Guess? Inc (GES) 2009 Q4 法說會逐字稿

Good day and welcome to Guess fourth quarter fiscal 2009 conference call.

Before we get started please note that the Company will be making forward-looking statements during this call including comments regarding future plans and outlook.

The Company's actual results may differ materially from current expectations based on risk factors included in the Company's quarterly and annual reports filed with the SEC.

Now for opening remarks and introductions I would 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 first quarter of fiscal year 2009.

Also joining me are Maurice Marciano, Carlos Alberini, and Dennis Secor.

I'm pleased to report a very (inaudible - highly accented language) quarter today where we once again set the new revenue record increasing business by 9% in spite of a challenging consumer environment and a strong currency head wind.

This period ended a year of dramatic change.

We entered the year with 20 consecutive quarters of positive comp and continued delivering significant revenue growth and earnings expansion.

We reported record revenue and record earnings on each of the first three-quarters of the year.

Later, in the first quarter we saw rapid economic deterioration.

At the very first sign of a market correction, we acted quickly and decisively to streamline operation, reduce inventory ownership and limit our capital spending.

Considering the speed and severity of the crisis and its impact on the competitive environment, our Company performed very well during the fourth quarter.

Excluding the noncash charge that Dennis will describe we exceeded our previously expected earnings for the period, growing our first quarter earnings by 12% and expanding our diluted earnings per share to $0.67, a 14% increase over last year fourth quarter of $0.59.

With this performance, we close the year to set a new record at $2.1 billion, increase adjusted earnings by 23% with EPS reaching $2.45.

This result highlight the benefit of our diversified business model and the strength of our brand.

We also reflect the experience and dedication of our management team during the challenging times.

I want to thank every one of them for the continued commitment and for the hard work.

Our retail business was the most impacted.

We closed the quarter with a total increase of 7% and a same-store sales decrease of 6.5%.

Throughout the season consumer were more selective and certainly more price sensitive.

These affected or food price concept most but was also fair in our factory stores.

G by Guess?

performed well in the quarter.

These stores are performing better and we believe the concept can benefit as fashion conscious consumers, are motivated by the styling, assortment, and more attractive prices of the G by Guess?

brand.

For the full year, we opened 57 new stores and ended with 425 stores for North America.

In Europe, we have once again very pleased with our in Europe which performed well, even as we face adverse currency comparison and that summary of economies seeking to recession like Spain and the UK.

Our business in Europe recorded a revenue increase of 31% in euros for the fourth quarter.

We extended our retail business in Europe which generated positive comp in the quarter and its revenues increased in Europe by almost 50%.

We ended the fiscal year with 61 owned stores.

Our strategy to expand into international markets continue to be priority.

For fiscal 2009, Europe generated almost half of our total operating profits for the Company up from 38% in fiscal 2008.

Our set segment also grew during the first quarter driven by South Korea and China where we continue to invest with new stores and gain market share.

With respect to our licensing business, the current environment has affected our licensing as well.

Nevertheless, it was an outstanding year, delivering double-digit growth for the full year and the increase was mostly made by watches, handbag, and footwear again.

Condition today are unprecedented, but we believe a Company like ours with strong global brands, solid capital structure, strong cash flow, and most importantly a seasoned management team are in the best position to come out ahead.

Our strategy is very clear and simple, we will preserve our capital and resources.

We will protect the integrity of the brand and our customers relationships.

And continue to invest in key markets where we are underpenetrated, specifically Europe.

For capital, we already saw the capital spending.

Last year we spent $83 million, far below the $102 million we have planned.

We are currently spending only committed retail deals in North America and Europe.

Beyond that we will look for opportunities, excellent location, with very strong economics that will be acquired.

Regarding brand equity, we continue to work hard to offer product consistency around the world.

Our team of designers have been working together to deliver product that has one point of view.

We have a line of calendars globally so deliveries are also consistent with all markets.

With this collaboration we will enjoy significant commonality among assortment certain product categories.

Considering our present position, our product assortment and our price points, we think we can benefit from customers who are already trading down from designer brands.

Yesterday, luxury customers represent a good target for us today in most of the product category we have.

And of course customer feedback and service level will continue to be high priority.

Global expansion, as I mentioned before, remain a top priority.

Distribution of the brand is still concentrated in only four major markets around the world.

Countries like Germany, Russia, Spain, Holland, UK, and many of the countries in Europe are all markets that we are very underpenetrated.

We also remain committed to grow our business in Asia.

We're continuing to pursue expansion into China.

We just began January 1, of this year direct operation of (inaudible) business and see the potential to expand in all categories.

In the end, it all comes back to the core basic (inaudible) that have served Guess?

over our 27 years in business.

We run our Company prudently, staying true to our brand and values and above all, using common sense in every decision we make every day.

We have survived and expanded all this precisely because we have never compromised the brands.

In this (inaudible) I would like to have Dennis and Carlos to take you through the numbers and outlook.

Thank you, Paul, and good afternoon.

During the quarter we recorded a noncash impairment charge amounting to $22 million, or $0.15 per share.

This was the result of an analysis we performed during the period of our store portfolio in light of the current economic conditions and future expectations, and it reflects the write-down of the asset base for a number of our stores with the majority of that charge relating to our newer comp.

This charge has been included in our reported GAAP diluted earnings per share of $0.52 for the fourth quarter and $2.28 for the full year.

In our press release, we have isolated the charge in our income statement and have also provided disclosure which reconciles our GAAP results to adjusted results excluding the charge.

During this conference call, all our comments for both the fourth quarter and the full fiscal year exclude this noncash charge as we feel this provides more relevant period to period comparisons that are consistent and more easily understood.

In the quarter, we increased our adjusted net earnings by 12% to $62 million and increased adjusted diluted earnings per share by 14% to $0.67 from $0.59 in last year's fourth quarter.

Total fourth quarter net revenues increased 9% to $561 million, except for licensing, all our segments contributed to this growth led by Europe which delivered nearly 60% of the increase despite strong currency head winds.

Total Company gross profit decreased 3% to $227 million for the fourth quarter.

Greater promotional activity and occupancy de-leverage due to negative retail costs resulted in a 490 basis point gross margin reduction to 40.5%.

This margin performance was in line with our previous expectation.

Our SG&A expenses were $137 million, essentially flat with last year's fourth quarter and the SG&A rate improved 240 basis points to 24.3%.

We are very pleased with this rate improvement as we benefited from infrastructure leverage and the cost reductions we executed in response to the current conditions.

We also reversed certain performance based compensation accruals in the fourth quarter given the overall financial performance of the Company.

For the quarter, the Company's operating profit decreased by 6% to $91 million, which includes a negative $8 million currency translation effect.

Operating margin declined by 250 basis points to 16.2%.

During the period the volatility experienced in both the currency and equity markets impacted our non-operating earnings also.

We reported other net expense of $6 million in the current quarter for $0.04 per share.

This includes mark to market charges related to our benefit plan investments, our US dollar denominated liabilities in foreign businesses and other non-operating assets.

These charges were partially offset by mark to market gains and our foreign currency forward contracts.

Our effective fourth quarter tax rate was 26.6% compared to 42.1% in the prior year fourth quarter.

We closed the year with a full year tax rate of 32.9% versus a 39.8% rate last year.

The decrease is attributable to the fact that this year a greater portion of our earnings have been generated in a relatively lower tax jurisdiction.

And now I would like to quickly review our revenues and earnings by business segment.

In North American retail during the quarter, our comp source sales decreased by 2.8% in constant dollars.

In US dollars, however, the decrease was 6.5%.

Total retail revenues for the quarter increased by 7% to $289 million.

Operating profit decreased to $34 million and operating margin declined 650 basis points to 11.8%.

Gross margins declined 600 basis points given the highly promotional environment and the de-leverage of occupancy costs.

For the full fiscal year, our same-store sales increased 1%, and we increased total retail revenues by 13% to $978 million.

Operating earnings declined 10% to $116 million and operating margin was 11.9% versus 15% for the previous fiscal year.

Average square footage increased by 13% as we opened 57 stores and closed 5.

In our wholesale segment, fourth quarter revenues increased 7% to $70 million.

This revenue increase was driven entirely by Asia with the most significant growth coming from our China business.

Our business in Korea grew during the quarter though the stronger US dollar completely offset local currency growth.

Wholesale segment operating profit declined to $9 million and operating margin decreased 450 basis points to 13.5% in the fourth quarter.

This decline was driven by lower product margins in both North America and Asia due to higher markdowns.

Lower quarterly SG&A expenses could not compensate for the lower gross margins and as a result, quarterly operating earnings declined.

In addition, the operating margin was also impacted by the continued business mix shift toward Asia.

For the full fiscal year, wholesale segment revenues increased 15% to $296 million.

Operating earnings declined 6% to $47 million and operating margin declined 350 basis points to 15.8%.

For the quarter, European revenues increased 18% to $180 million.

Each of our European businesses achieved solid local currency growth.

Our fourth quarter results were favorably impacted by efforts to deliver products more evenly in the year.

This occurred both in our apparel and accessory businesses as more of the spring/summer collection was delivered in the fourth quarter.

The favorable impact on this quarter's revenues was $14 million and on earnings per share it was about $0.04.

European gross margins were down slightly due to higher occupancy costs from a greater mix of retail stores.

We achieved excellent performance in our management of SG&A expenses, where our spending rate improved by 440 basis points.

We have now anniversaried our investments in our headquarters there and our newer businesses are becoming more efficient.

Despite the unfavorable currency environment operating earnings grew 40% to $39 million and operating margin improved by 340 basis points to 21.7%.

For the full year, European revenues increased 34% to $719 million, operating earnings grew 40% to $169 million, and operating margin expanded 110 basis points to 23.5%, a remarkable performance.

Licensing revenue decreased by 15% to $23 million in the quarter.

For the full year, licensing revenues increased 11%.

Operating margin for the fourth quarter was 86.5% and for the full year 86.2%.

Now I will turn our attention to the balance sheet.

Account receivable increased by $10 million to $264 million compared to the prior year, a 4% increase.

In constant dollars receivables increased 17.5%.

Receivables grew primarily in our European business where DSOs increased modestly.

DSOs declined in North America and total Company DSO was roughly flat compared to last year end.

We are very pleased with our inventory management this quarter, particularly in light of market conditions.

We ended the quarter with inventory levels at $240 million, an increase of 3% from last year's fourth quarter.

Our team worked very hard to reduce our inventory position by year end.

During the quarter we invested $20 million in capital expenditures net of tenant allowances, primarily to support our retail expansion including eight new North American stores and 11 international stores.

For the full year capital expenditures reached $83 million net of tenant allowances, significantly less than our plan.

Our Board of Directors has approved a quarterly cash dividend of $0.10 per share payable on April 17, 2009 to shareholders of record at the close of business on April 1, 2009.

During the quarter we repurchased 1.9 million shares under our share repurchase program at an average price of $14.43, investing $27 million.

We ended the year with the remaining purchase authorization of $140 million.

Our cash flow was very strong for the full year as we generated $229 million in operating cash flow.

We invested $102 million of capital back into our business between CapEx and other investments.

We paid $34 million in dividends, repurchased $61 million of our common stock, repaid $13 million in debt and still increased our year-end tax reserves by $19 million, closing the year with $294 million in cash.

And with that I will turn the call over to Carlos.

Thank you, Dennis, and good afternoon.

Now I will give you an overview of our outlook.

The current economic conditions have certainly limited our visibility.

It would be speculative at best for us to predict how long the crisis will last and how deep and severe it will be.

In this call, we will provide revenue, operating margin, and EPS guidance for the first quarter.

Given that limited visibility, we will not provide guidance for fiscal year 2010.

Instead, we'll discuss how our business has been trending and other factors that will affect our financial results in the future.

Consumer behavior in the fourth quarter of our retail business was generally consistent with the expectations that we shared with you last December.

During the period, we successfully reduced our inventory position through a combination of initiatives that involved additional promotions at the store level and purchase order cancellations.

Every promotional event was planned to protect the maturity of our brand and benefit our most loyal customers.

As expected, as a result of the promotional activity, our margins were negatively impacted through the end of January.

We closed February with a comp decline in constant dollars in the mid single digits which translated into a high single digit decline in US dollars.

We believe that conditions will remain challenging and help our first quarter business assuming a same-store sales decline in the low to mid teens range, and a decline in total retail revenues in the mid to high single digits.

This includes the impact of the stronger US dollar.

With respect to our wholesale segment, our US backlog is down 26%.

In Asia, we expect to see growth in both our Korea and China businesses.

However, the relative weakness of the Korean won should more than offset any local currency growth.

Based on these assumptions for the first quarter e are planning the wholesale segment revenues to be down in the low to mid teens range.

In Europe, our backlog in euros is up 15%.

We expect first quarter revenues in euros to be roughly flat, impacted by the sales shift that occurred in the fourth quarter.

In US dollars, we expect revenues will decline in the low to mid teens range due to translation.

And finally, in our licensing business, we expect first quarter revenues to trend in line with our fourth quarter performance, down in the teens range.

So, to summarize, our revenue assumptions for the first quarter are significantly impacted by the adverse currency comparisons and the shift in shipments in our European business.

Absent these two factors, our expected first quarter revenues will be roughly flat compared to last year.

Instead, we expect a total revenue decline in the range of 9 to 13% for the Company, resulting in consolidated revenues between 425 million and $445 million.

We expect first quarter operating margin to be around 9%, and diluted earnings per share between $0.26 and $0.30 which would represent an EPS decline of about 40 to 50%.

This guidance includes the impact of the $0.04 shift in our European business and a $0.01 reduction due to a change in the accounting for certain participating shares.

It also assumes no further repurchase of shares of the Company's common stock.

With respect to gross margin, we are currently operating with less inventory than a year ago Companywide, in line with our lower revenue expectations.

We have strengthened our supply chain and reduced lead times in many categories by securing fabric ownership and strategic vendor (inaudible).

We feel that we can respond quickly to market demands protecting our business without taking undue inventory risk.

While we feel these efforts will go a long way toward protecting our margin structure, we do anticipate that our product margin will remain under pressure.

And we'll be slightly lower than we experienced last year in the first quarter.

We also expect that occupancy costs will continue to impact our margins negatively.

As to our expenses, at the onset of the crisis we took aggressive action and have made significant changes to our cost structure.

For fiscal year 2010 we are planning our business with a cost structure in US dollars that is approximately 5% lower than last year's.

Next, I will address income taxes.

We are planning fiscal 2010 with a tax rate similar to fiscal 2009 of 33%.

Regarding capital spending, in fiscal year 2010 we are planning to invest $70 million net of tenant allowances to fund new store development, remodels, and international expansion.

We'll also find projects that will serve us well in the future including infrastructure, IT, and key sourcing projects that will support our globalization efforts.

Now let me address currency for the year.

As we have said in the past, one of the ways that currency impacts our profitability is through translation.

The stronger US dollar has impacted our fourth quarter results and will certainly impact fiscal year 2010 negatively if today's prevailing exchange rate continue.

As a point of reference, if we converted last year's results with today's exchange rates, the negative impact on revenues would be approximately 7%, and the negative impact on earnings per share will be about $0.20 for the full fiscal year.

Most of this impact for both revenue and earnings would affect the first three-quarters of the year almost equally.

In the fourth quarter, currency comparisons become less adverse.

And assuming a relatively stable consumer environment, the negative comps should begin to subside at the end of the third quarter and should stabilize in the fourth quarter as we face easier comparisons relative to the prior year.

All things considered, we do expect that the first quarter earnings comparison will be the most challenging this year, followed by the third and second quarters respectively.

Any opportunity for quarterly earnings growth will likely be realized in the fourth quarter.

With that, I close my prepared remarks, and I would like to open the call to your questions.

Operator.

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

Please proceed.

Okay, thank you.

And congratulations, everyone, on a strong finish to the difficult year.

Thank you.

Hard to limit to one question, but just to clarify something before my fundamental question is really, Carlos, on your Q1 guidance for comps, and if you could give us sort of the cadence of the comp flow as we came through the fourth quarter and then started the first quarter again, kind of by month, and just to clarify, did you say Q1 comps would be down low to mid teens, and how much of that is currency?

Yes, currency has been affecting us in the last couple months by about 4 points.

So that's, as a general rule, you can use that for now, because exchange rates have been impacted during the first quarter almost consistently throughout the month.

With respect to the trends, we were very pleased with our fourth quarter.

We ended with 6.5% comp decline, but that was including currency, before currency, the drop was about 2.8%, but it was promotional, and really we have a commitment to run the business in a less promotional manner, for sure, and we have planned our inventories accordingly.

We were very pleased with February, because we were already running with an adjusted inventory position, and in spite of that, our comps were negative, but not as severely negative as we were planning.

So that considered, we think that the months of March and April are a little bit challenging, in terms of the comparison, because you have different spring breaks.

You have relative to last year, and then Easter shifts from March into April, so that is also impacting the comparison.

We are trying to be conservative, and we think that planning the business in the mid teens range is the right way to approach it now, and hopefully we'll do better at it.

Okay, so you are planning mid teens.

You have been trending a little bit better than that, and you will just see what happens in March and April?

Exactly.

The good thing is that really in February, we were pleased not only with the top line, but even, as importantly, or more importantly, with the margin performance of the business, where we saw that the deterioration in product margin was almost negligible.

In many areas we had better performance than a year ago where we were running full steam, and we think that that is great, because obviously with the kind of promotional promotional markets that we saw in the fourth quarter, that was a big question mark.

But because our inventories are good and the product assortment I think is terrific, it is definitely helping the top line on commercial.

Okay.

Just one other thing on Europe.

With respect to your performance there being concentrated still in a few major markets, with opportunities and some others, Paul, could you talk a little bit more about the trends that you are seeing in Europe coming out of the fourth quarter into the first?

There's still a lot of concern about the economic pressures.

I know your business in Italy has been very consistent.

Are you seeing any trends that encourage you in some of these other markets?

How much opportunity is there to expand given the pressures globally right now?

Any other pricing color that you could provide would be great.

That would be your first question?

Exactly.

So basically, if you look at the number of stores we plan to open for this current fiscal year, it would be 126 stores outside US.

Again, I remind you that it varies with size because we do accessories, we do footwear, we do kids, we do Guess?

jeans, so 126.

And in America we plan only 15 stores for this current year.

After that, outside US, you have 66 stores we open as a G store, which include (inaudible) so it's full range.

And we will have 36 stores opening also outside US, which is a very important number for us in view of the current situation.

It's still a very strong number.

But original number last year from this year was much higher, and we scaled down dramatically.

So we think that also for Europe, the current crisis and recession is started to really hit slowly more and more, and -- but I think because we don't have issues we have here from subprime and heavy debt and heavy credit card debts, like we do out here, we are less impacted there, and we see some negative comp but nothing to compare like in America.

In fact, this evening we will be on our way to Europe, my brother Maurice and I, as soon as we finish the conference call, and spend the whole week to visit some countries and talk to managers and managing directors all over Europe, and see with our own eyes what is the situation, but we think that definitely positively what's happening for us is we are very blessed to have this potential to open on many, many areas of Europe, we have different concepts, without any problems.

So that will help us a lot.

Okay.

Regarding the first point, we look also at adjusting somehow, a certain premium which we discuss on many conference calls that we think premium, as you can see now, what we said six months ago that they would be affect and they are affected in fact, that the right price, in our opinion, for good denim fashion is between 100 and $135, I would say, and then you have a little window, a little bit above with cross vendor, but that's the place where we are in Europe and (inaudible).

Thank you.

Thank you.

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

Good afternoon.

Hi, Eric.

I'm going to break the rule here for one small question that was not asked in the guidance.

What is the share count you are looking for next year if you do no share buybacks?

And could you talk a little bit in terms of the US, I need you to start back there in denim, what are we actually looking for?

What do you think are going to be some of the key trends for spring here and what are the full process of spring?

Okay, the share count for next year is 93.5 million.

That's the number we're using.

With respect to the second question, Eric, I'm sorry, if you can repeat that.

Yes, could you tell us what are you looking at in terms of what you think is going to work here for spring and for summer in the next two quarters?

As a product?

As a product?

Yes.

I can answer you that.

I think our position is very strong right now, especially if you visit our stores, if you have a chance to visit our stores, any one of them, you will see an extreme strong presence of denim, everything denim related from T-shirt to jeans, fashion basics, and basic fashion.

And we do believe that we have an unusual assortment on that, according to any competition you look around.

Then you look at the accessory section, and you will see that all really match, all the denim world and casual, and we have, again, we believe, outstanding product in handbags, watches, and footwear, and eyewear as well.

So this is where we see our core assortment for the spring and summer.

Great, thank you.

Thank you, Eric.

Your next question comes from the line of Todd Slater with Lazard Capital Markets.

Please proceed.

Thanks very much, and congrats on your results.

Thank you, Todd.

Can you give a sense of how many renewals and kick-outs might be coming up over the next couple years, and also how are you planning comps for the balance of the year as well as how you're looking at your inventory procurements for the balance of the year?

Thanks so much.

Yes, Todd, we have about 34 leases that are expiring this year, and about 17 that have kick-out provisions in addition to that.

Then if you look into the following year, the number is 46 expiring on about 25 additional that have kick-outs.

Great.

With respect to your second question, the way we are planning first quarter is pretty consistent with the way we are looking into the next two quarters as it relates to inventory and revenue opportunities.

The great thing is that I think we have a very flexible supply chain right now, and because we have position and fabric, we can react.

We have left a lot open, so if in the past we would have committed in the main collection, the original line about 70 or 80% or even more in some cases, now that number is lower, and we are filling in with a lot of immediate and what we call late adds, meaning styles that have been added after the line is approved.

And this gives us an opportunity to do two things.

One, to protect inventory risk from inventory risk, and also the second thing is that it gives us an opportunity to go after styles that are selling better, or that address the market needs more appropriately.

We believe that that is where we're going to continue to run the business at least into third quarter, and then we see some opportunities in the fourth.

Great.

Sounds like a good position to be in.

Best of luck.

Thank you, Tom.

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

Please proceed.

Thank you and congratulations on a good quarter and a very tough environment.

Thank you, Christine.

Thank you.

Just wanted to talk a little bit more about Europe.

On the last call you gave us some details on how the larger countries were performing, and I was wondering if you could share that with us again, because I think everybody found it really helpful.

The fact that you were able to move up orders, spring orders, up into the fourth quarter suggests to me that demand for your product in Europe continues to be pretty robust.

So wondering if could you comment on that.

Thank you.

Yes, Christine, it's Carlos again.

With respect to Europe, part of the change in the shift that we experience into the fourth quarter was also something that we have been working, our team there, for quite a long time now, to try to change the business model and make deliveries more evenly throughout the year.

So some of these are the results of those efforts.

We are very pleased with that.

But you are right, people definitely wanted the product, and that is what is enabling us to accomplish that.

With respect to breakdown by country, Italy, as you know, represented -- used to represent more than 50% -- much more than 50% of our business in Europe.

And now for the full year, last year, it represented exactly 50%.

The great thing is that Italy continues to grow, and, of course, we saw pretty significant growth in the fourth quarter, and even our backlog is up 15% in euros.

So that's a pretty healthy business.

A lot of the growth is coming from other countries, like France, even Spain we are experiencing growth, the UK grew for us, in both the wholesale level but also in retail.

Germany was another country where we grew our top line, and we've seen many opportunities in many other areas like Paul mentioned during his remarks.

So we feel this -- we have said this in the past, yes, many of the economies there are challenged, but for us, it's a big part of gaining market share, going into countries where our presence is very, very low, and where the brand is very well-known.

So we see opportunities to continue to grow as we plan.

That being said, we are being more cautious about the second half of the year because we are definitely aware of what's happening globally, and this economy will probably get some impact as we are all reading, and based on that we think it's more appropriate for us to plan the business conservatively, then feed in if we see more opportunity.

Great.

Then in the US, your promotions have certainly been more targeted, unlike most of the mall, which is just blanket, deep discounting.

Have you found that that's more effective for conversion in this environment with the Guess?

list?

Well, actually, I think I mentioned, we try to plan every promotion to really benefit our most loyal customers, and the fact that we implemented these loyalty programs has been a great tool for us to be able to do that.

We have planned to continue to do some of those same events, but we are being very careful with the margin, we don't like to be on sale like the rest of the mall is.

Because the product is being very strong, I think we have been able to do that.

That being said, conversion, when you see that the customer is much more price sensitive than it was, is a little more challenging.

So conversely, it has been challenged from that standpoint.

And with the conversion of Marciano to Guess?

by Marciano, do you intend to maybe merge those customer lists or do you intend to keep them separate?

Yes, we plan to merge these two lists, exactly that.

Thank you so much, and good luck and the stores look fantastic.

Thank you very much.

Your next question comes from the line of Janet Kloppenburg with JJK Research.

Hello, everyone, and congratulations.

Thank you, Janet.

A couple of questions.

It sounds like the trend in Europe -- I was wondering if you could talk about the trend in Europe at the tail end of the quarter, and I think you said now that you are planning them to be flat, or down low to mid teens on a currency adjusted basis, and I'm wondering, is that how it looked at the end of the fourth quarter, or if, again, like in America, you're being somewhat cautious, which I appreciate, but I was wondering if there was some caution in that outlook?

And I was also wondering if could you discuss how the comps at the Guess?

business look ex the Marciano business, which I think because of price point, may be under a bit more pressure?

Thanks so much.

Okay, sure.

Janet, with respect to the European question, there are a couple of things that are impacting that comparison.

One that is big is the shift that took place between first quarter into fourth quarter last year.

Okay, I understand now.

Go ahead.

That is impacting the revenue.

And in addition to that, there is a major impact of currency here, because of the strengthening of the US dollar this quarter versus a year ago.

So those two things are pretty impactful, and even when our backlog, as you know, when we release third quarter numbers, at that time, we mentioned that our backlog was up 15%, and we continue to see that type of growth in euros, but because of the shift, obviously, we lost some of that growth, and that is impacting the first quarter.

The second quarter, we haven't talked about, but obviously when you see a 15% growth, that gives you a pretty good idea, we normally run with about six months in the backlog, depending on the time of the year, and that gives you a pretty good idea of how the business is trending into the second quarter as well.

Is there a shift comparison from last year in the second quarter, Carlos?

Well, it's all about the fact that we have been trying to change how the business delivered throughout the month.

So any changes to that are just relative to the business model that we have been able to effect.

So any changes to that are just relative to the business model that we have been able to affect.

And last year we had a couple of those.

We also see that there is a possibility that some of the third quarter shipments for Europe could fall into the second quarter.

So we don't know that for sure, but that is -- that's something that we're anticipating right now.

And on the Guess?

Marciano discussion?

You're absolutely right.

Our Guess?

by Marciano business has been impacted probably the most because of the price sensitivity of the customer today, and so if you exclude them, the counts would be better.

And excluding currency, Carlos, could you talk a little bit about the margin trends in the European as well as Asian markets, the current trends, the way you talked about them in the American markets?

Thank you.

North American markets.

I'm not sure I understand your question.

You are asking about currency and what impact that has on the margin?

If you could talk about the margin trends in Europe and Asia, and -- that you talked about in the US, yes.

I think you said margins in the United States were holding up pretty nicely because your inventories were tight.

I wondered if you could talk about that in the international markets?

In Europe in the fourth quarter, Janet, they were -- the product margins were basically flat.

We have -- we're a little bit down in gross margin but that's because we've been investing in it the same time Europe has a higher component of occupancy costs, but by product margin to product margin, very consistent Q4 to Q4 last year.

I would add to that, that the good thing is that inventories are in pretty good position, and that is across the board.

This effort to reduce inventory levels by year end was a worldwide effort, and it was effective everywhere, including Europe and Asia.

So we do not have any issues with inventory.

However, when you look at Europe, the fact that the euro is trading at where it is, last year we had significant benefits in our margin structure because the euro was so strong relative to the dollar, so we are up against those numbers.

We want to protect our market share, so, it's not that we are going to increase prices in this type of market.

So we may see some impact and challenge at the margin level, and that being said, especially with respect to the first quarter, the fact that we lost a lot of those shipments in the first quarter, and now we have a larger retail base, meaning we have 61 stores, so occupancy is going to play a role there in the first quarter as well, so first quarter, we could see some impact on margin.

But it's all embedded in our guidance.

Many thanks.

I'm sorry, I was going to add to that.

We also have hedged, so we've got a lot of our purchases into next year already under contract.

Great.

I wanted to say I'm glad the new G by Guess?

is doing so well.

Thank you.

Your next question comes from the line of (inaudible) with Morgan Stanley.

Carlos, quick clarification question.

Did you say that your expectation for SG&A in US dollars would be down 5% for all of fiscal year '10?

Yes, I did say that, and that is our goal.

Of course, that assumes certain level of performance and operating -- we think that we can do that.

We have a structure in place that can accomplish that for us.

So correct me if I'm wrong.

That would imply that constant currency SG&A would actually be up year-over-year?

Well, if you -- I don't know exactly what the difference is, but because you have to take into consideration of how much expenses are in foreign denominated currencies, but that could be the case.

Got it.

As you look at that, at those expenses, are there opportunities for you to pull back if business were to trend a little bit worse than your expectations?

Well, we always find a way to do that, and I think you can see that in the fourth quarter performance, where we picked up over 2 points in expenses, and we had very short notice to be able to accomplish that, so we are pretty flexible, and we'll do whatever we need to do to protect the profitability of the Company, but I think we have done quite a bit on the fixed cost part of the structure, and then we are very careful with how we spend the variable part.

So the answer is, yes, we will continue to look at the cost structure.

We have gone through the whole global cost structure, again, including every region, and the way where we expect to meet this kind of goal, the lower 5% is through a global effort.

Every single region has to work hard on this.

And as you guys look at occupancy costs for fiscal year '10, can you talk about any possibility of seeing actual rent reductions through those lease renewals that you talked about earlier on the call?

Well, you have to keep in mind that those lease renewals, they relate to leases that were signed about 10 years ago.

So the fact that there is a renewal doesn't necessarily mean that the current market conditions will be lower than what we're paying currently for those leases.

So I wouldn't take that money and expect that that is going to reduce occupancy costs.

Now, of course, we do believe that the current conditions are much more favorable than what we were seeing up to last year, where every time that we would renew one of those leases, we were seeing a pretty significant increase from what we were paying.

That should subside.

Got it.

And last question, Dennis, can you just quantify for us what the impact of the comp accrual reversal was in the fourth quarter?

It was about roughly $0.03 a share.

Okay, thank you very much.

Thank you.

Your next question comes from the line of Betty Chen with Wedbush Morgan.

Please proceed.

Thank you and congratulations, everyone.

Thank you, Betty.

I was wondering, Carlos, if you can give us a little bit more color by concept.

I know you have already talked about how G by Guess?

seems to be outperforming the other brands.

Could you give us a little more color on how the comp trends trended in that fourth quarter and so far in February, and looking forward then, in North America store openings, should we also anticipate more G by Guess?

store openings this year, or how should that break out by brand?

Like Paul said, let me start with that, like Paul mentioned, earlier, our plan is to really just fund those deals that have been committed.

So we are not planning right now aggressive openings other than the ones that we have in the books, and there is a fair distribution of those by concept.

Now, we have not opened many of those stores.

We plan to continue to support the factory business because it has been very healthy.

Some key locations for the full price Guess?

business in North America, both US and Canada, accessory stores, we see that as a big opportunity, and, of course, G by Guess, but we don't have significant growth plans for either one of those concepts.

With respect to G by Guess?

and its performance, yes, it has been very, very encouraging.

We're very pleased.

We're talking about double-digit comps in the fourth quarter, and that type of environment I think was remarkable.

That performance was much better than any one of the other concepts, and the performance was also better in the month of February as well.

Carlos, is there any way you can talk a little about some of the profitability trends for G by Guess?, and if there are any sort of long-term targets you have for that brand?

Well, I can tell that you last year G by Guess?

lost less money than the year before, which I think was a remarkable accomplishment, and we have a plan to lose even less money this year.

And Dennis, I was wondering if you can also give us a little bit more color around the inventory position.

It was obviously very clean for the overall Company coming out of the Q4 time frame, and it sounds like obviously a lot is on flexibility for the spring season.

Is there any chance you can tell us kind of how the inventory broke out between wholesale versus retail and sort of how is that being planned going forward as well?

Well, if I can give you some color, just on the way we ended more regionally, the growth was pretty consistent.

Most of the growth, modest as it was, was in Europe.

I think the Asian inventories were down in North America, was roughly flat, through fourth quarter versus fourth quarter.

The growth was pretty consistent and was obviously shifted more towards the parts of our business where we have seen the recent growth.

And I guess the last question I have, if I may, it certainly sounds like Asia continues to be an opportunity.

You have mentioned that while South Korea is expected to grow, some of that benefit will be offset by the won weakness against the US dollar.

Could you comment a little about what you are seeing in China and maybe the expansion into the secondary cities?

Thank you.

Yes, this is Paul.

We have barely started in China, and I'm sure that if you have talk to companies that have expanded in China, the biggest challenge we have come to there is the sizes of country.

Nothing to compare to anything anywhere else.

So we, in fact, are going to have another two visits in the next three months in China to really assess, (inaudible) -- as you know, there's more than 100 cities who have more than, I think, 5 million people, something to that extent.

I mean, huge, huge numbers.

And we cannot, of course, cover that ourselves.

We have our own stores in key regions.

We have some franchisees that we believe we're going to need to go to next step which we will need to secure not a franchisee, not a direct, but to go joint venture, with some key partner to address this matching market on a prudent matter.

We don't -- we are not exploding in that market, and we want to make sure that we don't make any mistakes once we pass the lost cities like Beijing and Shanghai and, of course, Hong Kong and all that.

So definitely that's a project of three, five, seven, ten years.

But no question about that this region will be not today, not tomorrow.

After tomorrow, will be a massive source of income if we develop carefully our brand and image, and consumer demand on that country.

It means that we'll move into a slow year than anywhere else.

Thank you very much, and best of luck.

Your next question comes from the line of Holly Guthrie with Boenning & Scattergood.

Thank you.

Let me add my congratulations.

I just have a follow-up question on the SG&A.

On the 5% reduction, does that include also any assumptions for lower fuel cost or any sort of improvement in sourcing as well as cost reduction at the different headquarters?

Holly this is Carlos.

Anything that deals with sourcing for us is part of our cost of goods sold.

So all that, anything that we can do in terms of sourcing would impact our gross margin.

And the same thing is true for freight.

If it isn't freight, it goes into the cost of goods.

If it is outbound, we reclass it into the cost of goods sold when we close every month.

That being said, I think we are very pleased with the progress we are making in supply chain because we believe that we'll be able to protect our margin structure through IMU even when we have been careful with price points.

Okay, great, thank you.

And then just one question with pricing in the stores.

Has there -- do you think there are any opportunities to enhance customer demand given that G by Guess?, which is a little bit lower price point, seems to be doing better than the average, and there is so much talk about just prices coming down and consumers being strapped and being enticed by a little bit lower opening price points?

Do you think there's any opportunities there to pick up some comp points and just source it, given, with the knowledge that you will price it $10 below or something?

Great question.

Really where merchants have been working diligently on this, and trying to really sharpen price points where we thought that there was a need, concerning the market demand.

And this impacts both full price Guess?

stores and you are going to see in the stores there are a lot of prices that are sharper within categories.

Now we feel that there are many categories, that because we are so unique, there is no need for that type of change.

It also impacts our Guess?

by Marciano business right now.

So in some cases it's not necessarily to change prices overall but to develop more into the lower price points within a product category, and we are doing that.

Great, thank you and good luck.

Thank you.

At this time, there are no further questions.

I would now turn the call back to management for final remarks.

Okay.

Thank you very much.

Thank you for all the questions.

We do appreciate.

I hope we did answer you as much as we could, and to give you as much visibility as we could.

Ourselves, we have a little visibility right now.

But we hope to continue to deliver some strong results for this current year, and especially in view of the markets as they are around the world, and we will talk to you in three months from now.

Thank you very much, and thank you again.

This concludes today's conference, ladies and gentlemen.

Thank you for participating.

You may now all disconnect.

Enjoy your day.