Q1 2022 Guess? Inc Earnings Call
Good day and walk them through the guess first quarter fiscal 2020.2 earnings conference call on the call are Carlos Irene Chief Executive Officer.
Anderson Chief Financial Officer.
During today's call the company will be making forward looking statements, including comments regarding future plans.
T J initiatives capital allocation, and short and long term outlook, including potential impacts from the coronavirus pandemic.
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 STC.
How much will also reference certain non-GAAP or adjusted measures GAAP reconciliations and descriptions of these measures can be found in today's earnings release.
Now I would like to turn the call over to Carlos.
Thank you operator, good afternoon, and thank you for joining us today.
As you all know the COVID-19 situation on around the world continues to be very fluid depending on the specific countries levels of vaccination and other government actions.
The U S is clearly ahead of the curve and the consumer is behaving strongly exhibiting signs of a response to pent up demand being much more comfortable going out and shopping in stores and very willing to spend and apparel and accessories.
We have been observing these trends since mid March when the stimulus checks were made available.
Canada is still under various restrictions at present and in Europe, most countries, where and multiple degrees of Lockdowns and until recently and we experienced significant store closures during the quarter as a result, the <unk>.
<unk> news here is that most countries have now reopened and so are our stores.
We are thrilled with this development as our business is very large there.
While our Asia businesses were less impacted by Lockdowns and consumers seeing less motivated tourism shopping in our stores at levels comparable to the pre pandemic era.
Let me get now into our results for the first quarter.
We believe that the most relevant comparison to understand on a relative performance. This year is against our results for the pre pandemic period, which is our fiscal year 2020, we will refer to this period as the L. L Y period during this call.
We are extremely pleased with our fiscal 2020, 2 first quarter performance, which exceeded our expectations for revenue and profitability across all channels during.
During the period, our revenues reached $520 million doubling last year's results and were only 3% below revenue in the <unk> period.
During the quarter, we delivered a 5% adjusted operating margin, which is remarkable and the.
And the operating margin expansion was over 94 points versus selling Y and was fueled by improvement in gross margin of almost 700 basis points and a lower SG&A rate of over 200 basis points.
Adjusted operating profit was $26 million and Q1, which compares to on adjusted operating loss of $109 million last year as we faced the most challenging time of the pandemic.
And this also compares to an adjusted operating loss of $22 million and B L Y first quarter period up $48 million improvement.
In addition to the improvements and the macro environment that I mentioned this performance both top and bottom line is a direct result of the transformational work that we have done I guess over the last 15 months.
This transformation touched every area of our business, including initiatives to elevate our brand and our product the acceleration of our e-commerce business the optimization of our global footprint and brand portfolio. The reorganization of our team globally and the execution of significant.
Cost reductions throughout our operations.
This company has been relevant and thriving for 40 years because of its strong business sense and incredible foresight into the future not only consumer preferences, but also dynamic business models.
The leadership and commitment to action of our co founder and Chief Creative Officer, Paul Marciano has inspired yet another transformation for our company.
On behalf of our entire team I want to thank Paul for his relentless dedication to this company and of course, this vision energy and encouraged to always pursue excellence.
To execute this transformation it required great teamwork and an enormous effort from our associates all over the world.
I want to express how proud we are of what our entire team has accomplished under very challenging circumstances, we want to thank them for their extraordinary efforts.
I believe these results showcase for key implications for our go forward business first.
The closing of 140 retail locations and renegotiating over 340 store leases and the past 15 months to.
The company is operating with a new occupancy model <unk>.
Many unprofitable locations have closed forever lease costs for most of the renegotiated leases are meaningfully lower and in many cases rents are now variable based on sales.
This model is contributing to a lower occupancy cost structure across markets and is bringing and profitability to the North America retail business that the company has not seen in years.
Second we have a healthier retail business with more full price selling and less promotional activity, which is delivering higher product margins were pricing our product based on perceived value, which in many cases is higher than the historical price for comparable products and we are selling more.
More of it at full price.
These are structural changes to our retail business model, which will enable a strong flow through to profitability as we grow our sales.
The third key implications and relates to our ecommerce business, our ecommerce business in North America, and Europe grew 61% and Q1 and delivered a very high level of profitability.
This is a key growth vehicle for our future.
Fourth and last the work that we have done to streamline our cost structure has resulted in a more efficient operating model and that lower SG&A loans to support our business. So we now have the flexibility to strategically reinvest some of the savings and growth driving initiatives like marketing and further development of <unk>.
General and capabilities.
Most of the transformational changes that we executed on permanent and will contribute to further operating margin expansion for our company.
For the current fiscal year 2022, we now have a clear line of sight to a 300 basis point expansion of our operating margin compared to the <unk> fiscal year 2020 period, which we closed with a 5.6% adjusted operating margin.
Longer term, we expect this to result in the acceleration of at least 1 year to reach our 10% operating margin goal by fiscal year 2024 versus our original estimate of fiscal year 2025, as you can imagine I'm very excited about this.
Now let me tell you about some of the trends that we saw in the business and the first quarter.
And the U S customer traffic levels are still negative versus Earl and why but have increased substantially fueling our sales improvement most likely a result of pent up demand stimulus checks and vaccine Rollouts, we continue to see record levels of conversion and better full price sell throughs. It is.
Clear that along with the macro factors impacting our sales the customers responding well to our offerings.
So we see customers getting back out into our stores and we are also seeing category performance trends that indicate that they are getting out of the house for multiple locations.
And our athleisure and essential lines continued to perform well, we have seen a material uptick and our sales and dressier products, including denim and dresses high heels and our Marciano collection.
And Europe, we're still dealing with significant government mandated capacity constraints, which have resulted in a more muted traffic recovery at this point. However conversion in that region has increased materially driving the sales comp improvement, we continue to see stronger performance in categories like at leisure and.
Handbags versus the Dressier products and the U S where the vaccine rollout is much more advanced.
And Asia traffic is still under pressure as the consumer remains sensitive to the COVID-19 situation, especially in Japan, where we are still seeing government mandated lockdowns and the product categories that have performed better in this environment include dresses and outerwear and denim.
Our wholesale and global licensing businesses are performing very well, indicating that our product is resonating with our wholesale customers and our brand is gaining market share in Europe. The fall winter season that we recently closed had orders up single digits to last year with fewer accounts.
And at higher average orders on.
And our licensing business grew over 14% and Q1 versus L Y feedback from our licensees and our brand has been super encouraging.
We spoke and depth about our strategic business plan and March including our 6 strategic objectives.
And our organization on culture, and brand relevancy product excellence customer Centricity and global footprint optimization and functional capabilities today I will touch on a few initiatives related to these objectives.
Let me start with an update on the important topic of ESG.
This summer guests will publish its fourth sustainability report, which is prepared in accordance with DRA on SaaS based standards and is undergoing reasonable assurance procedures by KPMG.
As you know, having our sustainability data assured and verify constitutes a leading practice and the industry.
Regarding brand relevancy as you know we are currently focused on elevating our brand.
Paul has been driving this game changing initiatives, including the development of our 1 global line. The elevation of the styling of our assortment and the quality of our products and how the brand is represented across all touch points globally.
There is no 1 in the world that knows the guess brand better than Paul Marciano and.
Under his leadership and product teams have worked really hard to improve the materials that we use and maintain our focus on sustainability on increased perceived value for each item and our collections.
And the results are amazing.
I have said this before we now have the best product I have seen and all my years at guess.
Next on the creative teams are working on elevating the customer experience through our website and in our stores and we will be remodel and key stores, where appropriate to elevate our image and maximize sales.
Regarding our customer Centricity initiative, our team is laser focused on the full implementation of the sales force customer 360 suite that we have mentioned in the past.
We have just completed the implementation of the marketing cloud solution and are now focusing on service cloud, which includes the integration of data to develop what I call 1 view of the customer.
Next I want to touch on our global footprint optimization, we have discussed the great strides that we have made this year and closing unprofitable stores, including flagships and renegotiating rents at the same time, we have our eye out for strategic new store opportunities, where the economics make sense.
Current conditions and the real estate market are prime for us as a result of the massive levels of store closures that took place across the world over the last year. We're also testing some short term pop up models with different product capsules like at leisure for example, using limited capex to expand our foot.
Print and customer base and test future locations and <unk>.
We believe and the power of the store portfolio is a key pillar of our Omnichannel strategy, and we are investing and our growth.
Our last strategic objective is regarding functional capabilities.
During the quarter, we opened a new distribution facility in Poland to service, our Eastern Europe E Commerce business.
This initiative will result in significant savings related to processing and transportation costs as well as improved service levels.
In summary, we continue to make progress on the key initiatives of our strategic plan and we can see the benefits already.
So how we approach and the rest of this year.
We are optimistic about the market recovery based on our experienced and the U S where vaccination levels are high and the consumer is willing and capable to spend more on our product categories.
People are starting to go out and socialize and attend events and I cannot think of another brand better positioned for those locations than our own.
To capitalize on this opportunity Paul plans to invest more aggressively and marketing and advertising for the upcoming seasons.
We also want to prepare our business to respond to and increase in demand.
Maintaining flexibility with our capacity to buy additional inventory in key strategic categories like handbags, essentials, and dresses and we our focus and the additional bias on more see some less products.
In addition, we are equipped to fast track product to chase sales and the back half of the year.
All in all for the year, we're increasing our outlook on revenue for the year from down high single digits to down mid single digits.
This may prove conservative if the changes and consumer demand and the U S. Our sustained and replicate it in other countries, but at present, we believe it is more prudent to plan our business asset. These developments are more temporary.
In closing I want to say that I have been very fortunate throughout my career, but only a few times I had felt that the company was truly at an inflection point.
Day I strongly believe that guess is at an inflection point and we are now set up to capitalize on the work that we have done we have a powerful global brand and enjoy strong momentum and the market. We have amazing product across all categories. We have transformed the model into a dynamic business.
With significant digital acceleration and big opportunities to increase market share and expand margins and.
Paul and I have a great leadership team that is highly committed to take the company to the next level of growth profitability and value creation.
The stars are aligned and I couldnt be more excited about our future.
With that let me pass it to <unk> to review, our financials and outlook in more detail Katy.
Thank you Carlos good afternoon, everyone.
And excited about our financial performance this quarter, which truly exceeded our expectations by almost every measure.
We saw sequential improvement and sales performance across our businesses and the structural changes that we've made to our cost and margin model over the last 15 months allowed us to capitalize on this improvement and demand for our product and a big way as a result, we delivered an adjusted operating profit in Q1 for the first time and 6 years with.
Every 1 of our thanks, and delivering higher profit and pre pandemic I'll outline I could not be more proud of our results.
Now let me take you said that EPS.
First quarter revenues were $520 million down, 3% to ally and U S dollars and 5% on constant currency.
This performance exceeded our expectations driven by sales momentum and our European wholesale and ecommerce channels U S retail business as well as our global licensing.
Overall, the decrease in revenue is attributable to permanent and store closures and negative same store sales as a result of pandemic related traffic decline.
Want to know that these permanent store closures are really accretive to profitability, representing about $10 million of incremental operating profit and the first quarter.
Recently government restrictions for our retail operations in Europe, and Canada had a material negative impact on our sales, but these temporary store closures worth about 12% of sales versus al lines and the total company during the quarter.
On the other hand this quarter, we benefited from and anticipated shift in European wholesale shipments from Q4 of last year, which is worth about the same amount. So overall. These 2.1 time factors offset each other and.
Happy to report and we continue to see sequential momentum and our E Commerce business, which was up 61 per cent for the quarter and North America and Europe. This compares to 38% and Q4, 19% and Q3 and 9% and Q2.
Let me get into a bit more detail on sales performance by segment.
And Americas retail revenues were down 12%.
The decline was driven almost entirely by temporary and permanent store closures store comps and the U S and Canada were down 1% in constant currency, a vast improvement to Q4, which was down 21%.
Same store sales were positive and the U S. A canada remains challenging and they struggle with the pandemic.
The improvement and sales was driven mostly by improved traffic trends, while conversion and AUR remain high.
Tourist centric storage continue to underperform non tour centric story by a wide margin during the quarter. However over the last few weeks, our tourist doors and picked up indicating that at least domestic travel and could be resilient.
And Europe revenues were up 15% the wholesale business showed strong growth over a lie benefiting from the shift and shipment timing. However, our retail business was negatively impacted by Lockdowns and operating restrictions store.
And for Europe were down, 17% and constant currency still muted by the increase and COVID-19 levels and that region, but also an improvement to last quarter, which was down 26%.
E Commerce sales continued to gain momentum. This channel is helping us to mitigate some of the headwinds caused by the Covid crisis now and will also be a key enabler of growth for us and this segment and the future.
And Asia revenue was down 35%. This was driven by permanent and store closures and negative store comps are down 25% and constant currency sales.
Sales comps and South Korea, and China were down and the high teams all of our other areas and the region like Japan were down over 50% and they continue to struggle with Covid outbreaks.
Our Americas wholesale sales were down 2% to outline this business has shown consistent improvement quarter to quarter. We are happy to see sales and this business back to pre pandemic operating levels, but this time with much higher profitability.
Licensing revenues also outperformed and we're up 14% to al White, and Q1, driven by strong performance and handbag fragrance and footwear.
Gross margin for the quarter was 47% almost 700 basis points higher than 2 years ago our.
And our product margin increased 20 basis points this quarter versus Earl Y primarily as a result, and higher INU, which increased 300 basis points, partially offset by business mix occupancy.
Occupancy rate decreased 660 basis points about half of the decrease is a result of business mix driven by the increase in wholesale and the rack is attributable to permanent store closures and rent relief and lease renegotiations.
This quarter, and both roughly $6 million and Brent credits or fully negotiated rent release deal mostly in Europe.
And Theres still some negotiations with our landlords that are outstanding and we continue to extend our conversation to address the second round of temporary store projects.
Adjusted SG&A for the quarter was $186 million compared.
Compared to 204 million 2 years ago, a decrease of $19 million on 9% and better than our expectations.
Continue to benefit from changes to our expense structure, lower advertising spend and a decrease and expenses related to permanent store closures versus Earl y and.
In addition, there was a benefit of about $7 million from government subsidies and mainly in Europe, which was partially offset by higher variable expenses related to the growth of our ecommerce businesses.
Adjusted operating profit for the first quarter was $26 million.
<unk> and adjusted operating loss of $22 million and Q1.2 years ago.
Our first quarter adjusted tax rate of 28% up from 11% 2 years ago, driven by the mix of statutory earnings.
I'm really proud of the status of our balance sheet I will take you through some details comparing now to last year not all our lives.
Inventories were $405 million.
At 3% and U S dollars and down 4% and constant currency versus last year. We felt good about our inventory position and believe we have the right assortment to satisfy demand throughout the year.
We ended the first quarter with $395 million in cash and cash was 419 million and the prior year. However, remember that we had proactively drawn down on our credit lines and Q1 and paid them back in Q2 on a net basis, we grew net cash by $115 million from the prior year.
Our receivables were $306 million.
From $240 million last year. This increase is a result of the timing shift and the wholesale shipments into this quarter. We are however, collecting from our accounts materially faster than last year with DSO and Europe down about 20%, that's where our.
Our payables are up as a result of better payment terms with our vendors as well as a higher portion of fresh inventory on our books.
Capital expenditures for the quarter were $9 million up from 6 million and the prior year and we begin to strategically reinvest and technology and selective remodels.
Free cash flow for the quarter was negative $65 million and increase of 3 million versus negative $68 million last year.
So now let's talk about next quarter and the rest of the year. The current environment is still uncertain and as a result, we are not willing to provide formal guidance, but I will walk you through how we're thinking about the near term future again, I'm going to anchor our commentary on alloy.
For both the second quarter and the full year, we are raising our revenue expectation from down high single digits to L. O Y to down mid single digits as permanent store closures and pandemic related traffic declines are partially offset by continued momentum and our global E Commerce and wholesale businesses.
Because of both the temporary and permanent store closures. We don't think sales comps are the best way to understand our retail performance. In addition, as you know our business model and has a few dimensions to it which are moving in different directions. So on.
I'm going to focus on total revenue by segment to break this down free of that.
And Americas retail, we continue to see performance roughly follow trends and Q1 and expect total revenue decline for Q2, and the rest of the year to be in line with our Q1 performance, which was down 12% versus.
Primarily impacted by permanent store closures.
And Europe Q1 was impacted positively by the shift and wholesale and negatively by temporary store closures and these are now being lifted and many of the countries and which we operate Germany being the biggest exception at the moment.
We believe the stores will operate at higher levels of productivity and over the past year, but still below our line.
E Commerce will continue to grow but at more modest levels given that we are reopening the store and lapping strong growth from last year.
Together with our expectations for wholesale revenue cadence, we anticipate revenue in Q2 for our Europe segment to be roughly flat L. L Y and grow modestly for the full year.
And Asia, we're expecting Q2 revenue decline similar to that of Q1, but the back half of the year will be slightly better as we anniversaried softer performance in our lives.
And Americas wholesale based on our current order book Q2 will perform better than Q1 and revenue should be flat to L. O Y for the full year.
Lastly, and licensing we had a very strong first quarter, but we are modeling for the year to be down to ally given the challenges and the wholesale business globally right now.
Carlos mentioned this may prove to be conservative and we want to keep inventories lean and if demand exceeds our expectation we know that we have the capability to react.
In terms of profit adjusted gross margin and the second quarter is expected to be around 400 basis points better than L. L Y driven primarily by lower occupancy costs as well as improved <unk> and lower promotions.
Anticipate that the adjusted SG&A rate will be up 150 basis points as cost savings are offset by lower sales levels, and reinvestments and business expansion initiatives, including advertising.
For the full fiscal year, 2020, 2 we expect operating margin to expand by approximately 300 basis points to L. L y.
This would bring operating margin for the year to around 8.6% versus al why adjusted operating margin of 5.6%.
And clothing, it's truly an exciting time to be a guess.
After over a year of navigating the company through and extremely turbulent time and our global history. The dust has finally, settling and even though the near term macro environment may still be uncertain I can see very clearly that our business is now primed to gain market share and bring those dollars to the bottom line with a more profit.
Okay.
Now, we need to execute and so thankful to be on this transformational journey with Paula and Carlos and part of this phenomenon global team, which I know can bring this company to the next level.
With that I will conclude the company's remarks, and let's open up the call for your questions.
Thank you we will now begin the question and answer session. If you have a question. Please press Star then 1 on your Touchtone phone to allow time for all questions. Please.
Please ask 1 question and 1 follow up question you may reenter the queue at any time after that to ask additional question.
Our first question comes from Susan Anderson from B Riley FBR. Your line is now open.
Hi, good evening and nice job on the quarter, it's great to see the profit flow through is as strongly and.
And I was curious on the digital business.
Hey, Carlos I think you said it was up 61% I'm curious if there's any color you can give between the U S and Europe and then also can you maybe talk a little bit about the customer youre seeing coming on line is this a younger customer or a new customer or is it the same 1 coming into the store and.
And I guess are they buying more of that guess original products or is it kind of everything all around all of the products.
Yes, Thank you Susan.
Well, we were of course Super pleased with that performance.
The acceleration was even more pronounced in Europe than in the U S with respect to your question on.
And of course that there was some.
Correlation with the fact that we had multiple stores closed.
During the first quarter, and we were a close and over 200 stores and company wide a lot of those stores were in Europe as you know and.
And but we felt that we got a significant business as a result of many of the changes that we have made and with our platform sales force continues to perform extremely well for us we're seeing increased conversion with mobile and.
And that represents a big part of the business.
We are seeing that the expansion of the assortment online.
And being very very successful and.
And in some cases, we even see better sell throughs and some of the exclusive products that we carry on 9 versus what we carry us core category.
And so super excited about everything that we're doing there.
The U S also had.
And Ken and I also had a very good performance during the quarter and really helped on debt acceleration overall for our company for the 2 regions combined and.
And and also something very important is that we continue to really elevate the brands and elevate everything that we're doing and that includes being much less promotional and and as a result, we are making a lot more money with the business. So overall really super pleased with this we see a lot of.
Opportunity and the future with this business and and we see it as that.
Ed.
And you know complement to everything else that we're doing to service our customers. So we see it as a part of this omnichannel strategy that we're pursuing with respect to customers.
What we what we saw during the quarter was the additional customers have been added to the file the number if you take those 2 regions combined is about 400000, new customers. So it's a pretty significant number for us we haven't seen the step up growth and and we feel that.
And we are into something also very important and especially as we complete the implementation of our customer 360, because as you know that is all based on using data to do a better job with personalized marketing and better engagement with the customer base. So we're seeing that all of those new cost.
<unk> are converting very nicely. So a lot of the sales growth is coming from those new customers and and we feel that we can do even more to really continue to grow the file and we are.
And after those initiatives as well so overall, a great quarter for us on on all digital and and we think that we are learning a lot about what else. We can do to really continue to grow the business I mean, I've mentioned and elevation of the brand.
1 of the big things that Paul and the teams are a creative teams are working on is to really elevate the experience that customers are going to have and the websites and in addition to everything that we're doing and store and wait until you see the images and the coffee and how we are.
We are designing.
What types are going to be so we are very excited about this as well.
Great that's really helpful and then.
And if I guess to add another 1 on the wholesale front it looks like that's turned around nicely and first quarter and the Americas, maybe if you could talk about kind of what you're hearing from the wholesalers do they want more product because they were not enough product and then what are your expectations as we kind of go throughout the rest of this year.
Yes, we were very pleased with that business as well.
I think that we are also gaining share and with our retail customers.
And the wholesale business for sure we're seeing it in Europe, and a very significant way.
We are seeing debt the number of accounts is contracting to certain extent, but.
Those accounts that are continuing to do business with us they are buying a lot more.
Per order. So we know that we are gaining share and we know that this is not happening to everybody and the business. We think that the business overall is contracting.
And to certain extent at least for now and.
And because of all the closures and everything else, but we continue to really see growth there and in fact per hour numbers. You know I think I've mentioned during my prepared remarks that our business for the recent season was.
And positive territory and actually I'm going to tell you that it was not only positive by a high single digit so very very happy with all of that.
And with respect to the U S.
We see a very similar type of behavior and.
A lot of our growth is also coming from <unk>.
Increase in share we believe.
And of course, we see.
And published reports as everybody and we see that inventory levels for some of our.
Primary customers are very low and we want to be prepared to support those customers with.
With additional demand and if they see it on and we believe that they will so.
Our prepared to do that as well where inventories in North America were down about 11%.
At the end of the first quarter, but we see a big opportunity to react.
<unk>.
Katy mentioned this in her remarks, we can really be very quick and and reacting where.
Working with vendors that are taking positions on fabric just to be able to really move very fast and and we feel that this is the right time to have that type of.
<unk> and.
And we think that.
On the product that we are now.
Eloping is the type of product that is not risky to carry because a lot of it is.
Looking back at our Essentials line and the type of product that is less season risky and.
And so we feel that we're going to be and a very good place if that uptick in demand does occur.
Great. That's very helpful. Thanks, so much.
I was just going to ask is and you're actually out and maybe this wholesale expectations for the rest of the year.
We think based on the order, but now we think we'll get a little bit of a bump in Q2, and then will be flat for the full year.
Flat first is.
And just out of line.
Yeah, Okay, great. Thank you so much.
Thank you Susan.
Thank you as a reminder, if you have a question. Please press Star then 1 on your Touchtone phone. Our next question comes from James did share from Jefferies and company. Your line is now open.
Hi, good afternoon, everyone and and great job.
Thank you and how are you doing good how are you want.
And to ask a bit more about the store closures I think you said they were $10 million of accretive to operating profit during the quarter, maybe just help us walk through that math and what youre seeing on recapture when you closed stores and then how that helps you think about youre on.
Automate and potential store base.
Well I'm going to start on debt, probably Katie may want to add a couple of comments here, but.
We have been looking at our portfolio and a very deep way.
I mean, obviously this is something that we worked I mean, even prior to the pandemic. We we always look at every deal and it has to stand on its own every time that we have an opportunity to either close something that is.
Losing money or <unk>.
Looking at the renewals we always are.
Spect that each store will have to really to itself.
And Thats part of our DNA.
As the pandemic hit and then we started.
Negotiations with landlords on on all the stores that have been protium and temporarily we also looked at opportunities to really.
No growth.
Extra mile width.
Some specially flagship locations that had not been profitable for us or or that we didn't think that they had a place and our portfolio as prominent.
At the beginning.
The stores were opened and we were able to negotiate.
Got it.
Yes, I agree with.
Different landlords to really go through this.
As you know the the accounting.
Standards have changed and this and the last few years and.
And we carry.
And asset value of that asset value has to be adjusted based on whatever.
And if stores are closed and on that has been done so.
With respect to the $10 million that Kt was talking about in her remarks.
That is.
Definitely bottom line growth.
Months improvement as a result of the closures debt.
She was referring to and.
And this is something that is.
And impacting our operating profitability.
Going forward, so we're going to see a very similar type of behavior and the remaining quarters of this year and going into the future.
And in terms of the math and you know the we closed about 10% of our base over the last 2 years at retail is half of our business. So you can kind of think about the top line like that and then again like Carlo said these were on productive force, we talked last time and we closed on flagship we're also.
And they got a big move in and operating profit for us.
And there are some regions, where this was more prominent.
China is a great example, may we close 60 stores and the last 15 months and many of the stores, we don't think that they belong in our portfolio going forward.
And then your question about where do we go from here, we are very happy with where we are right now and not just frankly, we we went through the entire portfolio globally. We're talking about over a 1000 store that we own and operate and and we feel that we are what we want to be.
A lot of the leases have been renegotiated and.
And on stores that probably in the past and make a lot of sense for us in terms of contribution all of us on and now they are big contributors because of the new leases and <unk>.
So we will continue to manage and a very active way.
We like where we are and the more important thing is that now we are seeing big opportunities to expense and.
And we are prepared to invest because we believe and retail and we believe and stores and we think that day is a critical part of how to showcase our brand.
We have a lifestyle brands multiple categories and the best way to really show that is when everything could be and 1 environment.
And with our offering a very great experience for the shopper and that's where we are on bill.
Okay, Great and then maybe just a couple more on the supply chain and you can talk about being able to fast track product and the back half curious if youre just seeing any of the supply chain delays that were hearing from a lot of companies and then kind of along the same lines. I think you talked about and continuing to have <unk> benefits are you seeing any impact of raw materials inflation or any other inflationary.
Free aspect or is it just that youre seeing those things, but they're they're offset by other efficiencies that you're finding thank you.
Yeah, Thank you Jenny and work.
So obviously.
Obviously supply chain issues are industry wide and and.
And we are definitely being impacted to certain extent by those especially I would say inbound freight is probably the the biggest area that has.
<unk> impacted us.
Fortunately, we are we have a very good team who is looking.
And both regions and a very careful way and taken options that can minimize that impact, but nevertheless, just having the inventory was critical and so in some cases, we have to air growth returns and that much of that Fortunately.
And then just looking at alternative ways to bring the product to.
Right.
Yes.
We think that this is going.
I'm going to be the case for a few more months.
I think the last time, we talked we mentioned that we were expecting that this was going to be taken care of by the summer and and so unfortunately our.
And our team here now thinks that this may take a few more months to really solve all the issues, but the good thing is that as we saw that it was difficult to bring the product and we started calling our vendors and we have amazing relationships and trying to anticipate and bring product and earlier and this is happening both here in.
North America, and also in Europe, as well and.
And in Asia, We don't have this issue.
And as we are bringing product in.
And in some cases that means that we have to carry some extra product, but again.
Risk is not significant because of the type of product that we're bringing inc.
And with respect to our immune.
Many of the contracts that we had were already kind of like fixed on price. So even when raw materials costs have gone up.
And we're somewhat protected now.
Now in order to avoid.
This issue to impact us and the future we are looking at alternative materials to.
And to be able to replace them on for fibers or some of the cotton that we are using.
But it all with friends and protect the quality of the government on the materials that we use and and this is also giving us an opportunity to look for more eco friendly type of materials and those events and we're looking for alternative sources.
So we don't see and of course and our guidance.
This is already included what we expect for margin behavior based on what we are seeing today, which includes those.
Increases and some some of those materials.
Great. Thank you very much and best of luck.
Thank you Janine.
Thank you and the reminder, if you have a question. Please press Star then 1 on your Touchtone phone.
I'm showing no further questions. Thank you at this time, so I will turn the call back to Carlos for closing comments.
Well. Thank you very much I want to thank you all for your participation today, we are very excited about our momentum and the opportunities that we see ahead and I talked about being at an inflection point on and I really mean it.
We are in front of the most important and quarters of the year and we look forward to sharing with you our progress very soon and we wish you all.
Great and Memorial day weekend enjoy it and.
Again, thank you for your support.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect.
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