Guess, Inc. (GES)
Q4 2010 Earnings Call Transcript
March 17, 2010 4:30 p.m. ET

Executives

Paul Marciano – Vice Chairman & Chief Executive Officer
Maurice Marciano – Founder and Chairman
Carl Alberini – President & Chief Operating Officer
Dennis Secor – Chief Financial Officer

Analysts

Jeff Klinefelter – Piper Jaffray
Omar Saad – Credit Suisse
Christine Chen – Needham & Co
Randal Konik - Jefferies & Company
Jeff Black - Barclays Capital
Eric Beder - Brean Murray, Carret & Co
David Glick - Buckingham Research Group
Todd Slater - Lazard Capital Markets
Margaret Whitfield - Sterne, Agee & Leach, Inc
Janet Kloppenburg - JJK Research
Susan Sansbury - Miller Tabak
Dana Telsey - Telsey Advisory Group

Presentation

Operator

Good day and welcome to the Guess 4th 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 quarterly and annual reports filed with the SEC. Now for opening remarks and introduction I will like to turn the call over to Paul Marciano, Chief Executive Officer of the company. Please go ahead.

Paul Marciano – Chief Executive Officer

Thank you, good afternoon and thank you for joining us today. Also with me are Maurice Marciano, Carlos Alberini and Dennis Secor. Today, we report a very strong 4th quarter result. We posted record revenue and record earning in this period and this performance brought to a close a solid year for the company in spite of many challenges posed by a difficult economic crisis. It was a year of significant accomplishments for Guess, a year where we were very focused on key initiatives and executed our long-term strategies. We effectively remained well positioned for market share gain and profitable growth and our team delivered in all fronts. In the fourth quarter each one of our businesses expanded and contributed to an overall 14% increase in revenue. More than half of this revenue increase was driven by business in Europe which posted a 24% top line increase fuelled in great part by our retail expansion growth. In North America we approached the season strategically capitalizing in the high traffic period and limiting our promotional activities to protect our brand and our margins. We delivered great products with innovative designs and focused assortments. We executed well and posted middle single digit positive comps.

Our Asia business had a very successful fourth quarter with a 55% increase in revenue mainly driven by strong performance in South Korea. While our top line results were obviously strong our bottom line performance was even stronger, with each division positing solid margin improvements. With careful inventory and close management we have fully restored the margin structure of our business, expanding operating margin by more than 3 points. With this performance we have set another earnings record for the quarter as we have increased our earnings per share to $0.96, that is 45% increase over last year fourth quarter excluding charges in both periods.

For the full fiscal year, we posted an all time high in both revenues and earnings as well. Full year revenues increased to more than $2 billion with product sales growing across all our segments at the higher end of International sales. For full year earnings per share reached $2.64. During the year we focused on several key initiatives that we consider critical to the long-term success of our brands. Our first initiative relate to the G by Guess as it gained considerable traction, with positive full year comp and better bottom line. We plan to add at least 32 stores in the next three years of that category. Also, our push to expand customer loyalty program across all retail concepts has proven very successful. We currently have over 2 million aged members in our data base which will allow us to market directly to our most loyal customers.

In Europe, our business continued to extend outside of Italy with France, Spain, Germany and U.K collectively growing 22% for the year. Our retail business in Europe drove most of the growth in that region adding 81 retail stores owned or licensed. We also entered the pre collection for fall and winter of ’09, spring and summer of 10. With these initiatives we are delivering our products into the market much faster than before.

In fiscal 2010, we executed on our plan in view of the Wall financial meltdown. It was exactly the right strategy during that time to protect our capital structure but also protect our brand and customer relationships.

Now moving in the future, our top priorities for this year are first to increase our sales productivity across all businesses. The Guess brand enjoyed tremendous momentum around the world and we have seen opportunities to gain market share in all spaces. We feel we have a significant advantage having a lifestyle brand. From casual jeans wear, dresses, tops, outer wear, handbags, footwear, watches, outerwear, fly wear, we are not just one category but instead we support an entire lifestyle of customers. Of course denim is our world and if you visit any other stores in New York, Miami or Los Angeles the message is clear.

Second is our expansion in Europe, which remains a key priority for us. We continue to be in the strong team in the region to support that important initiative. We focus on the countries where the brand is well known but is still under penetrated like U.K, Holland, Germany, Belgium and many more countries. And expanding our retail business is always critical. Fiscal 2011 we plan to open 85 retail stores in that region. Most of the stores will be concentrated outside Italy, which represents currently half of our sales. This plan will result in roughly 380 stores in Europe by the end of the year. We continue to feel that we can grow our business in Europe to $1 billion sales in the next two to three years.

Third, this is our U.S and Canada retail expansion. This year we plan to open 62 new stores in North America. Many of this opening will be concentrated in our new concept specially G by Guess and Guess Accessory stores. These are the focus areas. We do have a complex business model which is very diversified in product categories, concept and geography. But because of that, that diversification, we can plan very ambitious goals for the future of Guess brand around the world and not fear any saturation of the market on any concept in the country you have. That’s why we preach and truly believe that the world is our field. Future prospects look very strong to us as long as we stay disciplined, focused on a strategy and its execution. That’s what brand integrity is.

With that I’ll let Denis to walk through the numbers please.

Dennis Secor – Chief Financial Officer

Thank you, Paul. Good afternoon. Today’s press release includes disclosures, which reconciles our GAAP results to adjusted results excluding non-cash impairment charges related to our retail stores. During this conference call our comments excludes these charges as we feel that provides more relevant period-to-period comparisons that are consistent and more easily understood. We are very pleased with our results. Earnings for the fourth quarter reached a record of $89 million which represents an increase of 44%. Diluted earnings per share increased 45% to $0.96. Total fourth quarter net revenues reached $642 million clearly exceeding our overall expectations. Fourth quarter gross profit was $295 million, a 30% increase over last year. Our gross margins expanded 550 basis points or 46%, a very strong performance. Product margins improved substantially in every one of our operating segments.