Guess? Inc (GES) 2004 Q2 法說會逐字稿

Good day, and welcome to today's GUESS conference call.

Today's call, including the question and answer portion, is being recorded and being made available to the public.

Statements made in this conference call, including but not limited to, the Company's expected results of operations are forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are only expectations and involve known and unknown risks and uncertainties, which may cause actual results in future periods and other future events to differ materially from what is currently anticipated.

Factors which may cause actual results in future periods to differ from current expectations include, among other things, the continued availability of sufficient working capital, the successful integration of new stores into existing operations, the continued desirability and customer acceptance of existing and future product lines, included licensed product lines, possible cancellations of wholesale orders, the success of competitive products and the availability of adequate sources of capital.

In addition to these factors, the economic and other factors identified in the Company's most recent annual report on Form 10-K for the fiscal year ended December 31st, 2003, including but not limited to the risk factors discussed therein, could affect the forward-looking statements contained herein and in the Company's other public documents.

Now at this time for opening remarks and introductions, I would like to turn the conference call over to Mr. Carlos Alberini, President and Chief Operating Officer of the Company.

Please go ahead, sir.

Thank you.

Good afternoon, and thank you for joining us today to discuss GUESS's 2004 second-quarter financial results.

Joining me today is Fred Silny, Senior Vice President and Chief Financial Officer of the Company.

I will begin with an overview of our second quarter and then Fred will review our financial performance in more detail, after which I will update you on the growth initiatives that we have underway and our outlook for the remainder of 2004.

Then we will open the call for your questions.

GUESS turned in a good performance for the second quarter, achieving diluted earnings per share of 5 cents versus a diluted loss of 13 cents per share in the year-ago period.

The improvement was driven by better results across each of our 3 business segments, including strong growth in retail, higher contributions from licensing and a reduced loss in wholesale.

These results were underpaid by continued strong comparable store sales growth at 15.1 percent for the quarter and a significant improvement in margins in both our retail and wholesale segments.

In fact, in the second quarter, our overall gross margin improved by 620 basis points over the same period a year ago.

As we have worked hard to increase sales and margins, we have also continued to focus on enhancing our financial strength and we have seen significant improvements in our balance sheet versus a year ago.

We ended the quarter with $50.4 million in cash and equivalents versus 7.1 million a year ago and our debt level was at 50.7 million versus 81.6 million a year ago.

Furthermore, the GUESS brand remains strong and is continuing to resonate powerfully with the consumer.

We are proud to report that GUESS was ranked 15th overall in the Women's World annual survey of the top 100 brands in fashion, which was just released earlier this month.

We're also ranked as the No. 2 young contemporary brand and No. 6 in denim.

Let's turn to the results.

We announced today that for the second quarter ended June 26th, 2004, GUESS reported total net revenue increased by 17.6 percent to $154.1 million from 131 million in last year's second quarter.

The higher sales reflect the favorable trends that we are seeing in our retail stores.

All of our product categories posted improved sales results during the period, including our young contemporary line, our men's product, accessories and GUESS collection.

By segment, our retail stores, including full-priced retail, Kids, factory outlook, Canada and e-commerce, generated net sales of $115.2 million during the second quarter, an increase of 20.5 percent from 95.7 million in the prior year second quarter.

The increase was driven by the comparable store sales increase of 15.1 percent and a larger store base, which represented a 5.5 percent increase in average square footage as compared to the same period last year.

Moreover, the higher sales level, coupled with increased margins and continued careful expense management, is enabling us to deliver a substantial improvement in operating results.

In the women's retail business, our young contemporary line performed well, generating improvements for the quarter.

We had strong results with skirts, dresses and T-shirts.

The GUESS collection line is our contemporary line that commands higher price points.

As you know, we are currently in the midst of rebranding this line as Marciano.

All new products being introduced in the stores will now carry that label going forward.

We expect this product line to make a significant contribution to our sales growth in the second half of 2004.

I will provide more detail of our plans for Marciano later in the call.

Our men's business continues the trend of the past few quarters with a very solid performance.

Woven tops continue to drive the business.

We are also very encouraged with the improved sales of men's denim pants.

In accessories, the sales increases were driven by strong results in watches and handbags.

Jewelry and belts also performed well.

We're very pleased with the strong consumer interest we are seeing and believe that there is excellent potential to extend this category as I will touch on a little later.

We ended the quarter with a total of 264 stores, including those in Canada, of which 179 were full-priced retail, 77 were factory outlook stores and 8 were Kids stores.

This compares to 254 stores a year ago, including 176 full-priced retail, 67 factory outlet stores and 11 Kids stores.

During the quarter, we opened 2 retail stores and 4 factory outlet stores and we closed one Kids store.

We are still on track to close most of our remaining Kid's stores by the end of the year.

We now expect the total charge to close these stores to be approximately $500,000, of which 350,000 has been previously reserved.

In our wholesale operations, second-quarter 2004 revenues increased 6.3 percent to $39.3 million from 27.5 million the same period in 2003.

This included an increase in international wholesale revenue of $3.1 million or 43.1 percent, partially offset by a decrease in domestic wholesale net revenue of 1.3 million or 6.4 percent, reflecting lower shipments to our wholesale customers, primarily department stores.

Domestically, our products were sold in approximately 850 doors at the end of the second of 2004 compared with approximately 750 doors at the end of the second quarter of 2003.

The operating performance for this segment improved to a loss of $5.3 million in 2004 from a loss of 8.4 million in the second quarter of 2003.

This improvement was driven by higher sales and margins in our international wholesale business and increased margins in our domestic wholesale business, due to better results in off-price sales.

In terms of trends, we saw solid performance from fashion woven tops and knitwear in our young contemporary line.

Fashion wovens were also particularly strong in men's.

Our domestic backlog for wholesale as of July 24th, 2004 was $44.9 million compared to 44 million as of July 26th, 2003 or up 2.2 percent.

We continue to make further refinements in our product assortment and we take advantage of supply chain enhancements and our quick response capabilities to keep merchandise fresh and on-trend through increased placement of the immediate style.

On the men's side, we are continuing to build on the strength of our woven tops while adding new styles to our bottoms assortment.

For the women's line, we're continuing to increase our basic penetration to total while making our fashion offerings more dressy and feminine.

We are also adding a premium assortment in select stores.

Now turning to licensing propelled by the strength of the brand, this business continues to perform well, with second-quarter revenues of $9.6 million, an increase of 1.8 million or 22 percent from the second quarter of 2003.

Operating earnings increased to $7.1 million from 5.8 million in last year's second quarter.

This improvement was driven by our domestic licensing business as a result of the strength of our accessories business.

Let me now turn the call over to Fred to review the financial results in more detail.

Thank you, Carlos, and good afternoon.

Before I discuss our financial results in more detail, let me describe the contents of the press release just issued.

In addition to the actual release on Pages 1 and 2, Page 3 contains the consolidated statements of operations for the second quarter of 2004 compared to the same prior -- same period last year.

Page 4 contains segment data for our wholesale, retail and licensing operation.

Page 5 contains the comparative balance sheets.

Page 6 contains cash flow data, and finally, Page 7 provides retail store data.

Now turning to the specifics of our performance for the quarter, we announced today that for the second quarter ended June 26th, 2004, GUESS reported net earnings of $2.1 million or diluted earnings of 5 cents per share.

This compares to a net loss of $5.4 million or a diluted loss of 13 cents per share for last year's second quarter.

The second-quarter 2003 results include restructuring impairment of severance charges of $8.8 million or $0.5 million after taxes or 1 cent per diluted share.

As Carlos mentioned, net revenues for the second quarter increased 17.6 percent to $154.1 million from $131 million in the 2003 second quarter.

Overall, gross profit for the 2004 second quarter increased 41 percent to $57.8 million from $41 million in the second quarter of 2003.

Gross profit margin increased to 37.5 percent in the second quarter of 2004 from 31.3 percent in the same period of 2003; this 620 basis-point increase is attributable to improved margins at both retail and wholesale.

The improvement in retail margins reflect better product margins and as a result of the increase in comparable store sales, improved leverage of our store occupancy costs, the improved margins in wholesale reflect better performance in our international wholesale business and stronger performance in our domestic wholesale business due to improved results in off-price sales as a result of better inventory position and overall higher margins.

The SG&A rate this quarter was 34.1 percent of net revenue, 190 basis points better than our SG&A rate in the same quarter in 2003, which represented 36.0 percent of net revenues.

We reported that SG&A expenses for the second quarter were $52.6 million, an 11.4 percent increase from last year's $47.2 million.

This improvement reflects the continued positive impact of the cost-cutting actions we have taken over the past year and expense leverage on sales growth in our retail business, partially offset by the additional expense necessary to operate 11 net new stores in the second quarter of 2004 versus the same 2003 period.

Earnings from operations improved by $12.3 million to $5.2 million in the second quarter of 2004 compared with a loss from operations of $7.1 million in the 2003 period, including $8.8 million charge.

The retail segment represented $8.1 million of the improvement, reflecting the strong comparable store sales growth, improved margins and effective expense leverage.

The wholesale segment reduced its loss from operations by $3.1 million, reflecting improved gross margins.

Corporate overhead increased to $9.1 million from $8.9 million in the 2003 second quarter.

Interest expense for the second quarter of 2004 was $1.6 million compared to 2.6 million for the 2003 second quarter, reflecting the lower interest rate on the secured notes we issued at the end of April, 2003, and lower debt levels in the period.

Compared to a year ago, we have lowered our debt level by $20.9 million and increased our cash position by $43.3 million.

We closed the quarter with $96.8 million of inventory compared to $96.3 million at the end of the 2003 second quarter, a significant benefit of our active inventory management, including clearing inventory within the store, that mean improved profitability and off-price sales and lower returns for our warehouse.

All of these initiatives are contributing to the improved margin.

For the 6 months ended June 26th, 2004 the Company reported net earnings of $2.9 million or diluted earnings per share of 6 cents, versus a net loss of $11.2 million or a diluted loss per share of 26 cents in the comparable 2003 period.

The 2003 results include the previously mentioned restructuring impairment and severance charges of $0.8 million or $0.5 million net of tax, representing 1 cent per share.

Earnings from operations for the 6 months ended June 26th, 2004 was $7.8 million.

This compares to a loss from operations of $15.1 million in the year ago period, including the $0.8 million charge.

Total revenues for the period increased by 13.6 percent to $307.4 million compared to $270.6 million in the same prior-year period.

I would now like to turn the call back to Carlos to review the growth initiatives under way and our outlook for the remainder of 2004.

Carlos.

Thank you, Fred.

In our last conference call, we discussed several initiatives that we have taken at GUESS to lay the groundwork for long-term growth.

I would like to update you on our progress.

At that time, we also provided some guidance on our outlook for the year within the context of this new initiative.

With the second quarter now behind us, I will provide an update on our expectation for the remainder of the year.

As I mentioned earlier, we have moved forward with the introduction of new products under the Marciano brand.

We are excited about the prospects for this product and see significant growth potential for this type of offering, which serves as a complement to our core young contemporary line.

The new assortment commands higher price points, it targets a more upscale and sophisticated contemporary customer and it should result in incremental sales in our existing stores.

The Marciano product will be available in the majority of our full-priced retail stores in the U.S. and Canada.

As I discussed in our last conference call, we believe that providing a more unique store environment to the new Marciano line is appropriate, given the product differentiation that we envision with the new offering.

Accordingly, we now plan on opening 5 Marciano stores in the second half of 2004 to test this new store concept.

The new format will be a smaller store, between 2000 and 2500 square feet, and will carry exclusively the Marciano product line.

We have developed a definitive point of view for the brand, supported by an in-store inventory and advertising, and we are very excited to share this concept with customers.

In addition, 6 more stores are scheduled to open in 2005.

We are excited about our back-to-school and holiday advertising campaign, which features Paris Hilton as our model for both the GUESS and the Marciano brands.

The campaign will run in major fashion publications beginning in August from Beau, Vanity Fair, W, Elle, Inc., Style, Lucky and Marie Claire to smaller niche publications such as Nylon, Interview and Blackbook.

The campaign will also be featured on billboards, buses and kiosks in major metropolitan cities such as New York, Los Angeles and Chicago, as well as images in our own GUESS stores.

We are also testing a new accessory store concept in the second half of 2004.

As I mentioned earlier, we are achieving excellent results in this category and believe that we offer a unique position in the marketplace with a world-recognized brand name at a more accessible price point than the luxury accessory brands.

We will be opening 3 retail accessory stores and 3 factory accessory stores in 2004, which will rank in size between 1000 and 2000 square feet, and would carry the GUESS accessory line.

We continue to expand our core retail stores in the U.S. and Canada.

We plan to open a total of 25 new GUESS stores in 2004, consisting of about 9 retail stores and 16 factory stores.

We are also planning to remodel about 14 stores, relocate approximately 4 stores and close approximately 13 stores this year.

Capital expenditures for 2004 are now expected to be approximately $32 million, and depreciation and amortization is planned at about 36 million for 2004.

Based on current sales trends, we expect comparable store sales for the month of July, which closes this coming Saturday, to increase in the mid-teens on a percentage basis.

Based on these trends and our plans for back-to-school and the holiday season, we now expect for the second half of 2004, comparable store sales in our retail stores to increase in the high-single digits.

We expect total retail sales to increase in the mid-teens, including sales from the new stores and the contribution from the 20 stores that we opened in 2003.

On the wholesale side, we anticipate overall revenues to increase by approximately 10 percent for the second half of 2004 versus the same period last year.

Net licensing revenues are expected to be up in the low to mid-single digits.

Overall, gross margins are now expected to improve between 250 and 300 basis points in the second half of 2004, reflecting improvements in both the wholesale and retail businesses from last year's levels.

Regarding SG&A expenses, we expect them to increase in the second half of 2004 in the mid-teens, and to also increase slightly as a percent of revenues from 2003 levels.

The increase includes expenses necessary to operate the new stores as well as additional expenses related to the positioning and launch of the new brand.

Finally, we expect inventory levels to increase percentage-wise by approximately 10 percent by year-end compared to year-end 2003, interest expense to be $3 million in the second half and our tax rate to continue at 43 percent for the balance of 2004.

Before we open the call up for questions, I would like to say that we continue to be optimistic about our business for the remainder of 2004.

We are pursuing topline growth and margin expansion through a range of initiatives while carefully managing costs and inventory.

We're excited about the momentum in our business and we look forward to expanding our progress well into the feature.

With that, as always, we thank you for your interest in GUESS and we will now be happy to take your questions.

(Operator Instructions).

Margaret Whitfield, Ryan Beck.

Good afternoon, and congratulations.

Hi.

While your SG&A looked controlled, percentage-wise, it was up more than in prior quarters.

Were there any other factors in those numbers such as maybe bonus accruals or any reserves that you might have taken?

No.

You mentioned bonus accruals, and obviously, we are performing much better than a year ago.

And yes, that is one of the aspects that contributed to the growth in expenses.

But the most significant number is store selling expense, just to support the new stores, and the growth of same-store sales.

Now when you consider the total retail operation, we were able to increase leverage there.

I think part of the issue too is that some of our initiatives to cut costs really weren't effective in the second quarter last year.

So now, we are starting to go up against those numbers.

So that's why the first quarter is so much higher (ph) leveraging expenses than what you see in the second quarter and which we are projecting for the second half of the year.

And I think you had taken some reserves for the Kids stores closing.

When did that occur?

That happened before, but it's not a significant number.

We are talking about $350,000.

I think that that happened at the end of the year.

When we made the decision to close the stores.

I am pleased that your wholesale guidance is as good as it is.

Is that more the international, or do you feel pretty good about the U.S. wholesale?

We feel better about the U.S. wholesale in the second half of the year.

As we had mentioned before, our expectation was that the business was going to improve towards the second half and we got a good reception of our holiday line, so we're hoping that that's going to translate into higher revenue.

Also our business internationally has done better than what we had anticipated.

And also, we are trying to incorporate some new -- a lot of immediate -- that are not reflected in our backlog currently, which is up about 2.5 percent, 2.2 percent.

But we think it's going to continue to further growth in the second half as well.

Our basics program is just being introduced and we have high expectations for the performance of that.

And we are operating in many more doors.

So all of that is adding to our confidence.

In the July month, was there some small effect from the Marciano launch, or were your comps in double digits prior to those goods arriving in stores?

We did have some additional product introduced in our GUESS collections during the second quarter, and that product also contributed to some of the sales growth.

But the full brand, Marciano, is being introduced officially in August.

Okay.

So what led your business in July?

Well, fortunately, all our businesses were very strong throughout the month, and that, you know, also was driven by the women's business at young contemporary; men's business continues to be very strong; our accessories business continues to be strong, regionally, the Canada region is performing very, very well.

Across the board, our business has been very, very good.

Congratulations, thanks.

Eric Beder, JBHanauer.

Good afternoon.

Hi.

How are you, Eric?

I'm doing great, and you guys are too, I'm sure.

We are pleased.

Just a quick housekeeping question, what was the square footage at the end of the year -- at the end of the quarter?

We will find that number.

Okay.

And I want to talk a little about Marciano.

What do you see as the potential in terms of the stores for this chain?

I mean how big can this idea really be?

Currently of course, we're going very slow with it.

We have 11 stores in the works, and we want to test this and fine-tune the concept and before we go very aggressively on an expansion mode.

But when we look at the marketplace and what this type of store can offer and some other companies in the segment, we think that this could be north of 100 stores for sure, could be much bigger than that.

Is what's going to be in the Marciano stores almost exactly what's going to be in the GUESS stores?

Or are the Marciano stores going to have product that will not be in the GUESS stores?

Yes, the Marciano stores -- our plan long-term is that once this chain becomes a sizable chain of stores, it will remove the Marciano product from the GUESS stores and replace that product with a more contemporary styling assortment from our young contemporary line.

But we are looking long-term when we say this.

Initially, if we have a Marciano store in the same market than a GUESS store, all of the Marciano product is going to be only available in that Marciano store.

So we're going to remove entirely all of the Marciano product from our GUESS store if we have our Marciano store in the same market.

Okay.

In the accessory stores, do you see that as primarily outlets, or does that have potential as the more full-priced than outlets?

No, we see tremendous potential on full price.

And but that being said, we also see this as a great value proposition in the outlet environment, as well.

That's why we are testing both concepts.

But you know we see tremendous potential on the full price, and we think that this is a great idea for a market niche that is a void, currently; there isn't any other store concept that appeals to the customer at this type of price points and with the kind of assortment that we can offer.

So we think that this with a brand (ph) position that we have.

Finally, in terms of management depth, how are you managing these growth processes?

Are you planning on putting a separate unit to do this, or is this currently under current management -- how are you doing this growth here?

The great thing about all this is is that all the assortments of all these different product categories is available in our own stores; so this is really growing from a concept that is already there and exists.

That being said, we, in the case of Marciano concept, we have added a very strong team to run that whole Marciano initiative, including our existing stores but also to build in both design, merchandising and retail, the strength that we need to run with a much more aggressive plan.

In the case of accessories, as I said, we already have very, very strong team, and this team is going to continue to run the existing business and then really contribute and run the new test stores that we are opening.

Great, thanks and congratulations again.

And Eric, your question about the square footage, at the end of the quarter, it was 1,000,370,000 square feet.

Great, thank you.

Thank you, Eric.

Dorothy Lakner, CBC World Markets.

Thanks.

Good afternoon, everyone, and congratulations.

Just a few questions, following up on Marciano.

I saw some of the product in -- I think it was a store in San Diego, Horton Plaza, last week, I am not sure -- is that the sort of assortment or the breadth of assortment that you will have in the GUESS stores?

Will there be more of it when you actually roll it out in August?

Or did I kind of see a good sampling?

And a couple of other questions, moving to gross margin -- the 620 basis point improvement you saw in gross margin, could you give us the breakdown there, how much of it came from retail and how much from wholesale?

And on the retail side, what, if you can give some kind of quantitative answer as to what was actually product margin and what was leverage on occupancy?

And then lastly, I was wondering how much -- since you are talking about doing much more or more in immediate sales as opposed to backlog, I wonder how much backlog represents now, if you are not moving towards more immediate sales, if it's really a significant percentage now of your business?

Thanks.

Okay, great.

Let me just start with your first question.

Our inventory position at the end of July in Marciano is not that much higher than it was a year ago, and our plans are to increase that position in the second half.

So what you saw in Horton Plaza is a very limited portion of the overall assortment that you're going to see going into the second half, more into the August time frame.

So with respect to -- that assortment should grow in terms of both number of styles and primarily more depth in the assortment going forward, and it continues to grow into the fourth quarter, which obviously is the strongest selling season for that type of product.

Let me just address the immediate and then Fred can address the margin question.

With respect to immediate, we are targeting a number of not more than 35 percent of the total sales that will be offered for wholesale through immediate.

Now that's a high number, meaning that it's most likely going to be less than that.

But we feel that by pushing more on the immediate and concentrating on that way of doing business, we can really hit the trends more effectively, so that's why there is this motivation to really push that number higher.

Are you there now, or is that just a goal?

No, no. (multiple speakers).

It is a goal, and it has been lower than that.

Right.

Dorothy, the way the 620 basis point improvement in margin broke down, about -- approximately a third of it was because of leveraging of occupancy costs, and then about another third was contributed by the retail segment due to margin improvement.

And then the balance, of course, the other third, was from the wholesale segment.

The wholesale segment.

And then one other question if I might, going back to Marciano again, Carlos, I think you talked about replacing Marciano in the GUESS stores once the chain is established.

So what would the time frame be on that?

How many stores will you want to have before you do that?

In other words, how long will the Marciano product actually stay in the GUESS stores?

I think you're looking at long-term from now, -- first of all, we want to test this new store concept before we can really move on initiatives that could really have a significant impact on our existing operations.

So we're going to go slowly and make sure that we are crossing all the T's and dotting the I's here.

So you're really talking much longer-term then?

Yes.

I mean you know, right now, we have Marciano in the majority of our full-price retail stores, probably about 170 stores or so.

So it's a very big business.

It's a very significant offering for the customers.

And before we can have a similar number of stores or something even close to that, we're talking about many, many months (multiple speakers), a couple of years at least.

Okay, thanks.

Thanks.

Holly Guthrie, Morgan Keegan.

Hi, this is actually Ben Brownly (ph) speaking for Holly Guthrie.

First off, congratulations, excellent quarter.

Most of our questions have actually already been answered.

Are there any additional unit economics that you can give for the new store concepts that are coming out?

No, really, we have not shared and type of expectation from this.

I can tell you that we are very fortunate -- the locations that we have secured for Marciano are top-notch locations.

We're going into amazing markets with great location.

And we have an internal goal to never compromise location.

So really, if you look at what others are doing in those markets, you would get an impression of very high productivity, especially for 2500 square foot store.

But we have not shared and, frankly, we want to test before we can even start talking about the financials.

We think that this can be a very high return opportunity for us, so the margins are high and the productivity can be very high.

We know how to run retail stores and we know how to put an assortment together.

So it's a very exciting opportunity.

But just give us some time until we test so we can give you a number so we can really support with a lot of analysis behind it.

That is understandable.

And you've already talked about the immediate and the wholesale.

But the late fall and holiday product look good, and we were wondering how many of those deliveries for the late fall and holiday are already in the backlog number?

How many of what is in the backlog?

How many of the orders for the late fall and the holiday product that you've already show?

Okay, I understand now.

Most of the fall will be in the backlog number.

We typically -- now depending on the timing on what we're talking -- but we typically have about 6 months of backlog at any point in time.

The initial orders for fall (ph) are already in.

So you know but, they were there a year ago of course too.

So it is consistent with the time.

That being said, remember that we're being more open for immediate.

So if our plans materialize, we should be able to see growth from that segment of the business.

Okay, great.

Congratulations, again.

Thank you.

(Operator Instructions).

Steve Kernkraut, Berman Capital.

Great quarter.

I had a couple of questions.

The first is Paris Hilton is your spokesperson.

Is she going to be the spokesperson for the entire GUESS line or just the Marciano line?

Hi, Steve.

No, she is the spokesperson for the entire line.

Actually she is included in both campaigns, if you will.

So you're going to see a lot of the advertising, and she is wearing GUESS product as well as Marciano product; and there are some pieces that include both brands.

And those advertisements should start by Labor Day?

Actually you should see it even in the magazines right now.

Okay, I will have to keep an eye out for it.

And for the 2 new business concepts opening stores that you're opening, is the first year operating cost -- how much is that going to cost you in terms of earnings, because operating those (indiscernible) prototype stores this year?

We don't anticipate that this will a negative cost implication; and the number that we kind of shared with you in terms of expenses and sales and margins are kind of like all-inclusive.

So whatever (indiscernible) costs are required to operate those stores are kind of embedded in those projections, or in that guidance.

We do not anticipate significant pre-operating expenses or anything like that.

And whatever pre-operating expenses are estimated are again embedded in that guidance that we gave you before.

Okay.

And you, by the spring of '05, you should be able to make a determination in terms of how you are going to be rolling this out, or is this something that we're going to test all through '05 and then rollout is an '06?

We will take that month by month and make our decision.

Of course if we are ultra-confident with 6 months of testing or whatever, then we will definitely move a little faster.

But right now, I think we have a good test in process and the number of stores is a good number, and we will keep you updated on our progress.

Okay, that's great.

I did not catch the answer to Dorothy's question -- but in terms of the flow of the Marciano goods into your store, we should get a constant flow every few weeks in there, or (multiple speakers) -- so it is not like what we have now is what we will get for the rest of the fall season.

You will be flowing new goods, refreshing that every 2 weeks?

Oh, absolutely.

In fact, the nature of that business is very fast, a lot of fashion.

So definitely, we have -- our plans call for significant flows on a monthly basis and even throughout the month.

Okay, that's great.

Thanks a lot, and congratulations.

(Operator Instructions).

And gentlemen, at this time, it appears there are no further questions.

Mr. Alberini, I'll hand the conference back to you for closing comments.

Thank you, very much.

Again, than you for your interest in GUESS.

As you can see, we have many exciting plans underway, as we continue to focus on capitalizing on the strength of our Company and our brand to generate long-term growth.

We look forward to updating you on our next call.

Thank you, very much.

And that does conclude our conference!

We thank everyone for their participation; we hope you have a great day.