Release Date: August 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Guess? Inc (GES, Financial) reported a 10% revenue growth in US dollars and 13% in constant currency, reaching $733 million.
- The European wholesale business continues to perform well, with strong demand and higher ordering activity.
- The licensing segment performed well, with revenues increasing by 4% to $29 million, driven by footwear.
- The acquisition of rag & bone is progressing smoothly, contributing solid growth and aligning with expectations.
- Guess? Inc (GES) has expanded its marketing investments, more than doubling them to build stronger brand awareness.
Negative Points
- The Americas retail business did not meet expectations, with traffic continuing to be tough and comp sales declining.
- Sales in the Asia business declined and did not meet expectations, particularly in Korea and China.
- Adjusted SG&A expenses increased by 23% to $281 million, impacting the operating margin.
- The company experienced higher store occupancy expenses from rent increases and slightly higher markdowns.
- Freight costs are expected to be an incremental headwind for the second half of the year due to shipping challenges.
Q & A Highlights
Q: Carlos, if you think about the Guess? brand and the rag & bone brand, are the trends that you're seeing globally similar for each brand in terms of their performance, given a little bit of a different customer? And Dennis, you talked about freight and marketing. How much or what percentage is a difference this year versus last year and that cadence between Q3 and Q4 of how're unpacking it? Thank you.
A: (Carlos Alberini, CEO) Hi, Dana. How are you? Thank you for your question. So let me start with your first question about rag & bone, and yes, I mean, these are very, very different and complementary brands. And this is one of the big reasons why we were so excited about having the opportunity to acquire rag & bone with WHB Global. Obviously, rag & bone caters to a much more affluent consumer. And it has a very strong position in the marketplace with that consumer. That's not the customer that we have at Guess? And also the distribution, geographically is very, very different. And this is one of the reasons why we were very excited about the opportunities to grow the business rag & bone by expanding the distribution into many of the international markets where Guess? has a very strong positioning, but rag & bone has almost no distribution. And for that reason, we are so invested and focused on the distribution into Europe, for example. Paul has already been marketing a lot of the brands in multiple cities and markets. And we think that this can be an enormous opportunity for the brand to expand that distribution with that customer that is also very present in European markets as well. I think that one of the big differences here too is the fact that this is a completely different need of positioning as a lifestyle which we think complements what we are doing at Guess? And we love the idea that is both women's and men's, the assortment is catering to those two customers. They have a very strong business in women's, but also a very, very strong business in men's as well. And we feel that there are significant product categories that are not yet fully represented in the brand. And this is another one of our catalysts for growth for the brand. So we are working very hardly on finding big opportunities to really add some of this product. The one that comes to mind very, very first and top on the list is the whole line of accessories. And I'm sure you heard in my prepared remarks, we talked a little bit about one of those licenses has already been secured for handbags and the teams are working together to increase and strengthen the assortment of handbags for the brand. So let me stop there. And Dennis, maybe you can jump on Dana's question. (Dennis Secor, Interim CFO) Yes, sure. Thanks, Dana. So you know, as Carlos said in his prepared remarks that we view this as an inflection point for the company, a year of transition where we're making some additional investments. He shared with you the brand study that we did and some of the benchmarking that we've done that suggests that there are opportunities for us to make those investments to build awareness for our new brands in new markets where those brands aren't well known yet and as well as to expand the awareness for the Guess? brand around the world. So what you see in the second quarter is really the way we're thinking about the rest of the year. We, as we said in the earlier, that we've more than doubled our marketing spend in the second quarter, and you should think about the full year in that general same perspective that we are getting behind those investments as we went through because of some of the challenges for the year. We looked at opportunities for some expense reductions, but we protected those investments because we really believe in them. The way they flow quarter to quarter, the third quarter, as we said earlier, should be the largest dollar increase. So you'll see the impact on the margins. We're still planning to invest more in the fourth quarter, not quite as much as in the third, but just simply because of the size of the revenue base in that fourth quarter, the impact on the margins will be less impactful than the third quarter. But we expect that additional investment will go on for the full year.
Q: Carlos, I was wondering if you could break down trends for us by geography. And on the Americas business, when do you anticipate that we might see a turn in that geography? Thanks.
A: (Carlos Alberini, CEO) Hi, Corey. Thank you for your question. Well, so the trends have been different, you know, and this quarter a little bit of a continuation of the trends that we have been experiencing now for a few quarters. Starting with Americas Retail, we're not America business, this has been challenging. The challenges have started with a slower customer traffic in the US first, and now it has extended into Canada, and this continues to be challenging for us, and we have incorporated that kind of trend and thoughts into the remaining of the year. And this is one of the biggest reasons as to why we have lowered our expectations for retail business performance in the second half. The traffic has impacted our sales and we have not been able to offset some of that weakness with any of the other KPI metrics that you would expect like average unit retail or conversion. And we are working and focusing on all the things that we can control to really improve upon this. One of the big things that we are looking at is the product assortment, of course. Denim trends is an area that we are very focused on. We see some changes in silhouette that we are trying to capitalize on. We are looking at what's happening with the weather patterns. You know, we saw that the summer months and the summer weather has expanded -- or extended and we think that we have some opportunities there that we could capitalize on, looking at the transitional product, and that's what -- how we are trying to really improve our assortment or strengthen it. We have a tried different promotional tactics or initiatives. And frankly, what we see is that the customer is a lot more sensitive to price. We have been very, very careful with not going into heavy discounting. And we see that some of our competitors are doing this, but we have been very disciplined in the way we are buying inventories and trying to really keep this discipline in the way we are running the business. So the customer will continue to see this brand as a full-price brand as opposed to something that we are constantly promoting. One of the big things that Dennis spoke about and I had a few comments in our prepared remarks is about marketing and this brand study that we have been conducting with an external partner. And what we see is that there is a probably more that we can do to really increase the level of engagement with our customers. We are -- when we looked at the level of spending and investing in marketing that our company incurred and compared to many others in our industry, we see that we have an opportunity to make deeper investments in marketing and that's what we are looking at developing a strategy that will do that. So we are looking at incremental investments in social media, collaborations, creating a community of customers, increasing engagement, investing more in our CRM programs. So overall, we have a lot of ideas, and we are
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
