Guess? Inc (GES) 2008 Q1 法說會逐字稿

Good day, and welcome to Guess first quarter fiscal 2008 conference call.

Before we get started, I would like to remind you of the Company's Safe Harbor language, which I'm sure you all are familiar with.

The statements contained in this conference call, which are not historical facts, including statements regarding future plans and guidance for current and future periods may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those suggested in such statements due to a number of risks and uncertainties as described in the Company's most recent annual report on Form 10-K and other filings with the SEC.

Now for opening remarks and introductions, I would now like to turn the call over to Paul Marciano, Chief Executive Officer of the Company.

Please go ahead.

Thank you.

Good afternoon, and thank you for joining us today to discuss Guess financial results for the first quarter of fiscal year 2008.

With me today are my brother, Maurice Marciano, Carlos Alberini and Dennis Secor.

In the last seven years, we have completely changed our business format from U.S.

wholesale and an international licensing business to a retail direct operation in North America, Europe, and Asia and some of the strongest accessory line licensing in the world today.

All this is consistent with our strategy to keep control of our brand and destiny.

Once again, we continue our trend of an outstanding performance and record result in first quarter.

We reported record revenue and record earning for the quarter.

Earning per share was $0.38 versus $0.23 last year, an increase of 65%.

Overall, operating profit increased 69% to $58 million.

Net earning reached $35.5 million, a 72% increase over the last year earning.

This outstanding performance was driven by global sales growth of 42% in the quarter to $378 million, a record for any comparable period in our company history.

This is our 15th consecutive quarter with double-digit increase in our net earning.

All of our Guess business division around the world performed very strongly improving top and bottom line performance.

I'm pleased to report that our earnings from operation once again resulted in a great balance geographically diversified brand portfolio earnings stream for the quarter.

Earning were divided for the quarter as follow: 40% North America retail and wholesale and 60% for Europe and licensing.

For the last 12 months ending May 5, 2007 earning were divided as 48% North America retail and wholesale and 52% for Europe and licensing.

Our first quarter result not only clearly reflects the vitality of the Guess brand across all region and category, but also reflect the execution of our global strategy with discipline and consistency.

Let's start with our retail business in North America.

Our product performed very well and we achieved comp sales growth of 13.6% on a top of 12.6% last year for comparable period.

That was our 17th consecutive quarter of positive comp.

Total retail revenue increased 19% in the period.

During the quarter, all of the product category outperformed our goals with the highest percentage increase recorded by our men's and accessory line.

The growth of our men's business was driven by strong performance in knit and woven top, while the watches, handbags, and shoes were the best performers among our licensed product.

Our woman business also performed well both in young contemporary line and Marciano.

Our business in Europe continued to perform well and now with the Guess by Marciano business in-house, we grew revenue by 77% comparing to a year ago, the highest revenue growth for any of our businesses.

Our casual apparel business in Europe was strong with excellent performance across key categories such as denim, outerwear, and knitwear.

We also continue to enjoy great customer demand to our Guess handbag and footwear (inaudible), and these drove significant revenue growth for the quarter.

Related to that, the Guess brand had another exceptional quarter in our licensing business division.

Sales through and penetration in our retail stores in North America continue to increase year-after-year.

In addition, the excellent acceptance of this line all over Europe, which I will address later, contributed to very healthy revenue increase of 42% for the quarter in licensing royalties.

Our total wholesale division revenue, which include North America and Asia, increased by 77.4% in the quarter.

North American wholesale business was strong in the first quarter and our Asian business exceeded our plan.

In the first quarter, we achieved several important milestone in our strategy to invest in infrastructure and grow our business on the global scale.

In retail, we launch our newest retail concept, G by Guess in April, and we now have 17 G by Guess stores open in U.S.

We have received very positive feedback on a new product assortment, the store design and the shopping environment.

We are on plan to open over 30 stores by the end of the fiscal year.

In total, we expect to open 40 new stores in North America by the end of the year across all different retail concepts.

We are pleased with the execution of international expansion strategy as well.

Outside North America since January 1, 2007 our partners opened 79 new stores outside U.S.

including Europe and 48 in Asia, including 12 shop in large department stores.

We're well on track to open 108 new stores we projected at the beginning of the year.

In Asia, we continue to build a Guess presence for retail and (inaudible) foundation for significant sales growth in the future.

I was in South Korea in March to launch our direct business in this exciting market.

We ended the quarter with 42 shops in large department stores and 26 freestanding stores for a total of 68 locations compared to 47 last year.

We feel we have a potential to grow this business to $120 million over the next five years.

In late April, we officially introduced a Guess brand to China with the opening of first flagship store in Shanghai.

We ended the quarter with 10 retail location open in China and we're extremely excited about the potential of that market.

We expect to open a total of 14 stores, accessories, and 14 apparel stores, including key location in Beijing, Macao, Hong Kong for a total of 28 stores by the end of fiscal 2008.

In respect to India, we also experienced major penetration.

We ended 2006 with 14 retail stores.

We opened four stores, new one on this quarter for total of 18 stores.

We plan to open another seven by the end of the year.

About Japan.

We are still planning to introduce Guess product line by April 2008 and we'll keep you posted on that.

Now, I will provide you a brief update of the three main global initiatives in our plan on the last conference call.

The first initiative was footwear.

As I mentioned, we see the (inaudible) potential as 3 to $400 million business long-term and it will remain one of the top priorities to expand that business across the globe.

In fact, Guess footwear revenues more than double this quarter against last year, exceeding our highest target both in U.S.

and Europe.

Our licensee, Mark Fisher, and his team are one of the best in the industry today.

We took a first step in March to open the first Guess footwear store in Paris.

We're planning to open another five in Europe this year with our partners, and in Southeast Asia, we're set to open nine footwear stores by the end of 2007.

In North America, we will open five to eight footwear stores in the next 12 months and we still expect to introduce our upscale line of Marciano footwear in the fourth quarter in U.S., Canada and Europe.

Our second initiative is the GC watches, the Guess Collection watches.

We have made our main focus on the watch category for 2007.

So far in the first quarter we've experienced strong demand for our new line of GC watches, especially in the men watch line.

We plan to double that business in 2007 in this watch category.

The quality design and Swiss-made product is putting our brand on a different scale of where we started with watches 23 years ago.

In Basil, Switzerland, the largest watch (inaudible) in the world we're introducing in April the limited edition of GC automatic watch for the first time ever at the price of over 1,000 euro a piece.

The entire production was sold out to international distributors within a day.

Through May, the GC watches business is already running 70% ahead of last year.

Handbags as a third initiative.

While we are on the subject of accessories, I would like to outline the success of the Guess handbag category.

This is our fifth consecutive year of double-digit growth of handbags.

The category continued to perform extremely well in the first quarter.

We were 91% increased in 2007 versus 2006.

Again, international accounted for a very large portion of this increase in sales.

As I've said many times, we believe that the world is our (field) in realizing that dream for global brand one day at a time.

We still believe today more than ever that Guess is one of the very few brand in the world which has such a unique and diversified business model as a complete lifestyle brand.

In conclusion also, our results once again come directly from the talent, passion, and hard work of our dedicated teamwork worldwide and Maurice and I want to thank them once again.

And I will pass that now to Dennis.

Thank you.

Thank you, Paul, and good afternoon.

As Paul mentioned, we enjoyed another record-setting period in the first quarter so let me share some of the outstanding financial highlights with you in more detail.

Total net revenues for the Company increased 42.3% to $378 million in the first quarter and, once again, all of our segments contributed to this growth.

With the addition of Focus Europe and very strong performance of the Guess brand, our European segment contributed almost half of the Company's revenue growth in the period.

Our North American retail business contributed more than a quarter of the growth fueled by our strong comp sales growth of 13.6% in the quarter, which followed 12.6% comp growth for the 13-week period ended April 29, 2006.

Gross margin for the Company was 44.3%, which represents a 270 basis point improvement over the prior year's quarter.

The relative growth of the Company's European business, which carries higher margin, coupled with better markdown controls and occupancy leverage in North America, drove this gross margin expansion.

In the first quarter our total SG&A expenses were $109.6 million compared to $76.3 million in the prior year's quarter.

About one-third of the increase relates to Focus Europe and our South Korea business where we now manage full P&Ls for those businesses.

We achieved improved leverage over SG&A investments in our wholesale, European and licensing segments.

We made additional expense investments in global advertising and in infrastructure to support our growing international businesses including Europe, China, and Mexico and in North America to support our new G by Guess concept.

We also made additional investments in our corporate infrastructure to support the growth of our businesses and in performance-based compensation, which includes the impact of the new accounting rules regarding stock compensation.

As a result, the Company's SG&A rate increased 30 basis points quarter-over-quarter.

For the quarter we increased operating profit by 69% to $57.9 million and expanded operating margin 240 basis points to 15.3%.

There was a total favorable foreign currency impact of about $4.4 million on this quarter's operating profit compared to last year's quarter.

The relative strength of the euro drove the improvement resulting in lower inventory costs and a more favorable translation of the European income statement into U.S.

dollars.

Also related to currency, other expense include the charge of $1.7 million associated with the periodic mark to market valuation of foreign currency contracts.

These contracts were put in place to hedge against potential currency fluctuations regarding inventory purchases.

Net interest income was $800,000 for the quarter compared to net interest expense of $200,000 in the prior year's quarter.

This improvement was the result of the repayment of our North American debt, plus higher levels of invested cash for the period.

Our tax rate for the quarter was 38.7% compared with 39.8% for the prior year's quarter.

The lower quarterly tax rate is primarily due to the reduced impact of permanent differences on the tax rate given the higher taxable income in the current quarter.

We are now planning fiscal 2008 with this 38.7% rate, which is 70 basis points higher than our previous expectations and resulted from our reassessment of permanent differences and earnings mix in the current fiscal year.

For the first quarter net income increased 71.9% to $35.5 million from $20.7 million and diluted earnings per share increased 65% to $0.38 from $0.23 a year ago.

Next, I'd like to review our revenues and earnings by business segment.

Our North American retail revenues increased 19% to $179.5 million in the quarter.

This growth was driven by the 13.6% comp sales increase and a 4% average square footage growth.

During the quarter we opened eight new stores and closed six underperforming stores in North America.

We managed inventories efficiently and customers responded well to our very strong product assortment.

We also controlled markdowns and gained leverage over store occupancy resulting in improved gross margins.

We launched our new retail concept, G by Guess, and made investments in infrastructure and advertising to support this important new concept.

First quarter traffic also improved in the period despite the challenging weather conditions in early April.

Retail operating profit increased to $19.9 million, a 45.3% increase over last year's first quarter.

Operating margin improved 200 basis points to 11.1% primarily driven by improved product margins and occupancy leverage, partially offset by the investments we made in advertising and in G by Guess, including the preopening costs associated with the conversion of existing stores to G by Guess.

We ended the first quarter with a total of 336 stores in North America which compares to 316 stores a year ago.

First quarter European revenues increased by 77.2% to $118.9 million from $67.1 million a year ago.

The addition of Focus Europe, our Guess by Marciano licensee acquired at the end of last year, complemented the strong performance in both our accessories and our European apparel businesses.

In addition, our company-owned retail business in Europe continued to show strong performance both in terms of sales growth and profitability improvement.

Operating profit for the European segment grew 63.6% to $27.7 million.

Operating margin was 23.3%, down 190 basis points compared to the prior year's quarter.

We had anticipated this change given the acquisition of Focus, which historically has yielded lower operating margins compared to our existing European businesses.

Our wholesale segment, which includes our Asian business, posted strong revenue growth and, again, expanded operating margins significantly.

In total, revenues for the wholesale segment increased 77.4% to $59.2 million.

We were in 953 doors in the U.S.

at the end of the quarter compared to 911 at the end of the prior year's quarter.

With the addition of South Korea plus better markdown controls in North America and improved leveraging of expenses, we almost quadrupled operating profit to $10.7 million this year, up from $3.1 million in the prior year's quarter.

Operating margin reached 18.1% for the quarter, almost doubling last year's 9.2%.

As Paul mentioned before, our licensing business continues to exceed our expectation with royalty growth of 41.5% in the quarter to $20.3 million, which includes the additional recognition of certain fixed cash rights payments.

Remember, too, that compared to last year we no longer receive licensing revenues from Focus Europe or for our South Korean operations as we now manage those businesses directly and they are not part of our licensing business unit.

Now some highlights from our balance sheet.

Once again, we ended the quarter with a very strong balance sheet.

Cash and cash equivalence increased by $33.9 million to $189.4 million compared to a year ago.

Accounts receivable increased by $80.4 million to $206.4 million compared to the prior year.

The increase in our receivables investment was proportionate to the significant growth in sales of our European businesses, which now includes Focus Europe, a new business.

Inventory at the end of the first quarter was $164.5 million compared to $108.2 million at the end of last year's first quarter, an increase of $56.3 million.

This again includes the additional inventory required to support Focus Europe and South Korea as new businesses.

We believe we are well positioned for the current selling season.

In the quarter we once again delivered strong earnings and cash flows and manage our working capital efficiently.

The power of our business model to generate cash along with effective working capital management has allowed us to fund all capital requirements and our dividend program internally.

This cash flow generation power coupled with the strong capital structure position us well for the future.

Before I hand the call over to Carlos, I want to reiterate that creating shareholder value continues to be one of the most important objectives for our company.

As we announced in the earnings release, our Board of Directors has approved the quarterly dividend of $0.06 per share, which will be paid to shareholders on July 6th.

And now I'll turn the call over to Carlos.

Thank you, Dennis.

Let me now provide you with an overview of our guidance for the second quarter and the current fiscal year.

Starting with North America and retail, we are very pleased with the performance of this business during the first quarter.

We feel strongly about our product assortment and market position, and we are confident in our plans for the upcoming months.

We will continue to grow our business in a controlled manner.

We don't want to be overconfident and we will continue to focus on expense and inventory levels with a goal of optimizing margin performance in every period.

Our sales strength have remained strong in May.

Accordingly, for the second quarter, we are raising our comp sales growth expectations to the mid to high single-digit range and now expect total retail sales to grow between 9 and 11% in the period.

We plan to continue to invest in advertising to support our retail business and in our infrastructure as we continue to roll out our new G by Guess concept.

For the second half of the year, consistent with previous guidance, we are planning retail comps in the low to mid single digits.

For the full-year, we now expect overall retail revenue growth between 9 and 11% and an operating margin of about 15%.

In the wholesale segment, we anticipate overall revenue to increase about 40% during the second quarter.

This growth will come primarily from our Asian businesses, especially from our South Korean operations, which will be fully incremental this year.

North American wholesale should also be up slightly for the quarter.

For the full fiscal year 2008, based on the strength of our wholesale business, we are raising our wholesale revenue growth expectations to a rate of between 35 and 40%.

We expect operating margin in the wholesale segment to be about 16% this year.

In Europe, we are planning revenue growth for the second quarter of between 90 and 100%, which includes Focus Europe.

This very high rate of growth assumes the early shipment of accessory product in the period which traditionally would have been shipped in the third quarter.

For the full fiscal year 2008 we are increasing our revenue growth expectations to a range of 50 to 55% and continue to expect an operating margin for this business in excess of 20%.

As Paul shared with you earlier on the call, our licensing segment continues to deliver outstanding results that have exceeded our expectations.

We experienced significant organic growth across our major product categories, particularly in our handbag and footwear line.

For the second quarter, we are planning this business with revenue growth between 10 and 12%.

For the full-year, given the strong performance in the first quarter, we now expect licensing revenue to grow in the low teens versus our previous expectations for a low single-digit increase.

Again, this increase is net of the impact of the Focus acquisition and our South Korean business and it includes the additional recognition of certain fixed cash rights payments.

We continue to expect capital expenditures for the full-year to be about $85 million net of tenant allowances and now we expect depreciation and amortization to be about $46 million.

Taking all of these factors into consideration, we are now raising our expectations for consolidated results for the second quarter of fiscal 2008.

We are increasing our expectation for revenue to a range of $335 million to $345 million, operating margin of about 14%, and diluted earnings per share in the range of 31 to $0.33 per share.

Today we announce that for the five-week transition period ended February 3, 2007 our revenues totaled $136 million.

Net earnings were $8 million and diluted earnings per share were $0.09, better than our previous guidance of 6 to $0.07 for the January 2007 period, and a significant improvement over January 2006 when we just broke even for the period.

These results are relevant to assess this year's fourth quarter expected performance.

Taking these results and our first quarter performance into consideration for the full-year 2008, we are now raising our expectations for consolidated revenues to a range of $1.510 billion and $1.560 billion, operating margin to be about 17.5% and diluted earnings per share in the range of $1.75 to $1.80 per share.

Thank you very much.

And with that, I think we are ready to open the lines for your questions.

Operator?

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Jeff Klinefelter with Piper Jaffray.

Please proceed.

Yes, congratulations, everyone, on another fantastic quarter.

Thank you.

Thank you, Jeff.

Thank you, Jeff.

Great to see.

Just a couple of questions.

One would be on the Marciano Europe, or Focus acquisition.

I know you've been talking consistently about, at least in the first year, it being slightly dilutive to op margins and as we see that showing up in the 23.3.

I'm just curious if you could provide some guidance as to what you think the sort of dilutive impact will be for the year in total.

And kind of is there any seasonality to consider here by quarter?

And then put another way without Focus, what was the European wholesale op margin in Q1?

Yes, I think that Jeff, this is Carlos.

You are absolutely right, we did anticipate this dilution.

We are tracking pretty much on plan.

We're very pleased with the business.

And I think that if Focus hadn't been part of the mix, you would have seen a margin that was pretty much consistent with what we had experienced in the past.

And with respect to the seasonality, I think that you're going to see the same type of dilution for the rest of the year and for the full-year as a whole.

Okay.

Thank you.

Very helpful.

And then second question would be on the China stores.

I know you're just getting into opening these and you've just recently opened the India stores, but wondering if you could give some perspective on kind of the store model.

As you open these stores, how it compares to your owned -- your limited number of owned stores in Europe and maybe even the U.S.

What are the economics behind it and what's the profitability?

Or sort of maturity that you're anticipating for these new stores and these new markets?

Jeff, it's Paul.

We just opened like only four weeks ago and we are right now, in fact, I'm going back in six weeks there.

We're right now on the middle of opening all these doors and we will not be able to give you a clear reading until at least the third quarter conference call, like in October, most likely something like that.

Right now we have absolutely no specific information to give you.

Right.

No, I guess more specifically and I will ask that right, in terms of the real estate costs as it relates to some of the other markets.

In Europe, for example, you know that some of the real estate can be very expensive in city centers.

What has been your experience so far as you've been looking at your owned stores here in China?

It's -- most of them, I mean for example, we've been most similar to the same format of US which is straight rent, there is no key money.

And so there is no CapEx, initial CapEx, and except just building the store and that's identical to here except that the cost of construction is way less than what it is in America.

And that, of course, to drop a square foot right now, we don't have that much reading because it's only five weeks.

Right.

Right.

Exactly.

Thank you.

That's very helpful.

It's way less capital intensive than what we experience in France, in Italy, in England that's for sure.

And Jeff, just remember that we are looking at this whole region as a business unit.

So the couple stores that will be open that are freestanding stores are just flagship locations to really represent the brand properly.

But a lot of the doors that we're going to have are in major department stores.

Okay.

So you're counting those doors in the major department stores.

Yes, because as a format it works mainly in Korea, Japan, and China, as you know, it's like the concentration of the brand is inside the department stores.

They're concessions.

Yes, they're concessions.

We don't call that shopping, sure they're concessions.

Right.

Right.

Okay.

Thank you.

That's helpful.

My last question is on licensing.

Clearly very, very strong performance in the first quarter.

Stronger than anticipated or at least your original plan.

Where, can you break down a little bit more on where that upside is?

Is it primarily, is it coming equally out of handbags and footwear?

Is it coming out of a particular region or market?

I will tell you that the three big categories will come out again will be a demand of handbags (was) enormous.

The push in watch business, which we went on a different price range and different quality and different territory for us.

Watches have been showing enormous also increase.

And don't forget that business is already 23 years old.

And now the new star is the footwear.

I mean footwear is leaps and bound with our partner with Mark Fisher and which the quality and product and design and fit is outstanding and the customer is responding to it.

That's what it is.

Okay.

So these three categories are driving the entire growth of licensing business right now.

Okay.

And it's not in U.S., it's everywhere.

Okay.

If you were to have upside in the next few quarters, I mean granted you should approach it conservatively in terms of guidance, but if you were to have upside in Q2 through Q4, what would likely, it would continue to be these same kind of key three categories that are just selling through faster than you are currently planning or anticipating at retail?

Well the double-digit would be anticipated.

But if you tell me it's between 10 and 20 or 30, I cannot tell you that because we have to look also about all the categories who might get weaker or also to control where the product of these accessories in demand are not diluted, we are very tight on making sure that the product goes in the right door.

So a 10 to 12 to 13% we would be comfort comfortable with that.

Okay.

Thank you very much, everyone.

Good luck.

Thank you.

Thank you, Jeff.

Your next question comes from the line of Gabrielle Kivitz with Deutsche Bank.

Please proceed.

Good afternoon and congratulations on a very strong quarter.

Thank you.

So two questions here.

First question is on the Asia business.

It's obviously very exciting to see you going after this opportunity, especially based on the success that you've had going after the Europe opportunity.

Was hoping you could talk about some of the relative opportunities and challenges in Asia in total compared to the Europe and U.S.

businesses.

Just specifically any dynamics that affect the margin structure and growth opportunities for the Asia business versus Europe and the U.S.

Margin structure of your Europe business is obviously very different from your Asia business, or, sorry, from your U.S.

business and I just wanted to better understand where Asia's expected to ultimately fall relative to the U.S.

and Europe.

And then I'll have a second follow-up question.

Gabrielle, just on the numbers, you know, in the past we have said that we did not expect the Asian opportunity to deliver the kind of operating margins that we are experiencing in Europe.

Actually we talked about an operating margin over time of in the mid teens.

So that's kind of our expectation, like Paul said, we do not know much about this other than what we are learning through our beginning with South Korea and so forth.

So it's early to confirm whether that operating margin is realistic but that is where we have our eyes in the future.

And if I can add something on that, Gabrielle.

Again, Asia is a very large focus for us, especially in 2007-2008 coming up but it presents incredible opportunity (inaudible) about the Korean market which have been present for 18 years as a licensee, so it's not a market that we don't know.

We do know that market.

But now operating directly, it's a different approach.

That's one.

Two is, we have Japan that we have the licensee, as well for like 22 years for two different licensee.

And part of the strategy, as we did in Canada and Mexico and Korea and Europe, we took back that licensee and decide to go directly is Japan will be a very big drive for the next three to five years if we took it well.

The potential can be enormous also, as well.

Japan could be maybe the fourth or fifth most important market for us around the world.

And finally, don't forget we're well established in Southeast Asia, meaning Singapore, Malaysia, Indonesia, Taiwan, Thailand, and there we have been there for 17 years or so.

We have more than 60 doors.

I think today it may be 65 doors, 65 stores, freestanding stores.

And but, it's not as profitable as it is in Europe because don't forget in Europe we're operating directly.

So that is the balance of earning between direct and distributors.

Okay.

Thank you.

And then, and so Carlos a mid teens operating margin, that obviously is lower than Europe, but that is higher than your domestic wholesale business, correct?

The margin structure can be higher than your domestic wholesale business?

Well actually, what we are seeing with our domestic wholesale business is stronger numbers so it's right in the same kind of territory.

Okay.

Mid teens, we'll be very happy if we can really find so much growth with that kind of operating metrics.

Okay.

Very, very happy.

Great.

And then the second question is on the Europe business.

Since the acquisition of the European license, have you had an opportunity to assess the business?

Do you have an idea of how much incremental margin opportunity there would be now that you're running that business directly?

How long do you think, I guess, or how long and can you get back to that 25% operating margin?

How long would it take and do you think there's incremental opportunity?

I heard what you said without Focus acquisition you would have been flat but are there opportunities to improve the margins at the Focus business and could you theoretically surpass the 25% operating margin over time?

That's pretty ambitious goal, Gabrielle.

We have said in the past that we definitely saw opportunities, once we are running this direct for margin expansion in that business, but we are not counting on a pretty significant expansion in a very short period of time.

We started with the integration of the business.

We're very happy, we just integrated the system side and the logistics side.

We are very pleased with the rate of growth of that business which had a very good first quarter.

But all that being said, in order to get to the big drivers of operating margin expansion, including sourcing and so forth, that's going to take a while.

And could we expect to see margin increases in the Europe business when you anniversary the acquisition?

For that particular business, yes, we should.

Okay.

Great.

Thanks very much.

Thank you, Gabrielle.

Your next question comes from the line of Eric Beder with Brean Murray.

Please proceed.

Good afternoon.

Hi, Eric.

Hi Eric.

Great quarter.

Thank you.

Can you talk a little bit about how Marciano did this quarter in the total contemporary space?

I know some of your talent competitors were somewhat challenged there.

We are very pleased with the results of Marciano, Eric.

We had a very good quarter.

As you know, just about a year ago we had the changes in direction and leadership and we are anniversarying that.

We -- the team has done an outstanding job and we have been able to even increase AUR when that business has run very cleanly.

And we feel that there is tremendous opportunity in the future precisely because we see that we are very well differentiated relative to the competition.

Great.

In terms of denim at the Guess stores we've seen more premium denim and really kind of coming out quicker and quicker like almost every month, a new line of premium denim.

Can you kind of talk about and how has the response been to denim for you guys in terms of this quarter?

Our denim business was good, but it was primarily driven by basic product.

So, you know, we, premium denim was a little more challenging for us.

But this is the way we planned it to, we did have a significant increase planned on the basic categories because we felt that we had missed that opportunity about a year ago at this time.

So -- and the customer has responded very well.

In fact, we were able to raise opening price points from 79 to 89 very successfully.

So we are pleased with the denim business.

It's definitely something that we're going to continue to watch it.

And we have put a nice inventory investment in this category because we continue to see an opportunity to grow.

Great.

And --

The denim business in this quarter, this is Maurice.

The denim business in this quarter still has been up in double-digit.

So we're very pleased with it.

Man and woman.

Okay?

So we're very pleased.

And the big contributor for us in both you are talking about Marciano, in both Marciano and in Guess, has been the dress business.

Has been very strong category for us.

Has more than doubled compared to last year.

And finally, G by Guess stores, you did 17 this quarter, you mentioned that now you're going to do more than 30.

What's kind of the initial reaction -- when do these all open and what's kind of the initial reaction been to these stores?

We opened the first one, I think April 8 so it's like barely six weeks.

And I think that, again, by the third quarter we will have a chance to give you a better reading about how the reaction of the customer is.

We know that the demographic already we see the customers who have been coming in is between 16 and 28.

And, but we have repeat customer base, we have, there's a portion of the stores of G by Guess who are not new stores have been converted.

So it's not like 17 new doors.

And I think that we will give you more intelligent answers in, at the end of the third quarter when we have a grasp of a full six months of business.

Great.

With respect to when the stores open, Eric, many of the stores open in the third quarter.

Some in the second quarter as we speak we're opening, and then there is about maybe a handful in the fourth quarter.

How many did you end Q1 with?

17.

Okay.

But most of them, like Paul said, most of them were conversions.

Okay.

All right, guys, a great quarter and congratulations.

Thank you, Eric.

Thank you.

Your next question comes from the line of John Rouleau with Wachovia Securities.

Please proceed.

Hey, guys, great quarter.

The business is so diverse now, I have a hard time focusing my question.

We do too.

I know, I don't know where to start.

So nice job, obviously.

Men's it's been strong for a while now and you guys are kind of unique from a product perspective in the mall these days.

I guess I ask you to talk a little bit more about men's.

Do you have the amount of square footage that you need to really drive that business in the stores?

What's really driving men's?

How are the margins behind men's?

Just talk more about men's.

We are super excited about men's.

With respect to the space, men's occupies about 20% of the floor and we are, okay, and we are very pleased with the contribution.

The margins have been very healthy in that business and we have seen now for more than five years constant growth in men's, which has been great.

We always look at allocating more space if we see that a category deserves a bigger space within the store.

Right.

And I think that that has been good formula for us.

We have done it with successors, we have done it with every category that outperforms its space.

Maybe the number is a little more than 20% right now.

We have seen growth in every category, not only denim, but Maurice just mentioned, but also woven tops has had a tremendous quarter, knit tops.

And as you know, it's difficult to see that these two categories to --

Right.

Register significant growth concurrently, but they have this past season.

Shorts had a tremendous quarter, as well.

And I think that has a lot to do with us being very, very unique in the market.

Yes, I would agree, I would agree.

So I know you touched on Marciano, you said that that business has improved.

Is it kind of safe to assume that that business is now comping positively and kind of contributing or closer in line to what the stores are doing?

The Marciano had a very good quarter and you have to keep in mind here that we have taken the Marciano product out of many of the Guess stores.

So, you know, the comparison is somewhat difficult to do on an apples-for-apples, but it is true to assume that Marciano comped at double digits in the first quarter, as well.

Okay.

Regarding the shoes.

Hoping that you could just -- I think you're testing a few independent shoe stores, if you will, a couple in Europe and maybe one or two in North America.

Is that -- are you operating those stores?

Is that store on your balance sheet and what are the kind of economics given that that's a licensed category for you?

Okay.

If I can answer you that.

Thank you, Paul.

The stores will open today are done by third party in outside U.S.

The one we operate directly will be done on a joint venture with Mark Fisher and his team who have been, basically for me, the best in the country for many years with Nine West retail operation as far as retail and they will be run by this team.

So we don't have open one yet in U.S., but five to eight stores is a conservative number of retail footwear store that will open within 12 months.

Outside U.S., we do not intend to open for now in Europe any store directly.

In Asia, we can tell you also that we're going to do a joint venture with a partner in China to open retail footwear store in China throughout the county but, again, it will be a partnership.

And the rest for example, the one that I mentioned nine of them opening in Southeast Asia will be done by our partner, existing partner for 17 years in Singapore, will open all these footwear stores which I will visit also in six weeks.

So in the markets where you're doing a joint venture, U.S.

and Asia.

Yes.

On a sale of a pair of shoes there, how does the revenue recognition work?

I mean do you collect a licensing of royalty and then some percentage of the profitability on the JV?

It will be a straight partnership.

So we will consolidate.

We will be the majority shareholders.

Okay.

Similar to what we're doing in Mexico.

Exactly.

Where we have majority ownership and therefore --

So it would be on the top line and bottom line.

And then you will have a minority interest coming out.

Got it.

Good.

Good.

Okay.

Switching topics a little bit on the topic of expenses or expense leverage.

I know this year there was some talk about starting to leverage expenses a little bit more than maybe in the past because of the up front investments are starting to subside a little bit.

Without going into too much detail, is that still pretty much the plan for the remainder of the year or the back half of this year?

Or has that changed a little bit given some of the additional investments with the footwear and maybe G by Guess and some other areas?

It's a good point, John.

We did not expect coming into this year to see significant leverage on SG&A because of all the new growth initiatives that we have in place.

When you consider the new Focus acquisition, the additional expense to open and run South Korea, the additional expense to expand our infrastructure in Europe.

G by Guess is a new initiative.

Mexico continues to be a new initiative, as well.

There is significant areas of investing here and we did not expect that this year we will have significant leverage and that's still the way we are looking at this year.

Okay.

So the operating margin gain comes primarily from a gross margin increase rather than expense leverage?

And the mix.

The mix --

Right.

Europe has been growing at a faster rate, (inaudible) a higher margin, of course, that is impacting our operating margin (profitability) as well.

Got it.

And then one last one.

Regarding the, I know this year you're starting to collect some, I guess, up front licensing income, for lack of a better way of describing it, that resulted from the renegotiation of some of your licenses last year.

I think the watches is the biggest component.

My question is, does that basically flow into the quarters evenly throughout the year or was there more of it kind of in the first quarter or how should we look at that?

It's even throughout the year.

Okay.

And it's more in year one than it is in kind of years two and three or is it --

No, no, the issue is that we step up on year one because the watch license became in -- the new term became into effect this year.

Right.

So you have that step up over last year in terms of the recognition of that revenue but that stayed.

It's just that you're not going to see an incremental over that.

Yep.

Okay.

But it's constant throughout the four quarters.

So we didn't see something special in the first quarter?

No.

Okay.

Great.

Thanks, guys.

Keep it up.

Your next question comes from the line of Holly Guthrie with Janney Montgomery Scott.

Please proceed.

Thank you.

And let me add my congratulations.

Just a question on the mix in Europe.

I guess going back a couple years it being, I think mostly leather goods and then you guys layering in your jeans business and now the Focus acquisition.

Could you talk about the mix currently between all those businesses in both retail and wholesale and where you think or where you think the mix will evolve and eventually get to in Europe?

Well, I think it's pretty much similar to what we experience in U.S.

I think it's pretty well balanced.

You'll have a very strong surge in accessories essentials we have in U.S.

The watches are experiencing even much bigger expansion in Europe than it is in U.S.

The denim is comparable growth even also bigger than in U.S.

So because it's kind of a new market for the brand there, we have been really operating directly the last two and a half years, we've been there for the last eight years, nine years.

But really the strengths of the brand has been (cumulating) of a combination of factors from accessories and denim and Guess by Marciano coming at the same time, and opening so many freestanding stores in different countries, but the recognition has been tremendous to help criss cross all the brand as an opportunity for every licensee and division.

So there is no such a difference between the perception of the brand, expansion in Europe compared to America except by the price of Guess product in Europe is much higher than it is in America.

Okay.

Great.

And then if I --

Holly, with respect to the numbers, the split, you know, our accessories business this year will probably surpass our denim business because now we are adding the new category of footwear as part of that.

Okay.

Great.

Thank you.

Thank you, Carlos.

And then in the first quarter, I think you said that the increase in the SG&A expense, about a third of that increase, or I guess it looks like the SG&A increased about $33 million so I'm assuming about $11 million came from Focus and South Korea.

Was any of that $11 million sort of a one-time sort of start-up or should we expect Focus and South Korea to continue to impact the SG&A expense going forward in that kind of magnitude?

No, I wouldn't consider those, those aren't one-off expenses.

I mean relative to last year, we now own those businesses.

So we have taken on that full SG&A investment for both Focus and for South Korea.

Okay.

I didn't know if there was any element of an initial start-up or some sort of just one-time cost, but that's just a full-on expense for the business.

Of course you have the ramp up expense and definitely we incur some expenses to launch the brands like Paul was in both China and South Korea for this very significant event to really present the brand to those two territories and those were unusual expense.

And that was a big expensive party, huh?

It was, indeed.

Good for you.

The big issue here, too, is that, you know, we are still starting the business so the revenue part of the equation was very lacking relative to the expense that we incur.

Great.

And that should change significantly over time.

Okay.

Thank you so much.

Thank you.

Thank you, Holly.

Your next question comes from the line of Christine Chen with Needham & Company.

Please proceed.

Thank you.

Congratulations on another fabulous quarter, everyone.

Thank you, Christine.

Just a few questions.

With respect to the guidance, are you taking into account any shift back-to-school out of Q3 into Q2?

A lot of your competitors have spoken about that shift and can you quantify that?

And then I wanted to ask a little bit more about G by Guess and Marciano.

Yes, Christine.

We do anticipate that there's going to be substantial, you know, meaningful shift between, from third quarter into second quarter and some of the drivers of that is what you mentioned, the back-to-school issue.

But in addition to that, we have our own strategy to ship a lot of product in the accessories business in Europe early which traditionally would have shipped in the second quarter, now it will ship in the second quarter.

So our earnings should benefit from that in the second quarter and as a result of that, obviously those earnings would not reoccur in the third quarter.

And that is one of the reasons why our expected results for the second quarter are as strong as they are.

Got it.

And then I know that it's still early, but as far as G by Guess, have you seen any difference in performance between the conversions at the factory stores versus the conversions at the regular mall stores?

It's too early.

Too early.

Too early to tell.

You know, it's just that like Paul said, only a few days open and we only had a few stores that were open for that period so it's just very early to tell.

I think that we're going to learn a lot more in the next few months.

In licensing, are there any categories that you aren't in that you would like to be in as far as product categories still?

Yes.

I think these -- but it's down the line.

We are not in rush for that.

We think at one point in another, we used to have that license like 10 years ago, which was a home collection.

And, but if we do it, we want to do it the right way, the proper way.

And if we find the right product assortment and manufacturer that the way we want to do it, we will do it.

That's one.

Lingerie, underwear, is definitely something that we look into that but we are still debating to do that directly or as a license.

But we are pretty much a complete lifestyle right now.

And our floor on our stores is full.

And we want to maintain a clean presentation.

So we have to consider what impact it will have if we add any more product about to get a bigger box in the future.

So right now we are so busy everywhere to just simply grow and expand existing product that we have that unless it's an exceptional opportunity, we are not going to rush on anything.

And then with respect to Guess by Marciano, which is the Focus product, I started noticing a few items being sold in sort of the Marciano section of certain U.S.

stores.

Is that a test?

Is that just location specific?

You must visit quite a few stores because it's only in very few locations.

I do go to quite a few of your stores.

Whenever I get a chance.

I bought one of the items.

And that's one of the things we're doing right now because as you know, unfortunately, the dollar is very weak right now and the euro is so strong that to import anything from Europe costs a lot.

So we want to see how the market is reacting to such a price tag on the shirt, on the pants, on the sweater made in Europe or Eastern Europe.

So we're testing a little bit but we see the line is such a beautiful line, contemporary line.

We see that definitely gives the Marciano at one point and another.

We enter the U.S.

market a year from now, two years from now, we don't know.

Until we have the right strategy, we will not rush again.

Because we have so many different things to care about right now, who needs full-time intervention?

It would be blended with Marciano, it will be part of Marciano, it will be Guess by Marciano with Marciano and maybe a section for men, as well.

Got it.

Well, congratulations and good luck for the second quarter.

Thank you, Christine.

Thank you, Christine.

Your next question comes from the line of Dorothy Lakner with CIBC World Markets.

Please proceed.

Thanks and congratulations, everyone.

Thank you.

Hi, Dorothy.

Hi.

A couple of questions on systems.

Maybe Carlos if you could update us on what's going on with markdown optimization.

And also I think you'd said on the last call you were going to be implementing the PLM in the men's business.

I wondered if that happened and how it's going?

And then just a question on the guidance for the second quarter with the North American wholesale business up only slightly, I wonder if there's a comparative reason for that just why you're saying up only slightly after the first quarter they had?

And lastly, on Holly's question, just a precision, Carlos, did you mean that accessories would surpass the denim business in terms of penetration?

Is that the whole company that you're talking about worldwide?

Yes, let me address that first, Dorothy.

I was talking about our European business, which is what we were, I thought, was Holly's question and now that business, we always look at those two businesses as two separate parts of the whole, one being the denim business, which is what we acquired back in January of 2005.

Okay.

Okay.

The other part is the accessories business which includes now handbag and also footwear.

Footwear.

(Inaudible) small leather goods.

Okay.

Okay?

That's what I meant.

That that business is going to surpass denim this year.

Okay.

All right.

Perfect.

Right.

Now so going back to the systems question, Dorothy, we are implementing markdown optimization and we are very pleased with the initial results of this.

As we have mentioned in the past, we did some tests towards the end of last year and now we have rolled out a good part of the software to our retail business so we have a few of the merchandise categories under that.

And I think you saw some of the current margins have been pretty impressive in the quarter in addition to the same store sales growth that we experienced.

So we are very happy with the results.

But as you continue to roll that out, we should see greater impact as we move forward?

Well, we have attempted to quantify that in our guidance.

And as we said, we do anticipate that the operating margin of the retail business should grow.

Okay.

To 15%.

With respect to PLM, we are on target, we are very pleased with the software.

It has been operating well.

And you're right, we did implement it in men's first and that's where it is and we have a full rollout planned for this year and we don't see any impediments to meet those times.

And then with respect to wholesale.

The issue that we're facing is last year in the first quarter, there were significant closures as a result of the Federated May integration.

Okay.

So at that point, we lost a lot of business because of that phenomenon.

And this year in the first quarter, which was very healthy, we were up against those diminished or lower numbers.

Okay.

The growth that you saw in the first quarter is not necessarily something that we are expecting to repeat in the second quarter and going forward.

Okay.

Okay.

Perfect.

And then did I hear you talking about opening up intimate stores?

Not at all.

You misheard.

Maybe some day?

Maybe some day.

We're not ready for that.

Okay.

You're a little busy for now.

Okay.

All right.

Thanks.

Thank you.

Your next question comes from the line of Brad Stevens with Morgan Keegan.

Please proceed.

Congratulation, guys, on an outstanding quarter.

Thank you.

Couple questions for you.

First of all, Dennis, maybe could you walk me through your inventory right now?

Obviously you have a lot of momentum but given it's up 50 some percent, can you kind of walk us through the buckets of that increase?

Yes, let me just address that briefly.

This is Carlos.

We -- our inventory was up about 52% and a little bit less than half of that increase was all related to new businesses.

And in that you have pretty significant new businesses that came on the picture.

One is Korea, South Korea, Hong Kong, we are putting significant investment in the whole Hong Kong and China expansion, Mexico, and more importantly Focus Europe, which was, again, a completely new business.

In addition to that, we have some investment that we made to open the G by Guess stores, of course, and all that would represent the new businesses.

Keep in mind that because many of these businesses were, did not have any inventory, we had to fill those channels.

So it required a significant investment in inventory that we haven't seen much in terms of revenue for it.

So as I go throughout the remainder of the year, we should expect to see inventory growth running up at above the rate of sales for probably the next four quarters, then?

Exactly.

Okay.

If I can give you an example.

If you heard on our last conference call, we mentioned that for 2008 fiscal, we have a goal to double the watch business of Guess Collection.

I can tell you, for example, that our inventory is up 70% on that category but our sales also are up [70%] on that category.

So we beefed up inventory significantly because we believe in our product.

It's one of the component about things that we'll see right now.

On what we believe, we are financing that business.

And that brings up a very important point.

We have run this business looking at inventories and really investing in those categories that really offer significant potential.

We have always done that for the last many years.

We have done that once again and that addresses the remaining of the inventory growth.

Most of that growth is for, obviously, existing businesses and it has two parts.

One is the fact that we have been increasing prices so obviously, in order to keep the same number of units, we needed to make an additional inventory investment.

Our units are pretty much in line with what we saw in the first quarter.

And then the other big issue is that we saw some big opportunities and classifications that needed additional inventory and we have been investing in those.

One of them, I think Maurice mentioned, dresses.

Our dress business is on fire so we made an additional investment in dresses.

Handbags, again, a business that is on fire.

We made an additional investment on that.

Somebody asked about Marciano, this business has outpaced our expectations so we made investment, additional investments on that.

Shoes is another category.

And even basic denim that we touched on previously.

So all this inventory is based, or it's positioned with those categories.

All right.

So, Dennis, if I kind of look out to the end of the year, working capital's probably going to be used in excess of $50 million this year.

Would that be a fair assumption?

Working capital 50?

I got to come up 60 roll back in the envelope.

Hang on one second.

All right.

Let me ask another question while you look that up.

Second, the wholesale business, incredible operating margin performance.

Can you break out the gross margin versus SG&A there?

We do not do that.

We do not provide that.

And now it will be somewhat confusing because you have in addition to the domestic wholesale business in Canada, you also have the Asian business.

So it's a very difficult thing to dissect.

Okay.

The retail business.

A lot of -- given the comp and what a lot of retailers saw in April, can you give us some color on how the quarter flowed and how you feel about quarter to date?

Obviously you've given us guidance, but just what you're seeing out there as we've heard mall traffic has slowed a little bit.

We had a great first quarter.

Of course, the month of March because of the Easter shift it was even stronger but we were very pleased with the quarter overall.

We saw traffic being up in our conversion was up, too.

We really were very pleased with the overall results.

And the other great thing is that it happened consistently across all regions in the country.

I think at every single region in the quarter was up in double digits for us.

So you can imagine.

It's just difficult to find this kind of consistency across the board and with so many engines driving the growth.

Meaning a lot of our merchandise classifications did well.

With respect to May, we haven't -- we said that the momentum continued into May and we are not reporting monthly comps, but it's, suffice it to say that we've raised guidance because we feel very strong about the quarter.

Okay.

And then last question before I get back to Dennis here.

Looking corporate overhead expense managed very well, is there a chance, you know, how should we think about it the rest of the year?

I think your prior guidance was 80 to 90, but if we keep at this rate it's going to come in substantially below that.

The corporate expense?

Yes.

We have been running pretty much in line with what we expected.

And actually because the performance has been ahead of our initial expectation in terms of earnings, the numbers are higher than what we had originally expected and guided to.

So I don't know exactly what you're looking at.

Last year in corporate overhead we spent $57 million, business on the recast basis for the 2006 year, and we anticipate that the numbers are not going to be significantly higher than that.

Of course they're going to be higher, but not significantly higher than that this year.

Okay.

Thank you.

And Dennis on the working capital?

Yes, your estimate, that's a good estimate around 50.

Great.

Congratulations.

Your next question comes from the line of Erin Moloney with Merriman Curhan Ford.

Please proceed.

Hi.

Good afternoon, guys.

Hi.

How are you, Erin?

I'm doing good.

Thank you.

Just a couple of quick questions.

I was hoping that your North American retail division, I was hoping to get the store count by division at the end of the quarter?

Sure.

Okay.

You have 196 Guess jean store, seven accessory stores, I'm talking North America.

Right.

You have 104 factory stores and you have 29, let me see, I think for Marciano I think we have, I have it here, 29, but maybe --

Paul, let me just, you know, the way that they are used to see it.

Let me restate some of the numbers because we have different accessory stores into one bucket versus another one.

The way you are used to seeing it, we had 179 retail stores, 95 factory stores, 29 Marciano stores, 16 accessory stores and 17 G by Guess stores for a total of 336 stores.

Okay.

Great.

That's really helpful.

And then I believe, Paul, you mentioned earlier in your commentary that you're planning on 40 new stores in '08.

Does that include the 30 openings of the G by Guess?

And then I was curious how many closures you had planned.

Okay.

The 40 new stores all concept mixed.

And don't forget that the 30 of G by Guess are made of 10 new doors, 10 factory converted in G by Guess, and I give you round number and 10 retail converted in G by Guess.

That's the 30 doors.

That's correct.

Let me just say one thing.

The 40 stores that Paul was referring to are additional stores over the first quarter where we opened already eight.

Oh.

Okay.

The total addition for this year is 48 stores.

Okay.

Great.

And then the closures?

Closures we closed --

Six in the quarter.

But then we will close another, I think it's something like 5 or 6.

Okay.

Great.

Thank you very much.

Thank you.

Thanks.

Your next question comes from the line of Melissa Otto with WR Hambrecht.

Please proceed.

Hi.

Congratulations on a great quarter.

Hi, Melissa.

A lot of exciting stuff happening.

I have a question on the Japan business.

I know it's a little bit premature to comment on it but we do see quite a number of U.S.

brands aggressively going after the Japanese market and I'd like to hear you comment more strategically, more long-term.

What are you seeing happening in the Japanese market that gives you the confidence that over the next three to five years it could be a big driver to earnings?

Well, if you look at the map, what we have doing the last three years, we took back the control of Korea.

We took back the control of China, we ended the license, we did not renew the license of Japan.

And obviously all that as a part of the bigger picture for us, it took us few years to take control of our brand in the whole region.

And also, as you know, we're very well penetrated in the Southeast Asia.

So to be around all that region and not addressing Japan is definitely a very, very important market for us.

We in fact have a licensees in footwear and watches and handbags.

We'll make the entrance by holiday of this year.

And we plan definitely to be (inaudible) apparel and retail also in Japan by April 2008.

It's a long-term plan.

We had, as I mentioned before, two licensees, long-term licensees, and we didn't have the result that we expected.

Not only the side of finance, but many of the brand positionings of brand execution.

And that was like all the American brands the biggest frustration we have is we need to be doing that ourself.

(Inaudible) on premises there in Japan.

So Japan could be a very important contributor to the future of the brand Guess in all Asia.

Do you see that coming through in both wholesale and retail?

Yes.

The same as Europe.

I see.

Any comment on opportunities that you see in specific department stores there or any structural changes that you think are creating opportunities or making it easier to do business there?

I will have a better reading.

I'm going to spend five days in August.

We have the whole team of Guess from here and from Asia.

I will have a better reading about to answer you (inaudible) on the next conference call, but right now, we are going from scratch and this is exactly a clean slate that we're going with.

Terrific.

Congratulations once again.

Thank you.

Thank you.

Thanks.

And your last question comes from the line of Margaret Whitfield with Sterne, Agee.

Please proceed.

Congratulations.

Two quick questions.

What is affect of the 53rd week on the fourth quarter last year?

And for Maurice, dresses and denim for women are strong.

Any fashion changes coming around for back-to-school or later in the year that you can see now?

Yes.

Yes.

This is Maurice.

Hi, Margaret.

Hi.

The trend -- the biggest trend I can see for women is that we are going much more into the 70s which mean that with very wide leg jeans, you know.

Right.

They are coming slowly, but they are coming for sure and with the waist a little bit higher.

I see that coming back.

And that goes very well with all the trend that we have right now for the tops, you know, the long tops.

Right.

(Inaudible) and all that.

So I see a very strong trend coming up in all that look.

And that probably is going to grow all the way to spring of next year with very bright colors and all that.

And dresses, will they remain strong?

Excuse me?

Will dresses remain strong with the bright?

Definitely.

Okay.

It goes very well with all that trend there.

Okay.

And the 53rd week?

53rd week, this is (inaudible).

Yes.

We think that the impact of the 53rd week is about 4 to $5 million in revenue.

And you can, of course, this is a time when we have some clearance so the margins of those sales are not going to be that significant.

But nevertheless, you can use that number tomorrow.

So nothing else really affecting the fourth quarter comparisons other than the extra week last year?

That is correct.

And keep in mind the numbers that we share with you today are about January this year.

I mean we're very pleased with the kind of performance we had in January, which was $0.09 ahead of last year's or the previous year's earnings for the month.

Thank you very much.

Thank you, Margaret.

Thank you, Margaret.

Thank you very much.

I think that concludes our conference call for the first quarter and we will keep you posted about progress we are making and thank you very much and have a good evening.

Thank you for your participation in today's conference, ladies and gentlemen.

All parties may now disconnect.

Enjoy your day.