America retail and wholesale represented 40% of earnings, and licensing delivered the remaining 21%.

I will start with Europe. Our business in Europe continued to be very strong with revenues increased by 61% to $174 million for the quarter. Our contemporary line Guess by Marciano more than doubled in the second quarter. Our accessory business was very strong and we continued to expand in new markets with strategy partners like [inaudible] in Spain and House of Frasier in UK. In our Guess? apparel business knitwear was among the strongest performer as well as denim. Our retail business grew by 66% in the second quarter and 72% for the first half of fiscal 2009. Our own retail store expansion is well underway as we now operate 44 stores in Europe alongside with another 222 stores operated by partners.

Our timid objective is to capitalize in the strength of the Guess? brand and to expand its reach in all parts of Europe like UK, Germany, Sweden and Holland where our distribution is not developed. We have a management team and infrastructure largely in place now. We can gain market share. We have a three-year goal to reach $1 billion in revenue.

Retail in North America. We are extremely pleased with our retail performance where we increased revenue by 20% during the quarter. Our 8.1% comp represents our 22nd consecutive quarter of same-store sale increases which followed 16.2% comp in the second quarter a year ago and a 13.7% comp the year before that. Among our weaker concept we were especially pleased with the performance of Marciano stores in US and Canada with comp sales in the high teens during the period. We now have 48 Marciano stores in North America which have been delivering per square foot well in excess of $600. Last week we just opened our first Marciano store in New York Soho District with approximately 5,000 square feet. For the entire chain we opened 16 stores in North America in the second quarter and have opened 35 stores in the first half of this year. We expect to open another 22 stores during the second half for a total of 57 new stores in US and Canada.

We entered the critical back-to-school season with a goal to increase sales in existing doors across our concept and we see our fortune in denim, premium and basics. In fact, this year we are making denim our number one focus, not in US but worldwide. We are [inaudible] to have increasing denim penetration in all our stores in all our businesses and offering a global denim assortment that represents the essence of the Guess? brand. In short, results have been strong and we expect this to continue. In North America our denim penetration improved from 26% same quarter last year to 30% this year.

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