Guess? Inc (GES) 2014 Q1 法說會逐字稿

Good day everyone and welcome to the Guess first-quarter fiscal 2014 earnings conference call.

On the call are Paul Marciano, Chief Executive Officer; Nigel Kershaw, Interim Chief Financial Officer; and Russell Bowers, Chief Financial Officer of North America Retail.

During today's call, the Company will be making forward-looking statements, including statements regarding future plans and financial 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 I would like to turn the call over to Paul Marciano.

Thank you.

Good afternoon and thank you for joining us today.

In the first quarter, we delivered adjusted earnings per share of $0.14, which exceeded our earnings expectations.

This performance is encouraging considering that we continue to operate in a very fragile economic environment in Europe, and a challenging North American retail market.

But first I would like to update you on our progress in some of the key strategies that I shared with you during our last earnings call in March.

Let me start with Management in North America.

Two new top Executives have joined our Management Team.

One, to head our design and one to head our retail merchandising in North America.

Hillary Super has joined us as a Senior Vice President GMM for Guess North America.

Hillary had a senior merchant role at American Eagle and Gap.

This Monday, Sharleen Lazear is joining Guess as a Chief Design Officer overseeing all product categories.

She has a successful track record on designing brand product that capture the emotion of consumers of iconic brands.

Her previous role was Executive Vice President of Design and Merchandising at Victoria's Secret for the last 13 years.

We'll now focus on filling the COO and CFO positions.

We have made great progress and made and met solid candidates, and I would expect to have similar announcement in our next conference call.

With respect to product, I feel good today about what I see and what's coming in our stores in the next four to six months.

As I mentioned in our last call, I took steps to address this, and with the design team, we created a return to the iconic jeans roots of Guess that will you will see first in our fall product line and our ad campaigns.

At part of this strategy, we're also increasing our dynamic offering and iconic styles at entry price points.

About the organization, in the first quarter we executed on our plan to streamline our cost structure across Europe and North America, and we made some meaningful change by streamlining processes and aligning department that will allow us to operate with better efficiency and more flexibility.

Moving now to a business update about our first quarter.

Our comp sales for North America retail were down 9%.

February and March were challenging due to weather again, but we started to see improvement in the traffic and comps since Easter, and ultimately exceeded our revenue expectations that were tempered by a soft start for the quarter.

Improvement to the product assortment, especially related to our speed-to-market initiative and the warmer weather both contributed to this plan.

I'm also encouraged by the stronger sales that we have seen so far in May as the weather continued to improve and the customers respond favorably to our product assortments.

Turning to Europe, in the first quarter, the microeconomic condition of southern Europe continued to impact our business.

The fiscal issues along with extremely cold weather negatively impacted sales on the spring floor sets of our retail stores.

While we have seen some improvement in retail performance in recent weeks, it is difficult to build on this momentum as bad weather condition continue to impact store traffic dramatically across Europe.

Looking forward, our fall/winter wholesale orders campaign was slightly lower than expected.

We continued to make progress in growing outside of southern Europe with double-digit increase in Russia, Germany, and Middle East.

However, the overall trend continued to decline, mostly impacted by the multi-brand wholesale in Italy and France that are struggling due to the lack of financial liquidity and weak credits.

About Asia.

For Asia the Guess line is well known now throughout the region and we're very proud of what we accomplished so far.

In the short term, we expect to see volatility with the recent political issues in South Korea as well as a slow economy in China that is impacting consumer spending.

But we are managing for these external factor with our long-term strategy in mind.

Moving to Latin America.

The brand also enjoyed a premium positioning in Mexico, and in the first quarter the business continued strong performance, posting a 30% sales increase.

Guess is very well positioned with a stronger retail and wholesale presence throughout key markets in Mexico.

We closed the quarter with 31 retail stores and 381 wholesale doors in department stores.

Also Brazil represents a good opportunity for our business in Latin America through both retail and wholesale.

We will open our first retail stores in Sao Paulo before Christmas.

ECommerce.

Integrating our eCommerce business with our stores in US and Canada is also very important to us.

We will continue to focus on delivering a seamless experience for customers who shop across our retail and online channel.

This efforts are starting to pay dividends with another strong quarterly performance, which is our sixth consecutive quarter of double-digit growth and room for even stronger growth as we introduce further system enhancement, such as order fulfillment in our stores.

In closing I would like to recap our key points.

As we consider the current environment, microeconomic issues are likely to dominate consumer spending for some times.

As we think through the potential for longer recovery time in southern Europe and that is what we are most concerned about.

While Europe was soft in the first quarter, we are very comfortable with our position internationally as we continue to enter new markets and expand our reach globally.

Next, effective pricing and positioning of our product is key.

We anticipate our effort to position the brand where we offer both value and aspirational product to our customers.

Finally, profit margin, which were not good in Q1, will be addressed with a strong control of allocation and productivity in North America retail stores.

That is our focus at all levels in our Company.

I strongly believe that product and design are the right direction today.

I also believe our Executive Management team will be complete in the next 60 days.

I see some clear and positive economic signs in the US, but should continue going forward, and because of that we have clear and compelling long-term growth opportunities and I remain very confident in the strength of our brands.

With that, I will hand it over to Nigel to discuss financial performance of the first quarter.

Thank you, Paul, and good afternoon.

During this conference call, all of our comments for the first quarter are on an adjusted basis, which exclude the impact of certain restructuring charges incurred during the quarter.

You can find more details of these charges and a reconciliation to our GAAP results in today's earnings release.

Moving onto the results.

First-quarter adjusted net earnings declined 56% to $12 million and adjusted diluted earnings per share were $0.14, down 53% compared to $0.30 per share in last year's first quarter.

First-quarter revenues decreased 5% in both US dollars and local currency to $549 million.

Total Company gross profit for the first quarter declined 16% to $197 million, and gross margin declined 460 basis points to 36%, which was below expectations.

SG&A, excluding restructuring charges, decreased 6% to $184 million, primarily due to lower corporate expenses.

As a result, we were able to leverage our expenses with the lower SG&A rate as decreased by 30 basis points to 33.5%.

Adjusted operating profit for the first quarter decreased $25 million to $14 million.

Our adjusted operating margin declined 430 basis points to 2.5%, which was higher than we expected due to leveraging of expenses.

Our effective first-quarter GAAP tax rate was 33% compared to 32% in the prior-year quarter.

Now I will review our segments, starting with North America.

In North America retail, first-quarter revenues decreased 5% to $238 million.

The slightly higher square footage was more than offset by the 9% decline in local currency comp store sales in the US and Canada.

Operating income declined $21 million to a loss of $4 million and operating margin declined 850 basis points to a negative 1.8%, which is below expectations.

The deleveraging of occupancy in SG&A expense resulting from the negative comp store sales drove the majority of the decline in the operating margin in the quarter.

Current margins were also lower as we worked to clear inventories that had built up earlier in the quarter.

In Europe, first-quarter revenues decreased to $165 million, representing a 13% decrease in US dollars, and 12% in local currency.

The decline was driven by lower wholesale shipments as well as negative comp store sales that were down in the high-single digits.

As Paul mentioned earlier, Italy and France continue to be our most challenging markets, where shipments into the wholesale channel continue to decline, partially offset by growth in newer markets such as Germany and Russia.

In addition, there were also some timing of shipments that unfavorably impacted the first quarter this year that mostly benefit last year's fourth quarter.

Operating income decreased by $80 million to a loss of $5 million, and operating margin declined 980 basis points to a negative 3%.

The higher occupancy rate was the biggest driver of the lower gross margin due to lower sales in our wholesale business and retail expansion.

Our SG&A rate also increased due to lower sales in the wholesale business and negative comp store sales.

In Asia, revenues in the first quarter grew by 10% to $71 million, with South Korea continuing to post double-digit top line increases.

Operating profit increased 19% to $7 million and operating margin increased 70 basis points to 9.8%.

Improvements in our SG&A rates in the quarter drove the higher operating margin, partially offset by lower gross margin from retail expansion in greater China.

In North America wholesale, first-quarter revenues were roughly flat to last year at $44 million.

Operating profit decreased by 7% to $9 million and operating margin declined 160 basis points to 19.7%.

Royalties generated from sales by our licensee partners were in line with our expectations at $30 million, which represented a 5% increase from the prior year.

Operating profit increased 7% to $26 million.

Now turning our attention to the balance sheet.

We ended the quarter with cash and short-term investments of $313 million compared to $490 million a year ago.

This comparison includes the impact of $22 million of repurchases of our stock in the first quarter, $140 million of repurchases of our stock in the second quarter of last year, and a special dividend of $102 million in the fourth quarter of last year.

Excluding this cumulative return to shareholders of $264 million over the last year, our cash position would have been up by $90 million from a year ago.

The cash receivable decreased 23% to $251 million, and overall DSOs improved compared to last year.

European DSOs remained flat despite the continuing slow payments in Italy, which we've continued to manage carefully.

Inventories were $376 million, an increase of 13% in both dollars and finished good units compared to last year.

The softer sales in the first quarter in Europe and North America retail both contributed to the increase.

In North America in the back half of the first quarter, we were able to work through most of our carryover inventory, which has put us in a better position going into the second quarter.

So now, Russ will give us an overview of our recent business trends and provide our outlook for the second quarter of fiscal 2014 and the full year.

Thank you, Nigel, and good afternoon.

Overall, our expectations on earnings per share for the year have not changed.

We have incorporated some of the cost savings in the first quarter into our full-year assumptions.

However, we have not -- we have also tempered our expectations for top line performance for Europe and Asia for the rest of the year based on the finalization of the fall/winter orders in Europe and the economic conditions we are seeing presently in Asia.

Looking at North America retail so far in the second quarter, comp store sales have been down in the low-single digits and we are planning the second quarter assuming comps decline in the low- to mid-single digits.

This would translate into a revenue decrease in the low-single digit to flat range.

For the full year, we are now expecting comp store sales to decrease in the mid-single digits and for revenues to decrease in the low-single to mid-single digits.

So far in the second quarter, comp store sales in Europe have improved and are roughly flat for the quarter to date.

For the full quarter we expect the comps to decline in the low- to mid-single digits as the comparisons get more difficult in the second half of the quarter.

For the year we are planning comp store sales to decrease in the mid- to high-single digits.

In Europe we recently completed the sales order campaign for our fall/winter season, and now have more visibility into expected wholesale trends over the next few months.

The fall/winter wholesale orders are down in the low-double digits and we are not planning for any notable improvement in the back half of the year.

Considering these factors as well as the larger store base, we expect total Europe second-quarter revenues to decline in the mid-single digits in local currency.

Assuming the euro remains at prevailing rates, this would result in US dollar revenues that decrease in the low-single digits in US dollars.

For the full year, we expect revenues to decline in the mid-single digits, both in local currency and US dollars.

In Asia, while revenues were up 10% for the first quarter, economic conditions are not as strong as we had hoped and our sales trended below expectations in the first quarter.

For the second quarter we expect revenues to grow in the flat to low-single digits.

For the full year we now expect revenues to grow in the mid-single digits.

In our North American wholesale business we expect revenues to decrease in the low-single digits for the second quarter and decline in the mid-single digits for the full year.

In our licensing business for the second quarter we expect royalties to be flat.

For the full year we now expect royalties will grow at a slightly slower pace in the low-single digits as our licensees navigate the weak global macroenvironment.

For both the second quarter and full year, we expect overall gross margins to decline as the expectation of negative comp store sales in North America and Europe continues to put pressure on our occupancy rate.

However, we do not expect the decline to be as much as the first quarter.

With respect to operating expenses, we expect a slightly lower SG&A rate for the second quarter, driven by expectations of lower overall expenses, partially offset by the impact of negative comp store sales.

For the full year, we expect the SG&A rate to be flat to slightly lower as some of our restructuring initiatives start to impact the cost structure and we anniversary some one-time cost not expected to recur.

We are planning the full year with a 33% tax rate and our guidance assumes foreign currencies remain roughly at prevailing rates.

Considering all of these factors, for the second quarter we expect consolidated revenues in the range of $620 million and $635 million.

We are planning an operating margin between 7% and 8%, and for adjusted EPS in the range of $0.34 and $0.38 per share excluding any restructuring charges.

These expectations would result in full-year consolidated revenues between $2.57 billion and $2.61 billion, operating margin between 8.5% and 9.5%, and adjusted EPS in the range of $1.70 and $1.90 per share excluding any restructuring charges.

Lastly, in the first quarter, capital expenditures totaled $20 million.

For the full year we plan to invest between $80 million and $100 million in capital net of tenant allowances, primarily for new stores and remodels.

With that, I will conclude the Company's remarks and open the call up for your questions.

Before doing so, let me remind everyone to please limit themselves to one single-part question.

If time permits, we will allow people to ask a follow-up question.

Operator?

(Operator Instructions)

Erinn Murphy, Piper Jaffray.

Nice to see some of the topline improvement in North America.

I guess I wanted to focus a little bit more on that segment specifically.

Just piecing out both the topline recent improvement and then coupling that with the profitability in the quarter.

The first part of this is, how should we think about the conversion rate in the first quarter as you did start to test some of those products, sharper price points in the product category, the $79 denim?

Did that actually help improve conversion, and then what kind of products have you been seeing stand out in the second quarter to date?

Okay, so, to follow-up on that, yes, we did see trends get a lot better during the quarter.

With the first half, we were down in the teens and the second half we were down mid singles.

In May so far, we've improved even more.

And just as importantly, we haven't given up as much in product margin as we did in the first quarter.

It's down but it's only down about one-third of what we lost in Q1.

So trends are really looking better across the board.

In regards to the conversion rate, yes, conversion has improved for us.

It was up over last year during the first quarter and it is still up so far in the second quarter.

So we are encouraged by that.

In relation to the pricing, it's still early to draw a lot of conclusions based on that, because we haven't done it in a big way yet.

We've really just added one $79 style to the denim wall and there was another style that we repriced that wasn't as significant, but we have seen some positive results with the lower-priced denim so far, and a lot of the entry-level price point dresses have also done well, and of course the overall numbers are better too.

So we are encouraged.

Okay.

Betty Chen, Wedbush Securities.

Congratulations on managing well and the nice improvement in the business.

I was wondering if you can talk a little bit about Europe.

It feels like while southern Europe remains weak, I think you mentioned that comps have also improved in the second quarter.

How should we think about that and whether you believe that the consumer appetite has improved a little bit, and that we might be set up for multiple quarters of them finally feeling comfortable to buy?

And in terms of the new markets, are there any other new markets that you're thinking about going into besides Russia, Germany, that have done so well?

Thanks.

Yes, this is Paul.

We have a few factors here Betty that we should address.

One is the continued pressure in France and Italy, and it is no secret for anybody that they are much more challenged even than Spain.

And also for us, because we are so largely present in these two countries, that by expanding North Europe and Eastern Europe, we have been able to really manage to have that percentage of presence reduced slowly to more comfortable numbers.

What we have not expected has been as of today, as of last weekend, as of last week, the drastic weather conditions will continue to be beating Europe like we have not seen for some time in a half century.

To give you just some color, some ski stations are reopening this weekend in June, I've never heard that in my life that people were going skiing in June.

So it is happening right now in France.

So the weather has been a big factor.

To date, the French government got some relief from the European community to really release some rules, and I think that will help the austerity to hit so hard the consumers in France.

So I'm getting much more hopeful than where we were the last quarter and the last three quarters in France and Italy.

Italy, we should see also some move a little bit, but we try to be because I go there a lot, and the sense of the street continues to be cautious.

The sense of the street is nervous, apprehensive, and we don't see the consumer rush into the stores and say, oh, wow I want to shop today.

It is much more controlled.

I am on my way next week to Europe again and I think we will reevaluate that, but you talk about new markets and new markets like we are pushing right now has been the Middle East, which has been really strong, we're there for 20 years, but we continue to expand very strongly in Middle East, which we have no issue of credit or austerity or whatsoever.

In Eastern Europe like Poland, we just opened a brand-new showroom a few months ago, we are opening seven stores now.

I'm on my way to visit as well there, and I'm very hopeful about all these countries around that, and Tokyo of course.

So I give you the best color I can right now.

Europe is a very large market for us and we are monitoring very closely and we believe that things should turn around on Q3.

That was really helpful, Paul.

Could I follow up, I mean --

I think we lost you.

Eric Beder, Brean Murray, Carret & Co.

Could you talk a little bit about, I know we've had some weather has messed up trying to figure out the trends and pieces here, but what are the trends you are seeing?

And as we go into fall, what do you think is going to happen with the denim looks, I know the color has not been as strong going forward.

I'm sorry, I did not understand the question.

I'm really sorry.

I'm sorry, I will rephrase it.

In terms of what you're seeing, in terms of what's working, in terms of fashion trends in North America and Europe specifically denim, what has been the key denim look that has been working for you, and where are you focusing your denim looks going forward?

Okay.

Yes, so really going forward with the denim looks, we're really looking at the destroyed look, which is doing really well right now in the stores, and really more of your authentic heritage type of denim is really the look that we are going for back in the fall.

And we still feel good about it in the fall about coated denim this year as well.

Thank you.

John Kernan, Cowen and Company.

I wanted to talk about the assumption that product margin and gross margin gets better as the year goes on.

Are you worried that your inventory is a little bit -- that you're a little bit over inventory right now?

If we just optically look at inventory growth relative to sales growth, it seems like there is a pretty big delta between that, and is there a specific region that is accounting for that?

And what gives you confidence that the gross margin line is going to get better as the year goes on, particularly the margin side?

John, this is Nigel.

When you look at inventory at the end of the first quarter, we were up 13%, and that is largely due to the softer demand that we saw both in Europe and in North America in the first quarter.

The good news is that in North America after Easter when we start to get more traffic, we were able to work through a lot of that carryover inventory, and so for the most part that's allowed us to enter second quarter in a better position.

And as Russ mentioned earlier, we don't expect to have those same product margin declines in the second quarter that we saw in the first quarter, so that is good for us.

In Europe, the business model there doesn't allow us to clear inventory within the quarter.

But we do have a very profitable liquidation model that we can liquidate product through our outlet.

The situation is just that we have to hold onto inventory for a longer period, but we do believe that by the end of the year we will have aligned inventories and sales in Europe.

Yes, John, this is Russ.

Just to give a little more color on North America, after we normalized for the week shift in the calendar, our inventory was down 1% per square foot at the end of the quarter.

So we are currently fairly clean, but we do think at the end of the quarter there could be some liability with some of the seasonals, because the season started very late this year.

And as you look to the back half of the year, the team is planning the markdown levels very tightly, but we also have some easier comparison last year to look forward to.

Right, any thoughts about how much the clearance of the carryover inventory may have benefited your comp in North America in the quarter?

You know what, it wasn't a big impact on it.

In a lot of cases it hurt us because it lowered our ADS, which is one of the things that hurt us in the quarter.

And so you're talking maybe 1%, 2%, and you look at May where we haven't had the same levels of markdowns, the comps have been even better than the back half of Q1.

So I don't think it helped our comp much at all.

Omar Saad, ISI Group.

Could you guys talk about the accessories business?

I know it's been a little bit disappointing the last couple of years, handbags, watches, and they've got some new initiatives going on there, some new materials and looks.

And give us an update on the progress of getting that business, which historically has been an important contributor, where you want it to be?

Thanks.

Well, I think that I will start with handbags, which is a very, the largest category I believe today, and the last two years you're absolutely correct were challenging, and now the last few months, we have seen some positive all on the full priced store, specifically turnaround and positive comp for the bags.

Watches has been stabilized and shoes has been challenging for the simple reason that I mentioned at the beginning of the call, which basically we are in May now, June in a few days, and there have really been no spring/summer weather conditions anywhere.

So especially on the East Coast, only just the last few days I think you have been experiencing some good days.

But that has been the picture.

The eyewear has been good.

Jewelry in the US has been good.

The handbag which sold out around the world is a main driver and it looks like we are really turning the point there.

And in fact, the line review will be tomorrow for holiday, and I'm pretty excited because I saw the preview already and I'm very happy with it.

Thank you.

Jeff Black, Avondale Partners.

Just a couple of questions.

On the cost initiative, what falls in the bucket of efficiencies that we carry forward, and what falls in the bucket of one-time compensation, marketing, adjustments that we made?

How do we look at that picture?

And then, Paul, on Asia, what's driving your thinking there?

Is it the same issue in Europe, is it weather?

Is it product?

Is it consumer spend?

And on the SG&A side, that we look like we are starting to leverage that business like we all thought we would, is that where we are here in the investment cycle is behind us and we can now get better leverage on that topline?

Thanks.

So, thanks, Jeff, this is Nigel.

So on the SG&A initiative side, we've been very careful to focus mainly on back-office functions in the underperforming markets, and we've -- we haven't touched store selling and we haven't made any big changes to marketing or advertising.

So when you look at the changes that we've made, we're really focused on delivering those restructuring initiatives that we implemented in the first quarter.

So when you look at the full year, we believe that there is actually an opportunity for the full year to leverage our SG&A rate versus last year, that's a combination of the restructuring initiative that we implemented.

There are some one-time costs in there, but also if you look at our first-quarter results we actually delivered better on the cost line than we expected, and you're now seeing that in the full-year guidance.

And then to your point on Asia, on the SG&A, yes, we've been very focused on building the infrastructure there, and this was the first quarter where we were able to really look at those expenses and leverage those, so we are very happy about that.

And we've, as we said last quarter we are -- the operating margin, we expect that too to be accretive for the year when you back out Japan, where we are making some investments in there.

(Operator Instructions)

Jeff Van Sinderen, B Riley.

I think in your prepared or in one of your question answers, you mentioned that you thought Europe would turnaround in Q3 if I heard you right.

I am just wondering what gives you confidence in that and how you're figuring that will happen.

This is Paul.

That is my personal opinion for that of what time I see happening of new merger that we are still which we plan we are changing right now in France and Italy, which have been guided by the European community to say that we've got to correct that, the sooner the better because it's become unsustainable there.

And I believe that we are going to see the consumers coming back to better level of comfort.

What is most stressful in Europe right now is worriedness of the consumers, the concern of their jobs, the concern of the weather, of course which I mentioned many times.

But I'm very hopeful person about that and Europe is extremely large, large business for us, and I see that we are putting things in place, that if the weather cooperates a little bit, we should have a very good Q3 and Q4.

That is my goal.

That is the entire Company goal.

Susan Sansbury, Miller Tabak.

Could you specify what the cost savings were in the first quarter and if there are specific buckets, could you explain what they were?

And what type of annual cost saving are you striving for for the year?

So when you look at the savings versus our expectations in the first quarter, none of that was related to the cost restructuring.

We expect to get the cost restructuring benefits in the back half of the year.

So there was -- those savings in the first quarter, there was no one single large bucket, it was spread across the entire organization in all regions.

So we are very happy about that.

There's definitely a big focus on expense discipline in the Company throughout the Company.

When you look at the full year, as I mentioned earlier, we expect there's an opportunity to leverage SG&A rate for the full year.

If you look at -- based on those expectations it's roughly about $25 million of cost savings initiatives and other cost savings that are built into that model, so that's not the annualized number, but that is what we expect to benefit from in this year.

And so that is what we are focused on at the moment.

Dana Telsey, Telsey Advisory Group.

As you think about going forward, now that we've gotten through the first quarter, you've hired new people, how do you see the design changes evolving?

How do you see it evolving in terms of price point?

And then when you think about the gross margin and the different buckets of gross margin and what happened with occupancy and then what is happening also as you're thinking about store -- how you're looking at the store base, where should we see the change in operating margin over time?

And is it going to happen first in Europe, happen first in North America, how do you look at it?

Thank you.

Well, hello, Dana, it is Nigel and I will deal with the gross margin question first.

When you look at -- what you look at the first quarter, it's our smallest revenue quarter of the year.

So any changes in revenues have a significant impact on operating margins, whether that is increase in revenues or decrease, so that is what you're seeing here.

When you look out at the profitability over the rest of the year, the two big drivers in why we don't expect to have the same margin decline that we saw in the first quarter are the biggest one is the positive comps -- not the positive comps, sorry the improvement in the comp trend over the rest of the year, that assumption drives the improvement in the profitability.

And then earlier on I was talking about the SG&A improvement, that's also going to help us.

So those are the two biggest single drivers that improve the operating margin.

Yes, this is Paul, Dana.

For design of course Charlene is starting Monday, so we have not started.

What we put as we explained to you is the denim has taken front stage in all areas of the Company, and we lost a little bit of that the last few years by focusing so much on accessories, accessories, and fashion trend.

But our heritage, our roots, our business all through the years has been denim.

And you will see that we've -- the pictures of my new campaign, which will be in magazines five weeks, maybe six weeks for fall.

And you will see that in the windows also for fall at the same time.

Denim will be completely a priority on every front.

That is one.

Two is I think we've diversified ourselves too much.

We're having to be much more focused on the categories, much more focused on volume drivers, and without forgetting that we are a sexy Company.

We started as a sexy jeans Company, and we have not changed that, and we will make sure that we remind the customers, who have been loyal to us for so many years, that we still exist after 32 years because of that.

So you will see the message I think better than anything will be to visit the stores, and talk to the customers, or the managers and see what you see in the change in our product.

But expect to see a big, big change in the next six weeks in the windows, in the magazines, everywhere.

And then Dana, the price point evolution goes in lockstep with what Paul was just talking about in regards to deeper buys, because a lot of these deeper buys are going to be at the lower price points, and you're going to see the biggest changes in denim.

You're going to see the changes in knits, as well as handbags.

And I think a really good example of where we're going to be once we get to the fall is that half of our denim wall is going to be at $79 price points, and then we will have $89 and $98 on top of that, which is a little sharper than where we were right now and where we were last year.

There are no additional audio questions at this time.

I would now like to turn the call back over to Mr. Paul Marciano for closing remarks.

Thank you everyone to be participating in the Q1.

I think we will have the next conference call on August of Q2, and I believe that we will have a much more news to share about our key question, which would be Europe and giving much more detail about the rest of the year at that point, but also of our product category with performance later about design and product development.

Thank you very much and we will talk to you in August.

Thank you.

Thank you.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect.

Have a great day.