Q2 2022 Guess? Inc Earnings Call
[music].
Good day, everyone and welcome to the GAAP second quarter fiscal 2022 earnings conference call I would like to turn the call over to could breathe better route.
President of finance and Investor Relations.
Thank you operator, and good afternoon, everyone and thank you for joining us today on.
On the call today with me are Cabo Sudbury, Chief Executive Officer, and Carrie Anderson, Chief Financial Officer.
During today's call the company will be making forward looking.
By including comments regarding future plans strategic initiatives capital allocation and short and long term loss of income.
Including potential impacts from the corner very spending.
The company's actual results may differ materially from current expectations based on risk factors included in today's press release and the.
<unk> quarterly and annual reports filed with the SEC.
Comments will also reference certain non-GAAP or adjusted measures GAAP.
Reconciliations and descriptions of these measures can be found in today's earnings release.
Before turning the call to colors.
Like to mention the ability.
Companies have been in the science that shut at the Goldman Sachs annual global retail in Kaufman on Friday September 10th at <unk> P M. Eastern.
Hope to see you there.
Now to guidance.
Thank you <unk> good afternoon, everyone and thank you for joining us today.
We are very proud of our.
The packaging and our accomplishments, we just closed a great quarter and we plan to review what drove our performance in detail, but most importantly, I want to share with you where we are today and how we see the future both short and long term let.
Let me start with our results for.
For the second quarter, we reported.
<unk> our earnings from operations of $89 million.
This compares to adjusted operating earnings of 48 million for the ever White period exceeding our pre pandemic performance by 85%.
This was well ahead of our expectations, we reported revenue of $629 million.
Adjusted 8% over last year, and 8% below the yellow or white period, the entire decline to airway was due to a timing shift of European wholesale shipments into Q3 and permanent store closures, which are accretive to operating profit.
This is in spite of being significantly.
Fifth less promotional during the period and all of our direct to consumer businesses.
For the quarter, we delivered a 14% adjusted operating margin, we expanded our operating margin by over 700 basis points from 7% MBR White period.
The start of this quarter was the North America retail.
<unk> reported an operating profit of $38 million.
Versus $6 million <unk> of white period, and almost 540% increase.
Our wholesale licensing businesses also outperformed in Europe, and Asia delivered roughly flat operating performance to the ALLL of wide period.
And I continue to be thrilled with our teams performance all over the world.
Adjusting and reacting seamlessly to the fluidity of the current environment, we want to give a huge shout out to our leadership team and all our associates and thank everyone for their big efforts and great contribution.
During this unprecedented time.
We are happy to see demand recovering in stores reopened across the globe.
We still see the pandemic impact on customer traffic and on the supply chain globally. The labor market has also been impacted as companies are challenged to reach higher workers.
<unk>, leading to labor shortages and higher wages.
I guess, we remain laser focused on what we can control as.
Our global brands, we have adapted quickly to the changing levels of demand and restrictions across our markets. We are sizing our inventory buys accordingly adjusting.
And to the perceived value of our products strategically managing promotional activity and increasing labor rates to attract and retain top talent.
We continue to keep costs very tight by eliminating redundancies and increasing efficiencies.
We have been relentless in mitigating supply.
Prices disruptions, we are strategically partnering with our vendors to accelerate deliveries when feasible changing countries of origin when appropriate to increase speed to market and investing in faster transportation mode. When it makes sense.
Our strategy is working and our results reflect this.
I am proud to share with you that we published our latest sustainability report this summer focus on our three pillars to operate with integrity empower our people and protect the environment.
Some highlights include reaching gender pay parity, increasing our equal smart guests denim penetration through 'twenty.
Hi chain and receiving approval in our ambitious science based targets for greenhouse gas reductions.
We are confident in our actions here in fact, we successfully passed a reasonable assurance review by a big four firm, making guests the first in fashion to subject, our ESG data to such a.
Gregor.
We have increased our environmental quality score with a independent shareholders services to one out of 10, the highest rating possible as a result of this work.
Let me now spend a few minutes talking about what's going on in the different regions and channels of our business.
In North America.
Hi, Laura traffic has improved sequentially each quarter, but remains well below historical levels and we continue to see higher conversion rates and higher average spend.
We are in the midst of back to school and we have solid demand for denim Activewear and Knits. In addition, we are seeing sequential.
Americas' growth, where our dresses category, which was positive two ela why for the first time since the pandemic began.
Both our GAAP and Marciano brands are experiencing increases in sales of dressy apparel and accessories.
Customer is returning to social life.
We have also been successful with our handbag and wear.
<unk> two products in our mens business has been particularly strong.
In Europe, we had a stronger start to the second quarter, which leveled off as the Delta variant spread in many countries. There activewear continued to outperform in this region, both for women and men and we saw a substantial.
We're now up in denim in Q2, as well as improved demand for dresses and outerwear.
We are encouraged by the progress that most countries in Europe have made with vaccination levels and we remain optimistic about the recovery of this region in the second half of the year.
In Asia, our customer traffic is the most challenged due to.
Opex and the trends remained relatively consistent in Q2 versus Q1.
The product categories that have performed better in this environment include sweaters denim and outerwear, while we have made good progress in several areas of the operation our challenges with topline performance remain.
We.
The buyer reassessing, our team and we are making leadership changes to reorganize the business today.
Our E Commerce business grew 11% in North America, and Europe for the quarter versus last year.
Growth here was more moderate than prior quarters as we were a lot less promotional I am pleased that we continued to significantly.
Improved profitability in this channel in the back half of the year, we will be strategically investing more in marketing to support further growth in this business.
Our European wholesale business is performing well we are currently shipping our fall winter season, which had orders up high single digits as I mentioned.
Some of the products are delayed coming in so they will ship in Q3 versus Q2.
The spring summer see some campaign is underway and we estimate that the yoga book will be higher than the LOI with strong growth, particularly in our kids and footwear collections.
We're also very pleased with our Americas wholesale.
<unk> business, which grew 19% in sales and 54% in operating profit versus LOI.
<unk> had a great quarter and delivered strong performance in Macy's. We're also having success in apparel for both men and women and accessories, particularly handbags.
Our global licensing business.
<unk> also recorded significant revenue growth of 18% versus the yellow white period.
We have a big business here, primarily driven by handbags eyewear footwear and fragrances.
Regarding our strategic plan I want to spend a few minutes updating you on our progress with our brand innovation and customers.
Twin city initiatives.
I will start with our brand elevation strategy, which touches almost every aspect of our business.
<unk> has been driving this very ambitious initiative with our product and creative teams his strong leadership and the work that the teams put into this to transform our model have been.
Extraordinary on many major milestones have already been conquered.
Most significantly.
Taste styling and quality of our products have been elevated for the first time, we're providing a global assortment that achieved a consistent representation of our brands.
We are focused on.
Quality and sustainability across the board.
In addition, the new Assortments have been priced based on the products perceived value.
Our visual merchandising in the images and photographing all the new marketing campaigns catalogs, our website and be optimized to showcase our brand more effectively.
And our product development.
Higher marketing visual merchandising and buying our integrated more closely than ever before.
This means that as we identify our biggest product storage.
<unk> flow through to our campaigns for windows and pure presentations on websites, we buy deep in this key styles to increase full price selling.
<unk> and maximize sales.
The last important step we are elevating the brand is to improve the customer experience across the guest ecosystem, including our stores our website won't wholesale distribution and through our license fees were mobilizing our field and business units to address this and we plan to upgrade.
Our technology and tools to deliver superior service to our customers.
Some examples of this upgrade in store technology include enhanced Wi Fi networks.
<unk> payment methods and mobile checkout.
These projects should be complete by the end of next year.
Regarding customer Centricity.
Let me start with our customer base.
As you know will resonate across three distinct customer groups heritage millennials and generation Z and we develop our product assortment to support the unique lifestyle needs of these customers.
With GNC, specifically, we have a separate strategy.
Strategy, including differentiated product development marketing and customer engagement.
This is our brand partnerships group led by Nicolai Marciano.
Other collaborations and events drive this business, we had great success here pre pandemic with key collaborations such as J Bartlett.
As.
You can imagine the pandemic impacted our ability to execute this event driven marketing campaign.
Now we are able to restart these collaborations in fact this past weekend, we had a successful event with Babylon and influential Kate and streetwear label on our campus in EMEA, where we hosted over.
<unk> 6000 people in three days.
Regarding our digital business, we continue to make progress in optimizing our user online experience via the E Commerce platform that we implemented last year.
For example in Europe, we're seeing improved conversion rates, especially for mobile which represents over 80% of.
Okay.
Our average web session duration increased over 20% bounce rate decreased 10% and loading time versus our previous platform is 70% faster.
During the quarter, we implemented some upgrades to the platform, resulting in an increase in our add to basket sessions.
Over 30%.
We continue to work on implementing omnichannel capabilities in Europe, but as well, it's a great North Americas current capabilities, we plan to complete this project by midyear next year.
The last pillar of our customer Centricity strategy relates to customer data capture segmentation.
Our <unk>.
We have built out a high performance platform, but we're still operating on extremely limited capacity to process and utilize our customer data. We are now working on our platform, which includes powerful tools to fuel data collection consumer insight analysis, personalized marketing and client telling.
And we can use these tools to maximize sales from our existing customer base as well as efficiency target new customers. This implementation is underway and will be completed by next year. This will be a game changer, allowing us to use our data to unlock a ton of value.
Now, let me talk about our outlook.
Outlook.
When I came back in early 2019, we identified several opportunities for value creation.
At that time.
Most significant of these were in margin expansion.
We laid out a plan to increase operating margin by about 450 basis points to 10% in five years.
Use the pandemic as an accelerator to transform our business and not only are we expecting to reach our 10% target. This year, but we are now increasing our operating margin target to 12% by fiscal year 2024, when we plan to deliver $2.8 billion in revenue IMAX.
I am excited to <unk>.
We view that this would yield a return on invested capital of over 30%.
I am confident in this outlook and this is why we see clear opportunities for revenue growth from category expansions in areas like denim Marciano handbags dresses and outerwear.
Share with new store development to digital sales growth our margin expansion has come from concrete changes to our business model, including IME improvements store portfolio optimization and cost reductions.
And while we are currently operating and what might be in a normally low promotional period industrywide.
Why this company will never go back to the levels of promotional activity that it had pre pandemic.
Our balance sheet is in a very good position, which allows us to fund our business needs as well as return value to shareholders. We.
We announced today that our board has authorized a share repurchase program.
To $200 million.
Thank you Carlos good afternoon, everyone I wanted to start with something.
It was slightly short of our expectations as a result of timing and our European wholesale business worth about 4% to L Y where delays in product receipts moved some shipments a few weeks into the third quarter.
Overall, the 8% revenue decline to LOI was driven by the impact of permanent store closures worth roughly 5% of Rev.
And the shift in wholesale shipments in Europe.
I wanted to note that our promotions were well below pre pandemic levels across all of our direct to consumer businesses, which is impacting our sales levels versus L. O y significantly driving our profit.
Let me get into a bit more detail on sales performance by segment.
In Americas retail.
<unk> revenues were down 6% versus L O y better than our expectations.
This decline was entirely driven by permanent store closures, which were worth about 80% of the sales to L y <unk>.
Store comps in the U S and Canada were up 5% in constant currency same.
Same store sales were solid positive in the U S, but the recovery in.
Canada is moving a bit more slowly.
Although traffic is still materially negative from Q1 to Q2, we saw improved trends there.
Our conversion remains high and AUR increase substantially in Q2 with strategic price increases and more full price selling.
The GAAP between the performance of our tourist centric stores and.
Our non tourist centric stores, it's still why the narrow significantly in Q2 versus Q1.
This suggests that at least domestic travel is taking up the total travel still remains significantly below historical levels. In fact, our non tourist stores in the U S and Canada had positive double digit same store sales.
Yeah.
The profitability that we have brought to the segment is super exciting and worth noting.
Operating margin in Q2 was 20% versus only 3% two years ago and operating profit is six times, what it was in L Y even on lower sales. This is an incredible base off which to grow in North America.
In Europe revenues were down 5% versus all away.
Our retail business continues to be pressured by pandemic related traffic decline.
Sure cause for Europe are down 20% in constant currency impacted by negative traffic. However.
However, this was partially offset by solid conversion rates and significant AUR increases.
Absent the shift.
And shipment timing that we mentioned earlier.
Our European wholesale business continues to show healthy trends with an order book above pre pandemic levels.
In Asia revenue was down 43 per cent to L. L Y almost half of this decline was driven by permanent store closures, our store comps were down 30% in concert.
Current currency was negative sales comps in South Korea, and China more moderate than other areas in the region like Japan, Taiwan, and Hong Kong, Macau, where they're struggling more with the pandemic.
Our Americas wholesale sales were up 19% to L. O Y we're happy with our momentum in this business.
Operating margin expanded.
At almost 600 basis points to L Y here, resulting in a list of over 50% for operating profit in this segment.
Licensing revenue was also outperformed and were up 18% to L. Y N Q2, driven by strong performance in our perfume in footwear and I think now this is an extremely high margin business, which delivered.
92% operating margin this quarter.
Total company gross margin for the quarter was 46, 8% almost 800 basis points higher than two years ago.
Product margin increased 370 basis points this quarter versus LOI, primarily as a result of lower promotion and higher IMU.
Occupancy rate decreased 420 basis points this quarter, we booked over $7 million in rent credits for fully negotiated rent relief deals mostly in Europe.
The remainder of the decrease is attributable to lower rents and permanently closed stores.
Adjusted SG&A for the quarter was $206 million compared.
Compared to 200.
Hundred and $18 million two years ago, a decrease of $12 million or 6%.
We continue to benefit from changes to our expense structure and a decrease in expenses related to permanent store closures versus Earl y.
In addition, there was a one time benefit of about $4 million from government subsidies, mainly in Europe, which was partially offset.
By higher variable expenses related to the growth of our ecommerce business.
Adjusted operating profit for the second quarter was $89 million versus $48 million in Q2 two years ago.
Our balance sheet continues to strengthen I will take you through some details comparing now to last year not L. L y.
We ended.
The second quarter was $459 million in cash of $131 million higher than last year's balance at the end of Q2.
Inventories were $430 million up 3% in U S dollars and 1% in constant currency versus last year.
Inventory management has been a key capability for us.
We continue that swiftly and strategically here, we feel good about our inventory position and believe we have the right assortment to satisfy customer demand.
Year to date capital expenditures were $22 million up from $10 million in the prior year, but significantly below pre pandemic levels, we generated $18 million.
The free cash flow in the first half of the year.
Our ability to generate cash gives us the runway to invest in our business as well as return value to shareholders. We announced today that our board of directors has authorized a new $200 million share repurchase program.
This new program includes the $48 million remaining under the Companys previously.
The authorized repurchase program and we will use it opportunistically.
So now let's talk about our go forward expectations. The current environment is still uncertain. So we will not provide formal guidance, but I will walk you through how we're thinking about both the short and longer term future.
Again, I'm going to anchor our commentary to our Hawaii.
We are maintaining our revenue expectations for the full year at down mid single digits.
We expect the third quarter to be slightly negative to flat withheld from shifted wholesale shipments from Q2.
In terms of profit adjusted operating margin for the third quarter is expected to be about 250 basis points better than <unk>.
Gross margin is expected to expand by around 600 basis points to L. L Y driven primarily by lower occupancy costs lower promotions and improved ion mute.
We anticipate that the adjusted SG&A rate will be at 350 basis points as cost savings are offset by business mix and Reinvestments and.
And business expansion initiatives, including marketing.
As with the rest of the industry, we are seeing some cost pressures, particularly in freight and labor, which are built into these numbers.
For the full fiscal year 2022, we are raising our expectations for operating margin and profit we now expect operating margin.
Were each approximately 10% for the year versus adjusted operating margin of five 6% in L y.
This represents margin expansion of roughly 450 basis points to our pre pandemic business, despite a lower revenue base.
And we are confident in our ability to sustain these profitability levels as.
As well as deliver topline growth as a result, we are raising our operating margin target in our long term plan to reach 12% by fiscal year 2024.
With revenues of nine year expected to hit $2.8 billion.
System with our previous goal. This implies an operating income of 335 million.
In fiscal year 2020 for $185 million more in adjusted operating profit in fiscal year 2020.
Adjusted EPS is expected to be around $3.50 per share versus $1.45 in fiscal year 2020, This would be a record level of adjusted.
That EPS for the company.
Our team is motivated and are proud to say that we are running this company for the future not just announced.
With that I will conclude the company's remarks, unless open up the call for your questions.
And thank you we will now begin the question and answer session. If you have a question. Please press star.
And then one on your Touchtone phone, if you wish to be removed from the queue. Please press the pound sign or the hash key if youre using a speakerphone. Please pick up the handset first before pressing the numbers. Once again if you have a question. Please press Star then one on your Touchtone phone. Please standby, while we allow parties to queue up.
And I see we have our first question from Susan Anderson with B. Riley. Please go ahead. Your line is open.
Good evening and congrats on a really nice quarter I was wondering.
I guess I'm curious how much is being driven by the initiatives that were in place pre.
The fourth is things that happened during COVID-19, such as the inventory levels driving the lower promotions and the higher merch margin and then also as we look out to 2024 and the 12% op margin goal can you maybe talk a little bit about the puts and takes that will get to the 12%. Thanks.
Thank you Susan.
We are very pleased with our performance this quarter.
Look at what made it happen I think that we were very very focused on all the things that we have going coming out of our strategic planning process back in 2019.
Coke Unfortunately.
To accomplish even more than what we've had.
In many areas.
Product cost.
The implementation of <unk>.
Yeah.
Completely consistent across the world.
And the sourcing strategy that we had in place.
Part of our initial plan.
There's a lot more than those.
Each of our initiatives and I would say that probably the biggest.
Over here.
The elevation of our brand.
Just growing.
A completely different.
Business model.
It's almost no promotional.
<unk>.
We are trying to really stay with.
Value based pricing model.
It is very challenging to do.
But I think thats the key.
Created teams on their product teams have worked kind of.
With me to really accomplish these on a product by product basis, and I think that they have done an incredible job and this strategic value price model I think is something that is.
Number one it's going to take us.
Two different place and have a good brand.
Our customers.
We reduced promotional activity everywhere.
Hum.
We have a big opportunity in the rest of the business model with our occupancy I think got.
It was definitely something we head into plants, but we have done a lot more than what we had originally planned to do.
During the pandemic, we have renegotiated 400 leases and and obviously the results are a lot more positive than what we had originally expected.
We have done a lot on the expense side of the business as well increasing efficiencies a lot of this work is still ongoing we are not done with that but we feel that we are on a good path to be able to benefit from that especially next year on them going forward.
And I think that with respect to 'twenty to 'twenty. Four just said we are very very happy with the 12%. We think that this is kind of like we have very clear line of sight to that.
Maybe Keith you want to filling with.
12% operating margin, yes, sure Suzanne.
10 to 12 are about half of that is coming from sales leverage so I'd be sad, where we're still confident in the $2.8 billion dollar top line in fiscal 2024 and half of the margin expansion is coming from that and the other half from further efficiencies, but just take more time and these are more backend.
Load in the next few years, so when I think about Okay. You know how does that play over the next couple of years I'd say like a third of the of the expansion next year and then two thirds in fiscal 'twenty 'twenty 'twenty, four and coming both from gross margin and SG&A.
Great. That's really helpful. And then if I could just add one follow up.
On Europe. So it looks like it was the only region that was down and I think you had mentioned that it was solely given the.
The shift of wholesale orders from second quarter into third quarter and I'm not sure did you did you quantify that or they've not you know how much was that and then also I'm curious when the.
Stuart did open in Europe did you see a pick up in sales in Europe as it was opened up last quarter. Thanks.
So let me start and Judy will try.
Well.
No.
Our business in Europe.
Yeah.
Managing very very well.
Good.
Significant issues with Oh.
Yes.
And how would that impact the entire territory.
Do you have restrictions in many cases our stores.
Being close and similar countries you know if that was a challenge.
I think we had shared with you during our previous.
Call that.
The business that started in a very very strong way, but then we saw.
The business is leveling off during.
During the quarter.
I'm talking about the direct to consumer business, especially retail stores.
So it has been challenging with traffic our wholesale business I think is very.
Very healthy and Inspite of all the issues with the virus.
The market continues to see gas as a great brands and we're seeing our investments from our customers retail customers in the coastal business doubling down with us and <unk>.
<unk>.
Significantly more investments with the brand. So we're seeing that business to continue to grow and that is true for the season that we close.
This is something that is <unk>.
In the works right now, which is spring summer and.
And you know.
The great thing about retail is that during the last.
A few days I know, it's only a few days, but it's a very important base because the clear.
Clearance period in Europe is closing and we're seeing that the business is starting to pick up this is when people come back from vacations and.
We are getting ready for back to school as well. So we're excited about that again.
Early to tell but we have a lot of confidence in Europe.
As a region for US as you know is more than 50% of our business very critical and.
The second half of the year as is.
Very important in terms of both topline and profitability okay.
Susan.
I'll start with the shift in wholesale so that was about $25 million. So we had that shift but as Carlos said the order book is still.
And then I'll just add.
In the retail business in Europe.
Was the traffic with a little bit lower than North America, but conversion is high AUR is up in the mid teens and again, it's Carlos.
All of that.
Seeing some green shoots.
I don't think that the important thing here too is that a lot of this we are doing strategically because we decided to not participate in aggressive promotions and.
Even the way we bought the product.
In a way that is unlocked.
A lot more guidance.
Then that's the way the company was being.
Service before so so of course, if you stopped promoting you are going to see some type of impact on the top line, but we are very happy and you can see the results in our bottom line.
This is all.
Setting a new baseline for this company in terms of selling at full price and we couldn't be more et cetera about that because we think that going forward, we're going to see the benefits time in time out and more importantly, how the.
Customer perceived that the brand is a brand that that if you don't buy it today.
You may not find that product. So that is a very critical in our entire business model on formulary.
Great that's very helpful.
Thanks, So much good luck guidance here.
Thank you.
And thank you we have our next question from Janine Stichter with Jefferies.
Please go ahead.
Hi, everyone.
And why.
Wanted to ask about the <unk> guide flat to down slightly with the benefit of the Europe shipment timing is there anything else to read into there I'm just curious if you're seeing any impact.
And then the Delta area in the U S. Specifically.
We don't have enough.
Audio here can you repeat the question I'm sorry.
Sure Let me try one other thing.
Can you hear me better now.
That's better yes.
Okay.
Can you hear me better now.
Yes.
Okay, Great just wanted to ask about the.
The <unk> guide for flat to down slightly with the benefit of the Europe shipments I just wanted to see if there was anything else that you would call out other than obviously, some uncertainty with delta in Europe anything youre seeing from the very in the U S. And then and then more broadly if you think about that $2.8 billion revenue target how to think about the timing of the return to growth.
And maybe talk a little bit more about some of the marketing investments that you spoke to in the back half of the year, how you see that playing into a point, where the brand can return to growth versus two years ago. Thank you.
Okay.
Yeah sure so Q.
Q3, I mean really the.
Sure the wholesale.
They'll shift out of.
Out of Q2 into Q3, so we're still maintaining our full year down mid single, but next quarter, it's going to benefit from that.
To remind you that last year, we changed the cadence of the whole.
In Europe, So we extended our shipments for fall winter into Q3.
This shift was a lot bigger than the shift that we're seeing this year. So that's why we're expecting our results in the third quarter to be below prior year, but above L. L. Y. So I'm you know for the full year journey, where things were thinking mid single digit decline to L Y and revenue and you know there are some puts and takes e-commerce up.
Profit is valid pandemic felt really the crux of the change is permanent store closures.
That's worth about 5% of sales so about $125 million in sale and we'll pick up $15 million of operating profit here and you know on an annualized basis up $140 million retail and $20 million.
Operating profit. So you know once you go through all the puts and takes are here, we're thinking of the core business is pretty flat.
Jeanine with respect to your question about revenue in the $2.8 billion, a we have a lot of confidence in this number.
When you think about where we.
And on to land at the end of this year with the.
Color that we gave today about them being down mid single digits.
Like a growth rate that we are baking into the $2.8 billion, you're talking about a 5% CAGR.
When we think about the fact that we are.
Resetting the business line on revenues this year because of not being promotional and we haven't been promotion in the entire year, we feel that that number is more than achievable.
If you think about the big drivers. The first one is same store sales growth in the existing distribution that we have in stores, we see a gray.
Good opportunity for category expansion in areas like denim or piano handbags dresses outerwear and that is just to name a few we have a lot of very very great opportunities with multiple product categories right now and we have seen that the business is picking up when we presented the new product so very excited.
But that even brand partnerships, we think that there are big opportunities with broader capsules and collaborations as we used to do pre pandemic and we think that there is a big opportunity in multiple markets with that.
Then on a on a second big Big level is about new store development, we think that they.
They are significant.
Opportunities now in the market, there's a lot of space available and rents are becoming a very attractive again.
We think that the stores are the best vehicle for us to showcase our assortment and experience the brands and we feel that this is a key pillar for our omnichannel ecosystem.
So we are super excited about starting to reopen stores in fact this year globally.
We're going to be opening in the next few months and we have opened some of them.
Many of these are pop up locations.
We're gonna piss.
I'm, a new new concepts I'm talking about marciano stores accessory stores athleisure stores and we are very excited about this because we think that the risk is very minimum and the opportunities are very high we're going with very limited lease terms.
With the.
This opportunity to be able to renew or or or solidify the the.
The lease terms.
If the stores work well for us.
We have room for growth in many countries.
So there are a few examples Russia is a good one we have roughly 50 stores right now and it's a it's a huge market.
Hum.
Germany, we only have 28 stores. So they are so big opportunity for further growth China of course, a big country and a big market and we have closed a lot of stores, but we are now.
With about 100 stores, France, 42 stores and even in U S and Canada, we're seeing that.
And many of the markets, where we used to have a strong store presence and now we are gone and we see opportunities to go back and do we have a pretty good idea of what we expect from those locations.
We are also thinking about.
The whole idea of continuing to gain market share.
Wholesale we have talked about this in Europe quite a bit but we're seeing it also in the Americas and we see that the licensing channels will have a very similar opportunity to gain market share.
The brand has so much strength and momentum.
Last but not least probably it should be at the top.
Top of this list for US is E. Commerce, you know our ecommerce business is a big opportunity continues to be.
We are retooling the entire platform both.
The platform that we put in place last year is working very well for us in both North America and Europe.
And we see a big opportunity with our customer analytics into and that's you know we have been working on this nonstop omnichannel capabilities in Europe, or nonexistent and now we're rolling them out and all of this should be complete by next year. So we fully expect that by fiscal year 'twenty.
And.
We will be reaping the benefits of that so so overall, we see a lot of opportunities in this numbers may prove conservative, but but the great thing is that even with a low numbers. We can see a great opportunity for return on invested capital growth. You know this number was 12% before.
Four we're talking about over 30% in fiscal year, 'twenty 'twenty, four and and there is great and the last question. You had was about advertising and marketing you know last year, we stopped investing in non digital are completely we are we plan to resume our base.
This year both.
In North America and in Europe. The brand is in a very good position to make investments to showcase the assortment.
We want to invest in brand partnership events. You know, we just did one this past weekend. It was a huge success over 6000 people came here.
And I.
I think it's a it's the bid.
His customer events that really drives that younger customer closer to the brand.
We are spending more money in direct mail, we are seeing great success with this so we are expanding not only the number of pieces that we send out but also the frequency and how far we go.
The type of customers that we have and the customer base and and we're seeing great traction with that.
We are advertising in multiple disease in Europe, you will not believe this but you know there are over 120 magazines, where where you were gonna see guidance at this season and and.
And also you know, we just completed the cloud solutions.
From a salesforce for customer 360 implementation and this is giving us the ability to deploy much more personalized and more efficient marketing. So we have a lot of ideas where to spend money and we think that this is gonna be a huge.
<unk> investment for the brand was one of the high priority tiers that we did so much with the product the product looks amazing, but now we have to show it and and that's why we think that the investment in marketing is absolutely appropriate.
And we are excited to see how the customer response, so far the early.
It's very positive.
Yeah.
And thank you we.
We have our next question from Omar Saad with Evercore ISI. Your line is open.
Hi, Good afternoon. This is Warren Cheng on the line for Omar.
I had a question on some of the initiatives you're doing on lower promotions.
<unk> and also investing in quality and state and taste and style and styling.
What impact is that having on the customers the new customers coming into the brand on the existing customers are there any demographic.
Changes that you can see with the customer data that you can share with us.
Yes.
Maybe a little early to see.
Correct.
Reflection.
We are seeing new customers coming into our CRM base.
Both in North America and Europe.
The success has been more pronounced in Europe in terms.
So seeing.
The number of customer acquisition.
But that being said we think that.
Ronnie even more telling is howard of our existing customers responding to our assortments and.
This success is pretty evident.
We are seeing.
That all the key styles that we identify it as a as you know opportunities for us to really increase quality increase styling or or improved styling, Oh, just do a big joke with our sustainability until the customers about that at all.
All of this.
Products are resonating with the customers in a big way the Marciano brand for example.
We did a lot to change the.
Ultimate use on wearing off the product for different locations.
Some of it is responding extremely well to that we have a whole new line of essentials.
<unk> has done an incredible job.
Hi.
Skewing and.
Reed.
Eloping the entire assortment.
For all the brands and all the product categories by the way you noticed I did mention apparel, but we're seeing the same type of impact on accessories our lineup.
Pulling back you know you are he always challenges the entire team here to look for other brands that have something comparable in terms of offering and the answer is always the same no. We cannot find anybody that has this type of style. This type of qualities.
Details at this price so.
I feel that the results are very obvious on how the customers responding in that is probably the most important thing for us.
The new customers are will will continue to come off the product is a superior.
Thank you we have our next question from Dana.
So with Telsey Advisory group your line is open.
Good afternoon, everyone two questions as you think about Asia.
What's the game plan for Asia going forward.
Thank you had mentioned.
Changing.
So just wondering the game plan.
What you see as the path to return to growth and then on the product.
<unk> increased around 370 basis points.
How much higher do you have any idea.
To go does it differ by category and how you're planning promotions for the back half.
We will still be limited thank you.
Thank you Dana good afternoon.
Let me start with the answering your your Asia question.
You know just.
Let me just say that you know our business. There is a in Asia is concentrated in three big part.
In addition to our southeast Asia business studies with.
What partner, but you know we have a meaningful business in Japan.
We have a big business in Korea and of course, our business in China and in Japan, I think we know how to win are we have done it before in 2019, I think was our top here.
With that we were.
You don't just working with the younger consumer and using a special collaborations and capsules.
Very similar to what Brandon partnerships, that's here in North America, and globally and with Great success, and we think that we're going to go back and.
The thing to really focus on that type of business model Korea has always been very successful for us and it used to be a license business and now we run our own we have a great team there they have done a great job and.
It's very profitable and we continue to refine the model we are underway.
And the way our business was license out a couple of years ago, and that's working well we are taking over some of the business that wasn't the hassle of franchisees.
They're very successfully to and we continue to optimize the cost structure and in China, China has been a challenge for US we continue to believe in the market.
In a big way the Chinese market is a great market for a brand like ours and our brand is relevant there we have a.
Our material young customer base.
The market size itself.
I'm, not saying anything here, but in a 14 trillion dollars in GDP.
Very significant the middle class is the probably the biggest in the world.
And there is a lot of market share that we think or we could take in our space.
We have worked on like five different areas to address the first one is product and I think what we have done a great job the team.
Barry Great job working on elevating the brand there as well.
Improving the product assortment, we had a team from North America, who is helping that team over there and and we continue to run the business with a lot less clearance and focus more on our full price model. The second big thing is about.
As the portfolio optimization, we've talked about this we closed nearly 70 stores in China over the last 18 months and we think that the franchisee model can help us to really leverage expertise from local players which are in many different regions of the market I think will be.
The strawberry very helpful for us to be successful the third big thing, it's about marketing and frankly, we have tried several things we now believe that a.
Localized campaigns, leveraging local celebrities and social influencers as the way to go is just pretty difficult and very costly to do it but we're working on that.
We think that that gives originals capsules.
Model here also worked especially with the younger consumer of course.
The fourth big things about ecommerce and this has been challenging for us too because we decided to be a lot less promotional and all the business that we had.
Most part required a high level of discounting, which we do not want to support going forward. So this has impacted our e-commerce business and the last Big thing is about the team on its you know you asked about this we have done a lot of reorganization during the last few weeks.
The.
The leader was leading this team for personal reasons.
Wanted to go back to Europe, and and we are supporting that.
We have a search out to really look for a great leader to to run the team and run the business going forward.
We are we have a lot of confidence that we're on the right path.
And thank you so much we have our next question from Janet Kloppenburg.
Okay hold on.
I just wanted to answer that question on I am sorry.
Sorry, before we go on.
So you asked how much Uh huh.
So that's we have left.
We've had a lot of progress here over the last few years and that's really all everybody asked about category, it's only on the board, but mostly in apparel.
And as we go forward and we talk about the guidance.
The 200 basis points.
Leverage half efficiency, but there's some <unk> in there but.
How much of them a lot over the last two years and then in terms of the promotions now we don't plan on hydraulics, just the back half of the air cargo to talk a lot about how we've elevated our brand and we're strategically.
Yeah.
Yeah.
Yeah.
Okay.
Yeah.
Thank you Dan.
Thank you so much we have our next question from Janet Kloppenburg with JK Research. Your line is open.
Hi, everyone and congratulations on the progress.
Crude outlook.
Thanks.
Carlos This is sort of a big picture question, but you've.
Okay, elevate the merchandising and the marketing for gas and I was just wondering as we look forward now and hopefully coming out of coal, but how confident you are on the team that.
You'll have you'll have consistency in the merchandising assortment.
And that.
You won't.
Is that a lot of active promotion.
Tricky for everyone, everyone, saying that it will be more disciplined.
Not going to promote SEC, we all know.
If something goes to what goes awry with the assortment.
That can change so I wonder if you could talk a little bit about your confidence there.
And perhaps.
Paul what the categories of pillars of strength.
Help us understand that the consistency.
In productivity improvement can continue and then secondly, I wonder about the supply chain problems, we're seeing worldwide and how long do you think these may piece may last.
Yes.
Perhaps with respect to what's going on in Southeast Asia.
And other important sourcing markets. Thank you.
Yes, Thank you Janet and good to hear your voice.
Let me start I I really think that we are.
To a completely new race here.
I'd.
You know I think that.
It's definitely the issues that are characterizing the environment right now may be somewhat abnormal.
But we're going to play the game in the exactly the same way that we are planning now which is we.
We are not going after more sell some more sales.
If that is going to impact.
Get our ability to keep a full price selling in line. So.
I think the trick here the key is to really make sure that we never buy more than what we expect based on a reasonable sell through for our product at full price. So then we can always.
Act chain this type of of low promotional environment.
But at the end of the day you know as.
As I said it all goes back to product you know if the product is great. Then this is a lot easier to do if the product is something that people want that the customer is.
Really excited to get if the product has the quality that the customer expects.
The styling the fits of right and I think that you know you asked about the team I think we have an incredible team and I think that that is.
Completely.
Parents.
<unk> made every area that touches product you know we have a lot of the of the design is happening with a very collaborative way and again you know Paul it's at the front of this and has been driving the teams to really work together in a in a way that I have never seen it I'd guess.
In four and and this.
It doesn't have borders you know this is a b tuned reagents and everybody's working together.
In a very.
Collaborative way and it's showing in the product. So so to me you know just when do you.
<unk> tried to do this internally.
Just what are the biggest opportunities it's hard to pinpoint what which are the biggest opportunities because we have so many because the product is looking so great in every category and I'm talking about not only what we do internally, but what's happening with our licensee partners who are doing an incredible job you know just we are seeing.
You know significant momentum in watches who would have thought that we would see watches coming back you know after everything that we experienced with the with the Apple watch and everything else.
We are seeing significant momentum in eyewear, we are seeing significant momentum with our footwear.
Just we feel that the product is superior and and we think that we are into something that if we control what we can control internally, which is you know how we buy how we present the product how we showcase it you know we have big opportunities with omni channel and this is things that that other companies.
We already have that we are just developing so a lot of opportunity for us and then with respect to supply chain.
It's hard to say how long it's going to last you know I was hoping when this whole thing started that he was going to be a matter of a couple of months three months you know our product is.
Companies about four weeks late.
And there are some cases, where we are.
And in a more challenging situation in that.
What we are hearing from our teams is that at least you know just think that this conditions are going to prevail for the rest of the year and in many cases going into.
Ronny on cost here.
Obviously, you know you read the Wall Street Journal today, with Vietnam, and you know 3% of the population vaccinated. It's a it's a very challenging situation for all of those but our team has done a great job in moving around you know even sourcing when we saw that they were concerned.
Now about being able to keep our production needs.
And we have done that.
Relatively successfully.
You know just you heard that we had we couldn't ship everything that was there needed to be shipped in the second quarter and that is moving into a third and we are trying to manage.
So this is knowing that things are running a lot slower I'm being a smart because you know we could have everything but who can afford that so we have been careful in how we spend our money and I'm trying to meet our customers' expectations.
Yes.
Thank you.
Yeah.
As a reminder, if you have a question or a follow up question. Please press Star then one on your Touchtone phone on standby.
And I see no further questions I will now turn the call over to Carlos <unk> for closing remarks.
Thank you operator, well. Thank you very much everybody for participating today, we are excited about our momentum, but more importantly, we are excited about our future we think that.
We have a brilliant future in front of US we have tremendous opportunities in front to create significant value and we couldn't be more excited the team is super excited.
Paul and I are Super excited so please remember that we will be at the Goldman Sachs Conference and we would love to see you there have a great rest of the.
Good night, everyone. Thank you.
And thank you ladies and gentlemen, this concludes our conference. Thank you for participating you may now disconnect.
Yeah.
[music].
Yeah.
[music].
Yeah.
[music].
Good day, everyone and welcome to the guess second quarter fiscal 2022 earnings conference call I would like to turn the call over to could breathe better route Vice President of finance and Investor Relations.
Thank you operator and good afternoon.
Everyone and thank you for joining us today.
On the call today with me are Carlos had very Chief Executive Officer, and Katie Anderson Chief Financial Officer.
During today's call the company will be making forward looking statements income.
<unk> comments regarding future plans strategic initiatives capital.
That allocation and short and long term license.
Including potential impact from the cone is are we spending.
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.
Comments, we'd also that's when something doesn't get adjusted metrics.
Reconciliations and descriptions of these measures can be found in today's earnings release.
Before turning the call to Carlos I would like to mention that we will be participating in a fireside chat at the Goldman Sachs annual global retail and governance.
Hi, There September 10th at <unk> P M. Eastern we hope to see you there now to guidance.
Thank you <unk> good afternoon, everyone and thank you for joining us today.
We're very proud of our team and our accomplishments, we just closed a great quarter and we plan to review.
We view what drove our performance in detail, but most importantly, I wanted to share with you where we are today and how we see the future both short and long term let.
Let me start with our results for.
For the second quarter, we reported adjusted earnings from operations of $89 million.
This compares to adjusted.
<unk> operating earnings of 48 million for the M. A y period exceeding our pre pandemic performance by 85%.
This was well ahead of our expectations, we reported revenues of 629 million, 58% over last year, and 8% below the yellow or white period.
The entire decline two L Y was due to a timing shift of European wholesale shipments into Q3 and permanent store closures, which are accretive to operating profit.
This is in spite of being significantly less promotional during the period and all of our direct to consumer businesses.
For the quarter, we delivered a 14% adjusted operating margin, we expanded our operating margin by over 700 basis points from 7% MBA or white period.
To start off this quarter was the North America retail segment that reported an operating profit of $38 million.
Versus six.
And the yellow light period, and almost 540% increase.
Our wholesale licensing businesses also outperformed in Europe, and Asia delivered roughly flat operating performance to the <unk> period.
Paul and I continue to be thrilled with our team's performance.
Mainly all over the world adjusting and reacting seamlessly to the fluidity of the current environment, we want to give a huge shout out to our leadership team and all our associates and thank everyone for their big efforts and great contributions during this unprecedented time.
We are happy.
Thats, all see demand recovering in stores reopened across the globe.
We still see the pandemic impact on customer traffic and on the supply chain globally. The labor market has also been impacted as companies are challenged to retire workers, leading to labor shortages and higher wages.
Yes.
We remain laser focused on what we can control.
Our global brands, we have adapted quickly to the changing levels of demand and restrictions across our markets. We are sizing our inventory buys accordingly, adjusting prices to the perceived value of our products strategically managing.
Promotional activity, an increase in labor rates to attract and retain top talent.
We continue to keep costs very tight by eliminating redundancies and increasing efficiencies.
We have been relentless in mitigating supply chain disruptions, we are strategically partnering with our vendors to.
Accelerated deliveries when feasible changing countries of origin, when appropriate to increase speed to market and investing in faster transportation mode. When it makes sense.
Our strategy is working and our results reflect this.
I am proud to share with you that we published our latest sustainability.
And our ability to report this summer focus on our three pillars to operate with integrity empower our people and protect the environment.
Some highlights include reaching gender pay parity, increasing our equal smart guests denim penetration to 20% and receiving approval in our ambitious science based.
Our guidance for greenhouse gas reductions.
We are confident in our actions here in fact, we successfully passed a reasonable assurance review by a big four firm, making guests the first in fashion to subject, our ESG data to such a high level of rigor.
We have increased our environment.
Chantal quality score with a independent shareholder services to one out of 10, the highest rating possible as a result of this work.
Let me now spend a few minutes talking about what's going on in the different regions and channels of our business.
In North America traffic has improved sequentially each.
Environment, but remains well below historical levels, and we continue to see higher conversion rates and higher average spend.
We are in the midst of back to school and we have solid demand for denim Activewear and Knits. In addition, we are seeing sequential sales growth for our dresses category, which.
Each core positive tooele why for the first time since the pandemic began.
Both our GAAP and Marciano brands are experiencing increases in sales of dressy apparel and accessories as the customer is returning to social life.
We have also been successful with our handbags and wear now product and our men's business has been.
What is currently strong.
In Europe, we had a stronger start to the second quarter, which leveled off as the delta variance spread in many countries. There activewear continued to outperform in this region both for women and men and we saw a substantial pump in denim in Q2 as well as improved demand.
Particularly in outerwear.
We are encouraged by the progress that most countries in Europe have made with vaccination levels and we remain optimistic about the recovery of this region in the second half of the year.
In Asia, our customer traffic is the most challenged due to the virus and the trends remained relatively consistent.
In Q2 versus Q1.
Categories that have performed better in this environment include sweaters denim and outerwear, while we have made good progress in several areas of the operation our challenges with top line performance remains.
We are reassessing, our team and we are making leadership.
With the changes to reorganize the business today.
Our ecommerce business grew 11% in North America, and Europe for the quarter versus last year.
Growth here was more moderate than prior quarters as we were a lot less promotional I am pleased that we continued to significantly improve profitability in this channel in the back half of.
We will be strategically investing more in marketing to support further growth in this business.
Our European wholesale business is performing well we are currently shipping our fall winter season, which had orders up high single digits as I mentioned some of the products are delayed coming in.
Yeah. It will ship in Q3 versus Q2 this.
The spring summer see some campaign is underway and we estimate that the order book will be higher than the LOI with strong growth, particularly in our kids and footwear collections.
We're also very pleased with our Americas wholesale business, which grew 19% in sales.
So there will be 64% in operating profit versus LOI.
<unk> had a great quarter and delivered strong performance in Macy's. We're also having success in apparel for both men and women and accessories, particularly handbags.
Our global licensing business also recorded significant revenue growth of 18.
100% versus CLO wide period.
We have a big business here, primarily driven by handbags eyewear footwear and fragrances.
Regarding our strategic plan I want to spend a few minutes updating you on our progress with our brand innovation and customer Centricity initiatives.
I will start with our.
18 preservation strategy, which touches almost every aspect of our business.
Paul has been driving this very ambitious initiative with our product and creative teams his strong leadership and the work that the teams put into this to transform our model have been extraordinary and many major milestones hub.
Brand already been conquer.
Most significantly.
Taste styling and quality of our products have been elevated and for the first time, we're providing a global assortment that achieved a consistent representation of our brand.
We are focused on higher quality and sustainability across the board.
In addition, the new Assortments have been priced based on the products perceived value.
Our visual merchandising in the images and for therapy, and all the new marketing campaigns catalogs and websites and be optimized to showcase our brand more effectively.
And our product development marketing visual merchandising and buying our ink.
Is more closely than ever before.
This means that as we identify our biggest product storage.
These flow through to our campaigns for windows and floor presentations from websites, we buy deep in this key styles to increase full price selling and maximize sales.
The last.
Integration step for elevating the brand is to improve the customer experience across the guest ecosystem, including our stores our website won't wholesale distribution and through our license fees were mobilizing our field business units to address this and we plan to upgrade our technology and tools to deliver superior service.
Empower customers. Some examples of this upgrade in store technology include enhanced Wi Fi networks expanded payment methods and mobile checkout.
These projects should be complete by the end of next year.
Regarding customer Centricity, let me start with our customer base.
As you know will resonate across three distinct customer groups heritage millennials and generation Z and we develop our product assortment to support the unique lifestyle needs of these customers.
With GNC, specifically, we have a separate strategy, including differentiated product development.
As marketing and customer engagement.
Our brands partnerships group led by Nicolai Marciano.
Product collaborations and events drive this business.
We had great success here pre pandemic with key collaborations such as J Bartlett, but as you can imagine.
Endemic impacted our.
To execute this event driven marketing campaigns.
Now we are able to restart these collaborations in fact this past weekend, we had a successful event with Babylon and influential Kate and streetwear label on our campus in L. A where we hosted over 6000 people over three days.
Regarding our digital business, we continue to make progress in optimizing our user online experience via the E Commerce platform that we implemented last year.
For example in Europe, we're seeing improved conversion rates, especially from mobile app, which represents over 80% of our traffic.
Our average wet session.
And increased over 20% bounce rate decreased 10% and loading time versus our previous platform is 70% faster.
During the quarter, we implemented some upgrades to the platform, resulting in an increase in our add to basket sessions of over 30%.
We continue to.
Duration implementing omnichannel capabilities in Europe, but wells have great North Americas current capabilities, we plan to complete this project by midyear next year.
The last pillar of our customer Centricity strategy relates to customer data capture segmentation and analytics.
We have built.
We're a high performance platform, but we're still operating on extremely limited capacity to process and utilize our customer data. We are now working on our platform, which includes powerful tools to fuel data collection consumer insight analysis personalized marketing and client telling we can use these tools to maximize sales.
Our existing customer base as well as efficiency target new customers. This implementation is underway and will be completed by next year. This will be a game changer, allowing us to use our data to unlock a ton of value.
Now, let me talk about our outlook.
When I came back in early.
For 2019, we identified several opportunities for value creation.
At that time.
Most significant of these were in margin expansion.
We laid out a plan to increase operating margin by about 450 basis points to 10% in five years.
We use the pandemic as an accelerator.
Early 'twenty to transform our business and not only are we expecting to reach our 10% target. This year, but we are now increasing our operating margin target to 12% by fiscal year 2024, when we plan to deliver $2.8 billion in revenue.
I'm excited to share with you that this would yield.
Return on invested capital of over 30%.
I am confident in this outlook and this is why we see clear opportunities for revenue growth from category expansions in areas like denim Marciano handbags dresses and outerwear to new store development to digital sales.
Our margin.
And expansion has come from concrete changes to our business model, including IME improvements store portfolio optimization and cost reductions.
And while we are currently operating and what might be in a normally low promotional period Industrywide. This company will never go back.
Sales growth levels of promotional activity that it had pre pandemic.
Our balance sheet is in a very good position, which allows us to fund our business needs as well as return value to shareholders. We announced today that our board has authorized a share repurchase program of $200 million.
In closing when I was invited to come back to guess I came back with high expectations.
New that the company had an amazing global brand with tremendous potential and I felt that I could contribute to realize that potential but like Steve just said I couldnt connect the dots looking.
Forward and I had to trust my gut when I look back at what happened in the last two and a half years I couldnt be more proud of what we have accomplished in the face of a pandemic of my partnership with Paul and the transformation of our business into a company with an elevated global brands and a strong business model.
<unk>. This is a company that is poised to gain significant market share a company ready to deliver high return on invested capital fueled by high margins and a capital light model a company with an amazing team ready to take the business to the next level of growth and profitability today.
Thrilled to connect the dots looking backwards and I couldn't be happier I trusted might got to come back to my home.
With that let me pass it to Katie to review our financials in more detail.
Thank you Carlos good afternoon, everyone I wanted to start with something you cant see in the numbers of course I'm thrilled.
I am pleased almost doubled operating profit from pre pandemic levels a corner even in the midst of a challenging environment, but first I want to mention how proud I am part of this team and yes. It.
And the team that worked hard and work smart to execute our strategy and achieve our goals.
Wanted to express my deepest thanks to my colleagues at all of our associates.
And their unrelenting efforts during these unprecedented times.
And let me. Thank you for the details on the quarter.
Second quarter revenue was $629 million at 50.
58% for last year in U S dollars, and <unk> 51 and in constant currency.
We were down 8% compared to L. L y.
This was slightly short.
Of our expectations as a result of timing and our European wholesale business worth about 4% a lot.
While delays in product with each new some shipments of few weeks ended the third quarter.
Overall, the 8% revenue decline to LOI was driven by the impact of permanent stock cluttered.
5% of revenue and the shifting.
In wholesale shipments in Europe.
I wanted to note that our promotions were well below pre pandemic levels across all of our direct to consumer business, which is impacting our sales levels versus L. L y significantly driving our profit.
Let me get into a bit more detail on sales performance by segment.
In Americas retail revenues.
Down 6% versus ally.
Vacation.
This decline was entirely driven by permanent store closures, which are worth about 80% of the sales.
Store comps in the U S and Canada were up 5% in constant currency same.
Same store sales were solid positive in the U S, but the recovery in Canada is moving.
A bit more slowly.
Traffic is down materially negative from Q1 to Q2, we saw improved trends. There are conversion remains high and AUR increase substantially in Q2 with strategic price increases and more full price selling.
The GAAP between the performance of our tourist centric stores and non tourist centric.
Sorry, it's still wide and narrow significantly in Q2 versus Q1.
This suggests that at least domestic travel is taking up the total travel still remains significantly below historical levels. In fact, our non tourist stores in the U S and Canada had positive double digit same store sales growth this quarter.
The profitability that we have bracketed segment is super exciting and worth noting.
Operating margin in Q2 was 20% versus only 3% two years ago, an operating profit of six times, what it was in our online even on lower sales. This is an incredible base off which to grow in North America.
In Europe.
Revenues were down 5% versus alloy our retail business continues to be pressured by pandemic related traffic declines.
Stockpiles from Europe are down 20% in constant currency impacted by negative traffic. However.
However, this was partially offset by solid conversion rates and significant AUR increases.
After the shift in shipment timing.
We mentioned earlier.
Our European wholesale business continues to show healthy trends with an order book above pre pandemic level.
In Asia revenue was down 43% to ally almost half of this decline was driven by permanent store closures, our store comps were down 30% in constant currency.
With sales comps in South Korea, and China more moderate than other areas in the region like Japan, Taiwan, and Hong Kong, Macau, where they're struggling more with the pandemic.
Our Americas wholesale sales were up 19% to L. O Y we're happy with our momentum in this business operating margin expanded almost 600 basis.
At this point the L Y here, resulting in a list of over 50% for operating profit in this segment.
Licensing revenue is also outperformed and were up 18% to L. Y N Q2, driven by strong performance in our perfume in footwear and I think now this is an extremely high margin business, which delivered a 92% operating.
Operating margin this quarter.
Total company gross margin for the quarter was 46, 8% almost 800 basis points higher than two years ago.
Product margin increased 370 basis points this quarter versus L. O Y primarily as a result of lower promotions and higher IMU.
Occupancy rate.
<unk> decreased 420 basis points this quarter, we booked over $7 million in Brent credits for fully negotiated rapidly deals mostly in Europe.
The remainder of the decrease is attributable to lower rents and permanently closed stores.
Adjusted SG&A for the quarter was $206 million compared to 218 million two.
Two years ago, a decrease of $12 million or 6%.
We continue to benefit from changes to our expense structure and a decrease in expenses related to permanent store closures versus L. L y.
In addition, there was a one time benefit of about $4 million from government subsidies, mainly in Europe, which was partially offset by higher variable.
Expenses related to the growth of our E Commerce business.
Adjusted operating profit for the second quarter was 89 million versus $48 million in Q2 two years ago.
Our balance sheet continues to strengthen I will take you through some details comparing now to last year not L. L y.
We ended the second quarter was.
With $459 million in cash $131 million higher than last year's balance at the end of Q2.
Inventories were $430 million up 3% in U S dollars and 1% in constant currency versus last year inventory management.
Management has been a key capability for us and we continue.
That literally and strategically here, we feel good about our inventory position and believe we have the right assortment to satisfy customer demand.
Year to date capital expenditures were $22 million up from $10 million in the prior year, but significantly below pre pandemic levels, we generated $18 million of free cash flow in.
In the first half of the year.
Our ability to generate cash gives us the runway to invest in our business as well as return value to shareholders. We announced today that our board of directors has authorized a new $200 million share repurchase program.
This new program includes the $48 million remaining under the Companys previously authorized repurchase.
Purchase program and we will use it opportunistically.
So now let's talk about our go forward expectations.
Current environment is still uncertain. So we will not provide formal guidance, but I will walk you through how we're thinking about both the short and longer term future again, I'm going to anchor our commentary to our Hawaii.
We are maintaining.
Our revenue expectations for the full year at down mid single digits.
We expect the third quarter to be slightly negative to flat with help from shifted wholesale shipments from Q2.
In terms of profit adjusted operating margin for the third quarter is expected to be about 250 basis points better than L. A y.
Gross margin.
<unk> is expected to expand by around 600 basis points to our ally.
Driven primarily by lower occupancy costs, lower promotions and improved <unk>.
We anticipate that the adjusted SG&A rate will be at 350 basis points as cost savings are offset by business mix and reinvestments and business expansion initiatives.
It is including marketing.
As with the rest of the industry, we are seeing some cost pressures, particularly in freight and labor, which are built into these numbers.
For the full fiscal year 2022, we are raising our expectations for operating margin and profit. We now expect operating margins to reach approximately.
<unk>, 10% for the year versus adjusted operating margin of five 6% in L y.
This represents margin expansion of roughly 450 basis points to our pre pandemic business, despite a lower revenue base.
And we are confident in our ability to sustain these profitability levels as well as deliver.
Our topline growth.
As a result, we are raising our operating margin target in our long term plan to reach 12% by fiscal year 2024.
With revenue than that year expected to hit $2.8 billion.
And with our previous goal. This implies an operating income of $335 million in fiscal year.
Year 2020 for $185 million more in adjusted operating profit in fiscal year 2020.
Adjusted EPS is expected to be around $3.50 per share versus $1.45 in fiscal year 2020. This would be a record level of adjusted EPS for.
Our team is motivated and are proud to say that we are running this company for the future not just for now.
With that I will conclude the company's remarks, unless open up the call for your questions.
And thank you we will now begin the question and answer session. If you have a question. Please press Star then one on your Touchtone phone.
If you wish to be removed from the queue. Please press the pound sign or the hash key if you're using a speakerphone. Please pick up the handset first before pressing the numbers. Once again if you have a question. Please press Star then one on your Touchtone phone. Please standby, while we allow parties to queue up.
And I see we have our first question from Susan Anderson with B. Riley. Please go ahead. Your line is open.
Good evening and congrats on a really nice quarter and I was wondering.
I guess I'm curious how much is being driven by the initiatives that were in place pre.
Covid versus you know things that happened during COVID-19, such as the inventory levels driving the lower promotions and the higher merch margin and then also as we look out to 'twenty 'twenty four and the 12% op margin goal can you maybe talk a little bit about the puts and takes that well get to the 12%. Thanks.
Thank you Susan.
We are very pleased with our performance this quarter. When you look at what made it happen and I think that we were very very focused on all the things that we have going coming out of our strategic planning process back in 2019.
And Unfortunately, we were able to get a calculation even more than what we had for retail.
In many areas.
Protocols.
The implementation of global <unk>.
Hi.
Yeah.
Okay.
And our growth in the world.
Bob.
The strategy that we've had in place.
Part of our initial plan.
There's a lot more than those.
Initiatives.
I would say that probably the biggest.
It's been the elevation of our brand.
This growing.
Two are completely different.
Business model.
With almost no promotional.
<unk>.
We are trying to be.
Dave with.
Todays pricing model.
That is very challenging.
But I think at OMB.
Creative things on the product teams have worked.
Todd.
So if we do a caucus states on a product by product basis, and I think that they have done an incredible job.
This strategic value price model I think is something that is.
It's going to take us.
So what could be a different place in housing.
By our customers.
Reduced promotional activity everywhere.
Hum.
We have a big opportunity in the rest of the business model with occupancy I think got.
That was definitely something we had in the plan.
<unk> done a lot more than what we had originally planned.
During the pandemic, we have renegotiated 400 leases and obviously the <unk>.
So it's a lot more positive than what we had.
Expected.
We have done a lot on the expense side of the business as well increasing efficiencies a lot of this work is still ongoing.
Knockdown with that but we feel that we are on a good path to be able to benefit from that especially next year on them going forward.
And I think that with respect to 2024, just said we are very very happy with the 12%. We think that this is kind of like we have very clear line of sight to that maybe you want to.
To filling.
12% operating margin, yes, so Susan.
The bridge.
Bridge from 10 to 12 are about half of that is coming from sales leverage, though at least bad where we're still confident in the $2.8 billion dollar top line in fiscal 2024 and half of the margin expansion is coming from that and the other half from further efficiency, but just take more time and these are more backend.
Load in the next few years, so when I think about okay.
How does that play over the next couple of years I'd say like a third of the of the expansion next year and then two thirds of fiscal 'twenty 2024.
Gross profit gross margin and SG&A.
Great. That's really helpful. And then if I could just add one follow up.
On Europe. So it looks like it was the only region that was down and I think you had mentioned that it was solely given the.
The shift of wholesale orders from second quarter into third quarter and I'm not sure did you did you quantify that or if not how.
How much was that and then also I'm curious when the store.
Stuart did open in Europe did you see a pick up in sales in Europe as it was opened up last quarter. Thanks.
Yeah, So let me start and Katy will chime in as well.
Uh huh.
Our business in Europe.
Yeah.
Managing very very well.
Did have significant issues with all the delta.
That impacted the entire territory so.
Do you have restrictions in many cases stores are.
Being close and similar countries you know if that was a challenge.
And I think we had shared with you during our previous.
Call that.
The business has started in a very very strong way, but then we saw.
The business is leveling off during the quarter and I'm talking about the direct to consumer business, especially retail stores.
So it has been challenging with traffic our wholesale business I think is very.
Very healthy in spite of all the issues with the virus.
The market continues to see yes, that's a great brands and we're seeing our investments from our customers retail customers in the coastal business doubling down with us and <unk>.
<unk>.
Significantly more investments with the brand. So we're seeing that business to continue to grow and that is true for the season that we close.
This is something that is <unk>.
In the works right now, which is spring summer and.
And you know.
The great thing about retail is that during the last.
Few days I know, it's only a few days, but it's very important base because the.
Clearance period in Europe is closing and we are seeing that the business is starting to pick up business when people come back from vacations and the.
We are getting ready for back to school as well. So we're excited about that again.
Early to tell but we have a lot of confidence in Europe as a business as a region for US as you know is more than 50% of our business very critical and the.
The second half of the year is very important in terms of both topline and profitability okay.
Thanks, Susan.
I'll start with the shift in wholesale so that was about $25 million.
We had that shift, but as Carlos said the order book is is still up and then I'll just add.
In the retail business in Europe.
The topic, a little bit lower than North America, but conversion is high AUR was up in the mid teens and again.
As Carlos said.
We're seeing some green shoots.
Okay.
The important thing Q2 is that a lot of this we are doing strategically because we decided to not participate in aggressive promotions.
The way we bought the product is.
Wave that is.
A lot more.
And I'm done.
The company was being.
Service before so so of course, if you stopped promoting you are going to see some type of impact on the top line, but we are very happy and you can see the results in our bottom line.
This is all.
Resetting a new baseline for this company in terms of selling out full trucks and we couldn't be more excited about that because we think that going forward, we're going to see the benefits are tiny in time out and more importantly, how the.
Customer perceived that the brand is a brand that that if you don't buy it today.
Today, you may not find the product so that is very critical in our entire business model in for a minute.
Great that's very helpful.
So much good luck dressy here.
Thank you.
And thank you we have our next question from Janine Stichter with Jefferies.
Please go ahead.
Hi, everyone.
M y.
Wanted to ask about the three Q cells guide flat to down slightly with the benefit of the Europe shipment timing is there anything else to read into there I'm just curious if you're seeing any impact from.
From the Delta variant in the U S. Specifically.
We don't have a tough time of the audio here can you repeat the question I'm sorry.
Sure Let me try one other thing.
Can you hear me better now.
That's better yes.
Okay.
Can you hear me better now.
Yes, okay.
Okay, Great just wanted to ask about the.
Mm three key sales guide for flat to down slightly with the benefit of the Europe shipments just wanted to see if there was anything else that you would call out other than obviously, some uncertainty with delta in Europe anything Youre seeing from the variant in the U S. And then and then more broadly as you think about that 2.8 billion revenue target how to think about the timing of the return to growth.
The maybe talk a little bit more about some of the marketing investments that you spoke to in the back half of the year, how you see that playing into a point, where the brand can return to growth versus two years ago. Thank you.
Okay.
Yeah sure. So Q3, I mean really that we.
We have shipped the wholesale.
They'll shift out of.
Out of Q2 into Q3, so we're still maintaining our full year down mid single, but next quarter is going to benefit from that and I just want to remind you that last year, we changed the cadence of the whole.
In Europe, So we extended our shipments for fall winter into Q3 and this.
This shift was a lot bigger than the shifts that we're seeing this year. So that's why we're expecting our results in the third quarter to be below prior year, but above L. L. Y. So I'm you know for the full year journey, we're saying, we're thinking mid single digit decline to our wind revenue and you know there are some puts and takes e-commerce up.
Profit is down a pandemic, but really the crux of the change in the program store closures.
That's worth about 5% of sales so about $125 million in sale and we'll pick up $15 million of operating profit here and you know on an annualized basis, that's $140 million and $20 million.
Operating profit so we don't want to go through all the puts and takes the year, we're thinking of the core business is pretty flat.
Genuine with respect to your question about revenue in the $2.8 billion.
We have a lot of confidence in this number.
You know when you think about where we.
To land at the end of this year with the.
Color that we gave today, yeah button being down mid single digits.
Like a growth rate that we are baking into the $2.8 billion, you're talking about a 5% CAGR.
When we think about the fact that we are re.
Landing the business line on revenues this year because of not being promotional and we haven't been promotion in the entire year.
We feel that that number is more than achievable. If you think about the big drivers. The first one is same store sales growth in the existing distribution that we have in stores, we see a great.
Reset for category expansion in areas like denim or Seattle handbags dresses outerwear and that is just to name a few we have a lot of very very great opportunities with multiple product categories right now and we have seen that the business is picking up when we presented the new product so very excited.
Or that even brand partnerships, we think that there are big opportunities with product capsules and collaborations as we used to do pre pandemic and we think that there is a big opportunity in multiple markets with that.
Then on a second big Big level is about new store development, we think that they.
They are significant.
But now in the market, there's a lot of space available and brands are becoming very attractive again.
Think that stores are the best vehicle for us to showcase our assortment and experience the brand and we feel that this is a key pillar for our omnichannel ecosystem. So.
Fortunately, we are super excited about starting to reopen stores in fact.
This year globally.
We're going to be opening in the next few months and we have opened some of them may.
Any of these are pop up locations, we are going to.
Some are new new concepts I'm talking about marciano stores accessory stores athleisure stores and we are very excited about this because we think that the risk is very minimum and the opportunity set very high we're growing with very limited lease terms, but with the.
Yes.
Opportunity to be able to renew or or or solidify the the lease terms.
If the stores work well for us.
We have room for growth in many countries.
So there are a few examples Russia is a good one we have roughly 50 stores right now and it's a huge market.
Hum.
Germany, we only have 28 stores. So they are so big opportunity for further growth China of course, a big country and a big market and we have closed a lot of stores, but we are now.
With about 100 stores from France, 42 stores and even in U S and Canada, we're seeing that.
And many of the markets, where we used to have a strong store presence and now we are gone and we see opportunities to go back and we have a pretty good idea of what to expect from those locations.
We are also thinking about.
The whole idea of continuing to gain market share.
At wholesale we have talked about this in Europe quite a bit but we're seeing it also in the Americas and we see that the licensing channels will have a very similar opportunity to gain market share.
The brand has so much our strength and momentum.
Last but not least probably it should be able to talk.
And this list for US is E. Commerce, you know our ecommerce business is a big opportunity continues to be.
We are retooling the entire platform both the platform that we put in place last year is working very well for us in both North America and Europe.
We see a big opportunity with our customer analytics and and that's you know we have been working on this nonstop omnichannel capabilities in Europe, or nonexistent and now we're rolling them out and all of this should be complete by next year. So we fully expect that by fiscal year 'twenty.
And.
We will be reaping the benefits of that so so overall, we see a lot of opportunities in this numbers may prove.
<unk>.
But the great thing is that even with a low numbers, we can see a great opportunity for return on invested capital growth.
It was 12% before.
We're talking about over 30% in fiscal year, 'twenty, 'twenty, four and and that is great.
The last question you had was about advertising and marketing you know last year, we stopped investing in non digital completely we we plan to resume all days this year both.
<unk> in North America and in Europe. The brand is in a very good position to make investments to showcase the assortment.
We want to invest in brand partnership events.
Just one this past weekend was a huge success over 6000 people came here.
And I.
And I guess it would be.
He customer events that really drives that younger customer closer to the brand.
We are spending more money in direct mail, we were not seeing great success with this so we are expanding not only the number of pieces that we send out but also the frequency and how far we go.
The type of customers that we have and the customer base and them and we are seeing great traction with that we are advertising in multiple magazines and Europe. You will not believe this but you know there are over 120 magazines, where youre going to see guidance at this season and and.
With all of you know, we just completed the cloud solutions.
Some salesforce for customer 360 implementation.
This is giving us the ability to deploy much more personalized and more efficient marketing. So we have a lot of ideas work to spend money and we think that this is going to be a huge.
And also for the brand.
One of the high priority tiers that we did so much with the product the product looks amazing, but now we have to show it and and that's why we think that the investment in marketing is absolutely appropriate and.
And we are excited to see how the customer response, so far the early sign.
Lines.
So have been very positive.
And thank you.
We have our next question from Omar Saad with Evercore ISI. Your line is open.
Hi, Good afternoon. This is Warren Cheng on the line for Omar.
I had a question on some of the initiatives you're doing on lower promotion.
<unk>.
Besting in quality and taste and style and filing.
What impact is that having on the customers the new customers coming into the brand on the existing customers are there any demographic.
Changes that you can see that the customer data available.
Yes.
Maybe a little early to see.
Direct.
Reflection.
We are seeing new customers coming into our CRM base.
Both in North America and Europe.
It has been more pronounced in Europe in terms.
So seeing a number of customer acquisition.
But that being said you know we think that a.
Probably even more telling is how are our existing customers responding to our assortments and the successes.
<unk> are evident.
We are seeing.
Thing that are all the key styles that we identified as a as you know opportunities for us to really increase quality increase dialing or improved styling, Oh, just do a big joke with sustainability until the customers about that at all.
All of this.
Products are resonating with the customers in a big way the Marciano brand for example.
We did a lot to change the.
Ultimate use wearing off the product for different locations.
Responding extremely well to that we have a whole new line of essentials.
Paul has done an incredible job.
We are skewing and.
<unk> is developing the entire assortment.
For all the brands and all the product categories by the way you know just I mentioned apparel, but we're seeing the same type of impact on accessories our line.
Cutbacks you know you are he always challenges the entire team here to look for other brands that have something comparable in terms of offering and the answer is always the same not we cannot find anybody that has this type of style. This type of qualities. This type of details at this price.
So I feel that the results are very obvious on how the customers responding in that is probably most important thing for us.
The new customers are well will continue to come off the product is a superior.
Thank you we have our next question from Dana.
L P with Telsey Advisory group your line is open.
Good afternoon, everyone two questions and you think about Asia.
What's the game plan for Asia going forward I think you had mentioned you're right.
Changing team around so just wondering the game plan.
He is the path to return to growth.
On the product.
Product margin piece, which I believe to increase to around 370 basis points, how much higher do you have any I am you to go does it differ by category and how you're planning promotions for the back half of the year.
We will still be very limited to none.
You.
Thank you Dana and good afternoon.
Well, let me start with the answering your your Asia question.
You'll notice.
Let me just say that you know our business. There is a in Asia is concentrated in three big part.
In addition to our southeast Asia business that itself.
With a partner, but you know we have a meaningful business in Japan.
We have a big business in Korea and of course, our business in China and in Japan, I think we know how to win.
We have done it before in 2019, I think was our top here.
That we were.
We're not just working with the.
The younger consumer and using a special collaborations on capsules and very similar to what brand partnerships. That's here in North America and globally.
With a great success, and we think that we're going to go back and.
Continue to really focus on that type of business model Korea has always been very successful for us and it used to be a license business and now we run our own we have great team there they have done a great job and.
It's very profitable and we continue to refine the model we are.
And the way our business was license out a couple of years ago, and that's working well we are taking over some of the business that wasn't the handful of franchisees.
They're very successfully to and we continue to optimize the cost structure and then China, China has been a challenge for US we continue to believe in the market.
In a big way the Chinese market is a great market for a brand like ours and our brand is relevant there we have a material young customer base.
The market size itself.
I'm, not saying anything here, but in a 14 trillion dollars in GDP.
Very significant the middle classes, the probably the biggest in the world.
And there is a lot of market share that we think or we could take in our space.
We have worked on like five different areas to address the first one is product and I think what we have done a great job the team.
Barry Great job working on elevating the brand there as well.
Improving the product assortment, we had a team from North America was helping that team over there and we continue to run the business with a lot less clearance and.
Focus more on our full price model the second Big thing is about.
As portfolio optimization, we talked about this we closed nearly 70 stores in China over the last 18 months and we think that the franchisee model can help us to really leverage expertise from local players which are in many different regions of the market I think will be.
The extraordinary very helpful for us to be successful the third big thing, it's about marketing and frankly, we have tried several things we now believe that.
Localized campaigns, leveraging local celebrities and social influencers as the way to go it's just very difficult and very costly to do it but we're working on that.
We think that that gives originals capsules.
Model here also work, especially with the younger consumer of course.
The fourth big things about E Commerce, and this has been challenging for us too because we decided to be a lot less promotional and all the business that we had.
The most part are required a high level of discounting, which we do not want to support going forward. So this has impacted our e-commerce business and the last Big thing is about the team on its you know you asked about this we have done a lot of reorganization during the last few weeks.
The.
Put them on the leader that was leading this team for personal reasons.
Wanted to go back to Europe, and and we are supporting that.
And we have a search out to really look for.
A great leader to to run the team and run the business going forward.
Well, we are we have a lot of confidence.
We are on the right path.
And thank you so much we have our next question from Janet Kloppenburg.
Okay hold on.
Question on <unk>.
Sorry, before we go on.
So you asked how much.
So that's we have less you know.
We've had a lot of progress.
Progress here over the last few years and it's really all about yes about category.
But mostly in apparel.
As we go forward and we talk about the guidance on the terms of the Plaza 200 basis points.
Half leverage half efficiencies are there some items in there but.
How much of them a lot over the last two years and then in terms of promotions now we don't plan are higher versus the back half of the Aircard talked a lot about how we've elevated our brands and we're strategically.
Yeah.
Yeah.
Sure.
Okay.
Yeah.
Thank you Dana.
Thank you so much and we have our next question from Janet Kloppenburg with JK Research. Your line is open.
Hi, everyone and congratulations on the progress.
Improved outlook.
Carlos This is sort of a big picture question, but you've.
But the elevated merchandising and marketing for gas and I was just wondering as we look forward now and hopefully coming out of coal, but how confident you are on the team that.
You will have you'll have consistency in the merchandising assortment.
And that.
You know you won't.
That a lot of active promotion, it's tricky for everyone, everyone thinks they're going to be more disciplined.
Not going to promote but we all know.
If something goes what goes awry with the assortment that you know.
That can change so I wonder if you could talk a little bit about your confidence there.
And perhaps.
What categories are pillars of strength.
Help us understand that the consistency.
And productivity improvements can continue and then secondly, I wonder about the supply chain problems, we're seeing worldwide and how long do you think these may piece may last.
Yeah.
With respect to what's going on in Southeast Asia.
And other important sourcing markets. Thank you.
Thank you Janet and good to hear your voice.
Let me start I really think that we are off.
Off to a completely new race here.
You know I think that is.
Definitely the issues that are characterizing the environment right now maybe somewhat abnormal.
But we're going to play the game in the exactly the same way that we are planning now which is we.
We are not going after more sell some more sales.
If that is going to impact.
Our ability to keep a full price selling in line. So I think the trick here. The key is to really make sure that we never buy more than what we expect based on a reasonable sell through for our product at full price. So then we can always.
To maintain this type of of low promotional environment.
But at the end of the day you know it just says it all goes back to product you know if the product is great. Then this is a lot easier to do with the product or something that people want that the customer is.
Really excited to get it.
The product has the quality that the customer expects.
The styling the fits of right and I think that you know you asked about the team I think we have an incredible team and I think that that is.
Completely apparent.
Every area that touches product you know we have a lot of the of the design is happening with a very collaborative way and again you know Paul it's at the front of this and has been driving the teams to really work together in a in a way that I have never seen it I'd guess.
In poor and this doesn't have borders you know this is a b tuned reagents and everybody's working together.
In a very.
Collaborative way and it's showing in the product. So so to me you know just when do you want and we tried to do this internally okay.
Guess what.
Are the biggest opportunities it's hard to pinpoint what which are the biggest opportunities because we have so many because the product is looking so great in every category I'm talking about not only what we do internally, but whats happening with our licensee partners who are doing an incredible job you know just we are seeing.
He has no significant momentum in watches who would have thought that we would see watches coming back you know after everything that we experienced with the with the Apple watch and everything else.
We are seeing significant momentum in eyewear, we are seeing significant momentum with our footwear.
Just that we feel that the product is superior and and we think that we are into something that if we control what we can control internally, which is you know how we buy how we present the product how we showcase it you know we have big opportunities with omni channel and these are the things that that other companies.
We already have that we are just developing so a lot of opportunity for us and then with respect to supply chain.
It's hard to say how long this is going to last you know I was hoping when this whole thing started that he was going to be a matter of a couple of months three months and our product is.
Companies about four weeks late.
And there are some cases, where we are.
And in a more challenging situation in that what.
What we are hearing from our teams is that at least you know just think that this conditions are going to prevail for the rest of the year and in many cases going into.
Running next year.
Obviously, you know you read the Wall Street Journal today, with Vietnam, and you know 3% of the population vaccinated. It's.
It's a very challenging situation for all of those but our team has done a great job in moving around you know even sourcing when we saw that there were concerns.
Now about being able to keep our production needs.
And we have done that.
Relatively successfully.
You know just that you heard that we had we couldn't ship everything that was there needed to be shipped in the second quarter and that is moving into a third and we are trying to manage.
So this is knowing that things that are running a lot slower and being smart because you know we could have everything but who can afford that so we have been careful in how we spend our money and trying to meet our customers' expectations in every case.
Thank you.
As a reminder, if you have a question or a follow up question. Please press Star then one on your Touchtone phone on standby.
And I see no further questions I will now turn the call over to Carlos <unk> for closing remarks.
Thank you operator, well. Thank you very much everybody for participating in today, we are excited about our momentum, but more importantly, we are excited about our future we think that.
We have a brilliant future in front of US we have tremendous opportunities in front to create significant value and we couldnt be more excited the team is super excited.
Paul and I are Super excited so please remember that we will be at the Goldman Sachs Conference and we would love to see you there have a great rest of the.
Good night, everyone. Thank you.
And thank you ladies and gentlemen, this concludes our conference. Thank you for participating you may now disconnect.