Guess(US:GES)2022-11-23 00:23Financial Data and Key Metrics Changes - The company reported a revenue decline of almost 2% in U.S. dollars, while revenues grew by 10% in constant currency, primarily driven by strong performance in Europe [7][35] - Adjusted operating profit was $58 million, with an adjusted operating margin of 9.1%, reflecting a decrease of 180 basis points compared to the previous year [8][54] - The impact of foreign exchange (FX) is estimated to reduce operating profit by $60 million and adjusted EPS by $1.15 for the year [9][66] Performance by Business Segment - The Europe segment experienced a 2% revenue decline in U.S. dollars but a 17% increase in constant currency, with a 19% decrease in operating profit due to currency effects [10][41] - The Americas Retail segment reported a 2% revenue decline and a 53% decrease in operating profit, attributed to gross margin contraction and increased expenses [11][48] - The Americas Wholesale segment saw a 10% decline in revenues and a 41% decrease in operating profit due to increased order cancellations [12][49] - The Asia segment reported a 10% revenue increase in U.S. dollars and a 28% increase in constant currency, achieving breakeven in operating results [13][50] - The Licensing segment had a 4% revenue growth, driven by strong handbag sales [14][51] Market Data and Key Metrics Changes - The company noted strong demand in Europe, Canada, and South Korea, while the U.S. market showed signs of softening due to high inventory levels [62][63] - The overall gross margin contracted by 320 basis points to 42.5%, with currency headwinds contributing significantly [52] Company Strategy and Industry Competition - The company is focused on brand elevation and product transformation, with significant investments in quality and sustainability [17][21] - A digital transformation is underway, with new CRM solutions and clienteling apps being rolled out [22][23] - The company is managing supply chain challenges by ordering products earlier to meet customer demand [24][25] Management's Comments on Operating Environment and Future Outlook - Management expects softer consumer demand and inflationary pressures to continue impacting results [29][30] - The company anticipates a promotional environment during the holiday season due to high inventory levels in the sector [30][64] - For the fourth quarter, the company expects revenues to decline low to mid-single digits in U.S. dollars, with operating profit exceeding $100 million [31][65] Other Important Information - The company ended the quarter with $170 million in cash, significantly down from $391 million a year ago, impacted by share repurchases [56] - Inventories increased by 19% in U.S. dollars and 33% in constant currency, reflecting the strategy to order earlier [58] - The company announced a quarterly dividend of $0.225, representing an annual yield of over 4.5% [61] Q&A Session Summary Question: Demand for the brand and inventory turns - Management noted strong demand for both Guess and Marciano brands, with significant growth in wholesale and retail channels [72][73] - The company is carrying more inventory intentionally to mitigate supply chain issues, but inventory turns are expected to align with customer demand [79][80] Question: Impact of cotton prices and supply chain on operating margin - Management indicated that while cotton prices are dynamic, they have prepared well with contracts and data visibility to manage costs effectively [91][93] - Freight costs have decreased significantly compared to last year, contributing to improved margins moving forward [94] Question: Overall outlook for the next fiscal year - Management plans to provide a full outlook for fiscal year 2024 during the fourth quarter results in March [87]