Guess? Inc (GES) 2004 Q4 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 acquisitions and new stores into existing operations; the continued desirability and customer acceptance of existing and future product lines, including license, 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 31, 2003 including but not limited to the risk factors discussed therein could affect the forward-looking statements made in this conference call and contained in the Company's other public documents.

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

Please go ahead.

Thank you very much.

Good morning and thank you for joining us today to discuss Guess?'s 2004 fourth-quarter financial results.

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

I will begin with an overview of our fourth quarter.

And then, Fred will review our financial performance in more detail for the fourth quarter and fiscal year of 2004.

After which, I will address our goals and outlook for 2005 and open the call for your questions.

We are pleased to report that Guess? turned in a solid performance for the fourth quarter, achieving diluted earnings per share of $0.33 versus diluted earnings of $0.27 per share in the year-ago period.

The rate of EPS growth moderated somewhat from the level we saw earlier in the year.

This is attributable to the impact of three factors in our retail business during the fourth quarter.

As you know, earlier in the holiday season, we announced that we were seeing a heightened level of promotional activity and that we expected that to impact margins in our retail business.

We also saw a deceleration in our comparable store sales from the levels experienced earlier in the year.

In addition, we incurred costs associated with the opening of the new Marciano and Guess?

Accessories stores in the quarter.

I will update you in just a moment on these new concepts, which are enjoying profitable initial response.

As a result of these factors, retail segment earnings were somewhat lower in the quarter so that's an improvement we generated in companywide EPS for the quarter -- was driven by the better results we achieved in our wholesale and licensing businesses.

Coupled with our focus on improving sales and earnings results, we continued to make strides in enhancing our financial strength and balance sheet.

We ended the quarter with $109.7 million in cash and restricted cash versus 71.7 million a year ago.

And we reduced our debt level by $13.3 million to 54.8 million at year-end.

At December 31, 2004, cash and restricted cash exceeded outstanding debt by $54.9 million, a $51.3 million improvement from last year's fourth quarter.

We continued to see the benefits of our inventory management efforts.

Inventory has declined to $82.3 million or 1.4 percent from 83.5 million at the end of 2004.

The inventory declines came in spite of our 14.3 percent increase in product sales for the year, the additional 22 new stores, net of closures, representing a 6.1 percent increase in average square footage for the year.

One of the highlights of the quarter was the completion of negotiations for the purchase of our European Jeanswear licensee, which closed in January, 2005.

We are very excited about this acquisition, which gives us a platform to significantly expand our European operations.

We see excellent potential in Europe where Guess? has a very strong brand recognition but a low penetration of apparel sales relative to the size of the market and sales of other Guess? products.

Our goal for this acquisition is to add approximately $100 million in revenues this year and to be slightly accretive to 2005 earnings.

During the quarter, we opened seven additional new concept stores, consisting of four Marciano and three accessory stores.

With these openings, we now operate five Marciano stores and six accessory stores.

While it is still early and we plan to continue to test and monitor the performance of these stores carefully, we are encouraged by the response that we're seeing.

These concepts leverage the name recognition of the Guess? brand and the reputation that we have for sexy, contemporary styling to extend our brand into new areas.

The Marciano brand is attracting a slightly older, more sophisticated customer, while the accessory stores are enabling us to build a more meaningful presence in this high-margin segment.

As you know, in addition to the Marciano stores, the Marciano line is also available in selected Guess? locations.

And it is performing well.

Currently, this product is offered in 121 of our 186 full-price retail stores.

We recently announced the signing of a new shoe license with Marc Fisher LLC to develop, manufacture, and distribute athletic and fashion footwear under the Guess? trademark in the United States and several countries worldwide.

We believe this is an important step in extending our presents both domestically and globally in Guess? footwear.

We see significant opportunity for this business to grow in our retail stores.

And through our joint efforts, we expect to be well-positioned to fully realize the great potential of the Guess? brand in the worldwide footwear market.

In sum, we are excited about the progress we made in 2004.

Both our financial performance and the many initiatives that have been put in place pave the way for future growth.

We're committed to delivering on these opportunities and to seeking out additional avenues to further improve operating performance, increase margins and drive long-term growth.

Now turning to our results -- we announced today that for the fourth quarter ended December 31, 2004, Guess? reported a total net revenue increase by 12.4 percent to $224 million from 199.3 million in last year's fourth quarter.

The higher sales reflect improved performance in our retail stores, increased revenue in our international wholesale business and growth in our licensing business.

By segment, our retail stores including full price retail, factory outlet, Canada and e-commerce generated net sales of $172 million during the fourth quarter, an increase of 11.5 percent from 154.2 million in the prior-year fourth quarter.

The increase was driven by the comparable store sales increase of 4.4 percent and a larger store base, which represented a 6.4 percent increase in average square footage as compared to the same period last year.

As I mentioned, earnings from operations for the retail segment decreased for the quarter to $24.2 million from 25 million in the fourth quarter of 2003, a 3.1 percent decline.

This decline was driven by lower gross margins due to the competitive retail environment in the fourth quarter and higher costs associated with the roll out of our new concept stores and the Marciano brand.

In young contemporary, denim bottoms, dresses, sweaters and outerwear all performed well.

However, the increases in these categories were not sufficient to offset the weak performance in fashion bottoms, which had been strong for the past few seasons.

And the overall performance for this line did not meet our expectations.

As I previously mentioned, the Marciano brand, our contemporary line that commands higher price points, performed well in our stores in the fourth quarter with strong sales growth in the period.

Our men's business has continued to perform well, in line with the trends of the past few quarters.

We saw good performance in our denim bottoms, as well as knit tops, sweaters and outerwear.

The accessories category continues to be a strong performer.

However, the growth rate of this category moderated during the fourth quarter relative to earlier periods in 2004.

We ended the fourth quarter with a total of 287 stores, including those in Canada of which 186 were full price retail, 86 were factory outlet stores, 4 were kid stores and 11 were new concept stores.

This compares to 265 stores a year ago.

During the quarter, we opened 4 retail stores, 7 factory outlet stores, and 7 new concept stores.

In our wholesale operations, fourth-quarter 2004 revenues increased 15.9 percent to 39.6 million from 34.2 million in the same period in 2003.

The increase was driven mainly by growth in international wholesale revenue of $4.6 million, representing a 45.5 percent increase.

Domestically, our products were sold in approximately 930 doors at the end of the fourth quarter of 2004 versus approximately 850 doors a year ago.

Earnings from operations for the wholesale segment improved by $2.9 million in the fourth quarter of 2004 to a loss of $400,000, compared with a loss of 3.3 million in the 2003 fourth quarter.

This improvement was driven by improved gross margins in our domestic wholesale business.

In terms of trends, our domestic wholesale business saw solid performance from premium denim, logo tee-shirts and non-logo sweaters in our young contemporary line.

The men's line had improvements in the denim business, both fashion and basic.

The growth of our international wholesale business was driven by strong performance in handbags in Europe.

As I mentioned, we believe the European market offers significant opportunity for growth.

And with the steps that we have taken, we look forward to capitalizing this potential as a means to continue the improvement we have seen in wholesale segment's results.

Our domestic wholesale backlog as of February 12, 2005 was $42.5 million compared to 39.2 million as of February 14, 2004 or up 8.5 percent.

Now turning to our licensing segment, this business continues to perform well with fourth-quarter net revenues of $12.4 million, an increase of 1.5 million or 13.7 percent from the fourth quarter of 2003.

Operating earnings increased to 9.5 million from 9.1 million in last year's fourth quarter.

This growth was driven by our domestic licensee as a result of the strength of our accessories business.

Our foreign license business for the quarter was about flat with the prior year.

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

Fred?

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 fourth quarter 2004 compared to the same period last year.

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

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 fourth quarter ended December 31, 2004, Guess? reported net earnings of $14.9 million or diluted earnings of $.33 per share.

This compares the net earnings of $11.8 million or diluted earnings of $.27 per share for last year's fourth quarter.

The 2003 results include restructuring impairment and severance charges of $1.6 million or $900,000 net of tax, representing $0.02 per share.

As Carlos mentioned, net revenues for the fourth quarter increased 12.4 percent to $224 million from $199.3 million in the 2003 fourth quarter.

Overall, gross profit for the 2004 fourth quarter increased 16 percent to $88.4 million from $76.2 million in the fourth quarter 2003.

Gross profit margin increased to 39.5 percent of the fourth quarter 2004 from 38.2 percent in the same period of 2003.

This 130-basis point improvement was driven by improved margin in our wholesale business and higher licensing revenue partially offset by lower margins in our retail segment.

The improved margins and wholesale reflect better performance in both our domestic and international wholesale business.

The decline in retail margins reflects the competitive fourth-quarter retail environment, as Carlos previously mentioned.

We expect that SG -- we reported that S&A expenses for the fourth quarter were $62.3 million, an 18.9 percent increase from last year's $52.4 million.

The SG&A rate this quarter was 27.8 percent of net revenues, a 160-basis point increase from our SG&A rate in the same quarter in 2003, which represented 26.2 percent of net revenues.

This higher SG&A rate reflected lower expense leverage on sales growth in our retail and wholesale businesses, primarily due to the rollout of our new retail concepts and the launch of the Marciano brand, including increased advertising spending during the quarter.

SG&A dollar increases were due primarily to higher levels of advertising and store selling compared to the prior year.

Earnings from operations improved by $3.9 million or 17.4 percent to $26.2 million in the fourth quarter of 2004 compared with earnings from operations of $22.3 million in the 2003 period.

The wholesale segment improved its earnings from operations by $2.9 million or 85 percent, reflecting improved gross margins and revenue growth.

The licensing segment increased earnings from operations by $400,000 or 4.8 percent.

Corporate overhead declined in the fourth quarter of 2004 to $7.1 million from $8.5 million in the 2003 fourth quarter.

Interest expense for the fourth quarter 2004 was $1.3 million compared to $1.6 million for the 2003 fourth quarter, reflecting the lower debt levels in the period.

Compared to a year ago, we have lowered our debt level by $13.3 million and increased our cash position by $38 million.

We closed the quarter with $82.3 million of inventory compared to $83.5 million at the end of the 2003 year-end, in spite of operating an average of 20 more stores in the fourth quarter and our 4.4 percent same-store sales growth in the period.

For the year ended December 31, 2004, the Company reported net earnings of $29.6 million or diluted earnings per share of $0.66 versus net earnings of $7.3 million or diluted earnings per share of $0.17 in the comparable 2003 period.

The 2003 results include restructuring impairment severance charges of $2.4 million or $1.4 million net of tax, representing $0.03 per share.

Earnings from operations for the year ended December 31, 2004 was $55.5 million.

This compares to earnings from operations of $20.6 million in the year-ago period including the $2.4 million charge.

Total revenues for the year increased by 14.6 percent to $729.3 million compared to $636.6 million for the prior year.

In addition, capital expenditures for 2004 were $27.3 million.

I would now like to turn the call back to Carlos to review the growth initiatives underway and our outlook for 2005.

Carlos?

Thank you, Fred.

We are pleased with the 2004 financial results.

But at the same time, we believe that there are still significant opportunities to enhance our operating performance, increase margins and drive long-term growth.

I would now like to discuss some of the initiatives that we have identified for 2005.

I will then provide an update on our financial expectations for 2005.

As I mentioned earlier, the initial results from our new Marciano and accessory stores have been positive.

During 2005, we will continue to test and refine these concepts.

Additionally, we plan to selectively add locations and expect to open an additional seven Marciano stores and five accessory stores during 2005.

We have also touched on the exciting opportunities we have in Europe.

We believe we are in a strong position to consolidate and expand our presence in Europe using our existing business, Guess?

Italian, and our newly acquired Jeanswear licensee as platforms.

This acquisition not only significantly expands our wholesale business but will also increase Guess?'s retail presence in the European market with the acquisition of ten stores.

Our licensing business should benefit from two new licenses this year.

Our new shoe licensee, Marc Fisher, formerly Nine West, should start shipping product in the second half of 2005.

Our new fragrance licensee, Parlux, will start up in the fourth quarter of 2005.

These are strong partnerships.

And we look forward to their contributions in realizing the potential of the Guess? brand in these categories.

In our retail business in the U.S. and Canada, we are continuing a strong denim cycle, which represents our core competency of Guess?.

Sales in this category are planned to be up about 25 percent versus 2004.

In 2005, we will continue to focus on operating improvements that increase the efficiency of our business and reduce cost.

Some of these more significant operating improvement initiatives include expanding our Hong Kong office to allow us to source directly from factories and move quality control and other production functions upstream to reduce development costs and improve development cycle time.

Increasing inventory turns through improved systems, better planning and logistics execution and achieving further cost savings from the reduced storage expenses and improved productivity.

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

We plan to open a total of 24 new Guess? stores in 2005, consisting of 11 full-price retail and 13 factories stores in addition to the 7 Marciano and 5 accessory stores that I mentioned earlier.

This brings total store development for 2005 to 36.

We are also remodeling about 24 stores this year, relocating approximately 5 and plan to close approximately 5 stores during the year.

Capital expenditures for 2005 are expected to be $35 million.

And depreciation and amortization is planned at about 34 million for 2005.

Based on the business trends and our plans for the next year, we expect -- I'm sorry, for this year, we expect 2005 comparable store sales in our retail stores to increase in the low to mid-single digits on a percentage basis over 2004.

We expect total retail sales to increase in the mid to high teens on a percentage basis including -- sales from the 36 new stores planned in the U.S. and Canada for 2005, the contribution from the 34 stores that we opened in 2004 and sales from the 10 stores that we are acquiring in Europe.

In the wholesale segment, we anticipate overall revenues to increase about 55 percent in 2005 versus last year with the acquisition of our European Jeanswear licensee accounting for more than 90 percent of this increase.

In our licensing segment, we expect that licensing revenue in 2005 will be slightly lower than in 2004 before eliminating the royalties generated by our newly acquired European operation.

After the elimination of such royalties, we anticipate overall licensing revenue in 2005 to decline in the midteens on a percentage basis from 2004 levels.

In addition to the acquisition of our European Jeanswear licensee, licensing revenue will also be impacted by the transition to our new shoe licensee and the launch of the new fragrance line, both of which we discussed earlier.

Overall gross margin percentages are now expected to improve by approximately 40-basis points in 2005, primarily reflecting improvement in the retail business from last year's levels.

We expect SG&A to be flat, as a percentage of revenues, in spite of the nearly 25 percent increase in SG&A dollars -- approximately two-thirds of which is due to our European acquisition.

We expect average inventory levels for 2005 to increase approximately 10 percent over 2004 levels due primarily to our European acquisition as well as the increase in stores and sales growth in the U.S. and Canada.

Interest expense is expected to be about $7 million in 2005, and our tax rate to be approximately 41 percent for the year.

During 2005, the accounting rules for the treatment of stock options will change.

And we require expensing of stock options beginning midway during the year.

If these rules had been adopted for all of 2004, the effect on the financials would have been about $0.03 per share.

I will now provide you with our quarterly view of our business.

Comp sales are planned to increase in the low-single digits on a percentage basis in the first half of 2005, as compared to the first half of 2004, and in the mid-single digits in the second half.

We anticipate that comp sales will be stronger in the first quarter of 2005 than in the second quarter of 2005 due primarily to the shift of the Easter holiday from April to March.

In addition, we see opportunity in our business that should result in fourth-quarter 2005 comp sales being stronger than third-quarter 2005 compass sales.

We anticipate total retail revenues to increase in the mid to high teens on a percentage basis in both the first and second halves of 2005 over the corresponding periods of 2004.

Wholesale revenues are expected to increase about 65 percent in the first half of 2005 versus the first half of 2004 and by about 45 percent in the second half.

Licensing revenue is planned to be down in the midteens on a percentage basis in both the first and second halves of 2005, as compared to the first and second halves of 2004.

Overall gross margins are forecast to be up about 20-basis points in the first half of 2005 versus the same period of 2004 and up about 60-basis points in the second half.

SG&A as a percentage of revenue in both the first and second halves of 2005 is expected to be flat with the corresponding periods of 2004.

Before we open the call up for questions, let me reiterate our excitement about the future opportunities for Guess?.

We feel good about the progress we made in 2004, and we believe that we have laid a strong foundation for the future.

We have a series of strategic initiatives underway that we believe will contribute nicely to future sales and earnings growth.

And as always, our team is focused on maintaining our fashion leadership and serving our core customers, consistent with the image that we have honed over more than 2 decades.

Our balance sheet is strong, and we will continue to run our business with financial prudence and discipline.

As always, we thank you for your interest and support.

Operator, let's now open up for questions.

(OPERATOR INSTRUCTIONS).

John Rouleau, Wachovia Securities.

A couple of questions -- you talked about the inventory a little bit being up 10 percent.

And I know you are planning some nice denim increases as the year progresses here.

So, I mean -- what other categories are you kind of scaling back and how should we think about the flow of inventory?

Maybe you don't have to quantify it, but how should we think about the flow of inventory as the year progresses?

And what is being scaled back given the increase in the denim side?

John, the increase in inventory is primarily a result of the acquisition of the European licensee.

So, all that inventory was in the licensee's books in the past.

Now we are owning that business, so obviously inventories are going to be increased to fund and support that business.

And that business is primarily wholesale right now.

So this growth that we expect is going to follow that cycle -- the wholesale cycle, which is slightly different than the retail cycle, okay?

Now once you take that out of the equation, we ended the year very, very clean -- the cleanest I have seen inventory since I have been with the Company -- and at a very low level.

So we are very pleased with that.

And we intend to improve inventory turns this year.

So we intend to keep it very -- as low as we can without missing sales.

And we think that we have a good plan to be able to accomplish that and still deliver the target sales that we have.

So I think that in terms of categories, you are right.

We are planning denim up 25 percent.

But we have been able to reduce development cycle time.

And we're very fast in the development of denim.

So that does not necessarily imply that we are going to have a proportionate increase in inventory.

Right now, we do have a better inventory in denim that we did a year ago in terms of increase and assortment.

And we have funded that in spite of the overall reduction in inventory with -- just being faster and keeping a lot of finished goods and inventory very low in the warehouse.

Great.

And then, maybe I could just -- a follow-up real quickly.

I mean we are in a denim cycle; you guys are obviously known for denim.

We have had strong denim cycles in the past.

During a cycle like this, how much has denim typically or historically represented as a percentage of sales?

What would you expect to really drive denim to as a percentage of the mix?

And maybe -- where had it been the last couple of years?

Well, really if you think about low-single digits growth on a same-store basis -- just to give you -- and a similar type of trend for the wholesale business.

And you think that denim is going to grow by 25 percent, obviously the penetration is going to grow proportionally.

We have -- our denim business, I think, is perceived to represent more than our total business, more than other categories.

And I think that people are surprised when we share with them that that number is about one-fourth of our total business.

We think that there is a lot of opportunity here for significant growth.

But that being said, we are not just relying on the denim growth to drive our business.

We have many other initiatives on other fabrications, which we think are going to be very strong.

This past year, you may remember, in the fall, we lost an entire program of corduroys and that hurt our fall sales pretty significantly -- back to school.

We have great initiatives coming in this year with other fabrications than denim in addition to our denim investment.

Of course, we are capitalizing on the trends and on the cycle of denim, but we are not just relying entirely on that category.

And we think that there is going to be a lot of business being done in other categories this year.

So we're looking for to that. 2 years ago, we had tremendous growth in our pants business, both women and men's with non-denim categories.

And we think that we can go back to that.

Yes, got it.

Okay, I have a couple more but I'll hop off and jump back into the queue.

All right, John.

Dorothy Lakner, CIBC World Markets.

Just a follow-up on those questions in the bottoms category -- Carlos, I think you have talked about higher price point denim, since Guess? obviously has a very strong reputation in denim and as an innovator in the category.

But clearly, we are seeing lots of purchases of pretty high-price point jeans out there.

So will that push the overall AUR up this year as you bring in more of that?

And then just a little clarity on kind of where you see the composition of bottoms?

Are we going to see denim represent a majority of the bottoms category?

How should we look at that?

And then, another question just about the Marciano business -- will you be expanding that into other Guess? stores this year in addition to the separate Marciano stores that you are opening?

Okay, sure Dorothy.

Well, with respect to the denim and high price, we definitely move prices up pretty significantly in our case.

And I think that we are learning about lack of resistance when the product is right to pricing.

And we have had tremendous success with many of the styles that were introduced to the line.

That being said, we still believe that there is a customer there that is also looking for a quality product and a lot of value at lower price points, below the $100 or so.

And we did move our prices up in opening price points as well.

We are fine-tuning that assortment; we think that there are opportunities there that we could be capitalizing on a greater scale.

And we will be introducing some new styling that will represent those lower price points.

But when I say lower, I am talking about $79.

With respect to --

Higher opening price points in the last year.

Yes.

Okay.

And with respect to your question about the average unit retail -- obviously, we do expect that to push average unit retail up for the category.

And we have been seeing that for a couple of months now -- or a few months.

Now with respect to the competition, as I said before, while we expect denim to be a great category for us to invest in and drive growth because we also think that to women -- we made some opportunities last year due to several reasons.

One of them is product delays; we had issues with some production.

We had some other issues with how we planned the category and how we funded inventory.

So we have addressed all those.

So we still see significant growth opportunity there.

But that being said, like I said before, we do have a lot of other fabrications that are going to be part of the assortment and the line.

And we are very excited about those opportunities as well.

So the composition, I think that if you went to the stores in December and January, you probably saw very little of non-denim fabrications on the floor, especially in women's.

And we think that penetration, that participation, that presence is going to change, especially as you go into the back-to-school season.

With respect to your other question on Marciano, Marciano is aligned at (indiscernible) in over 120 of our full-price stars.

And frankly, we have gone the other way.

We took it out of some stores because we didn't think that the space was utilized to the fullest, considering the customer that was present in those markets.

So we are trying to keep the distribution of the Marciano brand to an optimum level, meaning we are going to keep it -- where it can sell extremely well, where that customer is very present, and where there is that appetite for that type of product, which is much more sophisticated than the assortment that we have in the YC, the young contemporary line.

So I don't anticipate that we will see Marciano product in more of our Guess? stores right now.

Now obviously as we open the new stores, we will consider those markets as participants (ph) and if the markets are right, we will definitely put Marciano product in those stores.

Melissa Mulikin, Piper Jaffray.

Congratulations on a very nice end to the year.

I'm going to apologize in advance, I am at the airport.

So, it could be a little loud here.

My question is about Marciano specifically.

I'm wondering -- is the customer response to the Marciano product in the Guess? stores versus the stand-alone stores, are you seeing a difference there in terms of -- first of all, price resistance and second of all, how willing they are to accept edgier fashion?

And number two, you talked about pulling Marciano out of some of the Guess? stores.

Are you seeing that as a regional phenomenon?

Or is that a demographic phenomenon?

How would you characterize that?

No, it is not a regional phenomenal at all.

It is on a case-by-case basis.

But let me address your other two questions.

With respect to price, no, we are not seeing a difference in that respect.

The Marciano stores have a different assortment.

You have much more floor space that is devoted to the brand.

So the assortment is wider than what you see in the Guess? stores typically.

And yes, we do see pretty similar sell-throughs.

But it is very difficult to tell because we only have a few stores.

So it is very difficult to call that a strength.

And that applies to the fashion question you had as well.

Erin Moloney, Merriman Curham Ford.

I have just a couple of quick question.

One, I was wondering if you guys could talk at all about -- I realize it is early in the season, but kind of the early response you are seeing to your spring merchandise in retail?

Well, I think that the only comments that we have made related to what we release for the month of January -- and obviously spring merchandise was on the floor for that period of time.

And we saw good responses to a lot of the product, a lot of the selection.

With respect to the current month, we're not going to make any comments.

We are in the middle of the month, and as you know, there's a shift this month on the calendar with President's Day falling this coming weakened versus a year ago, it fell the past weekend.

But overall, we are very pleased with the progress that we have.

If you have an opportunity and see the stores, you will see that the colors are great.

The fabrications are great.

Our denim selection is absolutely the best that we have seen in a long, long time.

And that applies to both men and women.

Okay.

Great.

And then just one question quickly on wholesale -- it looks like you did have some door growth in the quarter.

I was wondering if the sales increased, how much of that was coming from the door growth?

And then how much is coming from kind of performance in existing locations?

Well the sales increase in our wholesale segment overall came primarily from international wholesale sales, okay?

Now, domestically, we did not have significant growth.

We did have more doors in operations than a year ago.

So obviously, that is contributing to some of the growth.

And the big issue here is that what we report to you is what we sell to the retailers, as opposed to what they sell in own doors on a comparable basis.

So we do not report and disclose that kind of information about what they did with the product on a same-store basis.

Vera Van Ert, Wedbush Morgan.

I have a quick question related to the anticipated 40-basis point improvement in gross margin this year versus last.

Can you quantify that a little more -- elaborate a little more on to how much is this going to come from the opening of your new Hong Kong sourcing office and how much through your new systems?

Yes, we have not accounted for any improvements in the sourcing costs.

Obviously, this is something that we do on an order-by-order.

We do expect that office to contribute greatly in the future.

But the 40-basis point that we are talking about is primarily in the second half of the year.

Last year, we feel that we missed margins significantly, especially in the fourth quarter.

And we think that we can we recoup a lot of that, especially with an improvement in inventory turns and a better selection of products.

With respect to -- and so most of the improvement we think is going to be in the retail side.

Okay.

And then -- so the Hong Kong office, that is going to be an added on layered benefit kind of in the out years -- maybe an '06 type of issue?

Right.

But you have to consider, Vera, that we are going to be in the start-up mode this year.

And we have to increase our level of investment there.

Because obviously, we have to fund the operation, as we transition a lot of the volume from the other sources.

So it is going to take some time.

But yes, definitely, we see tremendous improvement for that.

Great.

And then one maybe follow-up question -- can you talk about maybe or elaborate a little more on the categories specifically at Marciano that are performing well for you?

I have to say that we had very good success with the entire assortment overall.

Even denim has performed very well.

A lot of the tops sold extremely well.

Dresses did well.

We had a lot of outerwear.

Across the board, a lot of the categories performed very well.

And of course, we are comparing with a much lower level of investment in inventory a year ago for that category.

So a lot of whatever sales we produce in each of the categories was a -- represented an increase over the year before.

Let me just add -- you asked about sourcing.

I think that when we think about the Hong Kong office in our plan, I think that the significant benefits should start in the year 2006.

This year is going to be more of a transition year.

And Dorothy, to your question from before, something I should have responded with -- is that in many of the stores that we pulled Marciano out, it was because we were opening Marciano stores within the same mall.

A good example is McAllen, Texas.

We feel pretty good about when this happened.

Dallas Galleria is another good example.

We saw that the Guess? store continued to perform well.

And the Marciano stores, as we said before, have performed in line with our expectations.

So I think that keeping the Marciano product in our Guess? stores is a great way of continuing to introduce this product and this brand to the marketplace.

But at the same time, when we have an opportunity to open a Marciano store and we move the product from there, we have plenty in the assortment of YC to complement and continue to drive good sales in the existing Guess? stores.

Connor McLaughlin, JLF Asset Management.

Hi, Connor had to step away.

Just to clarify the '05 guidance -- did you say that for wholesale, we should expect revenues 55 percent versus the 163 million 2004 number?

And for license, should we be down midteens for '05 versus the 47.2 million 2004 number?

Thank you and congratulations on a good quarter.

Yes, the number, I think I reported today for the wholesale operations, was revenues of 163.2 million.

And yes, the guidance that we're giving you is over those numbers.

And same thing is for licensing -- that number was 47.2 million.

So, again, the guidance on the midteens is based on that number.

John Curti, Principal Global Investments.

Prior to the acquisition of your European licensee, how many wholesale doors were you in?

I think that the number for last year was about 830.

A little higher than that.

How many?

About 850.

850.

I'm talking on the international side, not domestically.

No, we are not providing that kind of numbers.

Internationally, you know that in Europe, a lot of the wholesale businesses with their specialty stores, other stores -- so there are literally thousands.

So we do not provide that kind of number.

All right.

What was your total wholesale international revenue then?

It was 4.6 million for the fourth quarter?

What was it for the year?

We do not disclose international wholesale numbers separate from domestic.

So, all the numbers that we are disclosing are for the total segment.

I thought you disclosed that international was up 45.5 percent to 4.6 million for the quarter wholesale?

Yes, that is correct.

What about for the year?

Can you disclose that?

Yes, let us reach for the number, and we will come back to you.

And then on the acquisition of you licensee -- that will be reported within the first-quarter financial statements?

Exactly.

Can you say what the purchase price was at this point?

No, we have not disclosed that number.

The number is being worked because a lot of the purchase price consideration was subject to year-end and the year-end financials.

And that is being done right now.

Is it mainly going to be for cash?

Well, no, we assumed some debt.

And there are some considerations for the acquisition of the stores that would involve some cash payout.

Okay, that is it for now.

Thank you.

Thank you, and we will come back to you with the number.

John Rouleau, Wachovia Securities.

Just a follow-up to the Marciano question and putting that in the stores, taking it out of the stores -- if I heard you correct, Carlos, it sounds like when you take Marciano out of the full-price stores, you're not seeing a meaningful decline in the full-price stores?

Does that mean you didn't see much of an increase either when you put Marciano in those stores?

I am just trying to --

No, first of all, Marciano -- the initial selection of stores pretty much include all the stores where we had Guess? selection in the past with some fine-tuning.

So we had Marciano from the beginning in all the stores, okay?

With respect to your first question, as a matter-of-fact, we did not see any decline whatsoever when we removed Marciano.

We saw the increase for that particular market because of the Marciano sales.

And we saw the existing Guess? store to continue to perform pretty much in line with the trends that we had seen before for the same stores.

Got it.

So is your theory or your speculation that that is just attracted to customer and that maybe -- wasn't shopping the Guess? store previously and now continues to buy GUESS product versus Marciano?

What is the thesis there?

Frankly, I think that this consolidates and confirms the vision for the brand, which basically addresses a slightly different customer.

And it is incremental to our existing business and Guess?.

I find those results great.

This is part of the test that we wanted to run.

Back to the earlier question on international wholesale revenues -- for the year 2004, international wholesale revenues were $73.8 million and that compares to 53.6 million in 2003.

John, I think that it is important to note too that what we have seen -- I'm sure you saw in the Marciano stores -- is a full packaging for Marciano that introduces the brand at a much higher level.

We have special sales associates.

We do everything special for that product and for the brand.

And it has been very effective.

Marciano as a brand -- that performs better in its own environment.

That has been the vision that Maurice and Paul had from the beginning.

That's why we needed to extend the brand going to a different brand, as opposed to Guess?.

And I think it has been very effective.

Regarding the $100 million in Europe jean sales that you are kind of anticipating.

Have you disclosed what the number was last year?

What type of increase that is?

No.

We have not.

It is safe to say that that is a fairly conservative number that you're putting out there?

I mean --

It is a number that we think is reasonable, and we feel comfortable about.

I think that considering the size of our other business in there, and I am talking about primarily small leather goods handbags, I think that this number is very reasonable.

And this is just the beginning, considering the presence and penetration we can have there.

And then last question really goes back to the promotional environment.

Inventories have been pretty good at retail all year long.

And then we entered the fourth quarter feeling pretty good about the promotional environment.

And then all heck broke loose, and everybody got real promotional.

So my question is kind of going forward -- what is your take on the current environment?

Obviously, the volumes right now are not anything near the fourth quarter.

But I mean -- is this likely in a couple of months if spring goods do not turn at the rate that people expect?

Are we going to get real promotional again?

What is your sense about that?

Well, our inventory position, as I said, before very conservative today.

We monitor this daily.

That being said, I have to say that what I have noticed is -- when you have a product that is not selling at the rate that was planned to be selling, we have to go a little deeper in price to move it.

But that being said, we already considered all that in the guidance that we gave you.

And that is why -- assuming that we keep inventories in plan and we make our sales plan as we discussed, the improvements in margins should be there.

Michael Quilley (ph), Clover Partners.

Could you talk a little bit about the footwear opportunity in 2005?

And that license -- the license guidance that you gave -- does that include anything from the Marc Fisher deal at all?

Yet it does, but that product is being introduced.

He is going to start shipping in the second half of the year.

And this is in transition.

We did have a shoe licensee last year.

So those sales are going to compensate for the sales that we had last year.

That licensee is phasing out this year.

With respect to the opportunity, we think that this is very big.

We think that shoes, as a percent of the total business, is very underpenetrated in our business.

And I think that in the past, it was much higher.

And then over the years, we lost some of that penetration, as the rest of the business grew and shoes did not grow concurrently.

So we are very excited about this.

He has a super team.

He has a lot of talent, a lot of experience in this industry.

And we think that he understands our customer very well.

So we are very excited.

But you are not going to see a significant contribution until we have his full line, which is into the third and fourth quarters.

Dorothy Lakner, CIBC World Markets.

Just a follow-up on the footwear question -- how big a category has that traditionally been for Guess? just as a percent of the mix?

Very small -- very small and you know we think that typically shoes and handbags are kind of correlated in other businesses, okay?

And we think that considering the size of our handbags business, if we had a very compelling collection of shoes, we think that there is tremendous opportunity for growth there, Dorothy.

This is just in our own stores.

That on top of that, of course, he has the license to sell on a wholesale basis that would impact our royalties as well.

Right.

And handbag accessories business overall historically?

Well, we have said in the past that it represents about 15 percent of our business, but it has been growing in the retail stores again.

Okay and then just a second question -- in terms of wholesale doors domestically, will we see any growth in '05?

We have not disclosed that.

We think that there are opportunities there, yes.

Ben Brownlow, Morgan Keegan.

Hey, congratulations, great quarter.

Most of my questions have actually already been answered.

But I guess just one clarification -- opening price points on the denim -- are they going from 59 to 69 -- or 59 to 79?

No, our opening price points have been increased.

We were not talking about just opening price points.

But now, you're going to see some semiantare (ph) jeans.

Okay.

Yes, and wholesale -- that number is 69 now.

It was 58 last year.

Okay.

That is clear.

(OPERATOR INSTRUCTIONS).

Christine Chen, Pacific Growth Equities.

Congratulations on a great quarter, guys.

The kids' stores -- those 4 kids' stores that were open at the end of last year, are they going to be closed by the end of this quarter?

Not necessarily -- the first quarter we have two of them already closed.

And really the only reason why they are open still -- as we're working with the landlords in -- is a case-by-case basis.

But we expect that only one is going to remain open by the end of the year.

And there appear to be no further questions at this time.

All right.

Well, I just want to say that again we're very excited about our opportunities.

We thank you for your interest in Guess?.

We look forward to keeping you updated on the progress in the future.

Thank you again.

This does conclude today's conference.

Thank you for your participation.

You may now disconnect.