Guess? Inc (GES) 2018 Q3 法說會逐字稿

Good day, everyone, and welcome to the Guess?

Third Quarter Fiscal 2018 Earnings Conference Call.

On the call are Victor Herrero, Chief Executive Officer; and Sandeep Reddy, Chief Financial Officer.

During today's call, the company will be making forward-looking statements, including comments regarding future plans, strategic initiatives, capital allocation and short- and long-term financial outlook.

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

Now I'd like to turn the call over to Victor Herrero.

Good afternoon, everyone.

As you saw in our earnings release today, we reported that adjusted earnings per share for the quarter finished above our guidance, while adjusted operating margin finished within the range of our guidance.

I will discuss the progress that we have made in our initiatives, so you can better understand why we are raising our guidance for the year.

Starting with Europe.

Revenues for the quarter grew 19% in U.S. dollars and 12% in constant currency, showing continued momentum from successful implementation of our strategic initiative to elevate the quality of our sales and merchandising organization.

The growth was driven by comps, including e-commerce up 10% in U.S. dollar and 4% in constant currency, and by new store openings.

This comp increase came despite an unseasonally warm October that resulted in lower AUR due to reduced sales of outerwear and heavier Fall product.

Our e-commerce business in Europe continues to grow rapidly, powered by our own website as well as our partnership with Otto and Zalando.

During the quarter, we opened 22 directly-operated stores in Europe on a net basis, 11 of which were in Russia and in Turkey, our fastest-growing markets.

We also opened stores in Italy, Spain, Greece, U.K., Germany, Poland and our first owned and operated store in Hungary.

We are also thrilled with the increasing strength of our European wholesale business.

The Spring/Summer 2018 order book closed up in the mid-teens in constant currency, an acceleration from the Fall/Winter 2017 order book increase of low double digits.

This is now the second consecutive season of double-digit growth in the European wholesale business, which reflects our progress on the strategic initiative I outlined more than 2 years ago to revitalize the wholesale channel.

Following 4 consecutive quarters of margin expansion, the European segment margin contracted 320 basis points in the quarter.

The main driver of margin contraction this quarter was the timing and magnitude of start-up costs related to our new distribution center in Venlo.

The distribution center is expected to be fully operational by the first quarter of next year instead of by the end of this year as initially planned.

We fully expect margin expansion for Europe to resume once the transition to the new distribution center is behind us.

Moving to Asia.

Third quarter revenues were up 17% in U.S. dollar and 18% in constant currency.

Revenue growth in the region was driven by comps, including e-commerce, that were up 3% in U.S. dollar and 5% in constant currency, and by new store openings.

During the quarter, we opened 10 directly-operated stores in China on a net basis.

We opened stores in Shanghai, Hangzhou and Xuzhou in the East; Harbin, Changchun and Shenyang in the Northeast; Xian in the Northwest; Wuhan in the Center; and Chongqing and Zhanjiang in the West.

In addition to developing a strong store footprint across the country, we see big potential for our digital presence in China.

Our marketplace partnership with Tmall is growing at a rapid pace.

We are also very excited about our new marketplace partnership with vip.com.

Both marketplaces connect our brand with very high number of consumers in all parts of the country who we also engage with through social media communication platforms, such as WeChat and Weibo.

Importantly, beginning this quarter, we began to directly operate our stores in Australia.

And we are now including the revenues from this market in our Asia segment.

Australia is a market where we already have strong brand recognition through our prior distribution there.

We are especially pleased that the operating margins in the Asia segment improved 680 basis points in the quarter, making the fourth consecutive quarter where we have experienced margin expansion in Asia.

As you can see, we are executing very well our strategic initiative to build a major business in Asia.

In Americas Retail, revenues for the quarter decreased 13% in U.S. dollars and 14% in constant currency.

Comp sales, including e-commerce for the quarter, were down 10% in U.S. dollars and 11% in constant currency.

This includes approximately 1% of negative impact on comp sales and $3 million impact on revenue from the hurricane disruptions in Texas, Florida and Puerto Rico.

Importantly, we made great progress this quarter on improving our profits in the Americas as a result of lower markdowns, better IMUs, negotiated rent reductions and store closures.

And we achieved a 240 basis point improvement in operating margins despite the 10% decline in comp sales in the quarter.

Meanwhile, we continue to be very focused on elevating our brand presence in the U.S. through celebrity endorsements with Camila Cabello, A$AP Rocky and Joe Jonas, all of whom partnered with us on branding activities during the past quarter.

Going forward, we are very excited about the new partnership we just initiated with Jennifer Lopez, J.Lo.

We are also building on the strength of our digital initiative.

This past quarter, we further improved our omnichannel capacities by rolling out our buy online, pick up in-store initiative.

This is in addition to the already present ship from store and buy online in-store functionality, where the store associates place order to be shipped directly to the customer's home.

This is the first holiday season in which we will benefit from Guess?

carrying the Amazon Prime badge as well as having a presence on Jet.com positioning us to gain access to incremental traffic through both digital platforms.

Our partnerships with key digital influencers, who have a strong presence on multiple social media platform, including Instagram, Facebook, Twitter and SnapChat, is also a core part of our digital strategy.

Finally, earlier this month, we were really excited to participate in ComplexCon for the first time.

ComplexCon is a melting pot for the expression of creative talent across art, music and pop culture and was a great venue for us to showcase our brand.

So as we peek into the future of the company, this is what I see.

There is a lot of runway left in Europe and Asia, so I expect the double-digit revenue growth to continue into next year.

The profitability of the Americas should continue to benefit from our cost reduction and margin improvement initiative.

And we aim to achieve our long-term goal of 7.5% overall company operating margin by a combination of revenue growth and disciplined cost -- control of cost.

One last point.

I'm really excited and confident in the future of our company, and this is why we repurchased 435,000 shares for roughly $7 million in the recent concluded quarter.

Sandeep?

Thank you, Victor, and good afternoon.

During this conference call, our comments reference certain non-GAAP or adjusted measures.

Please refer to today's earnings release for GAAP reconciliations on descriptions of such measures.

Third quarter revenues were $554 million, up 3% in U.S. dollars and 1% in constant currency versus prior year.

I would like to highlight that this was our fifth consecutive quarter of revenue growth.

Total company gross margin increased 90 basis points to 34.5%, mainly driven by higher IMUs, partially offset by the negative impact of occupancy deleverage from high European logistics costs related to the start-up of our new distribution center in Venlo.

SG&A as a percentage of sales increased by 160 basis points, mainly driven by a reset of performance-based compensation.

During the third quarter of fiscal 2018, we recorded noncash asset impairment charges of $2 million related to store impairments.

Additionally, as part of our efforts to improve our profit in North America, during the quarter, we recorded $12 million of cash lease termination charges, primarily driven by an agreement with a landlord in North America to restructure our 26 lease agreements with them, as well as a $10 million advance on future rent.

As discussed on our last call, we expect a cash-on-cash payback on this $22 million outlay in less than 3 years.

Adjusted operating profit for the third quarter was $13 million and declined 21% versus adjusted operating profit last year, primarily driven by the aforementioned reset of performance-based compensation.

Adjusted operating margin finished down 70 basis points at 2.3% with a minimal impact from currency.

Please refer to our press release from today for additional information on operating margins by segment.

Our third quarter adjusted tax rate was 25%, down from 38% last year, as we experienced higher earnings in lower tax countries.

Adjusted diluted earnings per share finished above the high end of our guidance at $0.12.

This represents a 9% increase compared to adjusted diluted earnings per share of $0.11 in last year's third quarter.

The impact of currency and earnings per share in the quarter was minimal.

Moving on to the balance sheet.

Accounts receivable was $237 million, up 8% in U.S. dollars and 5% in constant currency, primarily driven by the growth in European wholesale revenues.

Inventories were $477 million, up 11% in U.S. dollars and 8% in constant currency versus last year.

This marked another sequential improvement in constant currency versus the prior quarter.

The increase in inventory is driven by Europe and Asia to support their revenue growth plans and is partially offset by a decline in inventory in the Americas, where our inventory position is significantly healthier than last year at the same time.

We have made good progress throughout the year to better align receipts with forward sales expectations, and we are well positioned entering the holiday quarter.

Adjusted free cash flow was negative $100 million, $2 million worse than prior year.

Keep in mind that this year's free cash flow includes the $22 million in cash payments during the quarter, primarily to a key North American landlord, as previously discussed.

We ended the quarter with cash and cash equivalents of $233 million compared to last year's $349 million.

Cash less debt at the end of the third quarter was $192 million compared to $325 million last year.

This is after having returned $76 million in dividends and $28 million in share repurchases to shareholders since the third quarter of last year.

Through the end of the quarter, we still had $423 million available of the $500 million share repurchase plan previously approved by our board.

Moving on to the guidance.

I should point out that our outlook for the fourth quarter of fiscal 2018 does not assume any asset impairment charges.

Also, guidance for the revenues and comp sales for the total company and by segment is included in the supplemental table attached to our earnings release.

Based on our results in the first 9 months of the year and the visibility we have so far into the fourth quarter, we are raising our guidance for the year from a range of $0.52 to $0.60 in adjusted EPS to an updated range of $0.56 to $0.63 in adjusted EPS.

Excluding currency impacts, the top end of our guidance for the year reflects 39% adjusted EPS growth and adjusted operating margin improvement of 40 basis points, as strength in the Europe and Asia business is expected to more than offset the weakness in the Americas Retail business.

For the fourth quarter of fiscal 2018, we expect revenues for the quarter to be up 5% to 7% in constant currency, driven by expected strong growth in Europe and Asia, partially offset by an expected decline in the Americas Retail business.

At prevailing exchange rates, we expect that currency will be roughly a 5 percentage point tailwind on consolidated revenue growth for the quarter.

Our gross margin is expected to be up due to the IMU improvement from our supply chain initiatives, partially offset by temporary pressure from distribution costs related to our move to the new distribution center in Europe.

The SG&A rate is expected to be up compared to last year, primarily due to a reset of performance-based compensation.

We are planning an operating margin for the quarter between 8% and 9% with an 80 basis point tailwind from currency.

Earnings per share is planned in the range of $0.48 per share to $0.55 per share and does not assume any further share buybacks.

Excluding currency, the top end of our guidance for the quarter reflects 22% increase in adjusted EPS and 30 basis points increase in adjusted operating margin for the quarter.

Our adjusted tax rate for the fourth quarter is estimated to be 31%.

We expect consolidated revenues for the year to be up between 4% and 4.5% in constant currency.

It should be noted that we expect an increase in revenues even after closing many stores in the Americas.

At prevailing exchange rates, we estimate that currency will be a roughly 2 percentage point tailwind on consolidated revenue growth for the year.

For the full year, we expect gross margins to be up due to improved IMUs in both the Americas and Europe.

The improvement in IMU for the year is updated to $30 million from the $24 million we announced previously, but this improvement is partially offset by a temporary increase in distribution costs related to the move to the new distribution center in Europe.

The SG&A rate is expected to be up for the year due to a reset of performance-based incentive compensation.

Our adjusted tax rate for the year is estimated to be 36%.

We are planning an adjusted operating margin between 3.2% and 3.5%, including the impact of a currency tailwind of roughly 20 basis points, and our guidance assumes foreign currencies remain roughly at prevailing rates.

Adjusted earnings per share is planned in the range of $0.56 and $0.63 per share.

The earnings per share guidance includes a currency tailwind of roughly $0.02 per share.

CapEX for the year is expected to range from $85 million to $95 million, as we continue to invest in our retail expansion in Europe and Asia and our technology infrastructure to support that long-term growth.

The Board of Directors has approved a quarterly dividend of $0.225 per share payable to shareholders of record at the close of business on December 13, 2017.

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

(Operator Instructions) And it looks like our first question comes from John Kernan from Cowen & Company.

Wanted to start in Europe.

It looks like you're guiding to a pretty significant acceleration there versus where you were on a constant currency basis in the third quarter.

Is there any shift there?

And I believe you were guiding to high-teens growth for the third quarter in Europe on a constant currency basis and it came a little below that.

So I'm just wondering if there is anything moving around.

And then, how we should think about the European operating margin for the fourth quarter, given the moving cost in distribution?

Thanks John.

And John, I think from a European margin perspective, first of all, one of the key drivers that Victor called out in his prepared remarks was October was a particularly tough month, because it was unseasonably hot in Europe.

So as a result, we saw a significant downturn in the sale of outerwear and Fall/Winter product, which carry a higher AUR and that impacted our comps.

So sales were impacted during the quarter, specifically, for that reason.

But really, when we look at the full year and where things were at, it was really weather-related.

Temperatures have actually cooled quite significantly since the end of October.

And so we don't feel that there is much trouble from that perspective.

It's more like a timing impact.

And I think, specifically, if you look at the quarter and what happened to our margins in the quarter, there are a couple of things.

One is, of course, this retail sales impact that I just talked about and the other is the move to our new distribution center in Venlo, where we had start-up costs that we were expecting to incur.

Maybe there was a bit of timing from Q4 into Q3 that also impacted us.

But overall, when we look at where margins ended up, we feel pretty confident going forward once we get past this distribution center transition that is going to go through the Q1 of next year, we should be getting back to margin expansion again in Europe.

And we're super confident, because you look at the wholesale book, we covered that during the prepared remarks, we got double-digit growth for 2 consecutive seasons now.

And if anything, it's accelerating into Spring/Summer 18.

And Spring/Summer '18, just to remind you, is a book that ships starting in Q4, and so that's going to help our Q4.

And the acceleration in revenues that you have in Q4 relative to Q3 includes some of that acceleration from the wholesale book.

It includes a little bit of timing on the retail business, and it also includes a 53rd week, because that's a pretty material impact to the quarter in Europe as well.

So all things put together, we feel like the expectations for the fourth quarter are very reflective of where we think our long-term trajectory is.

I want to add to this is that I'm very optimistic about our performance in the future in the European market.

As you may know, we are in 25 markets at this moment, and I mean, at least on the third quarter, they -- all comps were more or less in line in all the markets.

There was not markets that they were doing or performing worse than the others.

So it has been quite consistent the performance in all the markets.

As well, I think, we have a good marketplace there with Zalando and Otto that they've been performing very well.

Our e-commerce channel also has been performing significantly well.

So -- and also we opened or we are going to open during this year, 70 stores in Europe.

And out of those 70 stores, for us, will be around 5 new markets.

So I'm extremely optimistic of how is going to be our performance in the European markets in the next year.

Okay, that's helpful.

Clearly, there is a lot of momentum in Asia and Europe.

Just shifting to North America.

It's good to see the store count continue to come down.

It's good to see the losses in the North American retail business decrease year-over-year despite the fact you were down 10 on comp.

So I'm just wondering, how should we think about store closures into next year?

Obviously, it's pretty powerful for the overall company's profitability to control these losses a little bit more and close more stores.

So I'm just wondering, how should we think about overall magnitude of door closures into fiscal '19?

So John, I think, where we talked about the door count and future state where we expected to get to, we've talked about a 300 door count, if trajectory doesn't inflect.

So I don't think there is a change to that number.

So where we are given the expectations that we have this year, we should end up south of 400 stores, because we ended the end of the quarter in the U.S. and Canada with 411 stores, and we've only closed 45 so far this year.

And so we have a lot of optionality in the store closure plan that we have because half our leases are coming up and we will have optionality next year just like this year.

And so it's a bit too early to call exactly how many stores will close next year, because part of the process, John, is the negotiations we're having with the landlords.

We've actually been negotiating very hard for the last 1.5 years with them, and that's where you see it playing out in the operating margins that you saw in the most recent quarter.

We've got pretty good rent reductions in a number of different stores where, if we hadn't gotten those rent reductions, we'd have closed those stores.

But so it's a little bit of a moving target from that perspective on store closures.

But what's really the north star is profitability.

We are going to go for the profitability and make sure that we improve that no matter what and whether it's store closures or rent renegotiations, along with the other 2 drivers, which is the IMU improvements that we've been actually seeing all year and we've been talking about, but most importantly, we've gotten ourselves into a position where our inventories are very clean in the Americas.

So this past quarter, a lot of the margin expansion or improvement that we saw came from a lot lower markdowns, because we're so much cleaner.

And this is a position we find ourselves in as we exit the quarter and move into Q4, which is the holiday season.

And we're really confident that markdowns continue to be a tailwind as we end the year.

Okay, that's helpful.

If I can just sneak one in -- one more question as it relates to Asia.

Victor, you obviously have a lot unique knowledge that relates to that market given your experience.

So I'm just wondering, the acceleration you are seeing both on the top line and the improved profitability, what inning are we in here and how confident are you in what you're seeing in Asia and how the Guess?

brand is being positioned in that Asian market as we head into next year?

Yes, same as in Europe.

I'm very optimistic about our performance for the next coming year in Asia.

Going more specifically, as you may know, and as we've been saying a lot, Korea is a mature market and we don't think that or we don't oversee any surprises and will be quite stable.

So let me concentrate a little bit on China.

Basically, as I told you, my goal, apart of proving you that I'm fluent in Chinese, I mean, we are going to open 10 stores or we opened 10 stores during the quarter.

And basically, those stores are not only in Shanghai or in Beijing.

Actually, we have right now a representation in more than 20 or 30 cities in Mainland China.

And they are not only in first-tier cities that will be considered Beijing or Shanghai.

Those cities are considered third-tier cities, second-tier cities and even fourth-tier cities.

But take into consideration that all those cities are above 8 million people.

So all this is a very important thing in order to have a strong footprint in the market and to achieve more brand relevance.

In addition to that, we have the e-commerce channel.

And e-commerce channels, we've been in a partnership with Tmall for the last 2.5 years.

I think we have a great partnership with them.

This quarter, we had 11/11 and it was a very good experience for us and for them.

And I think that the partnership is very strong, and I think we will continue partnering with them for the next coming future.

As well, vip.com is another marketplace that we have in China and, actually, we are quite happy with them.

But imagine, this partnership is helping us as well to elevate the exposure of the brand in China, and this is an important thing.

Another thing that I want to say about China is that we are building a very strong infrastructure over there, as I mentioned in my previous call.

And this is a very important thing, because, I mean, the talent in China -- or in order to develop the Chinese market, you really need to have the right people to develop.

And I think that we are in the right place.

As well, I want to tell you that we are doing a big push on digital strategies.

And also we are really working with Weibo, we are working with WeChat.

We are trying to also some celebrities endorsement -- local celebrity endorsement.

So basically, I think the reason why we are successful at this moment in China is because we are following several initiatives, and we've been very consistent on following those initiatives and, basically, I foresee, as I mentioned before, a great story for us in China.

Our next question comes from Omar Saad from Evercore ISI.

Can I start with a question for Sandeep on the U.S. Retail segment margin.

Looks like still negative territory, but looks like it improved 200 to 300 basis points.

Sandeep, how do we think about what the underlying dynamic is there, inventory controls versus rent reductions versus closing unprofitable stores?

Is there big chunks there we can identify as we think about the progression of the U.S. kind of margin opportunity?

And then, I have a couple of follow-ups.

Sure, Omar.

So I think what we talked about is, basically there's probably 4 drivers.

And I think I mentioned that in my answer to John earlier on the Americas Retail margin for the quarter.

And I think the big one that's actually been in process for a while is definitely IMU and it starts with the supply chain strategy that Victor outlined a couple of years ago.

And that's really paying out in terms of IMU improvements as we go through this year.

So that's one piece.

Then I think the other piece is what we've been talking about as part of the profitability improvement plans.

Since last year, we've been very aggressively renegotiating rents with landlords, and a lot of those negotiations are paying back right now.

And we're beginning to see improvements in rents from a number of landlords that we're working with.

The third bucket is clearly store closures; where we couldn't get rents that made sense, we just closed the stores.

And the fourth, which I think is really critical, is good operational management.

We've really tightened up on our inventory as much as possible, so we could go into a situation where we're going to be much less promotional.

This was a conscious decision.

We think it's the right thing for the brand, and we got to that point where we were in a very healthy position by the end of Q2.

And so in the past quarter, markdowns have been a big tailwind.

So all 4 of these levers will be drivers of margin improvement going forward.

The key though is how much they're going to get offset by the negative comp.

And I think that's really where we are working on both fronts.

The profit improvement plan is always ongoing, but we spoke extensively and Victor talked a lot about what we're doing with celebrity endorsements, the digital initiatives, all the different revenue enhancement initiatives that we're working on.

So we're working on both sides of it to ensure that, over time, we actually get to a place where there's sustainable profit improvement from the Americas.

That's helpful, Sandeep.

And then, a question on product and fashion.

We're hearing some encouraging -- early days, but some encouraging data points from some other retailers and department stores around women's apparel.

There seems to be maybe more of a fashion, some new fashion trends that are emerging, more interest in the category.

Is that something you guys are seeing in the marketplace or seeing in your business?

And do you think there is a change there after years of kind of the skinny jeans, straightforward [trying] there might be more fashion for you to leverage in your product flow?

Actually, this is a good news, because I consider ourself a truly fashion company.

And at the same time, with a strong DNA in values or core values, that is Guess, which is sexy, edgy and independent.

But definitely, we are seeing a lot of logo-driven fashion.

We are seeing as well a fashion where it's more a lifestyle.

We've been operating for the last 2.5 years.

So it means that, I mean, it's not only about the categories that you -- all the product categories that you were saying.

It's more about the total look.

And definitely, it's very encouraging because it's basically what we've been working and what -- how we are trying to improve our product portfolio for the last 2 years.

That's great.

One last question, J.Lo, Camila.

Can you talk about some of the influencers you're using?

How are you thinking about the partnership with J.Lo, social media?

How are you going to activate these assets?

From a marketing perspective, any kind of early reads on how that's resonating?

We are very excited about all the celebrity endorsement, because, I mean, it's not only right now the biggest one will be J.Lo for this quarter and for next quarter.

And -- but at the same time, I think, for this particular quarter, third quarter, we've been partnering with Camila Cabello, with Joe Jonas and also A$AP Rocky in different type of activities.

And regarding influencers, definitely we are really working with new influencers, with fashion influencers, with bloggers as well.

So I mean, all these kind of things in order to try to improve the way that we interact with our customers, trying to have the new customer that we've been talking for the last year or 1.5 years about the millennials, trying to attract new millennials, Gen Z. Also what is very important is that we are doing a big push on social media through Instagram, through Facebook, through SnapChat or through YouTube.

So I mean, basically it's all kind of -- it's not only one thing that we are doing.

There are plenty of activities that we are really working also on e-commerce with this Amazon Prime badge or also working on marketplace with Jet.com.

All this is kind of a huge push in order to be more relevant and to be really on trend in a way because, I think, in the product, as I was saying to you, we are becoming more and more lifestyle.

I think our product offering is improving by every -- on a daily basis, and now, basically we have to have a big push on digital initiative and also on celebrity endorsements and social media.

Our next question comes from Dana Telsey from Telsey Advisory.

As you see the performance in Europe, Asia, what you have in the Americas, do you see anything different online versus what you see in the stores?

And as you think of profitability metrics and omnichannel initiatives, how is that evolving, whether it's free shipping, whether -- and it's the other omnichannel initiatives, how do you think the impact of that on margins is progressing?

What we are trying to do as much as possible, Dana, is basically trying to add capabilities to our website.

Like for example,the omnichannel, I think, buying online and pick up in the store is kind of a very interesting feature that we are going to add to our e-commerce capabilities.

I think what is very important is that we have to adapt to whatever is coming.

And I think that, I mean, the development of the e-commerce, I mean, either if we have to do free shipment or we have to do a particular promotion, has to be very consistent of what all the activities that we are implementing on the retail channel, on the wholesale channel and also any type of push on digital initiatives, social media.

So everything has to be combined.

And I mean, we cannot develop one particular thing and not do it in another thing.

I think, all the -- basically any promotional activities that we are going to do, we are going to do in the 3 channels, where we are represented in the U.S. and not only in the U.S. or in America, also in Europe and in Asia.

And this is basically to be very consistent in every distribution channel is very important.

Having said that, what is very important as well is that, to be one of the first to have this pickup -- buy online and pick up in the store, trying to be one of the first to use as a marketplace, Jet.com, I think we should continue developing and not to be a little bit -- trying to be not the first one on this one.

Let's be aggressive, let's try to try and if we make a mistake, let's try to correct it.

And just following up on the profitability piece that you asked about, Dana, I think this is something that we're continuously focused on.

I think what the important thing is, we need to offer the consumer the options to buy wherever they want to buy.

So the world is migrating more and more to online and to omnichannel.

So as a company, we're just ensuring that we meet the consumer wherever they want to shop.

That done, operationally we are doing everything we can to drive down the costs of serving those customers, and a big part of e-commerce business is going to be freight.

And there are significant disciplines inside our company where we continuously look to manage freight to drive the cost of operation down, so that the profitability of that business improves.

More and more, Dana, for example, whenever we go to the stores and we are interacting with the customers, the customers, they check, for example, the price that you have in the store, you will have it as well on e-commerce.

So it's very important to align pricing not only in Americas.

I think the price alignment has to be worldwide.

Our next question comes from Bridget Weishaar from Morningstar.

Two questions.

The first is that there seems to be a large discrepancy between American wholesale and retail performance.

Could you discuss this disparity?

And then second, looking a little bit bigger picture.

It looks like you're making great strides to build the lifestyle brands through these partnerships and your social media presence.

Can you talk a little bit about what research you've done and what the next generation is looking for in lifestyle?

Is this more of a healthy lifestyle?

Is it more socially conscious?

What's the message that's resonating with the consumer?

So Bridget, maybe I'll take the first one, and then Victor and I can probably tag-team on the next one.

But the first one was really about the Americas wholesale versus retail.

And the one thing we've said probably on previous calls, which I'll repeat again is, the weight of different countries within the Americas Retail is very different from the weight of different countries within Americas Wholesale.

And so, I think, the Americas Retail is driven primarily by U.S. and Canada.

But if you go into Americas Wholesale, there is a significant business in -- from Mexico as well as Canada in addition to the United States.

And so, you can't really look at the Americas Wholesale as a whole and think it's very comparable directly to Americas Retail.

And so, you see a mix impact that's playing through.

Because we are doing very well, by the way, in the Canada and Mexico wholesale business, and I think we've talked about that previously, the place which is challenging is definitely the United States.

There is definite pressure over there, and the market trends that we're hearing about and reading about affect us too.

And so we're managing the situation very carefully with our partners and making sure we don't get into a position, which is unhealthy inventory levels, which drive markdowns.

And I think regarding your second question, the lifestyle product strategy that we've been implementing for the last 2.5 years, I think, is very appealing to these new customers, the millennial and Gen Z. And also regarding the way that we are interacting with a customer through social media or even through our celebrity endorsements, I think also is appealing to them, particularly because, I mean, we have a person like Camila Cabello, which is kind of the new star and is kind of a rising star and we have right now Jennifer Lopez, which is kind of a very well-established artist.

So I think this type of balance or combination between both also is very appealing to our customer.

Also the push that we are doing on all these new digital initiatives are paying back.

(Operator Instructions) And I'm showing no further questions at this time.

This concludes the question-and-answer session.

I'll now turn it back over to Victor for closing remarks.

Thank you.

Thank you, ladies and gentlemen.

This concludes today's call.

Thank you for participating.

You may now disconnect.

[RB1]Spelling

[RB2]10:25

[RB3]17:30

[RB4]29:20

[RB5]37:35

[RB6]37:35

[RB7]38:15