Guess? Inc (GES) 2015 Q4 法說會逐字稿

Good day, everyone, and welcome to the Guess?

fourth-quarter fiscal 2015 earnings conference call.

On the call are Paul Marciano, Chief Executive Officer; Michael Relich, Chief Operating Officer; and Sandeep Reddy, Chief Financial Officer.

During today's call, the Company will be making forward-looking statements, including comments regarding future plans and financial outlook.

The Company's actual results may differ materially from current expectations based on the 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.

We reported fourth-quarter results and posted earnings per share of $0.63, which was at the high end of our guidance.

Our 2015 performance was in line with expectation.

In North America, when we last spoke to you in early December, we had a tough start for the fourth-quarter retail operation, with comps down in the high single digit at the time.

Business improved and we closed our fourth quarter with comps down3% in constant currency and down 5% in US dollar, which exceeded our expectation.

Business trends improved gradually as we went through the quarter.

In December, traffic and comps improved from down low single digit to up low single digits in January.

So far in the first quarter, our comp came down in low single digits in constant currency.

We are pleased with this trend, considering the disruption from the West Coast port issue and the extreme weather we have been experiencing since February in all the East Coast and Canada.

E-comm, which was the number one focus, delivered another quarter of strong performance as we grewsales by 37%.

This rounded out the year in which we increased sales in that channel by 42% and continue to build the omni-channel retail strategy that connects our online platform with in-store, mobile, and social experience.

In term of products, we are very pleased with the performance of our Marciano Collection, in the standalone stores, inside Guess?

stores, as well as online.

Customers are responding to the unique offering of this brand and we finished the quarter with comps up in double digits.

Other categories where we saw improving trends during the quarter were women handbags and women footwear, which comped positively, driven by strong new product introduction.

In our women apparel business, we were pleased with the strong performance of outerwear, where we invested heavily, and delivered positive comps.

However, that was more than offset by softness in woven and knit tops and basic denim.

So far in Q1, this year, we have seen definite improvement in trend in denim, woven, and dresses, and we are starting to see more results of the design changes we made.

In Europe in the past quarter has been marked by significant challenge of the foreign exchange rates with dramatic fall of the euro against dollar and the Swiss franc.

But even with that, I am encouraged with our performance in Italy and Iberia, as we were able to maintain almost flat revenue in these two key markets during the quarter when compared to last year.

However, France, Russia, and Eastern Europe all experienced sales decline in the quarter, pressured by weakened consumer confidence and macroeconomic condition.

In Asia, our business finished below expectation for the quarter.

South Korean economy remained soft in consumer demand and we had to be a lot more promotional than we planned.

Due to the fact as part of the strategy, we are phasing out of the G by Guess?

business in Korea after almost four years to concentrate on the Guess?

asset only.

Moving to our guidance for the fiscal year, we are quite pleased at the relative underlying performance in North America and Europe.

The combination of improvements in the product offering and a healthier inventory position and lower input cost is expect to result in a better operating margin across the business, excluding the impact of foreign exchange headwinds.

We are expecting to be significantly impacted by foreign exchange due to the strength of the dollar.

Mike will provide more detail on the guidance later in the call.

Our strategy initiative going forward will be in these four priorities.

Growth of omni-channel.

This past year, we saw strong growth for e-comm in North America, in excess of 40%, While we also expanded our European e-commerce business at a similar rate, but with a smaller base.

We have made significant investment in this channel in the past several years and we continue to do so.

We expect to see double-digit growth in fiscal year 2016 across all region of the world.

The second priority will be to leverage Marciano in Guess?

stores.

We are continuing to integrate Marciano products in our Guess?

stores in North America and are projecting to almost double the number of stores, where this will be the case by the end of this fiscal year.

The third priority will be the store realignments.

While we continue to protect and invest in flagship locations, we will keep on closing stores in North America that are either unprofitable or no longer in brandappropriate locations or both.

We are taking the same approach in Europe and Asia on a smaller scale.

Finally, as I said in the last call, a key focus of mine is to improve the Company profitability and as a central part of that plan is to evaluate that across the different businesses in our global portfolio.

Reducing the size and cost structure of the less profitable ones, while directing capital investments to the ones with more profit potential to maintain our strong balance sheet.

In conclusion, I am very confident in a positive signs I see in our business.

Our product line for the year is very strong and I really believe we are staying true to what Guess?

brand stand for in delivering the high quality and unique experience that the customer has to come and expect from us.

With that, I will pass now to Sandeep to discuss the financials.

Thank you, Paul, and good afternoon.

During this conference call, all our comments for the fourth quarter and full year are on an adjusted basis, which excludes the impact of certain restructuring charges in their respective prior-year period.

You can find more details on the prior-year charges and a full GAAP reconciliation to these and other non-GAAP measures in today's earnings release.

Moving on to the results.

Net earnings for the fourth quarter were $54 million and diluted earnings per share was $0.63 compared to $0.83 adjusted diluted earnings per share in last year's fourth quarter.

Fourth-quarter revenues were $697 million, 9% lower than the prior year and down 4% in constant currency.

Total Company gross profit for the fourth quarter was $261 million, down 14%.

And gross margin declined 190 basis points to 37.4% due primarily to a negative comparable-store sales and more markdowns.

SG&A dollars decreased 5% versus the prior year to $188 million.

The decrease in SG&A was primarily due to the favorable impact of foreign currency, lower incentive compensation, and lower selling and merchandising expenses, offset by higher non-cash asset impairment charges related to the underperforming retail stores in North America, Europe, and Asia.

Operating earnings for the fourth quarter were $73 million.

Our operating margin declined 310 basis points to 10.5%.

Other net income was $7 million and mostly consisted of net unrealized and realized gains on foreign currency contracts.

Our effective fourth-quarter tax rate was 30.5%, in line with our expectation and down from 31.4% in the prior year's fourth quarter due to shifted earnings distributions between different taxable jurisdictions within the quarters.

Moving to segment performance, in North America retail, fourth-quarter revenues dropped 4% to $317 million, including the unfavorable impact of the weaker Canadian dollar.

Negative comps in brick-and-mortar stores were partially offset by 37% growth in our e-commerce business.

Overall, comp store sales, including e-commerce, declined 5% in the US and Canada and 3% in constant currency.

E-commerce sales improved the overall comps by 3 percentage points.

Operating earnings decreased 64% to $10 million and operating margin declined 520 basis points to 3.1%.

Compared to last year's quarter, gross margins were lower due to more markdowns and occupancy deleverage.

The SG&A rate deteriorated due to deleverage and higher impairment charges.

During the quarter, we closed 13 stores and opened 2, ending the period with 481 stores.

In Europe, fourth-quarter revenues were $241 million, a decline of 16% in US dollars and 5% in constant currency.

The constant currency revenue decline was driven by lower wholesale shipments, partly due to timing, as well as negative low single-digit comps sales in our retail stores.

Operating earnings decreased by 18% on $9 million to $41 million.

Operating margin decreased by 40 basis points to 16.9%, driven by deleverage and higher asset impairment charges.

In Asia, revenues in the fourth quarter declined 9% to $75 million and declined 7% in constant currency, mainly driven by negative comps.

Operating earnings fell 96% to $0.3 million and operating margin dropped 890 basis points to 0.4%.

The decline in operating margin was primarily driven by promotional pressure as well as an inventory charge related to the exit of the G by GUESS business on gross margins in South Korea.

In addition, the SG&A rate was higher due primarily to the deleverage.

In North America wholesale, fourth-quarter revenues were down 10% compared to the prior year at $37 million, impacted by the timing shift of sales into the third quarter that we mentioned on our last call.

Operating profit decreased by 23% to $7 million and operating margin decreased 340 basis points to 20%, primarily due to sales deleverage.

Royalties generated from sales by our licensee partners were down 6% at $27 million.

To summarize for the full fiscal year, consolidated revenues were down 6% at $2.4 billion and down 5% in constant currency.

The decline in sales reflects lower European wholesale shipments, negative comparable-store sales in North America and Europe, and the unfavorable translation impacts of the stronger US dollar.

Operating earnings were $126 million, down 46% from prior year's adjusted operating earnings of $235 million.

Overall, our operating margin of 5.2% was down 390 basis points from last year's adjusted operating margin, driven by the impact of negative comps store sales on our fixed-cost structure, higher markdowns, more wholesale mix, and higher asset impairment charges, partially offset by sourcing-related IMU improvements.

For the fiscal year, earnings per share was $1.11, a 42% decrease from prior year's adjusted earnings per share of $1.91.

Moving onto the balance sheet, accounts receivable in US dollars was 22% lower than last year, at $216 million, and was impacted by the strengthening of the US dollar compared to the euro.

In constant currency, accounts receivable was down 10%.

Inventories were down 9% versus last year, at $319 million.

In constant currency, inventory is down 1%.

We ended the quarter with cash and short-term investments of $483 million compared to last year's $508 million.

Free cash flow for the fiscal year was $82 million, driven by changes in working capital and lower earnings, with CapEx spend likely below last year.

Our Board of Directors has approved a quarterly cash dividend of $0.225 per share on the Company's common stock.

The dividend will be payable on April 17, 2015, to shareholders of record at the close of business on April 1, 2015.

With that, I will pass the call over to Mike, who will take you through the outlook for the first quarter and full fiscal year 2016.

Thank you, Sandeep, and good afternoon.

As Paul mentioned earlier, we expect currencies to be a significant headwind for the fiscal year 2016.

Excluding the impact of currency, we expect a modest top-line increase, mainly driven by e-commerce growth globally and the impact of store openings in Europe.

We plan to manage our inventory tightly and execute targeted price adjustments where appropriate in order to offset some of the foreign exchange headwinds on gross margin.

Excluding currency impact, the top end of our guidance reflects 30% EPS growth and operating margin expansion of 180 basis points.

Currencies impacted our results in two ways.

First is the translation of our foreign entity results.

Second, the impact on transactions denominated in a currency other than the local ones.

For example, the inventory purchases made by Europe in US dollars.

Overall, our outlook for fiscal 2016 assumes currencies will be a headwind on top-line growth, gross margin, operating margin, and EPS.

We estimate that currency headwinds will really start to build in the second quarter and impact the full-year EPS by roughly $0.50, over 80% of that amount being driven by impact on the transactional side.

In order to give a better visibility to the underlying trends in our outlook, we will also provide constant currency metrics when applicable.

In North America retail, our strategy for fiscal 2016 remains very consistent with fiscal 2015.

We are focusing on optimizing our retail store portfolio and executing on our omni-channel strategy.

We will stay very opportunistic with our store openings and plan to open roughly 10 stores in the US and Canada during the year, primarily in the Factory concept.

We plan to close 50 to 60 underperforming stores in the US and Canada through lease expirations and kick outs.

As a reminder, roughly half of our leases have lease exit options coming up over the next three years.

So far in the first quarter, comp store sales have been down in the low single digits in constant currency.

And we also expect first-quarter comp sales and revenues to be down in the low single digits in constant currency.

In US dollars, we plan for comp sales to be down in the low to mid single digits and for revenues to be down in the low single digits.

Looking forward, we believe that the improvement in our product offerings will positively impact trends in the back half of the year.

For the full year, we plan for the comps and revenues to be down in the low single digits to up in the low single digits in constant currency.

and to be down in the low single digits in US dollars.

In Europe, we will be focusing on growing our e-commerce business, optimizing our store portfolio by limiting our store openings and exiting doors where appropriate.

Overall, this is a very similar strategy to North America.

So far in the first quarter, retail comps in Europe are roughly flat and we are planning for comps to be down in the low single digits for the first quarter as we come up on tougher compares towards the end of the quarter.

We expect comps to improve as we progress throughout the year and will be up against easier compares in the back half of the year.

For the full year, we expect comp sales to range from a decline in the low single digits to an increase in the low single digits.

In Europe wholesale, we are planning the orders for our fall/winter collection to be down in the high single digits, mainly driven by softness in Russia, France, and Eastern Europe.

Our expectations for the back half of the year does not include any material improvement in our wholesale business in Europe.

Considering these factors, as well as some timing in the wholesale shipment, we expect Europe revenues for the first quarter to increase in the high single digits in constant currency and to decline in the midteens in US dollars.

For the full year, we expect revenues to increase in the low single digits in constant currency and to decline in the mid to high teens in US dollars.

At prevailing exchange rates, we estimate that the impact of currency headwinds on Europe revenue growth will be approximately 23 percentage points for the first quarter and 19 percentage points for the year.

Now turning to Asia.

The overall environment remains soft in South Korea, where comps have been negative so far in the first quarter.

We are assuming that the environment will remain soft in our guidance.

For the first quarter, we expect Asia revenues to decline in the low to mid single digits in constant currency and to decline in the low to high single digits in US dollars.

For the full year, we expect Asia revenues to decline in the low to mid single digits in constant currency and to decline in the mid to high single digits in US dollars.

In our North America wholesale business, we expect first-quarter revenues to be down in the low single digits in constant currency and to be down in the high single digits in US dollars.

For the full year, we plan for revenues to be flat to up in the low single digits in constant currency and to be down in the low to mid single digits in US dollars.

In our licensing business, we are expecting royalties to decline in the low single digits for the first quarter and the full year.

For the first quarter, we expect overall gross margins to be slightly up, driven by higher IMU.

For the full year, we expect gross margins to be slightly down to slightly up, driven by tighter inventory management, targeted price increases, and lower average costs offset by currency headwinds.

With respect to operating expenses, we expect a slightly higher SG&A rate for the first quarter.

For the full year, we expect the SG&A rate to be slightly down to slightly up.

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

Considering all these factors, for the first quarter of fiscal 2016, we expect consolidated revenues to grow between 1% and 2% in constant currency.

At prevailing exchange rates, we estimate that the impact of currency headwinds on consolidated revenue growth will be approximately 9 percentage points for the first quarter.

We are planning an operating margin between minus 1.5% and minus 1%, including the impact of currency headwinds of roughly 50 basis points.

Loss per share is planned in the range of $0.06 per share and $0.03 per share.

For the full year, we expect consolidated revenues to be down in the 1% to up 1% in constant currency.

At prevailing exchange rates, we estimate that the impact of currency headwinds on consolidated revenue growth will be approximately 8 percentage points for the full year.

We are planning an operating margin between 4.5% and 5.5%, including the impact of currency headwind of roughly 150 basis points.

Earnings per share is planned in the range of $0.75 per share and $0.95 per share.

Earnings per share guidance includes a currency headwind of roughly $0.50 per share.

For the full year, we plan to manage our CapEx carefully and opportunistically by investing between $60 million and $70 million in capital expenditures, net of tenant allowances.

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

(Operator Instructions) Erinn Murphy, Piper Jaffray.

Couple of questions for me.

Just first on North America, the profitability was a little bit worse than we had thought -- down over 500 basis points.

Can you just help us think about how we should see this trending in 2015?

I realize you are closing some of the doors in North America.

So are you anticipating that to improve?

And then how are you seeing the current promotional environment thus far in the first quarter in North America?

This is Sandeep.

I think coming back to your question on North America profitability, we have seen, of course, a pretty significant decline in profitability this past year.

But I think you got to keep in mind a couple of major factors that has actually impacted our profitability.

The number one factor, frankly, was a tremendous amount of markdown that we had to take because of the excess inventory we were carrying, because we planned for the national campaign in the back half of the year, which unfortunately did not materialize to the extent that we were hoping for.

And we made it a priority to clear through the inventory before the end of the year and that was a big headwind on product margins in the year.

In addition, when you have a situation where sales are just not holding up to what the expectations are, you are going to have asset impairment charges.

And we had pretty significant asset impairment charges during the current fiscal year.

So these are the two major factors, I think, have given driven profitability.

The store closures will help over time, but it is not the major driver.

And I think what is really encouraging, though, is if we actually switch into Q1, we are already seeing some of the benefits of a less promotional environment.

And we are seeing improvements in product margin already in the few weeks that we have actually been into the first quarter.

But we are encouraged by what we see.

Okay.

That's helpful.

From a licensing perspective, the revenue was down about 5%, I believe, in the fourth quarter.

Can you just talk about the major trends you are seeing right now with your three big accessory categories that are included in that -- so handbags, watches, and footwear?

Yes.

This is Paul.

Handbags, definitely we see -- we have seen already on the Q4 of good improvement, but not on Q1 of this year.

It continues on that direction.

The shoes, for example, I give you just on the Q4 -- let me -- footwear right here.

We were like minus 4 on Q4 and now we are a plus 8 at quarter to date now.

So definitely, we see a big shift.

Watches remain soft for us.

Okay.

That's helpful.

And then in terms of some of your major licenses, can you just walk through when you anticipate -- I believe your footwear license with Mark Fisher is coming due at the end of this year.

And then I believe your watch license may come due in about a year, a year and a half.

Can you just walk through how you are thinking about some of these upcoming license negotiations?

Thank you.

A few things.

First of all, if you look at the history of our licensees, at least there have been decade and sometimes two decade and three decades with us.

For example, the watches is 30 years, the handbags 23 years, and the footwear 10 years.

But the license is not up for footwear.

It is still going another 5 years.

So that is 15 years with them.

So we don't have anything major coming up, except the handbag, which will be in two years from now.

But it is nothing in-house.

Thank you.

Janet Kloppenburg, JJK Research.

I was wondering if you could talk about the fundamentals in the Asian market -- China, Korea, Japan?

Profitability has been deteriorating there for some time now.

And I was just wondering if you could talk about some of the strategic initiatives you have in place that might help to restore that.

And if you could talk a little bit about where the categories of strength and weaknesses are and what the trends look like in the first quarter to date?

Thank you.

Hi, Janet.

This is Mike.

So in Asia, Korea accounts for two-thirds of our volume there.

And G by Guess, we launched that four years ago and that has given us enough time to really assess whether the concept was viable and how it fit in with strategically.

And we have taken the decision to exit it because it -- really, andfocus all our resources on Guess?.

Because Guess?

is a much more profitable business.

And the results of this decision will be margin accretive.

So really, (technical difficulty) is to concentrate and get -- Korea improving.

China -- if we look at China, China remains to be a soft consumer environment.

Our comps have been pretty choppy in Q1 and they're down in the double digits in the teens in Q4.

But what we are experiencing I think every other retailer is experiencing.

There is low consumer demand there and the economy is getting softer.

But moving back to Korea, right now, we are taking all our efforts and we are focusing on the projects and we plan to be less promotional.

Mike, could you say that the operating margins for the Guess?

business improved and it was just the drag from G by GUESS?

Or was there pressure on the Guess?

division margins as well?

The Guess?

division performed much better than G by GUESS.

So exiting G by GUESS will be margin accretive.

Okay.

And in the first quarter to date, are you seeing improving trends in this market as you are in North America?

The trends are still choppy.

I mean, there is a slight improvement from Q4.

We're seeing strenghts around denim and tees, but it still remains a bit choppy.

Okay.

Just my last question quickly, overall, for Europe and North America, are we to interpret the guidance for the first quarter to mean that the markdown levels should be down year over year, quarter 14 -- quarter one 2014 versus quarter one 2015?

This is Sandeep.

Yes, you are correct.

The markdown levels are expected to be less in quarter one across the board -- across all regions.

Thank you.

Betty Chen, Mizuho Securities.

It is actually Alex Pham on for Betty.

I was just wondering on the announced stores -- store closures, wondering if you guys could give us any metrics around what the planned store closures are doing maybe versus with the rest of the chain?

And then given the strong trend in e-comm, just wondering if you guys had any updated thoughts on the overall footprint?

Thanks.

Okay.

I'm going to just take your question on store closures and I then will pass it over to Mike to talk a bit more about e-commerce after that.

But I think on the store closures, we basically look at each and every store based on the economic viability of the store and the profitability.

And that is what we have been doing over the last 18 months, specifically, as we called out in the back half of last year.

We have identified that really, we are ahead of our 50 stores that were planned to close in 18 months, starting the back half of last year.

Through the back half of last year, we actually closed 17 stores.

And then as we came into this year, we identified a further number of stores that we are going to be closing and we expanded our program to 50 to 60 door closures for this fiscal year.

And so compared to what we told you at the back half of last year, the number of door closures is likely expanded, but it was what we told you all along.

Because we said we have half our portfolio coming up for renewal and we were going to actually took a look at it over the three-year time frame accordingly.

And so as we actually go through with the store closures, there is an impact still on e-commerce and e-commerce share of the business.

And I will let Mike talk to us about that.

Yes.

We are very pleased with our e-commerce growth in Q4.

It was up 37%.

And we are seeing these trends continue into Q1.

Specifically, we are very pleased because Q4 is a very, very large quarter.

But we were still underpenetrated, specifically in Canada and also in the Factory and the Marciano websites.

So keep in mind, we are going to anniversary a number of these omni-channel initiatives that we put in last year, but we have new initiatives that we think are going to drive traffic and growth.

And last year, one of the key components that drove growth was our ship from store program in United States.

We are currently rolling that out in Canada and we expect that to contribute to growth and to increase our penetration in that market.

We also are working on some key traffic initiatives.

Right now, we have a loyalty database with approximately 9 million consumers in there.

And so it is a huge, huge resource, and we have got a lot of data on purchasing behaviors, on demographics, psychographics, et cetera.

And we are working with that data with some analytic vendors to segment the customers and provide appropriate messaging to those customers to drive traffic into our stores, on to the website, and increase conversion.

John Kernan, Cowen and Company.

Jerry on for John.

I just wanted to ask a little follow-up on the licensing business.

Can you give us some visibility into the health of the stores operated by your licensing partners and the inventory in that channel?

And then should we continue to expect the store count there to decline in 2016?

Are you talking about the licensing stores international, because in North America, we don't have any.

You talk --

Yes.

We have a balance on that.

It is even between the number of stores we open and the number of stores we close, so it is really a wash there, international.

In the world, except North America.

Any insight into the health of those stores and the inventory in that channel?

I will follow up on that.

I think what we have been seeing, especially in Europe, is the licensing stores have been under a bit of pressure with a lot of inventory, especially with the economic downturn.

And that has been a big driver of what is been resulting in some store closures of our licensing partners.

So we believe we have actually worked through a lot of it and that is one reason we have actually had those store closings.

Okay.

And then just on your merch margin expectations for this year, what is baked into guidance as far as merch margin?

And how is the cadence of the FX pressure going to affect that model?

Yes.

I think your question is a great one, because I think it really ties it into the way we planned our business.

And I think what will really help is if I try to help you understand the guidance in total.

So if you look at our guidance that we provided, we have called out that there is a $0.50 of foreign currency impact, which is a negative impact on us.

And that results also in a 150 basis point negative impact on operating margin.

The best way to look at our business and our guidance is normalized for currency.

So if I take the currency of $0.50 and I am going to split it into two components.

The first one is translation.

This is translation of our foreign currency earnings into US dollars.

That accounts for about 20% of the $0.50.

The remaining part of it is transaction.

And this happens when you actually have a mismatch between the currency in which you are making your sale and the currency in which you are buying your inventory.

The two biggest currencies where we have this impact is on the Canadian dollar versus the US dollar and the euro versus the US dollar.

And the euro is actually the much bigger impact.

So when you pick these two currencies, for the most part, they drive the majority of the 150 basis point headwind from currency that we are seeing on our operating margins.

The good news for us is we have been making it a huge priority to work on product margin improvement.

And there are three buckets where we have actually addressed this.

And in total, this will more or less offset the foreign exchange impact.

The first is lower markdowns across all the different regions that we are operating in.

And this is something we already talked about previously on the call; accounts for about half.

Then the next bucket, which is also a contributor, is averaging cost reduction.

We have seen tailwinds right now from the commodity prices from cotton and oil, which are beginning to roll into our average unit cost and are helping us.

And last, but not least, we are taking targeted price increases very strategically, where we can make sure that the prices are focused on products where we don't have demand risk from consumers who are very sensitive to the price.

So we are taking this into [tendency] across all these three buckets to mitigate the foreign exchange risk that we are talking about.

But to answer your question, currency neutral; merch margins are up.

Jeff Van Sinderen, B Riley and Company.

This is Richard Magnusson in for Jeff Van Sinderen.

Can you tell me what you are seeing in the fall bookings for North American wholesale?

Yes.

On North America wholesale of the fall bookings, we have at this point fairly limited visibility.

But I think what we do know is the Canadian business is doing slightly better of our businesses over there in the trends we've seen so far.

But we only will have much better idea by the time we report Q1.

Okay.

And then what are you experiencing in terms of the port slowdown?

Are you seeing things move towards more normalcy?

Yes.

So in the Q4, we really -- the port slowdown didn't really impact us that much.

We probably had an average delay of five days, but it wasn't material.

In Q1, that actually increased to 10 to 15 days and it did have an impact, where we actually had to postpone our March floor set a couple weeks because of the slow down.

Now we actually see those delays reducing and coming back to normalcy.

Okay.

And can you touch on any regional differences in performance within the US?

Yes.

Obviously, the inclement weather has impacted us, specifically in Q1.

And specifically in our Factory concepts, where we have a lot of outdoor stores.

And needless to say, the stores in the cold regions in Canada and in the Northeast are definitely underperforming the chain as a whole.

Our strongest regions are the Southeast and Southwest, where it's warm.

Randy Konik, Jefferies.

I guess, Sandeep, can you expand upon -- it sounded like more optimistic commentary around the promotional environment.

And you just gave us some commentary around regional data that it sounds like in the weather areas of the United States, where weather is favorable, things actually sound pretty good.

So it just feels like sequentially, you're more optimistic or things you're feeling a lot better in the United States.

I just want to like try and to expand upon what is less promotional, why, et cetera?

Thanks.

This is the point we have been making right through the call.

And really what is happened is if you come through into Q1 in a much more healthy state from an inventory perspective, because we were really clearing through our inventories in the back half of last year, especially through Q4.

And we have a little bit more left to go, but by and large, because we have cleared through so much of it, we have been able to be much less promotional and have much less markdown.

And so that is what is really been a tailwind from our margin so far in the quarter.

And we expect this to actually get better as we go through the year, because we're going to lap the more promotional environment in the back half.

But I think from a regional perspective, I think -- we touched on it earlier as well, but the inclement weather has actually been certainly a handicap to us because of the Northeast, specifically, and Canada as well.

And in those circumstances, to be down in the low single digits in constant currency is something we are quite pleased about.

And that is what Paul said in his prepared remarks.

So we are feeling good.

We're feeling good about what the trends are so far.

And then I guess if you X out the less excess clearing of inventory, are you seeing better response rates for the product?

I'm just trying to get a sense of do you feel like the sell-through rates of the newer product is actually working, rather than margins or promotional pressures easing because of more appropriately controlled inventories.

No -- this is Mike, Randy.

We are seeing actually higher ADSs and higher AURs.

So we are selling the product at a higher -- definitely at a higher retail, where there's less promotional pressure.

But I would like to take one category and use that as an example, which is women's.

Women's, we have had problems for the last few quarters, where it has been very, very soft.

In Q1, we have actually to be slightly positive right now.

And that is considering the headwinds with the port slowdown and also with inclement weather.

And we are seeing increases in dresses, where -- we've been negative in dresses the last few quarters.

We are comping positive there.

Woven tops; we have made an investment there, and we're seeing high sell-throughs.

And the same thing in sweaters.

And denim -- well, basic denim is down.

We have premium denim, where we have introduced in some new fabrics -- they're very technical fabrics -- and new fit.

We are seeing very, very positive sell-throughs there.

So we are really encouraged.

And you know, this is to fight the headwinds.

So we are really seeing really good reactions to our products.

And again, we are selling those at a higher AUR.

And this goes back to Paul's comment in the prepared remarks, that we are -- focus is to increase profitability.

Thomas Filandro, Susquehanna Financial Group.

I just want to make sure I understand.

So you cleared through the bulk of the inventory overhang.

So I guess my first question is when should we expect that you will be completely cleared through that inventory overhang?

And at that point, how should we think about what sort of inventory per store per square foot, particularly here in North America?

And then separately, if you could possibly give us a little more quantification around the AUC opportunity, maybe split it between the first half and the second half of the year.

That would be great.

Thank you.

So let me try the inventory piece first.

And I'm going to focus on North America, specifically.

And what is happened is we fled through a lot of the inventory, but we still have a little bit left to bear through and we should be done with most of it by Q1.

And that is already included in our guidance.

And so from an inventory per square foot perspective, we are roughly in the -- about minus 4% or so range right now for where we stood at the end of Q4.

We don't expect this to actually change a whole lot as we move into Q1, because the amount of inventory that we have to clear hasn't really -- isn't that material to the total amount of inventory that we carry.

So -- and then I think moving on to AUCs, what we have seen from an input cost perspective is the tailwinds would be coming more so toward the back half.

Because the commodity prices really started tailing off and we were able to place buys more towards the end of the year, which will manifest into the back half of the year.

So you will see that timing reflect through when you look at the back half.

Thank you very much.

Best of luck.

Dorothy Lakner, Topeka Capital Markets.

Couple questions.

One, just in terms of the loyalty database and the work that you are doing on customer segmentation, I wonder what the timing of that is and when you will start to be able to target customers better than right now.

And then secondly, just in terms of product, you have seen some nice strength in premium denim.

What kinds of things are you doing with the basic denim in terms of improving performance there?

And then lastly on Marciano, which is seeing nice performance now, just wondering what kind of lift that is providing to stores that are getting it versus when they did not have that product?

And how many more stores that is going to be going into this year?

Thanks.

Okay.

In terms of the loyalty database, we are working with an analytics company right now and segmenting the customer base.

And actually this month, we will start seeing sending out targeted emails.

And we will start targeting promotions to the customers to make sure that they receive more a relevant messaging.

But keep in mind, this is an iterative process.

It is not something that you just turn on and it happens.

You get learnings.

And then you continue to refine as we go along.

But we feel very optimistic with the initiatives we have in place.

Now in terms of denim, we see that our premium denim, as we said earlier in the call, was performing very well.

And there we are even seeing new washes, new fabrics, new fits.

The basic denim is a little bit slow, but what we have done there is we actually have reduced the SKU count and to a more focused assortment.

And so that is an initiative that is in place.

And focusing on providing better washes and some of the fits that work.

So that is something that we have to work into, but we are taking our learnings from premium denim and focusing that on the basics.

Now with respect to Marciano, we plan this year to double the number of stores that the Marciano product is in -- in the Guess?

stores.

And in the Guess?

stores, what is very interesting here is the price points of Marciano are much higher than the Guess?

product.

And we actually see a positive -- in all the stores we put it in, we see a very, very positive response for the customer.

So when the product is right, there is no price resistance.

They will buy it.

And so it did in the Q4 provide a pretty significant lift.

Now one of the encouraging signs we see in Q1 is women's in general -- and this is Guess?

product -- dresses, wovens, premium denim -- is all basically picking up quite good.

So we are actually very, very encouraged by this.

David Glick, Buckingham Research.

A couple questions.

Sandeep, I wanted to start in terms of your free cash flow expectations for the year.

If you can give us perhaps a range there.

Obviously, we have your net income.

You gave us CapEx.

I wasn't sure how working capital was going to play out.

And then any updates you can give us in terms of cash -- US versus international.

Then I had a couple other questions.

Yes.

Let me start with the free cash flow.

And I think we have talked about this throughout the past year or so, but -- how it's been a priority for us to make sure we continue to drive free cash flow growth.

So when you look at free cash flow for the past year, a couple of things happen.

I think you really had some timing of working capital impacts that negatively impacted us in fiscal year 2015, which shouldn't be as much of an impact as we go into 2016.

And also, we did get squeezed a little bit on the currency as we move into the end of the year.

So -- but moving into 2016 specifically, we have taken a lot of operational initiatives to actually drive down some of the cost structure that we have, which are going to be -- that are going to be helping us from a free cash flow perspective, a part from which we are really tightening up on our working capital.

The store closures will actually help from a working capital perspective, because we won't be having to buy inventory for those stores when we get to the end of this year.

And for last, but not least, from a CapEx perspective, we're very, very focused about only investing in projects where the return on invested capital is above our cost of capital and accretive to shareholder value].

So all these things are really are what we focused on to drive that free cash flow

And I think you also asked about cash US versus international.

It has been about a third in the US, two-thirds international historically.

It is not going to change a whole lot from there.

Jeff van Sinderen, B. Riley & Co.

I have one last question.

This is regarding the potential impact of the recent litigation between Guess?

and George Marciano regarding the use of the George Marciano name.

In particular, George's request that the court rule on the use of the Marciano brand by Guess?.

Can you provide any color on that of the impact?

We're not aware.

This is Paul Marciano.

We're not aware of any such action and I have really zero comment on that.

Okay.

Thank you.

Erinn Murphy, Piper Jaffray.

Just a couple of follow-ups for me.

First on the guidance.

I think you said North America retail revenue is kind of flattish for the full year, recognizing you are closing about 50 to 60 doors.

And I guess the current comp environment is still slightly negative.

So can you just help us bridge the gap there of how we should anticipate the cadence throughout the year?

And then just secondly, and I may have missed this, but for the fall European order book for full sales, can you just breakout what you are seeing in terms of same-store buys versus door closures?

Thanks.

I will take the questions.

On North America retail, when you look at the total revenues, one thing we did talk about was store closures -- 50 to 60 stores.

But most of the store closures are actually coming towards the end of the year.

And as a result, from a revenue perspective, the impacts are going to be seen more next year than the coming fiscal year.

So that is one piece of it.

The second piece of it is e-comm is obviously going to be driving some of the revenue.

And we said that we expect to continue to see double-digit growth in the e-commerce.

And overall, when we talk about comps, we are talking about comps in constant currency, ranging from down in the low singles to up the high -- sorry, up in the low singles.

So that is pretty much bridges the gap for you on the North America retail revenues.

For Europe and the order book for fall/winter 2015, it is a partial book.

We are not closed yet.

We will only be closed and next time we come and talk to you in Q1, we will have more for you.

But what we are seeing is certain trends.

Some of it which we'd expected to see, but some of which we didn't really expect to see.

Russia and Eastern Europe, we have been talking about and saying that its same-store buys were going to be much softer because of the consumption pressures in those two economies.

But France is the place where we actually see some softness in the same-store buys as well.

And that is what has been visible to us.

Again, the book isn't closed yet.

We will be closed and talk to you more the next time we actually talk about Q1.

And then we can give you more clarity on what the door closures was affect of.

Thank you, ladies and gentlemen.

This concludes today's conference.

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