Q2 2024 Guess? Inc Earnings Call

August 23, 2023

Okay.

Good day, everyone and welcome to the guess its second quarter fiscal 2024 earnings conference call I would like to turn the call over to Sabrina spend numbers senior Vice President of Finance Investor Relations and Chief Accounting Officer.

Thank you operator, good afternoon, everyone and thank you for joining us today.

On the call today with me are countless Albury, Chief Executive Officer, and Marcus Nebraska, Chief Financial Officer.

During today's call the company will be making forward looking statements, including comments regarding future plans.

<unk> initiatives capital allocation and short and long term outlooks.

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

We will also reference certain non-GAAP or adjusted measures to GAAP reconciliation and description of these measures can be found in today's earnings release.

Now I will turn it over to Carlos.

Thank you <unk> good afternoon, everyone and thank you for joining us today.

We are extremely pleased to report our second quarter results with sales exceeding our growth expectations and the team delivering a significant beat in operating earnings and earnings per share.

We achieved an almost 10% operating margin for the period ahead of both our guidance and last year's results.

All of our segments performed at or beyond what we had expected with solid revenue performance strong gross margin results and effective cost management.

During the quarter, we saw strong momentum with our global brands and manage the business well as we continue to leverage the power of our highly diversified business model.

Our teams across the world continue to control, the controllable and adapt well to the changing consumer environment across geographies, Paul and I are very pleased with our performance I want to thank our teams for their commitment and hard work, we greatly value your strong contributions.

Our company's revenues for the second quarter grew by 3% and adjusted earnings from operations reached $65 million, 17% ahead of last year.

In Europe , we achieved a 9% increase in revenues higher than expected.

This was partially driven by earlier than anticipated shipments to wholesale accounts that welcome our product to support good sales momentum in their businesses.

Our direct to consumer business also performed very well with double digit comp growth in our stores.

Our Europe segment reported a 37% operating earnings increased well ahead of our expectations. We are very happy with our momentum and have a robust outlook for the second half of the year in this region.

Our Americas retail business reported an 8% revenue decrease at solid gross margins both in line with our expectations.

With our teams effective cost management. However, we were able to drive operating results that were stronger than we had anticipated.

Our Americas wholesale business reported a better than expected, 13% revenue decrease and also beat our operating earnings expectations with improved gross margins and good expense management.

In Asia, we grew revenues by 19% and improved operating earnings in the period, both in line with our expectations.

In our licensing business had a terrific quarter, increasing revenues by 13% and earnings from operations by 24% both well ahead of plan.

This business was driven by strong performance of fragrances, handbags footwear and watches.

Turning to our product performance, which again the FERC by region consistent with what we saw in the first quarter in Europe womens mens and accessories, all posted healthy sales growth.

Our best performing products in crude at outerwear knit tops woven shirts, including denim.

<unk> dresses and shirts.

<unk> were particularly strong in Europe with the best performance recorded by handbags travel products small leather goods jewelry, <unk> watches and eyewear Marci.

Marciano Kids and footwear were also strong.

In Americas retail sales were down across womens mens and accessories, while we experienced reduced customer traffic.

<unk> improved conversion on a sequential basis compared to the first quarter results.

Our top performing categories included sweaters activewear, certain denim products like overall from jumpsuits dresses woven shirts for women and knit tops for men.

In accessories.

Handbags travel products and watches outperformed the overall category.

Marciano had a challenging quarter as we were up against very strong sales from a year ago, and footwear and kids recorded a better trends than the overall business.

In Asia, we had success with womens and mens products and a very strong performance in accessories, driven by handbags small leather goods in watches. We also saw strength in sales of footwear and kids products.

Right now there is a lot Wayne on the global consumer despite tighter labor markets and rising wages.

Interest rates and inflation are impacting consumer confidence and we expect that this will continue for some time.

Despite those challenges we are confident in our business and our brand momentum and we are very pleased with how our products are resonating with our customers.

Our approach to our business remains consistent with the strategies that we shared with you in the past.

Our teams continue to focus relentlessly on those areas that we can control and we have initiatives in place to further improve on our planning and execution to optimize our results.

We see the biggest opportunities in four key areas of our business to create value.

Rand elevation inventory management efficiencies and cost control and growth.

My address each one.

Starting with our ambitious brand elevation initiative.

I have discussed in the past Paul has led our teams to reinvent our brand and influence virtually every facet of our global business.

The results have been extraordinary.

Now with a global line of products, we represent our brand consistently across all of our global distribution and across all of our 25 product categories.

This initiative has driven significant efficiencies in global design product development, and sourcing and enabled us to massively consolidate our vendor base, despite adding proximity vendors to enhance speed to market.

Most importantly, Paul in collaboration with our internal product teams and licensee partners has led a major effort to improve product quality taste and styling and to increase our focus on sustainability.

<unk> has also led our teams in driving strong alignment and coordination between the product launches and the marketing campaigns featuring those products.

A good example is our most recent campaign introducing Georgina Rodriguez as the face of gas and Marciano for fall 2023.

<unk> is a Spanish Argentine model, an influencer with more than $50 million in Instagram followers. She is also the wife of soccer stars Cristiano Ronaldo, who has 600 million followers. So she get tremendous exposure through him as well.

All of the products modeled by Georgina are available around the world in stores on our websites and wholesale distribution and feature and magazines social media and catalogs and the initial sell throughs for this products have been very strong.

Also related to our brand elevation strategy is our focus to price all of our products based on the customers' perceived value.

We are also buying product strictly based on expected customer demand not more not less our goal is to sell more at full price minimize promotions and avoid creating excess inventory.

Lastly, we have remodeled hundreds of stores in the last three years, and we opened many new stores as well.

Over 80% of our store fleet has now been refreshed to improve brand representation and the customer experience.

Moving to inventory management, we have been executing well on our commitment to reduce our inventory investment and increased free cash flows we.

We have implemented several new systems applications to automate multiple functions for inventory planning and allocation and use data for better decision, making.

These solutions are also helping us to improve our assortment planning and execute better buys to maximize sales and enhance margins.

And our results have been very strong we have already taken out about one month of inventory from the product cycle without impacting sales negatively and we closed the second quarter with only 4% more inventory than last year.

Today, we are very confident in our goal to close the year with a 10% reduction in inventory compared to last year.

In connection with cost controls and efficiencies we are focusing on three key areas first we have integrated several functions at a global level to improve our kind of easy and eliminate organizational redundancies. Most recently completing the integration of our financial assistance between North America.

In Europe .

Second.

We are looking at ways to streamline operations across the world, where we can do more with less.

As an example, we are currently in the process of closing our hub in Hong Kong, which serviced many Asian countries for years.

These businesses will now be serviced by our teams in Singapore and the retail stores in the market will be integrated into our China operation.

And third we continue to see opportunities to reduce variable expenses.

<unk> inbound freight and store payroll, which are large line items in our operations.

We're pleased with our progress on today's results are a testament to our success.

Lastly, as I mentioned in previous calls, we see significant opportunities for growth.

First driving greater sales productivity in our existing network.

Growing organically and existing and new markets.

Third exploring further brand extensions, including new product categories and for considering opportunities that leverage our global infrastructure and our network of licensees and wholesale partners.

As our leadership team built out our long term plan, we look forward to sharing more with you on all of these areas of growth at an investor day to be scheduled before year end.

I also want to call out the release of our fifth guess ESG report.

You can access at sustainably dot guests dot com.

This comprehensive report highlights the outcomes of our first ever double materiality assessment on our many initiatives, including our dedication to fair treatment in gender pay parity, which we have just achieved in our major markets.

KPMG has examined the reports key metrics and disclosures we have become one of the first in the fashion industry to obtain reasonable assurance.

And now to our outlook.

Our business has shown tremendous resilience so far.

Our first half results give us confidence in our teams and our ability to execute well.

I feel strongly about our plans for the foreign holiday seasons, and our early sell throughs of the new products are very encouraging.

For these reasons, we are raising our adjusted operating margin expectations for the year to a range of 9% to nine 4%.

Our EPS outlook to a range of $2 88 to $3 eight per share.

Accordingly, we now expect to deliver year over year EPS growth despite significant headwinds.

Markus will share more about that in a moment on speaking of Marcus.

I'm excited to welcome him to our company as our new Chief Financial Officer.

<unk> brings a strong background to this role and great relevant experience from his 17 year career with Hugo boss, where he had multiple responsibilities and financial operational and even commercial roles.

I'm confident that he will make strong contributions to our company.

Before I pass it over to Mark because I want to share with you why I'm. So excited to be here, I guess and so optimistic about our future.

I am sure you could all list companies with amazing brands or others, with particularly strong business models and still others with reputations as great places to work.

I could do the same.

I would have three separate lists.

What I believe makes guests special what makes US unique is that this is a place where I believe all of those factors come together to.

To create a powerful platform to drive long term sustainable value for all of our stakeholders and.

And it hasnt been by accident the unique position that we have staked out for our sales came with 42 years of extraordinary vision focused execution.

First there is the brand.

The guess brand today is truly a lifestyle brand thanks to the multi chronic and aspirational marketing campaigns that Paul created over the last four decades.

That strong lifestyle image was developed early on an.

And our founders had not only the ability, but the courage to pursue multiple categories quickly and effectively well beyond denim.

Product excellence has always been king at guess and today, we offer amazing products across more than 25 categories for women men and kids.

Second is our powerful and diverse business model.

<unk> Leverages, our strong licensing model this business delivered 100 million dark in royalties a year.

So without deploying significant capital.

It delivers high returns.

It also aligns capabilities with mission to ensure the best execution our.

Our core products, mainly apparel are all managed internally we know these categories better than anyone however, special products that require expertise for design manufacturing and distributions such as watches handbags and footwear have always been licensed out to the best partners.

That truly understand both the product and the brand.

Similarly, we have a license a franchise model in certain markets. So leverage experts in those regions Middle East and Mexico are good examples of this.

Our business model also reflects a true world vision almost from its inception guest pursuit and international expansion strategy in today's presence in 100 countries and global brand awareness are a direct consequence of that strategy.

The business also benefits from significant synergies, resulting from our global network with Omnichannel multichannel capabilities, providing a highly diversified and balanced model.

And third we have a culture here that makes guests a great place to work and built a professional life inside our family.

From its inception.

<unk> culture has been highly entrepreneurial and adapt tool, where our long term focus drives all important decisions.

Our teams work as Etame and are supported and responsible to deliver results in their businesses.

This culture of accountability and empowerment allow us to attract and retain top talent all over the world.

The convergence of all of these attributes onto one powerful platform creates a unique strength and potential of our company.

Paul has been our chief visionary architect and we couldnt be more grateful and excited to work with them every single day to make it bigger better and more successful.

We are well positioned to grow our business and deliver strong value creation for our shareholders for years to come I look forward to reporting on our progress this year and in the future.

With that let me pass the call to Marcus welcome Markus.

Thank you Carla and good afternoon, everyone.

<unk> I take you through the numbers I want to tell you how excited I am to be a part of the guest's family and help the team grow the business long term.

I'd like to thank Paul and Carlos for their confidence in me and the opportunity to be a part of this incredible company.

Guests and Mcdonald's brands I'll renowned globally, and we have a strong platform for sustainable and profitable growth.

Im looking forward to engaging with fuel.

And continuing to support the company's goal to deliver outstanding value to our shareholders.

Let's take a look at the quarter.

We delivered better than expected revenues operating profit and earnings per share. This quarter's performance demonstrates the strength of our diversified business model with all our segments delivering results in line with all beyond our expectations.

We expanded gross margin mainly.

Maintain clean inventories and carefully manage costs.

All of which enabled us to deliver an adjusted operating margin of nine 8% an outstanding performance in a dynamic environment.

Let me take you through our results in more detail.

Total company revenues were $665 million in the quarter, a 3% increase from last year's second quarter, and a 3% constant dollar increase.

The better than expected performance reflects positive retail comp sales improved licensing revenues and earlier than anticipated wholesale deliveries in Europe .

Turning to our regional performance for the quarter.

Starting with Europe , where we posted an 8% constant currency revenue increase and a 9% increase in U S dollars the.

The revenue growth was mainly driven by strong retail store comps and higher voltage.

Our store in the region posted a 13% constant currency comp increase in the quarter drew.

Driven by continued store traffic increases and strong AUR growth.

More than offsetting a modest conversion decline.

In the past few quarters.

Turkey type inflation had an outsized impact on the comps and excluding Turkey that comp increase would have been 10%.

In European wholesale we've returned to normal shipping patterns in line with the previous year.

With our initial expectations, we experienced roughly $10 million timing shift a full winter of 'twenty three wholesale shipments from Q3 into Q2.

Spring Summer 'twenty four collection campaign is almost completed orders I expect it to increase low single digits compared to the prior year spring Summer campaign aligned with our initial expectation.

Operating margin in our European business increased by 260 basis points to 12, 9%.

The expansion was driven by higher IMU strong comp sale and lower markdowns.

Partially offset by currency headwind negatively impacting our product margins.

In Americas retail revenues decreased 8% both in U S dollars and in constant currency while.

While traffic remains under pressure in our North American store conversion drove a sequential improvement in Stockholm.

Which declined 7% in Q2, following a Q1 comp decline of 12%.

AUR was stable compared to last year's Q2.

Our North America E Comm business performed better install and increased low single digits.

Americas retail posted nine 1% operating margin compared to 13, 2% operating margin a year on year.

410 basis point decrease in operating margin was mainly driven by higher expenses.

Leveraging of expenses, given the sales decline and a lower mix of full price selling partially offset by a higher IMU.

Our product margins for flat with the higher initial markup offset by a lower mix of full price selling.

As we move through the second half of this year, we expect the expense deleverage to begin to moderate primarily in the fourth quarter, given our expectations for revenue.

In Americas wholesale revenues declined by 13% in U S dollars and 16% in constant currency.

The decrease was driven by lower shipments in Mexico, and the U S.

Operating margin reached 25, 3% an improvement of 250 basis points from last year, driven by gross margin expansion, partially offset by higher expenses.

In Asia revenue grew 19% in U S dollars and 22% in constant currency.

The growth was driven primarily by the recently acquired stores in Korea.

Stock comp sales for the region increased 3% in constant currency.

Operating margin improved 580 basis points to negative <unk>, 9%.

This improvement was driven by the direct operation of those new core install as well as leverage our expense structure.

And finally, our licensing segment royalty revenues increased 13% in U S dollars and constant currency.

<unk> operating margin was 94, 1% and operating profit increased by 24%.

In the quarter total company's gross margin was 44, 3% an improvement of 220 basis points.

Improved I'm use phase.

A favorable segment mix.

And lower markdown for partially offset by a negative currency impact on our product margin.

Adjusted SG&A for the quarter increased 7% to $229 million.

We experienced inflationary pressures on our cost structure, including heightened higher selling expenses now retail store.

And we made investments in our infrastructure, most notably in Europe .

Our expenses were also impacted by the unfavorable impact from currency.

For the quarter, our adjusted SG&A rate increased 110 basis points to 34, 5%.

Our second quarter, adjusted operating profit increased to $65 million.

This represented an increase of $9 million or 17% compared to last year.

Adjusted operating margin was nine 8% 110 basis points better than last year's Q2, driven primarily by a higher initial markup and favorable business mix, partially offset by the negative currency impact and higher expenses.

Currency negatively affected adjusted operating profit by $8 million and adjusted operating margin by 130 basis points.

We recorded non operating net expense of $5 million.

The $9 million charge in last year's second quarter.

The change was primarily due to lower net unrealized and realized losses on foreign currency exposures.

And we recorded an adjusted effective tax rate of 26%.

Adjusted Q2 diluted EPS was <unk> 72, compared to 39 of earnings per share in last year's second quarter.

85% increase in adjusted earnings per share.

Moving to the balance sheet.

We ended the quarter with $303 million in cash.

Compared to $174 million a year ago.

The most significant drivers of that $129 million cash built over the last four quarters include $135 million of free cash flow and net draws on our credit facilities of $51 million, partially offset by $55 million in.

<unk>.

And a 9 million dollar payment to purchase a Russia joint venture partners, 30% minority interest.

We ended the quarter with a total of $299 million of borrowing capacity on our various global facilities, so roughly $600 million of available liquidity.

Inventories were $554 million up 4% in U S dollars and flat in constant currency versus last year.

Recently, our inventory growth comes from our international markets with our North American inventory levels being down against last Q2.

Our overall inventory levels in line with our plan and as we return to a more traditional timing of receipts this year.

<unk> to further reduce our inventory levels.

Overall, we are pleased with our inventory composition and forward orders and feel we are very well positioned to support our business moving forward.

Our receivables were $318 million.

6% increase versus last years $302 million.

On a constant currency basis receivables increased about 1%.

For the first half capital expenditures around $35 million, mainly driven by investments in store Remodels and technology.

This compared to $51 million in the first half of the prior year.

Free cash flow for the first half was positive $9 million, an improvement of $63 million compared with the cash consumption of $54 million for the prior year first half.

The improved free cash flow resulted from favorable changes in working capital, including a substantial reduction of inventories and lower capital expenditures.

Partially offset by lower net income.

So now let's talk about our outlook for fiscal 'twenty fall into third quarter.

With the second quarter now behind Us and as we consider our business for the second half of the year.

We are raising our earnings outlook for the fiscal year.

With an expectation of stronger operating margins on a similar level of revenues compared to our prior guidance.

Our improved outlook on earnings is primarily driven by our strong Q2 performance some of which represented the timing shift with the third quarter.

We expect the strong momentum of our brand to continue in Europe , where revenues reached nearly $1 5 billion. This year.

In North America, we continue to anticipate traffic headwinds and customers, who are prudent and guest spending.

We are very pleased with our inventory levels and composition that is well aligned with our sales expectation.

With normal fluctuations from other parts of our business and the prevailing currency environments. We expect full year revenues to grow in the range of 252, 4% both in U S dollars and in local currency.

Moving down the P&L.

Just as we saw in the second quarter for the balance of the year, we anticipate expanding gross margin on a year over year basis, Despite some lingering currency headwinds.

That expansion should be fueled mainly by the cost improvements be enjoying at the supply chain and shipping environments have returned to normal.

On expenses, both inflation and currency will negatively affect this year's expense structure and rates.

Let me remind you that by the time, we get to the fourth quarter. However.

Some of that rate pressure should abate or even turn favorable.

Given that the fourth quarter will include an extra selling week this year.

With our strong results in the first half of this year, we are confident about our plans for the second half of the year.

Today, we are raising our adjusted operating margin outlook to a range of nine zero and nine 4% for fiscal year 'twenty four.

At the high end of our guidance. The adjusted operating profit is expected to be on the same level as in fiscal 'twenty three.

For some additional perspective on that if we brought to adjust for the headwinds caused by currency.

Last year's Covid relief benefit.

A change in coupon performance based comp expense and factor out the extra selling week, our outlook would represent an underlying operating income growth rate in the low teens at the midpoint of our guidance.

We are also raising our adjusted diluted EPS outlook for the year to a range of $2 and 80, 810 and $3 <unk> per share.

Which is net of the effect of the second quarter nonoperating charges.

In the third quarter, we expect U S dollar revenues to increase in the range of two five to four 5% versus last year's third quarter based on current prevailing exchange rates.

Currency impacts strip represent roughly two point tailwind for revenue growth.

We expect third quarter adjusted operating margin between seven five and eight 3% and adjusted EPS in the range of 55 to <unk> 60 per share.

Lastly on capital allocation.

We are on track with our plan to improve our inventory turns with supply chain now functioning more normally couple.

Coupled with our outlook and this year's lower Capex plans, we are well positioned to generate free cash flow of roughly 160 million in U S dollars.

Our outlook is based on our best assessment of the current macroeconomic environment, including inflationary pressures and the consumer's willingness suspense.

Always we will manage the business prudently taking advantage of the power of our diversified business model, which allows us to leverage areas of strength to mitigate risks that may arise in other parts of our business.

In closing I want to reiterate that would be very pleased with the execution of our team and we are confident to deliver the result, I just outlined.

Further we have a strong balance sheet and are in an excellent financial position to invest in the growth of our business.

And continue to return capital to our shareholders.

And with that we can now open the call up for questions.

Thank you.

And ladies and gentlemen, I will open the lines for your questions and if you haven't done. So please press star one to get into queue and wait for your name to be announced one moment, while we compile the Q&A roster.

That is star one one to get in the queue.

Yes.

One moment for our first question.

Alrighty comes from Cory <unk> with Jefferies. Please proceed.

Okay.

Hi, Good afternoon, Thanks for taking my question and welcome Markus.

Carlos I guess Laurie it seems like.

Hi, Good morning had some.

Hey.

It seems like you've had some really strong momentum in Europe . So I'm wondering if you could just maybe unpack that for us a little bit and maybe just talk a little bit more broadly about the momentum of the brand. It seems like you have some really great partnerships that are really helping to fuel that growth.

So just curious there would be great to get some color.

Yes, let me start and then I'm sure markers of all time in here.

Yes, we are.

Very very pleased with our performance.

Across the company assets, we said.

During our prepared remarks.

Every business it did as we expected or better and.

Europe was leading the charge there we had a great quarter.

Some of it was at that.

Ship shift of shipments.

Shipments into the second quarter from the third quarter, but frankly that is.

Small part of the B and the better performance that we experienced.

What we saw was very strong comps in Europe .

This strong comps have been driven by a very healthy customer traffic into our stores.

We are seeing this healthy.

Healthy metrics also inside the stores of course, we are benefiting from the price changes that we took over the last couple of years and the margins have been very much.

Under control also benefiting from what we're seeing with the inbound freight and everything that is impacting that.

That part of the business.

We are very pleased with how the customer is responding to our assortments and and we feel that that is also carrying through our <unk>.

Demand for wholesale.

With respect to the.

What we see with our wholesale is still a very healthy business in terms of how our current seasons continue to perform.

And business in spite of the big change that.

We have been able to deliver over the last four.

Three three years pre pandemic to now we're talking about an increase in that wholesale business in Europe .

From about 480 million euros to about $630 million currently.

Over 30% growth for the entire business. So thats, a very big it was driven by new categories.

And some.

Just very ongoing strong momentum with the accounts that we had so very pleased maybe any markets you want to talk about the operating margin.

Europe .

Thank you Carlos.

We are pleased with the operating margin development European business in the second quarter, we up 260 basis points, helping a chevron pattern remarks, the heightened initial markup all things, where we see the benefits from especially lower inbound freight and driving our initial markups.

As Carlos mentioned to a strong comp sales helped us.

To drive a more bottom line what is also very positive to see lower.

Lower markdown also contributed positively to our performance operating margin performance in the second quarter and what we still continue to see if the currency headwind from transaction.

Our margins I would think Thats shared also previously I think this was a headwind that we had in our margins, but overall I think we are very pleased and nothing very happy with the performance and with the strength of our brands in the European segment, Yeah, and I think just you mentioned about the partnerships and I think that is.

It's a big point, we have very strong country management teams and obviously that is driving a lot of the business in each of those markets and they own the businesses.

And we have been very pleased with what they have been able to do in each and every one of those markets and then.

Just the <unk>.

Accounts the partnerships that we have at wholesale we're talking about thousands of accounts with thousands of relationships agent relationships. So.

All of this I think is very unique and very powerful and I think it has a lot to do with the success that we have been able to experience for now several years consecutively.

That's great and then just on inventory.

Was up a little bit in the quarter, but it sounds like youre, making progress to get it to a point, where it's likely to be down by the end of the year.

What does that look like on a regional basis, how do you think that you get there and then ultimately what do you think that means for the <unk>.

Potential for driving even better margins over time as inventory levels become even more under control.

So let me start also.

And again I'm sure Mark as well.

I'll address the.

Regional.

Inventory levels, but.

We're all we came into the year, knowing that last year, we made a very significant effort to really.

Secure our business. So we were.

Really ordering product to arrive to our.

Distribution centers earlier. So then we could be there to service the business in spite of all the supply chain disruptions that we were experiencing together with the rest of the industry.

This year as we saw that the supply chain was normalizing.

And that we could rely on a much tighter delivery timeline.

We made the plan to really reduce the inventory investment that we had in the business I mean, obviously, it's one of the major sources of cash flow. So we put in place a plan to really extract from that inventory investment a significant amount of inventories and we have been.

They work to take about one month out of the investments that we were running with last year and we feel that by the end of this year, we should be with.

Close with an inventory of about 10% less than what we closed the year last year with <unk>.

And we are very confident about that because just we work with.

Very clear timeline and ordering.

System.

It gives us a lot.

Sort of visibility now to know that we will be able to make those numbers of currency. We are buying very diligently on with a lot of discipline, we're not buying any more or less than what we think is going to be demanded by our customers. In every one of our channels and this formula has worked well for us.

And we are very pleased the increasing in inventories that 4% that you're referring to is primarily due to increase in.

Average unit cost so and this is all driven intentionally and strategically by our product strategy centered on talking about higher quality.

Business product mix and things that are completely in our control we are very pleased with it.

Mark.

Corey adding to what Carlos explained how inventories they are up 4% in U S dollars they are constant.

Flat in constant currency, if we look at and nothing very very pleased with development over the last few quarters. If you look at the sequential improvement. If we can look back at the first quarter, we have been up 9% in U S dollars, our inventories 8% in constant dollars at the end of Q1. So we are very pleased to see this progress.

Overall I think to your question I think regarding also the regional mix.

On the inventory.

Position at the end of the second quarter. It's in line with our sales expectations for the third quarter. We are pleased to see that the inventories are up in Europe and in Asia also where we see growth of the business and it's down in the America very much aligned also with the sales expectations that we have I think then also for the next upcoming quarter.

And we're pleased and just to reiterate also what Carlos said, we feel very confidence about our client also to further reduce our inventories.

Long down roughly 10% at year end.

And so.

We are confident about the 160.

You've seen Corey you may have seen that we raised.

Forecasts or expectations for free cash flow.

$160 million for the fiscal year 'twenty four.

That's great.

Helpful color welcome Marcus and thank you again best of luck.

Thank you Corey.

Thank you one moment for our next question. Please.

Comes from the line of Dana Telsey with Telsey Advisory group.

Hi, good afternoon, everyone and welcome Markus.

Hi.

Caller, I'd say youre thinking at that high as Youre thinking about the back half of the year and what you delivered in the first half as you think about the guidance for the operating margin.

How do you think about unpacking the gross and the SG&A is the first is the first half and then as you're thinking about the third and fourth quarters is it conservatism is there anything whether it's shrink or marketing that we should be mindful of that wouldn't allow you to potentially come in better than last year's opera.

<unk> margin in the second half and with that how do you see the health of the consumer in the different regions. Thank you.

Okay.

I'm going to start with the operating margin question.

Frankly, we have a.

A very solid plan for the second half of the year of course. This is the most important have us everybody announced here, we make a lot of money in the second half of the year and I'm.

Kia just being successful means.

Huge value creation, so we have very.

Specific plan core business, we feel that the product is right. We feel that we have everything that we need to really deliver excellent results and thats where were going forward. The team is highly charged and obviously there are some some things here that make the second half this year, a little bit different like the extra.

The weak, but overall, we feel that we have a very strong plan and a lot of opportunity to deliver very great profitability, especially in the fourth quarter.

With respect to the health of the consumer.

Jeff.

We have to look at it by region or by market because.

We are still seeing a very different behavior in the different markets, where we operate and as you know we are truly global so starting with Europe , we continue to see a healthy customer coming into our stores.

We see that they are still differences among the different markets. There obviously.

With the war and some of the issues that have been impacted.

Just in Russia and.

<unk> done some other places where we see significant inflation like in Turkey.

The consumer is behaving differently, but we have had very significant success in those markets.

We are seeing that.

Business.

Continues to be very strong and is a reflection of that customer traffic.

Flows that I was referring to so we continue to see that business.

A healthy.

Second half going into the second half and we feel that as we see the performance every single day in our stores is very reliable unless there are significant changes in behavior, but so far I think the consumer is in a good place.

And then looking at our wholesale business.

Every time that you will see that we are able to ship early I think it is a very strong indicator that people like the product out of our retail customers and.

The our wholesale customers are very happy with getting the product earlier, because the product is selling well so that that should be a very strong indicator.

When you look at Americas now.

This has been a.

Challenged environment for us we have been seeing.

Comp contraction now for a few quarters and frankly, we don't think that is related to our product. In fact, we think that we have been making some very good strides on product just when you look at our denim trends are very healthy when you look at our accessories.

Business is very strong we have been able to really going to a more casual assortment very quickly which is something that we always like of our brands that is allows us to go from dress casual and vice versa, very very quickly and we can adapt to where the consumer is going.

With relative ease and we are seeing success, we're talking about.

Success with sweaters success with denim success.

During the summer, we had strong success with shorts and pants.

So they are.

Lot of things that we think are working very well, but we continue to see that the consumer is a little bit more pressure.

Looking for a lot of value, we have been very careful not to promote.

Hans.

We have been able to really do well with that in spite of the.

The environment as being very promotional in general.

We think that we have a great plan, especially second half.

We'll be looking at.

Better business in outerwear business, but those are two big business for us and both women and men and we think we have a great plan to go after those categories and create significant volume because some of this.

Items of course drive.

Our average unit retail. So so we are excited about the second half and then when you look at Asia and Asia.

The comment is similar than what I said about Europe . This is more a combination of different markets and.

Some of the dynamics in each of those markets could be different. So you have places like China, who has been.

It's a way to recover from pandemic and everything else everybody knows but they are they have their own issues.

And then you have a place like <unk>.

Korea has been very strong for us.

We see that as a great opportunity to continue to to really improve our our operation in Asia as an overall region. So.

Just.

It's a combination of multiple things we feel that we have a great plan and we think that the guidance that we share with you today is very realistic based on what we have been able to see during the last few quarters on what we are seeing even now in this quarter, we have one month of the quarter.

And everything that we have shared with you in terms of color is.

Your line.

With the with what we're seeing.

So you want to thank you.

Yes, Hi, Dana as Marcus Let me first address the shrink question that you had.

We don't see any major issue so far this year in terms of shrink.

Obviously this is an area we are closely monitoring and we have a very good team and loss prevention team in place.

Let me then go to the operating margins and also the key drivers.

If we look first of all we very often confidence that we can deliver the guidance, we've just given and it's almost realistic view.

On our business performance.

We look at the expected.

High end of our guidance the expected.

<unk> operating profit.

And the same level as last year, what are the key drivers let me start first with.

Negative once with the headwinds we have the unfavorable currency impact that is less than 100 basis points on operating margin. We have as you may recall also from the prior year.

Our reporting we have lower Covid relief subsidies, where we've received last year and not Comping. This year and we do have also a higher performance based compensation.

What are the positive drivers I think that we see we have positive store comp sale, especially driven by Europe and Asia, we have a favorable impact of the higher initial markups, mainly driven by lower shipping costs. I think we have seen them and we commented on in Q1 as well as in Q2 are they have been improving.

Operating margins and we expect this margin driver, helping to continue and to help to expand our gross margin in the second half of this year and of course importantly thing as Carlos mentioned, we will have in the fourth quarter. We will have the impact of the 50 <unk> week.

We've given you also before just represents roughly 1% of the total company sales growth for the year fiscal year 'twenty four and this will clearly also help.

To abate some of the rate pressure that you asked for in terms of the SG&A.

And structure.

The fourth quarter with the extra selling week that will benefit Q4.

Thank you very much.

Thank you.

One moment for our next question and as a reminder, that is star one to get into queue and it comes from the line from Mauricio Serna with UBS. Please proceed.

Great. Thanks for taking my question and congratulations on a pretty good result, I wanted to ask maybe if you could elaborate more.

The trends that you have seen in Europe , maybe on a category perspective language have been the categories, where you're seeing that strong.

Strong growth.

Maybe across the.

Most important mark and which ones have you seen.

Don the bathroom, which ones might be lagging and then maybe if I may add also on the on the third quarter sales guidance, if I look at the.

The main segments of the business I think.

I think sequentially speaking sales are roughly in line, maybe a little bit slower if you exclude the FX impact.

What is driving what is driving like what are you seeing like any significant changes in.

Sales trends across the different segments. Thank you.

Hi, Mauricio Thank you for your questions.

So let me start with your first question about categories.

In Europe , yes.

Like I said the wholesale business is very significant and we have a big business in apparel for both women and men.

<unk> now.

And we have a very big business in accessories.

It's primarily driven by handbags, but also.

Any other categories that continue to.

Evolve and develop.

And then last I would say just we have the marciano brand.

And we have footwear.

So among all those we see.

A lot of strength in multiple lines within the apparel category.

The whole <unk>.

Global line introduction and what we have done just Paul with the product teams.

Changing.

Ways that the whole product Assortments put together.

We have seen success with multiple areas there.

We have had great success with.

Everything that.

Touches dresses.

As a main category, our athleisure line, which is a completely new offering from the last maybe two and a half three years now.

That line went from being zero two pretty significant.

Part of our entire line on and that line continues to do very well.

Wholesale as well our kids line also had <unk>.

Several seasons of the strong growth.

Just as more stable now and in our footwear business just as we migrated more from the dressing to a more casual collection I think we have seen great success with that change as well.

Our handbag business has been strong and continues to be strong I think we always say that we believe that there is a very.

Very limited competition for what we do there is difficult and we are ahead of the pack there and we feel very strongly about our new collections have a lot of.

Business and different <unk>.

Sales of bags, we have just a lot of logo business and.

When you put it together considering the quality that we offer.

Aligned with the price that we require.

It's a great combination.

Great value proposition so.

Overall, a very strong business across the board.

We still see a lot of opportunities to continue to grow we have.

A whole line of men's accessories products, and we think that.

That line is.

Be a lot bigger so we are trying to to.

Fuel that growth and invest in that category, we have a whole line of underwear and.

And.

Swimwear and.

Again, we feel that the business is very small compared to what it could be so we are trying to invest in this category.

<unk>.

Fueled the growth.

And overall I think that the big advantage here is that we have this big relationships with key accounts and in many cases, they buy in multiple categories, including.

Marciano uncertain cases as well.

So overall very very happy with that with respect to the sales guidance, maybe Marcus you can start.

Let me quickly start Mauricio Hi, Mauricio.

For the full year I think we're guiding revenues up between our two 5% and 4% before it was 2% to 4% we've increased the bottom end, while maintaining the top end competitor all prior expectations.

What are the key drivers for the revenue growth at.

That we continue to see on driving the growth in the second half positive comps in Europe and Asia.

We have the 50 FERC request, we just talked about in the fourth quarter and we have the driver also for the net new stores.

For the third quarter I think the same drivers are at play but please also be reminded that all bank and also the second quarter compared to our initial expectations that we had.

We guided Q2 benefited from a wholesale.

Delivery shift of $10 million.

Into the second quarter and now going into the third quarter. As you mentioned I think we have a non debt.

<unk>.

Stated my shape in my prepared remarks, we will have a two point tailwind.

<unk> from currencies on the revenue growth.

Great. Thank you so much.

Thank you.

And we have time for one more question one moment please.

Comes from the line of Eric better with small cap consumer research. Please proceed.

Yes.

Good afternoon, congratulations on a great quarter and guidance.

Yes. Thank you Eric how are you.

I am good.

Talk a little bit about capital allocation.

$60 million in free cash flow. This year, so where do you look at that you want to continue to expand in terms of.

Stores and how should we be thinking about in terms of potential further share repurchases or increasing the dividend.

Thank you Eric.

So just as you know we have just refinanced our convertible.

We were able to do that in the very favorable terms and we are very happy.

With with the fact that we were able to also kind of like.

Defer some of those maturities into the future.

So today, we have a great capital structure and we are in a very good position.

Last year the team also refinance.

Read that.

A couple of our facilities credit facility so.

Our capacity is pretty <unk>.

Significant and and we feel that we are in a very good place and that's why every time that we can squeeze in.

Generally more free cash flow.

We're very happy about that so I think that as a company on the hour.

Our board has been tremendously.

Pro shareholder returns.

Have done.

A lot to really increase those returns increase that dividend very recently, we were very active with share repurchases during the last few years.

We are talking about 40% of the shares outstanding that were repurchased since I've been back. So so you can imagine we feel that we are super active with that.

We want to make sure that we keep.

Our our power powder dry.

We want to.

First as a top priority to be able to service our business.

With investments this year, our capex is going to be lower than last year, and we are being very prudent in the way we are spending our money, but but we want to make sure that we have plenty of capacity just when we have opportunities to invest to grow the business and.

Two more.

Of course, we are going to continue to look at opportunities to return value to our shareholders at all times.

Can promise you that and when when we consider that as a good opportunity for us to be more active we will do so but we feel that we have been.

Managing and balancing all of those priorities in a very effective way and I take a lot of pride on that because I am very proud of how board approaches this topic on how pro all shareholders the board.

Okay.

I think what should we be thinking about in terms of opportunities to add more stores in other countries.

How should we be thinking about that in terms of regions and where you'd like to add more stores, where it makes sense.

Yes.

We always look at the potential of the different markets.

Whether we are they are not.

And on the opportunities for the gap brand, primarily too to really develop those markets any one of those markets.

We have in many cases, we work with partners.

There are several examples of that where we have territories, where our partners will run the business, we have either a license or franchise type of business model.

With that in mind.

We we still see a lot of opportunity all over the world, especially considering how large and expensive our categories are just at the <unk>.

Could be that we are strong in one category in one particular market, but we see opportunities to bring and develop many of the other categories that we're in business with so we have plenty of opportunity for growth here. If you look at the size of the guess brand today is about $5 5 billion. So this is it fewer.

Measuring based on what the ultimate consumer pays for our guest product $5 5 billion.

We think that this number could be a lot bigger than that I'm talking about.

When you look at some of the global brands in some of them are in the eight 9 billion.

Size and this is with.

Less product categories, we have.

With the lessor of a lifestyle type of.

Offering as we have so a lot of opportunity, but going back to the countries. They are markets like India, where we see a tremendous opportunity on the brand is doing well we are working with.

Our partner there that has been opening stores the stores are very profitable across the board. They have been opening stores its pretty aggressively and we think that we will close this year with more than 20 stores there.

And that is very exciting for us because it's a huge market.

And the brand is we have the fortune that the brand is well known across the world.

I don't think that you can go to any market, where guests is not well known as a brand so that gives us a big opportunity.

No of course, we have been investing in China, that's a huge market.

Fortunately this has been a very challenging go for us.

But we're not giving up we are very committed to that market, we see a big opportunity there and we are.

We're looking into.

Just changing the <unk>.

<unk> model.

And so we think that we are into something that could be very very productive.

At that market in the future and then within Europe . There are a lot of markets, where we have a good presence and very profitable businesses, but where there is a lot more opportunity to grow and penetrate some other businesses there.

So many countries. So many cultures and again, we think that the.

<unk> brand is very relevant and something that people desire so.

We want to put that make the brand and the product available.

So all of those potential customers.

Great. Thank you good luck for the rest of the year.

Yes, Thank you Eric.

Thank you and this ends the Q&A session. Thank you, ladies and gentlemen, I will pass it back to Carlos are there any for final comments.

Yes, thank you well.

We are very pleased with our performance this year and we are very excited about our future. We have a clear strategy and a very good plan for the second half and our teams are executing very well, we're very proud of that we are positioned well to grow our business and deliver strong value for our shareholders.

Thank you to everyone that joined US today, we really appreciate that and we look forward to speaking with you very soon.

Yes.

Thank you everyone for joining you may now disconnect.

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Good day, everyone and welcome to the second quarter fiscal 2024 earnings Conference call.

I'd like to turn the call over to February <unk>, Senior Vice President of Finance Investor Relations and Chief Accounting Officer.

Thank you operator.

Good afternoon, everyone and thank you for joining us today.

On the call today with me are countless had barely chief Executive officer, and Marcus New brands Chief Financial Officer.

During today's call the company will be making forward looking statements, including comments regarding future plans.

Initiatives capital allocation and short and long term outlooks the.

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.

We also reference certain non-GAAP or adjusted measures GAAP reconciliation and description of these measures can be found in today's earnings release.

Now I will turn it over to Carlos.

Thank you <unk> good afternoon, everyone and thank you for joining us today.

We are extremely pleased to report our second quarter results with sales exceeding our growth expectations and the team delivering a significant beat in operating earnings and earnings per share.

We achieved an almost 10% operating margin for the period ahead of both our guidance and last year's results.

All of our segments performed at or beyond what we had expected with solid revenue performance strong gross margin results and effective cost management.

During the quarter, we saw strong momentum with our global brands and manage the business well as we continue to leverage the power of our highly diversified business model.

Our teams across the world continue to control, the controllable and adapt well to the changing consumer environment across geographies.

And I are very pleased with our performance I want to thank our teams for their commitment and hard work, we greatly value your strong contributions.

Our company's revenues for the second quarter grew by 3% and adjusted earnings from operations reached $65 million 17.

10% ahead of last year.

In Europe , we achieved a 9% increase in revenues higher than expected.

This was partially driven by earlier than anticipated shipments to wholesale accounts that welcome our product to support good sales momentum in their businesses.

Our direct to consumer business also performed very well with double digit comp growth in our stores.

Our Americas retail business reported an 8% revenue decrease and solid gross margins both in line with our expectations.

With our teams effective cost management. However, we were able to drive operating results that were stronger than we had anticipated.

Our Americas wholesale business reported a better than expected, 13% revenue decrease and also beat our operating earnings expectations with improved gross margins and good expense management.

In Asia, we grew revenues by 19% on improved operating earnings in the period, both in line with our expectations.

In our licensing business had a terrific quarter, increasing revenues by 13% and earnings from operations by 24% both well ahead of plan.

This business was driven by strong performance of fragrances, handbags footwear and watches.

Turning to our product performance, which again the FERC by region consistent with what we saw in the first quarter in Europe womens mens and accessories, all posted healthy sales growth.

The best performing products included outerwear knit tops woven shirts, including denim.

Sweaters dresses and shirts.

Accessories were particularly strong in Europe with the best performance recorded by handbags troubled products small leather goods jewelry, <unk> watches and eyewear.

<unk> Kids and footwear were also strong.

In Americas retail sales were down across women's men's and accessories, while we experienced reduced customer traffic, we improved conversion on a sequential basis compared to the first quarter results.

Our top performing categories included sweaters activewear, certain denim products like overall trend jumpsuits dresses woven shirts for women and knit tops for men.

And accessories handbags travel products and watches outperformed the overall category.

Marciano had a challenging quarter as we were up against very strong sales from a year ago, and footwear and kids recorded better trends than the overall business.

Right now there is a lot Wayne on the global consumer despite tighter labor markets and rising wages.

Interest rates on inflation or impact on consumer confidence and we expect that this will continue for some time.

Despite those challenges we are confident in our business and our brand momentum and we are very pleased with how our products are resonating with our customers.

Our approach to our business remains consistent with the strategies that we shared with you in the past.

Our teams continue to focus relentlessly on those areas that we can control and we have initiatives in place to further improve on our planning and execution to optimize our results.

We see the biggest opportunities in four key areas of our business to create value.

Brand elevation inventory management efficiencies and cost control and growth.

We address each one.

Starting with our ambitious brand elevation initiative.

As I have discussed in the past Paul has led our teams to reinvent our brand and influence virtually every facet of our global business.

The results have been extraordinary.

Now with a global line of products, we represent our brand consistently across all of our global distribution and across all of our 25 product categories.

<unk> has also led our teams in driving strong alignment and coordination between the product launches and the marketing campaigns featuring those products.

A good example is our most recent campaign introducing Georgina Rodriguez as the face of gas and Marciano for fall 2023.

Georgina is a Spanish Argentine model, an influencer with more than $50 million of Instagram followers.

It's also the wife of Soccer stars Cristiano Ronaldo, who has 600 million followers. So she get tremendous exposure through him as well.

All of the products modeled by Georgina are available around the world in stores on our websites and wholesale distribution and featured in magazines, social media and catalogs and the initial sell throughs for this products have been very strong.

Also related to our brand elevation strategy is our focus to price all of our products based on the customers' perceived value.

We're also buying product strictly based on expected customer demand not more not less our goal is to sell more at full price.

<unk> promotions and avoid creating excess inventory.

Lastly, we have remodeled hundreds of stores in the last three years, and we opened many new stores as well.

Over 80% of our store fleet has now been refreshed to improve brand representation and the customer experience.

Moving to inventory management, we have been executing well on our commitment to reduce our inventory investment and increased free cash flows we have implemented several new systems applications to automate multiple functions for inventory planning and allocation and use data for better decision, making.

These solutions are also helping us to improve our assortment planning and execute better buys to maximize sales and enhance margins.

Today, we are very confident in our goal to close the year with a 10% reduction in inventory compared to last year.

In connection with cost controls and efficiencies we are focusing on three key areas.

We have integrated.

Integrated several functions at a global level to improve our kind of easy and eliminate organizational redundancies. Most recently completing the integration of our financial assistance between North America and Europe .

Second we are looking at ways to streamline operations across the world, where we can do more with less.

As an example, we are currently in the process of closing our hub in Hong Kong, which serviced many Asian countries for years.

These businesses will now be serviced by our teams in Singapore and the retail stores in the market will be integrated into our China operation.

And third we continue to see opportunities to reduce variable expenses, including inbound freight and store payroll, which are large line items in our operations.

We're pleased with our progress on today's results are a testament to our success.

Lastly, as I mentioned in previous calls, we see significant opportunities for growth.

First driving greater sales productivity in our existing network.

Growing organically and existing and new markets.

As our leadership team built out our long term plan, we look forward to sharing more with you on all of these areas of growth at an investor day to be scheduled before year end.

I also want to call out the release of our fifth guess ESG report, which.

You can access at sustainably that guests dot com.

This comprehensive report highlights the outcomes of our first ever doubled materiality assessment on our many initiatives, including our dedication to fair treatment in gender pay parity, which we have just achieved in our major markets.

KPMG has examined the reports key metrics and disclosures we have become one of the first in the fashion industry to obtain reasonable assurance.

And now to our outlook.

Our business has shown tremendous resilience so far.

Our first half results give us confidence in our teams and our ability to execute well.

I feel strongly about our plans for the foreign holiday seasons, and our early sell throughs of the new products are very encouraging.

For these reasons, we are raising our adjusted operating margin expectations for the year to a range of 9% to nine 4% and.

And our EPS outlook to a range of $2 88 to $3 eight per share.

Accordingly, we now expect to deliver year over year EPS growth despite significant headwinds.

Markus will share more about that in a moment on speaking of Marcus I am excited to welcome him to our company as our new Chief Financial Officer.

Marcus brings a strong background to this role and great relevant experience from his 17 year career with Hugo boss, where he had multiple responsibilities and financial operational and even commercial roles.

Im confident that he will make strong contributions to our company.

Before I pass it over to Mark because I want to share with you why I'm. So excited to be here, I guess and so optimistic about our future.

I am sure you could all list companies with amazing brands or others, with particularly strong business models and still others with reputations as great places to work I could do the same but I would have three separate list.

What I believe makes guests special what makes US unique is that this is a place where I believe all of those factors come together to.

To create a powerful platform to drive long term sustainable value for all of our stakeholders.

And it hasnt been by accident.

<unk> position that we have staked out for our sales came with 42 years of extraordinary vision focus execution.

First there is the brand.

The guess brand today is truly a lifestyle brand thanks to the multi chronic and aspirational marketing campaigns. The poll created over the last four decades.

That strong lifestyle image was developed early on.

And our founders had not only the ability, but the courage to pursue multiple categories quickly and effectively well beyond denim.

Product excellence has always been king guests and today, we offer amazing products across more than 25 categories for women men and kids.

Second is our powerful and diverse business model.

<unk> Leverages, our strong licensing model this business delivered 100 million dark in royalties a year.

<unk>, so without deploying significant capital.

It delivers high returns.

But it also aligns capabilities with mission to ensure the best execution.

Our core products, mainly apparel are all managed internally we know this categories better than anyone however, special products that require expertise for design manufacturing and distributions such as watches handbags and footwear have always been licensed out to the best partners.

That truly understand both the product and the brand.

Similarly, we have a license or a franchise model in certain markets. So leverage experts in those regions Middle East and Mexico are good examples of this.

Our business model also reflects a true world vision almost from its inception guess pursuit and international expansion strategy in today's presence in 100 countries and global brand awareness are a direct consequence of that strategy the.

The business also benefits from significant synergies, resulting from our global network with Omnichannel multichannel capabilities, providing a highly diversified and balanced model.

And third.

We have a culture here that makes guests a great place to work and build a professional life inside our family.

From its inception, the guest culture has been highly entrepreneurial and adapt tool where our long term focus drives all important decisions.

Our teams work asset family and are supported and responsible to deliver results in their businesses.

<unk> culture of accountability, and empowerment allow us to attract and retain top talent all over the world.

The convergence of all of these attributes onto one powerful platform creates a unique strength and potential of our company.

Paul has been our chief visionary, an architect and we couldnt be more grateful and excited to work with them every single day to make it bigger better and more successful.

We are well positioned to grow our business and deliver strong value creation for our shareholders for years to come I look forward to reporting on our progress this year and in the future and with that let me pass the call to Marcus welcome markets.

Thank you Carla and good afternoon, everyone.

Before I take you through the numbers I want to tell you how excited I am to be a part of the guest's family and help the team grow the business long term.

I'd like to thank Paul and Carlos for their confidence in me and the opportunity to be a part of this incredible company.

And Marciano brands, a renowned globally and we have a strong platform for sustainable and profitable growth.

Looking forward to engaging virtually.

And continuing to support the company's goal to deliver outstanding value to our shareholders.

With that let's take a look at the quarter.

We delivered better than expected revenues operating profit and earnings per share. This quarter's performance demonstrates the strength of our diversified business model with all segments delivering results in line with all beyond our expectations we expect.

<unk> gross margin maintain clean inventories and carefully manage costs.

All of which enabled us to deliver an adjusted operating margin of nine 8% an outstanding performance in a dynamic environment.

Let me take you through our results in more detail.

Total company revenues were $665 million in the quarter, a 3% increase from last year's second quarter, and a 3% constant dollar increase.

Better than expected performance reflect positive retail comp sales improved licensing revenues and earlier than anticipated wholesale deliveries in Europe .

Turning to our regional performance for the quarter.

Starting with Europe , where we posted an 8% constant currency revenue increase and a 9% increase in U S dollars the.

The revenue growth was mainly driven by strong retail store comps and higher wholesale shift.

Our store in the region posted a 13% constant currency comp increase in the quarter drew.

Driven by continued store traffic increases and strong AUR growth.

More than offsetting modest conversion decline.

As in the past few quarters.

Turkey pipe inflation had an outsized impact on the comps and excluding Turkey that comp increase would have been 10%.

In European wholesale we've returned to normal shipping patterns in line with the previous year.

With our initial expectation, we experienced roughly $10 million timing shift of full winter 23 wholesale shipments from Q3 into Q2.

The spring Summer 'twenty four collection campaign is almost completed orders I expect it to increase low single digits compared to the prior year spring Summer campaign aligned with our initial expectations.

Operating margin in our European business increased by 260 basis points to 12, 9% <unk>.

The expansion was driven by higher IMU strong comp sales and lower markdowns.

This should be offset by currency headwinds negatively impacting our product margins.

In Americas retail revenues decreased 8% both in U S dollars and in constant currency.

While traffic remains under pressure in our North American store conversion drove a sequential improvement in Stockholm.

Which declined 7% in Q2, following a Q1 comp decline of 12%.

AUR was stable compared to last year's Q2.

Our North America E Comm business performed better install and increased low single digits.

Americas retail posted nine 1% operating margin compared to 13, 2% operating margin a year on year.

410 basis point decrease in operating margin was mainly driven by higher expenses.

Deleveraging of expenses, given the sales decline and a lower mix of full price selling partially offset by a higher IMU.

Our product margins were flat with the higher initial markup offset by a lower mix of full price selling.