Q2 2025 Guess? Inc Earnings Call
[inaudible]
Good day everyone and welcome to the guest second quarter.
fiscal 2025 earnings conference call.
Fabrice Benarouche: I would now like to turn the call over to Fabrice Benarouche, Senior Vice President of Finance and Investor Relations, and Chief Accounting Officer. Please go ahead.
Speaker Change: Thank you, Alfredo. Good afternoon, everyone and thank you for joining us today. On the call today with me, Carlos Alberini, Chief Executive Officer and Denis Cicol, Interim Chief Financial Officer.
Speaker Change: During today's call, the company will be making forward-looking statements, including comments regarding future plans, strategic initiatives, capital allocation and short and long-term outlooks.
Speaker Change: The company's actual results made this very materialy from current expectations based on its factors included in today's press release and the company's quarterly and annual report slide with the SEC.
Speaker Change: Comments will also reference certain on gut or adjusted measures. Gut reconciliation and descriptions of these measures can be found in today's own ingredients.
Speaker Change: Now I will turn it over to Carlos.
Carlos Alberini: Thank you Fabrice and thank you all for joining us for our Q2 Cisco 2025 quarterly conference call.
Carlos Alberini: Before I discuss our operating results, I want to briefly touch on our CFO transition.
Carlos Alberini: As you all know, Markus Neubrand has stepped down from his CFO position with us to pursue another opportunity that will bring him closer to his family. We wish Markus the best in his future endeavors.
Speaker Change: We have open the search for a currency of food to be based in Dugano Switzerland.
Speaker Change: While that search is ongoing, I am extremely pleased that Benarouche was stepping into the chief financial office of position.
Speaker Change: Dennis helped this role before Markus joined. He brings a wealth of experience to the role and worked very well with our teams across the company.
Speaker Change: I have great confidence in Dennis and our entire finance team as we move forward.
Speaker Change: So with that, let me review our operating results.
Speaker Change: In the quarter overall, we performed in line with our expectations.
Speaker Change: Revenue is group 10% in US dollars and 13% in constant currency reaching 733 million dollars. During the period, all our segments successful age have posted revenue growth.
Speaker Change: Our core guest business performed well in European wholesale, as it has been consistently for several years now. We also drove growth in our America's wholesale business, delivering strong top-lining creases in the US and Mexico.
Speaker Change: In our European retail business, what we still delivered a positive calm sales increase, we did experience lower traffic into our stores, but we were able to more than upset the traffic hit when with stronger conversion and higher AUR.
Speaker Change: In our case, America's retail business, our performance did not mean our expectations. Traffic continues to be tough in that market and our consels declined. Similarly, sales in our Asia business declined and did not mean our expectations.
Operator: Good day, everyone, and welcome to the guest's second quarter fiscal 2025 earnings conference call.
Fabrice Benarouche: I would now like to turn the call over to Fabrice Benarouche, Senior Vice President of Finance, Investor Relations, and Chief Accounting Officer. Please go ahead. Thank you, operator.
Speaker Change: Turning to our product performance, we continue to see different levels of performance across regions.
Speaker Change: In Europe, our footwear and accessories were the leading categories, contributing to the positive comes with strong momentum and sneakers and handbags.
Fabrice Benarouche: Good afternoon, everyone, and thank you for joining us today.
Speaker Change: In a peril, knit tops for both genders and women's denim delivered positive counts while dresses and outerwear saw some decline in sales.
Fabrice Benarouche: On the call today with me, Carlos Alberini, Chief Executive Officer, and Dennis Secor, interim Chief Financial Officer. During today's call, the company will be making forward-looking statements, including comments regarding future plans, strategic initiatives, capital allocation, and short and long term outlooks. The company's actual results made this very materially from current expectations based on risk factors included in today's press release, and the company's quarterly and annual report filed with the SEC.
Speaker Change: In the Americas, consistent with the first quarter, we saw the clients in both our women's and men's businesses, while active wear was our best performing category across both genders.
Speaker Change: Similar to the first quarrel as well, accessories outperform the barrel with positive momentum in both travel accessories and women's watches.
Speaker Change: And finally, our licensing business performed well, delivering a revenue increase of 4% to 29 million dollars, mainly with footwear being the best performing category for the period.
Fabrice Benarouche: Comments will also reference certain non-GAT or adjusted measures. GAT reconciliation and descriptions of these measures can be found in today's earnings release.
Carlos Alberini: Now, I will turn it over to Carlos. Thank you, Fabrice, and thank you all for joining us for our Q2 fiscal 2025 quarterly conference call.
Speaker Change: Turning to Ragamon, we are extremely pleased with how the business performed and how the assimilation of the business on to our platform is progressing.
Speaker Change: Overall, the business delivered a good quarter contributing solid growth for the company and inline with our expectations.
Carlos Alberini: Before I discuss our operating results, I want to briefly touch on our CFO transition. As you all know, Marcus Newbrand has stepped down from his CFO position with us to pursue another opportunity that will bring him closer to his family. We wish Marcus the best in his future endeavors. We have opened the search for a permanent CFO to be based in Lugano, Switzerland. While that search is ongoing, I am extremely pleased that Dennis Secor was stepped into the interim Chief Financial Officer position.
Speaker Change: This results were driven by a great performance of the wholesale business which experienced strong demand of new product and key categories from multiple customers.
Speaker Change: It's highly rewarding to note that the sellout this customer's experiencing is above expectations contributing to higher ordering activity.
Speaker Change: The Director Consumer Business performs slightly below expectations.
Speaker Change: Then only four months since we completed the acquisition, but the transition is going smoothly and our teams are working very well together already.
Carlos Alberini: Dennis held this role before Marcus joined. He brings a wealth of experience to the role and works very well with our teams across the company. I have great confidence in Dennis and our entire finance team as we move forward.
Speaker Change: Turning to total company SGA in the quarter we invested significantly to support our objectives to drive long-term growth.
Carlos Alberini: So with that, let me review our operating results. In the quarter overall, we performed in line with our expectations. Revenue has grew 10% in US dollars and 13% in constant currency reaching $733 million. During the period, all our segments, except for Asia, posted revenue growth. Our core gifts business performed well in European wholesale, as it has been consistently for several years now. We also draw growth in our America's wholesale business, delivering strong top line increases in the US and Mexico.
Speaker Change: While we increased our adjusted SG&A spending year over a year, about 70% of that increase was directed towards our growth initiatives.
Speaker Change: That includes investing in Dragonborn growth, and more than doubling our marketing and advertising investments for the whole company, to build stronger brand awareness across our entire portfolio.
Speaker Change: In the quarter, we delivered adjusted operating profit of $38 million, and an adjusted operating margin of 5.2%. Just outside of the range of our expectations. And we delivered adjusted earnings per share of 42 cents.
Carlos Alberini: In our European retail business, while we still delivered a positive pump sales increase, we did experience lower traffic into our stores. But we were able to more than upset the traffic headwind with stronger conversion and higher AUR. In our gifts America's retail business, our performance did not mean our.., expectations. Traffic continues to be tough in that market, and our comp sales declined. Similarly, sales in our Asia business declined, and did not meet our expectations.
Speaker Change: We are clearly operating in a dynamic environment where the customer is very selected and more sensitive to price and promotions.
Speaker Change: Also, as we all know, during the last few years, Alberini crossed across the board, having increased as a result of inflationary factors.
Speaker Change: All considered our teams have been doing a remarkable job to grow our business and control what is controllable, including costs, inventories and margins to optimize our results.
Carlos Alberini: Turning to our product performance, we continue to see different levels of performance across regions. In Europe, our footwear and accessories were the leading categories, contributing to the positive comps with strong momentum in sneakers and handbags. In apparel, knit tops were both genders, and women's denim delivered positive comps while dresses and out-of-wear sold some declining sales. In the Americas, consistent with the first quarter, we saw declines in both our women's and men's businesses, while active wear was our best performing category across both genders.
Speaker Change: which brings me to our outlook that we have updated to reflect the softer consumer environment that we're seeing and expect will continue through the second half of the year.
Speaker Change: We still expect to exceed 3 billion dollars in revenues this year. Although now we expect revenue growth between 9.5 and 11%.
Speaker Change: And we now have revised our adjusted earnings per share expectations for the year to be between $2.42 and $2.79.
Speaker Change: Dennis will take you through our outlook in more detail in just a few minutes.
Dennis: Even as we have updated our guidance for the year, we continue to make progress against the number of important operational strategic and financial objectives.
Carlos Alberini: Similar to the first quarter as well, accessories outperformed to peril with positive momentum in both travel accessories and women's watches. And finally, our licensing business performed well, delivering a revenue increase of 4% to 29 million dollars, mainly with footwear being the best performing category for the period.
Dennis: On our last call, I spoke about how we have built a company that is more than just one brand, it's a platform.
Dennis: In the 4-plus decades since Paul and his brothers found it, guess.
Dennis: We have expanded the business and created a wide global footprint, broad channel capabilities, extensive supply chains and a diverse category portfolio.
Carlos Alberini: Turning to Ragamon, we are extremely pleased with how the business performed and how the assimilation of the business onto our platform is progressing. Overall, the business delivered a good quarter, contributing solid growth for the company, and in line with our expectations. These results were driven by a great performance of the wholesale business, which experienced strong demand of new product and key categories from multiple customers. It's highly rewarding to note that the sell-out this customer's high-experiencing is above expectations, contributing to higher ordering activity. The direct-to-consumer business performs slightly below expectations. It's been only four months since we completed the acquisition, but the transition is going smoothly, and our teams are working very well together already.
Dennis: All of that is a powerful arsenal, providing us with significant competitive advantages and affording us the opportunity to drive long-term sustainable growth and shareholder value creation.
Dennis: We believe that we can do things that others simply cannot do, to take regional brands and extend them globally and transform single category brands into lifestyle brands.
Dennis: We can grow things exponentially because we can do it across multiple dimensions and we are well positioned to do it supported by a strong capital structure, significant cash flow generation and ample access to capital.
Dennis: I am very excited about the opportunities that live before us as our Paul and our entire team who are all fully committed to this vision.
Carlos Alberini: Turning to total company SGNA, in the quarter, we invested significantly to support our objectives to drive long-term growth. While we increased our adjusted SGNA spending year-over-year, about 70% of that increase was directed towards our growth initiatives. That includes investing in Ragamon growth, and more than doubling our marketing and advertising investments for the whole company to build stronger brand awareness across our entire portfolio. In the quarter, we delivered a adjusted operating profit of $38 million, and an adjusted operating margin of 5.2%.
Paul: This year is the Infection Point
Paul: A year of transition and investment as we begin to execute on our vision.
Paul: So let me share how our key initiatives are working together to put the company on the path to accelerated growth.
Paul: I will touch specifically on the progress that we are making at Ragam Boen, the Gist jeans launch, our new marketing strategy, our organization of development plan, our logistics network and our capital structure.
Paul: I will review our accomplishments from the second quarter and how our quarter's activities support our overall long-term strategic objectives.
Carlos Alberini: Just outside of the range of our expectations, and we delivered a adjusted earnings per share of 42 cents. We are clearly operating in a dynamic environment, where the customer is very selective and more sensitive to price and promotions. Also, as we all know, during the last few years, operating costs across the board have increased as a result of inflation. All considered, our teams have been doing a remarkable job to grow our business and control what is controllable, including costs, inventories and margins to optimize our results.
Speaker Change: Let me begin with rag and bone.
Speaker Change: We completed this acquisition with WHP Global just a short four months ago and the transition has been going smoothly as I mentioned earlier.
Speaker Change: Our teams are working seamlessly together led by Andrew Rosen and Paul. We have already begun leveraging our platforms capabilities that will enable us to realize the full potential of this amazing brand.
Speaker Change: In the second quarter, we've begun expanding our Raganborn marketing investments in existing markets, mainly the US, but also in new markets like Europe, where the brand is not yet fully recognized except in the UK.
Carlos Alberini: Which brings me to our outlook that we have updated to reflect the softer consumer environment that we are seeing and expect will continue through the second half of the year. We still expect to exceed $3 billion in revenues this year, although now we expect revenue growth between 9.5 and 11%. And we now have revised our adjusted earnings per share expectations for the year to between $2.42 and $2.70. Dennis will take you through our outlook in more detail in just a few minutes.
Speaker Change: We have begun looking for locations to open new stores in multiple important cities in Europe and beyond.
Speaker Change: In fact, we already signed an agreement for a new store in a great location and answer them that will be an incredible introduction of the brand to consumers in their market.
Speaker Change: In addition to Europe, we are in discussions with potential partners to represent the Reagan-Bond Brandt in other new markets, including Mexico, Latin America, Middle East and Australia.
Speaker Change: Paul and our teams are also leveraging our relationships with product licensee partners to expand the brand's offering and bring more categories to the brand. We have reached an agreement with one of our partners that will enable us to increase and enhance Bregan Bones hand by ballfring with more to come.
Carlos Alberini: Even as we have updated our guidance for the year, we continue to make progress against a number of important operational, strategic and financial objectives. On our last call, I spoke about how we have built a company that is more than just one brand. It's a platform. In the four-plus decade since Paul and his brothers founded Guess, we have expanded the business and created a wide global footprint, broad channel capabilities, extensive supply chains and a diverse category portfolio.
Speaker Change: We are also working with a WHP management team led by the Huda Schmittman to explore other licenses for products and territories.
Speaker Change: An Andrew and his team are now working closely with our product development and sourcing teams to leverage our vendor relationships, take advantage of our combined volumes and drive efficiencies into a rag and bone business.
Carlos Alberini: All of that is a powerful arsenal, providing us with significant competitive advantages and affording us the opportunity to drive long-term sustainable growth and shareholder value creation. We believe that we can do things that others simply cannot do to take regional brands and extend them globally and transform single category brands into lifestyle brands. We can grow things exponentially because we can do it across multiple dimensions. And we are well positioned to do it, supported by a strong capital structure, significant cash flow generation and ample access to capital.
Speaker Change: So much done in such a short period of time with so much more opportunity in front of us.
Speaker Change: Next is guest James, which we see as another opportunity to drive growth and address a very important customer category.
Speaker Change: As you know, under Nicolai Marciano's leadership, we brought guest jeans to market as a completely new lifestyle brand with its own identity and a multi-category assortment for women and men.
Speaker Change: The brand employs a new store concept, a beautiful design that targets the younger Gen Z customer, but it's welcoming to all customers.
Carlos Alberini: I am very excited about the opportunities that lie before us as our Paul and our entire team who are all fully committed to this vision. This year is the infection point, a year of transition and investment as we begin to execute on our vision.
Speaker Change: And with its casual offering and companion price points, it fits well within our overall brand and pricing architecture to build an incremental business.
Speaker Change: Since launching this brand in the first quarter, we have presented the line to a select group of customers in Milan and to a much larger audience in Florence at PDWomo, where we showed the collection twice in January and again in June.
Carlos Alberini: So let me share how our key initiatives are working together to put the company on the path to accelerated growth. I will touch specifically on the progress that we are making at Rag and Bone, the guest jeans launch, our new marketing strategy, our organizational development plan, our logistics network and our capital structure. I will review our accomplishments from the second quarter and how our quarter's activity support our overall long-term strategic objectives.
Speaker Change: Gifts jeans again hosted an extremely successful weekend event at Prochella, also led by Nikolay.
Speaker Change: The event garnered billions of impressions and millions of views.
Speaker Change: Our first guest, Gene Selt campaign delivered orders, well ahead of our expectations, and the wholesale businesses off to a strong start. And we have opened two new stores, one in Amsterdam, the other one in Berlin.
Carlos Alberini: Let me begin with Rag and Bone. We completed this acquisition with WHP Global just a short four months ago and the transition has been going smoothly as I mentioned earlier. Our teams are working seamlessly together led by Andrew Rosen and Paul. We have already begun leveraging our platform's capabilities that will enable us to realize the full potential of this In the second quarter, we began expanding our rag-and-borne marketing investments in existing markets, mainly the US, but also in new markets, like Europe, where the brand is not yet fully recognized except in the UK.
Speaker Change: Both terrific locations that we believe will do a great job introducing this new brand to the European consumer.
Speaker Change: Turning to marketing, consumers are becoming more selected in how to manage their disposal income and the world of social media and customer engagement has evolved tremendously in the last few years.
Speaker Change: As a result, we are challenging ourselves to enhance our marketing organizational capabilities to better support our existing brands as well as those to come.
Speaker Change: This year we have engaged an external partner to conduct a brand review and we have benchmarked our marketing investments against many other companies in our state.
Speaker Change: From that work, we believe that there are opportunities to make incremental investments in social media, collaborations, customer engagement and CRM to connect more and differently with our customers.
Carlos Alberini: This is an incredible introduction of the brand to consumers in the market. In addition to Europe, we are in discussions with potential partners to represent the rag-and-borne brand in other new markets including Mexico, Latin America, Middle East and Australia. Paul and our teams are also leveraging our relationships with product-licency partners to expand the brand's offering and bring more categories to the brand. We have reached an agreement with one of our partners that will enable us to increase and enhance rag-and-borne's handbag offering with more to come.
Speaker Change: To ensure that we are listening to our customers and putting them at the center of everything we do.
Speaker Change: All designed to drive improved customer traffic to our stores and to our website.
Speaker Change: We have already begun this investment. As I shared earlier, we more than doubled our marketing investments in the second quarter. And we plan to continue to invest at higher levels than last year in the second half of the year as well.
Carlos Alberini: We are also working with the WHP Management team led by Yehuda Schmidtman to explore other licenses for products and territories. An Andrew and his team are now working closely with our product development and sourcing teams to leverage our vendor relationships, take advantage of our combined volumes and drive efficiencies into the rag-and-borne business. So much done in such a short period of time with so much more opportunity in front of us.
Speaker Change: You will see this investment in our operating margin near term, as they don't necessarily deliver immediate return. However, building this capability to think to our platform is critical to support and grow our core brands and a larger portfolio brand.
Speaker Change: We have made significant strides in reinventing our organization's structure, but we see opportunity for additional refinement to better support a more global business with a broader brand portfolio.
Carlos Alberini: Next is guest genes, which we see as another opportunity to drive growth and address a very important customer category. As you know, under Nicolai Marciano's leadership, we brought guest genes to market as a completely new lifestyle brand with its own identity and a multi-category assortment for women and men. The brand employs a new store concept, a beautiful design that targets the younger Gen Z customer, but it's welcoming to all customers. And with its casual offering and compelling price points, it fits well within our overall brand and pricing architecture to build an incremental business.
Speaker Change: When I returned to the company in 2019, the company was being run with regional autonomy.
Speaker Change: That was fit for purpose at the time, but it limited our ability for our whole team to leverage the full capabilities of our entire company.
Paul: At the time, Paul and I saw an opportunity to globalize multiple functions to add brand consistency and increase operating efficiency.
Speaker Change: As you know, based on this vision, we began the process of migrating to a more global structure, one that provides services to multiple regions that maintains critical products and market decision making at the local level.
Carlos Alberini: Since launching this brand in the first quarter, we have presented the line to a select group of customers in Milan and to a much larger audience influence at PD Warmo where we showed the collection twice in January and again in June. Guest genes again hosted an extremely successful weekend event at Coachella, also led by Nicolai. The event garnered billions of impressions and millions of views. Our first guest genes self-campaign delivered orders well ahead of our expectations and the wholesale businesses off to a strong start. And we have opened two new stores, one in Amsterdam, the other one in Berlin, both terrific locations that we believe will do a great job introducing this new brand to the European consumer.
Speaker Change: We were pleased to launch one global line for all categories over the last few years. And to be able to consolidate many related functions like design, product development and sourcing under one roof in Switzerland.
Speaker Change: We also moved our intellectual property to Switzerland, and are at various stages of completion in globalising other functions like IT, legal, finance, inventory management, logistics, marketing and licensing just to name a field.
Speaker Change: As we continue this work and as we bring other brands on to our platform, it is an opportunity to enhance our organization's design to improve our kind of ability and optimize decision-making.
Speaker Change: As part of this, we will continue to strengthen our leadership to provide decision-making at the regional level. And with global positions such as Chief Commercial Officer and Chief Digital Officer.
Carlos Alberini: Turning to marketing, consumers are becoming more selected in how to manage their disposable income and the world of social media and customer engagement has evolved tremendously in the last few years, years. As a result, we are challenging ourselves to enhance our marketing organizational capabilities to better support our existing brands as well as those to come. This year, we have engaged an external partner to conduct a brand review and we have benchmarked our marketing investments against many other companies in our state.
Speaker Change: We have searches out for these roles in addition to our CFO search.
Speaker Change: We are also focused on optimizing our operations to help ensure that we can access the best time and to execute our business.
Speaker Change: This has been the guiding principle that underpins our product licensee relationships, for example
Speaker Change: We want to own those areas of our business, what we feel that we are best and leverage outside relationships and expertise in other areas.
Carlos Alberini: From that work, we believe that there are opportunities to make incremental investments in social media, collaborations, customer engagement and CRM to connect more and differently with our customers to ensure that we are listening to our customers and putting them at the center of everything we do. All designed to drive improved customer traffic to our stores and to our website. We have already begun this investment. As I shared earlier, we more than doubled our marketing investments in the second quarter.
Speaker Change: and logistics, a vital part of our business is a great example of that.
Speaker Change: We conducted a review of our logistics function and network in the U.S., which we have traditionally managed internally and concluded that we were operating sub-optimally in this critical function.
Speaker Change: This year, we transitioned our US logistics function to GXO logistics, the same third party who has managed our European function for years.
Carlos Alberini: And we plan to continue to invest at higher levels than last year and the second half of the year as well. You will see this investment in our operating margin near term as they don't necessarily deliver immediate returns. However, building this capabilities into our platform is critical to support and grow our core brands and a larger portfolio brand.
Speaker Change: In addition, we are extending our GXO contact in Europe to leverage our combined volumes to drive even better economics.
Speaker Change: And in the second quarter, we saw the U.S. facility freeing up important capital which we expect to deploy more strategically.
Speaker Change: As we look to the future, we will be prudent as we execute our plans, always disciplined in our stewardship of our shareholders' capital.
Carlos Alberini: We have made significant strides in reinventing our organization structure, but we see opportunity for additional refinement to better support a more global business with a broader brand portfolio. When I returned to the company in 2019, the company was being run with regional autonomy. That was fit for purpose at the time, but it limited our ability for our whole team to leverage the full capabilities of our entire company. At the time, Pol and I saw an opportunity to globalize multiple functions to add brand consistency and increase operating efficiency.
Speaker Change: We also recognize that investment opportunities including potential acquisitions may emerge at any time and we want to have the flexibility to take advantage of the right opportunities when they present themselves.
Speaker Change: To support that and help ensure that we're operating with ample access to capital. During the last few years we have refinanced our convertible bonds, extending maturity for over $360 million to 2028.
Speaker Change: and we did this on the very favorable terms.
Speaker Change: We also recently extended our U.S. credit facility by $50 million to accommodate the addition of the Ragan Bone Business.
Carlos Alberini: As you know, based on this vision, we began the process of migrating to a more global structure, one that provides services to multiple regions that maintains critical product and market decision making at the local level. We were pleased to launch one global line for all categories over the last few years and to be able to consolidate many related functions like design, product development and sourcing under one group in Switzerland. We also moved our intellectual property to Switzerland and are at various stages of completion in globalizing other functions like IT, legal, finance, inventory management, logistics, marketing and licensing just to name a few.
Speaker Change: And last month we completed a 100 million euro expansion of our credit for seeding Europe. Dennis will share more about this in a moment. But with these actions, we have additional access to capital to support our vision for the continued growth of the business.
Speaker Change: Before I pass the call to Dennis for his remarks, I want to leave you with a couple of thoughts regarding our culture at guests and how I see that as driving our ability to continue to grow and succeed for many years to come.
Dennis: As you know, my time with gas goes back to when I started a chief operating officer on president in the year 2000.
Dennis: At that time, the company had annual sales of $600 million and it was primarily a US business.
Carlos Alberini: As we continue this work and as we bring other brands onto our platform, it is an opportune time to enhance our organizational design to improve accountability and optimize decision making. As part of this, we will continue to strengthen our leadership to provide decision making at the regional level and with global decisions such as Chief Commercial Officer and Chief Digital Officer, we have searches out for these roles in addition to our We are also focused on optimizing our operations to help ensure that we can access the best talent to execute our business.
Dennis: Since then, gas grew through international expansion that capitalized on a strong lifestyle brand positioning and today has sales of $5.5 billion of retail body.
Dennis: The company has relentlessly adapted to market changes and succeeded when many other failed.
Speaker Change: I strongly believe that this capacity to adapt is at the core of our DNA as an organization and while it started with our founders it has permeated the whole company.
Carlos Alberini: This has been the guiding principle that underpins our product licensee relationships, for example. We want to own those areas of our business while we feel that we are best and leverage outside relationships and expertise in other areas.
Speaker Change: As our team continues to adapt, we are on a mission together. We wake up every morning inspired to delight our customers with amazing products and an extraordinary experience.
Speaker Change: We make decisions based on the long term. We don't have our eyes just on the next quarter. We are focused on the next generation.
Carlos Alberini: Logistics, a vital part of our business, is a great example of that. We conducted a review of our logistics function and network in the US, which we have traditionally managed internally and concluded that we were operating sub-optimally in this critical function. This year, we transitioned our US logistics function to GXO logistics, the same third party who has managed our European function for years. In addition, we are extending our GXO contract in Europe to leverage our combined volumes to drive even better economics. And in the second quarter, we saw the U.S, facility freeing up important capital which we expect to deploy more strategically.
Speaker Change: We want to grow our business and the profitability of our company and to reward all our shareholders with extraordinary returns.
Speaker Change: To me, that relentless focus on mission and our ability to adapt are central to what makes this culture so special and so unique.
Speaker Change: And you don't find it every day or in everyone, but when you do, when you blend the right people with that culture, it can be so powerful and something people want to be a part of for years to come.
Speaker Change: I think that explains why we have such long standing relationships in this company. I'm not unique.
Carlos Alberini: As we look to the future, we will be prudent as we execute our plans, always discipline in our stewardship of our shareholders capital. We also recognize that investment opportunities, including potential acquisitions, may emerge at any time, and we want to have the flexibility to take advantage of the right opportunities when they present themselves. To support that and help ensure that we are operating with ample access to capital, during the last few years, we had refinanced our convertible bonds, extending maturities for over $360 million until 2028.
Speaker Change: We have tremendous tenure throughout our team, including Paul, our leaders, those who have been promoted through our organization time and time again, and most of our licenses.
Speaker Change: And we couldn't be more thrilled to have well-tuned Andrew and the entire Ragambom team who shared the same focus on mission and ability to adapt.
Speaker Change: Paul and I thank all our teams for a job well done in a challenging environment. Our thank you extends to all our socials worldwide, including all the members of the new Reganbone team.
Carlos Alberini: And we did this under very favorable terms. We also recently expanded our U.S, credit facility by $50 million to accommodate the addition of the Reagan bond business. And last month, we completed a 100 million euro expansion of our credit facility in Europe.
Speaker Change: We greatly appreciate everyone's contributions.
Speaker Change: I couldn't be more proud of what we have accomplished together and more excited about how we are positioned and what life in front of us.
Speaker Change: Thank you.
Speaker Change: And with that, I pass it to Dennis. Dennis, please go ahead.
Dennis: Thank you, Carlos, and good afternoon, everyone. I'm pleased to step back into the interim CFO role and help support the company in a smooth transition both now and as we bring on a new CFO in the near future.
Carlos Alberini: Dennis will share more about this in a moment. But with these actions, we have additional access to capital to support our vision for the continued growth of the business.
Carlos Alberini: Before I pass the call to Dennis for his remarks, I want to leave you with a couple of thoughts regarding our culture at guests and how I see that as driving our ability to continue to grow and succeed for many years to come. As you know, my time with guests goes back to when I started as chief operating officer and president in the year 2000. At that time, the company had annual sales of $600 million and it was primarily a U.S, business.
Dennis: My thanks to you, Carlos, and to the board for your confidence.
Speaker Change: So now let's talk about our business and just to remind her, we acquired Ragginbone towards the end of the first quarter of this year. So our second quarter results include a full quarter of Ragginbone's operations and those results have been integrated into our existing segments.
Speaker Change: and now on to the second quarter results.
Speaker Change: As Carlos mentioned, Q2 revenues increased 10% in U.S. dollars, reaching $733 million.
Carlos Alberini: Since then, guests grew through international expansion that capitalized on a strong lifestyle brand positioning and today has sales of $5.5 billion of retail value. The company has relentlessly adapted to market changes and succeeded when many others failed. I strongly believe that this capacity to adapt is at the core of our DNA as an organization. And while it started with our founders, it has permeated the hook. As our team continues to adapt, we are on a mission together.
Carlos Alberini: In constant dollars, our revenue's grew 13%.
Speaker Change: Overall, our constant dollar revenue growth was driven primarily by the addition of ragging bone, where we achieved sales that align with our expectations for the quarter.
Speaker Change: Ponson dollar revenues for the core guests in Marciano business grew modestly with growth in the America's wholesale and European businesses offsetting declines in both our America's retail and Asia businesses.
Speaker Change: In Europe, we grew US dollar revenues by 5% reaching $383 million.
Speaker Change: Revenue is due 8% in constant currency.
Carlos Alberini: We wake up every morning inspired to delight our customers with amazing products and an extraordinary experience. We make decisions based on the long term. We don't have our eyes just on the next quarter. We are focused on the next generation. We want to grow our business and the profitability of our company and to reward all our shareholders with extraordinary returns. To me, that relentless focus on the mission and our ability to adapt are central to what makes this culture so special and so unique.
Speaker Change: Retail Comps, including E-Com, increased 1% in US dollars and 4% in Con concurrency.
Speaker Change: As in the past few quarters, Turkey's high-freensulation had a meaningful impact on those costs, excluding Turkey that constant dollar companies would have been 1%.
Speaker Change: In our stores, we deliver the constant currency confidence increase of 3%.
Speaker Change: While we did experience after traffic than a year ago, our performance benefited from higher conversion and AUR growth, driven by improved shortments and replenishment and a better customer experience.
Speaker Change: Our e-commerce business improves sequentially with a 5% cost and currency companies.
Carlos Alberini: And you don't find it every day or in everyone. But when you do, when you blend the right people with that culture, it can be so powerful and something people want to be a part of for years to come. I think that explains why we have such long-standing relationships in this company. I'm not unique. We have tremendous tenure throughout our team, including Paul, our leaders, those who have been promoted through our organization time and time again and most of our licenses. And we couldn't be more thrilled to have well-tuned Andrew and the entire rag and bone team who share the same focus and mission and ability to adapt.
Speaker Change: Our European wholesale business continues to perform well in fact more strongly than we had expected for the quarter. We had assumed that some deliveries would slip into the third quarter, given the current shipping challenges caused by the Red Sea crisis.
Speaker Change: However, while there are still some pockets of delays, our teams managed well and mitigated that risk.
Speaker Change: Olesale Revenu is increased in the mid-single digits in constant currency, as our wholesale partners welcomed our product to support good sales momentum in their businesses.
Speaker Change: The operating margin in our European business was 9.8%.
Speaker Change: 310 basis points lower than a year ago given higher operating expenses and further marketing investments.
Carlos Alberini: Paul and I thank all our teams for a job well done in a challenging environment. Our thank you extends to all our associates worldwide, including all the members of the new rag and bone team. We greatly appreciate everyone's contributions.
Speaker Change: In the America's retail, revenues drew 8% reaching $181 million. In constant dollars, the growth was 9%.
Speaker Change: The addition of rag and bone drove the segments growth for the quarter and more than offset the headwinds coming from our guest stores.
Carlos Alberini: I couldn't be more proud of what we have accomplished together and more excited about how we are positioned and what life in front of us. Thank you.
Speaker Change: Our North America Corps business remained challenging as headwinds in traffic persisted.
Speaker Change: Those traffic headwinds coupled with the decline in conversion resulted in an overall 10% constant currency decline in our retail stores, including our e-commerce business that the decline was also 10%.
Dennis Secor: And with that, I pass it to Dennis. Dennis, please go ahead. Thank you, Carlos and good afternoon, everyone. I'm pleased to step back into the interim CFO role and help support the company in a smooth transition both now and as we bring on a new CFO in the near future. My thanks to you, Carlos and to the board for your confidence. So now let's talk about our business. And just a reminder, we acquired rag and bone towards the end of the first quarter of this year.
Speaker Change: America's retail post today, one and a half percent operating margin, about an 8.1 decrease from last year's Q2.
Speaker Change: While product margins improved in the quarter, the un-savable impact of the Comfort Cline on our core business expense space drove the operating margin decline.
Dennis Secor: So our second quarter results include a full quarter of rag and bones operations and those results have been integrated into our existing segments. So now onto the second quarter results. As Carlos mentioned, Q2 revenues increased 10% in U.S, dollars reaching $733 million. In constant dollars, our revenues grew 13%. Overall, our constant dollar revenue growth was driven primarily by the addition of rag and bone, where we achieved sales that aligned with our expectations for the quarter.
Speaker Change: and America's wholesale revenues increased by 93% in US dollars to $84 million. Driven by the addition of rag and bone, along with higher shipments in both the US and Mexico.
Speaker Change: The revenue increase in constant dollars was 94%.
Speaker Change: Operating margin reached 18.9% about six points lower than last year's Q2 driven mainly by the addition of Ragon Bone.
Speaker Change: At Asia, revenues were $54 million, down $8% in U.S. dollars and 4% in constant currency.
Dennis Secor: Constant dollar revenues for the core guests in Marciano business grew modestly with growth in the America's wholesale and European businesses offsetting declines in both our America's retail and Asia businesses. In Europe, we grew U.S, dollar revenues by 5%, reaching $383 million. Revenue is through 8% in constant currency. Retail comps, including ECOM, increased 1% in US dollars and 4% in constant currency. As in the past few quarters, Turkey's hyperinflation had a meaningful impact on those comps, excluding Turkey, that constant dollar comp increase would have been 1%.
Speaker Change: Gross from our new business in India and Raggin Bome was more than offset by lower retail comps, especially in Korea and China and currency headwinds.
Speaker Change: Retail comps including e-commerce for the region decreased 10% in cost and currency.
Speaker Change: Operating margin in Asia decreased 140 basis points to a negative 2.3%.
Speaker Change: And finally, our licensing segment performed well with revenues increasing 4% in both US dollars and cost and currency.
Speaker Change: Segment operating margin was 93.3%.
Speaker Change: In Q2, total company growth margin reached 43.7% 60 basis points below a year earlier, mainly driven by higher store occupancy expenses for rent increases, and slightly higher markdowns partially offset by improvements in our IMUs.
Dennis Secor: In our stores, we delivered a constant currency comp increase of 3%. While we did experience softer traffic than a year ago, our performance benefited from higher conversion and AUR growth, driven by improved disortment and replenishment and a better customer experience. Our ECOM business improves sequentially with a 5% constant currency comp increase. Our European wholesale business continues to perform well in fact more strongly than we had expected for the quarter. We had assumed that some deliveries would slip into the third quarter given the current shipping challenges caused by the Red Sea crisis.
Speaker Change: adjusted SG&A expenses for the quarter increased 23% to $281 million to reiterate Carlos's point.
Carlos Alberini: 70% of this growth comes from adding rag and bone and stepping up our marketing investments.
Carlos Alberini: including increasing advertising exposure for guests and building grand awareness for guests jeans.
Speaker Change: Infrastructure Expenses also increased primarily in Europe. For the quarter, our adjusted SGNA rate increased 3.9 points to 38.4%.
Dennis Secor: However, while there are still some pockets of delays, our teams manage well and mitigated that risk, wholesale revenues increased in the mid single digits in constant currency, as our wholesale partners welcomed our product to support good sales momentum in their businesses. The operating margin in our European business was 9.8%. 310 basis points lower than a year ago, given higher operating expenses and further marketing investments. In the America's retail, revenues grew 8% reaching $181 million.
Speaker Change: In the quarter, our adjusted operating margin decline 4.6 points to 5.2% driven by our acquisition of rag and bone investments in marketing, along with higher operating and store occupancy expenses.
Speaker Change: In the quarter, we recorded an adjusted effective tax rate of 26.3%.
Joseph: Joseph Q2 diluted earnings per share with 42 cents compared to 72 cents in last year's second quarter.
Joseph: Two other items is significant.
Dennis Secor: In constant dollars, the growth was 9%. The addition of rag and bone growth segments growth for the quarter and more than offset the headwinds coming from our guest stores. Our North America core business remained challenging as headwinds in traffic persisted. Those traffic headwinds coupled with the decline in conversion resulted in an overall 10% constant currency comp decline in our retail stores, including our ECOM business that comp decline was also 10%. America's retail posted a 1.5% operating margin about an 8.0 decrease from last year's Q2.
Joseph: In the quarter, within non-operating activity, we reported a net loss of $40 million related to a non-cash, unrealized loss due to the remexions of derivatives associated with our convertible notes and related hedge.
Joseph: We also recorded as an increase to operating income, a $14 million gain on the sale of our U.S. distribution center property.
Joseph: We have excluded both of these amounts from the adjusted results I just reported given both their size and a typical nature in order to facilitate a better understanding of our normal commercial operation.
Joseph: Moving now to the balance sheet.
Dennis Secor: While product margins improved in the quarter, the unfavorable impact of the comp decline on our core business expense base drove the operating margin decline. In America's wholesale, revenues increased by 93% in US dollars to $84 million, driven by the addition of rag and bone along with higher shipments in both the US and Mexico. The revenue increase in constant dollars was 94%. Operating margin reached 18.9% about 6 points lower than last year's Q2, driven mainly by the addition of rag and bone.
Joseph: Our inventory for $603 million at the end of the quarter up 9% from a year ago and they align well with our expectations for growth in the business.
Joseph: The additional inventory relates primarily to the acquisition of rag and bone.
Joseph: We continue to manage our inventory well and feel good about the composition of our inventory and our ability to service our business.
Joseph: For the first six months of the year, CapEx was roughly $41 million, mainly driven by investments and story models and openings and technology. In the quarter, we also returned additional capital to our shareholders as we repurchase $50 million of our own shares.
Dennis Secor: At Asia, revenues were $54 million down 8% in US dollars and 4% in constant currency. Growth from our new business in India and rag and bone was more than offset by lower retail comps, especially in Korea and China and currency headwinds. Retail comps including ECOM for the region decreased 10% in constant currency. And finally, our licensing segment performed well with revenues increasing 4% in both US dollars and constant currency. Segment operating margin was 93.3%.
Joseph: We ended the quarter with $219 million in cash compared to $300 million a year ago. Over the last four quarters we generated $216 million in cash flow and realized $40 million from the sale of our U.S.B.C.
Joseph: We also have paid $185 million in dividends, invested $57 million to acquire rag and bone, and a repurchase $82 million of our shares.
Joseph: We ended the quarter with $389 million of borrowing capacity on our various global facilities, so more than $600 million of available liquidity.
Dennis Secor: In Q2, total company gross margin reached 43.7%, 60 basis points below a year earlier, mainly driven by higher store occupancy expenses from rent increases and slightly higher markdowns, partially offset by improvements in our IMUs. Adjusted SG&A expenses for the quarter increase 23% to 281 million dollars. To reiterate Carlos's point, 70% of this gross comes from adding rag and bone and stepping up our marketing investments, including increasing advertising exposure for guests and building grand awareness for guest genes.
Joseph: This liquidity includes the 100 million euro expansion of our European credit facility that we announced last month. We are very pleased to have secured that additional capacity in enhancing our access to long-term capital.
Joseph: The expansion reflects our lender's confidence in our strategy and the importance of Europe to our company.
Joseph: As I moved to our outlook, I first want to summarize the key factors that we experience in the second quarter and how those of affected our outlook for the remainder of this year. I'll start with sales trends.
Joseph: In many of our businesses, during the second quarter, we encountered some softness and what appears to be a consumer who is being more prudent in their discretionary spending habits.
Dennis Secor: Infrastructure expenses also increased primarily in Europe. For the quarter, our adjusted SG&A rate increased 3.9 points to 38.4%. In the quarter, our adjusted operating margin declined 4.6 points to 5.2% driven by our acquisition of rag and bone, investments in marketing, along with higher operating and store occupancy expenses. In the quarter, we recorded an adjusted effective tax rate of 26.3%. Adjusted Q2 diluted earnings per share was 42 cents compared to 72 cents in last year's second quarter.
Joseph: that manifested itself in greater traffic headwinds to our stores and lower than expected conversion, leading to lower comp sales than we had expected.
Joseph: We estimate the net impact of these factors results in a global shortfall between $20 and $25 million in the second quarter.
Joseph: We have reduced our retail revenue expectations for both the third and fourth quarters in a similar magnitude.
Joseph: Next, related to European wholesale, our business appears to be outperforming the market.
Joseph: While our wholesale account certainly operate in the same consumer environment as our retail stores
Dennis Secor: Two other items of significance. In the quarter, within non-operating activity, we reported a net loss of 40 million dollars related to a non-cash unrealized loss due to the remeasurements of derivatives associated with our convertible notes and related hedge. We also recorded, as an increase to operating income, a $14 million gain on the sale of our US distribution center property. We have excluded both of these amounts from the adjusted results I just reported given both their size and a typical nature in order to facilitate a better understanding of our normal commercial operation.
Joseph: We believe as we have for the last few years that we are gaining share among our wholesale accounts, as those customers allocate more of their buys to their best brands, those brands with stronger cell trees, with better assortment, and more reliable deliveries. We take all of those boxes for them.
Joseph: We now have good visibility into our Spring Summer 25 order book which is nearly complete.
Joseph: Based on what we have seen thus far, we expect that order book will grow by roughly 10% compared to spring summer 24, stronger than we had initially planned.
Joseph: That product is expected to begin shipping in the fourth quarter of this year and we have reflected these higher expectations in our outlook.
Dennis Secor: Moving now to the balance sheet. Our inventories were $603 million at the end of the quarter, up 9% from a year ago, and they align well with our expectations for growth in the business. The additional inventory relates primarily to the acquisition of rag and bone. We continue to manage our inventory well and feel good about the composition of our inventory and our ability to service our business. For the first six months of the year, Capix was roughly $41 million, mainly driven by investments in story models and openings and technology.
Joseph: Finally, currenting.
Joseph: Since we last provided our outlook, the US dollar has weakened against some of our key operating currencies most importantly for us, the euro.
Joseph: It's exchange rates remain roughly in line with where they are now. It should result in a modest increase in third and fourth quarter revenues versus our prior expectations, and they tailwind in both those quarters compared to last year.
Dennis Secor: In the quarter, we also returned additional capital to our shareholders as we repurchased $50 million of our own shares. We ended the quarter with $219 million in cash compared to $303 million a year ago. Over the last four quarters, we've generated $216 million of free cash flow and realized $40 million from the sale of our USDC. We also have paid $185 million in dividends, invested $57 million to acquire rag and bone, and repurchased $82 million of our shares.
Joseph: Based on these factors that we've incorporated into our outlook for the remainder of the year, we now expect full-year revenue growth between nine and a half and 11 percent compared to 10.7 and 12.7 percent in our prior expectation.
Joseph: Turning to the third quarter, we expect to continue to benefit from the inclusion of Ragan Bone Revenue compared to last year. However, while the fourth quarter has historically been the largest revenue quarter for our core guest business, and still is,
Speaker Change: That is not the case for rag and bone. Given their larger mix of wholesale business, their revenues are highest in the third quarter to get deliveries into their partner channels for the holiday season.
Dennis Secor: We ended the quarter with $389 million of borrowing capacity on our various global facilities, so more than $600 million of available liquidity. This liquidity includes the 100 million euro expansion of our European credit facility that we announced last month. We are very pleased to have secured that additional capacity enhancing our access to long-term capital. The expansion reflects our lender's confidence in our strategy and the importance of Europe to our company. As I move to our outlook, I first want to summarize the key factors that we experience in the second quarter and how those have affected our outlook for the remainder of this year.
Speaker Change: Also, as previously shared, we expect to fully benefit from the internalization of outerwear in our America's wholesale business in the third quarter as this is the most important quarter in terms of product delivery for that product category.
Speaker Change: Finally, as I mentioned earlier, we expect currencies to turn from a revenue headwind in the second quarter to a tailwind in the third quarter.
Speaker Change: Based on these factors, we expect our sequential revenue growth rate to accelerate from the second quarter into the third, with third quarter revenue to increase between 14 and 1.6 and 16.5%.
Dennis Secor: I'll start with sales trends. In many of our businesses during the second quarter, we encountered some softwares and what appears to be a consumer who is being more prudent in their discretionary spending habits. That manifested itself in greater traffic headwinds to our stores and lower than expected conversion, leading to lower comp sales than we had expected. We estimate the net impact of these factors result in a global shortfall between $20 and $25 million in the second quarter.
Speaker Change: Then, moving from the third to the fourth quarter, we expect that growth rate to moderate somewhat, given last year's extra week, and because of the rag and bone seasonality stepped down into the fourth quarter.
Speaker Change: Summit offsetting those Q4 factors should be the benefit from the stronger spring summer orders in Europe wholesale.
Speaker Change: A move next to Gross Margin, where we now expect freight cost will be an incremental headwind for the second half of this year, given the continuing shipping challenge is caused by the Red Sea crisis.
Dennis Secor: We have reduced our retail revenue expectations for both the third and fourth quarters in a similar magnitude. Next related to European wholesale, our business appears to be outperforming the market. While our wholesale accounts certainly operate in the same consumer environment as our retail stores, we believe as we have for the last few years that we are gaining share among our wholesale accounts. As those customers allocate more of their buys to their best brands, those brands with stronger sell-throughs with better assortment and more reliable deliveries.
Speaker Change: Oceans rate rates accelerated again in Q2 and we now anticipate that we will incur additional ocean freight charges.
Speaker Change: Capacity challenges will also necessitate using more expensive air-free to ensure product deliveries.
Speaker Change: Some very recent data suggests that rates have begun to ease and we will continue to monitor that carefully.
Speaker Change: We estimate that the additional cost in the back half will total roughly $10 million, affecting operating profit in both the 3rd and 4th quarters, though more so the 3rd.
Dennis Secor: We take all of those boxes for them. We now have good visibility into our spring summer 25 order book which is nearly complete. Based on what we have seen thus far, we expect that order book will grow by roughly 10% compared to spring summer 24. Stronger than we had initially planned. That product is expected to begin shipping in the fourth quarter of this year and we have reflected these higher expectations in our outlook.
Speaker Change: Lastly, to help mitigate the impact of the lower expectations for revenues for the year, our teams have gone back to their spending plans and identified areas where we can tighten our expenses.
Speaker Change: We have, however, protected the important investments that we intend to make in marketing and brand awareness.
Speaker Change: Performance-based compensation should also be lower than our prior expectations given the reduction of our earnings expectations.
Dennis Secor: Finally, currencies. Since we last provided our outlook, the US dollar has weakened against some of our key operating currencies, most importantly for us, the euro. If exchange rates remain roughly in line with where they are now, it should result in a modest increase in third and fourth quarter revenues versus our prior expectations and a tailwind in both those quarters compared to last year. Based on these factors that we have incorporated into our outlook for the remainder of the year, we now expect full year revenue growth between 9.5 and 11% compared to 10.7 and 12.7% in our prior expectation.
Speaker Change: Overall, our efforts have reduced our spending plans by roughly $15 million.
Speaker Change: For the full year, we now expect adjusted operating margin between 7.3 and 7.8% and adjusted earnings for share in the range between $2.42 and $2.76.
Speaker Change: To the third quarter, we expected Justin operating margin in the range of 4.7 and 5.8% and adjusted earnings per share in the range between 33 and 45 cents.
Speaker Change: Let me share some additional insight on the flow of earnings for the second half of this year.
Speaker Change: While we anticipate that the third quarter will be our strongest quarter for revenue growth this year, it will be the fourth quarter where we have the opportunity to drive bottom line growth.
Dennis Secor: Turning to the third quarter, we expect to continue to benefit from the inclusion of Reagan-Bone revenues compared to last year. However, while the fourth quarter has historically been the largest revenue quarter for our core guest business and still is, that is not the case for Reagan-Bone. Given their larger mix of wholesale business, their revenues are highest in the third quarter to get deliveries into their partner channels for the holiday season. Also, as previously shared, we expect to fully benefit from the internalization of how to wear in our America's wholesale business in the third quarter, as this is the most important quarter in terms of product delivery for that product category.
Speaker Change: There are two significant drivers affecting our margins in the third quarter. First, we expect that the third quarter will absorb the greatest increase in marketing investments.
Speaker Change: and second, the additional freight charges I discussed earlier should affect the third quarter more so than before.
Speaker Change: As to the fourth quarter, last year in Europe we operated with a greater level of markdown as we cleared some of our older wholesale inventories.
Speaker Change: We're also operating with a much stronger IMU in our European Business and Sports Quarter compared to last year and currencies are expected to be more favorable this year than they were a year ago.
Dennis Secor: Finally, as I mentioned earlier, we expect currencies to turn from a revenue headwind in the second quarter to a tailwind in the third quarter. Based on these factors, we expect our sequential revenue growth rate to accelerate from the second quarter into the third, with third quarter revenue to increase between 14 and a half and 16 and a half percent. Then, moving from the third to the fourth quarter, we expect that growth rate to moderate somewhat, given last year's extra week, and because of the rag and bone seasonality step down into the fourth quarter, somewhat offsetting those Q4 factors should be the benefit from the stronger spring, summer orders in Europe wholesale.
Speaker Change: In North America, similarly, we plan to operate this fourth quarter with fewer markdowns and last year given our expectations of traffic, so overall then for the fourth quarter based on our plans now, we expect to deliver meaningful gross margin expansion.
Speaker Change: In addition, we've also identified areas in our North America store where we can operate with lower levels of operating expenses.
Speaker Change: Turning to free cash flow, we now expect free cash flow for the year of about $100 million.
Speaker Change: This is lower than we had previously expected for three reasons. First, as shipping capacity began to become constrained, we acted quickly to protect our business and ensure our deliveries. That resulted in the additional freight costs that we will absorb this year.
Dennis Secor: A move next to gross margin, where we now expect freight costs will be an incremental headwind for the second half of this year, given the continuing shipping challenges caused by the Red Sea crisis. Ocean freight rates accelerated again in Q2, and we now anticipate that we will incur additional ocean freight charges. Capacity challenges will also necessitate using more expensive air freight to ensure product delivery. Some very recent data suggests that rates have begun to ease, and we will continue to monitor that carefully.
Speaker Change: Beyond that, we've also accelerated some receipts resulting in an expected increase in inventory of roughly $35 million.
Speaker Change: To be clear, we are not ordering more just earlier.
Speaker Change: One of the key learnings during the supply chain crisis that followed COVID was that our partners placed an enormous value on reliable deliveries.
Speaker Change: As I shared earlier, we believe our reliability has allowed us to gain share among our European wholesale partners. If they short-term, but important working capital investment, to protect hours and our partners' businesses.
Dennis Secor: We estimate that the additional cost in the back half will total roughly $10 million affecting operating profit in both the third and fourth quarters, though more so the third. Lastly, to help mitigate the impact of the lower expectations for revenues for the year, our teens have gone back to their spending plans and identified areas where we can tighten our expenses. We have, however, protected the important investments that we intend to make in marketing and brand awareness.
Speaker Change: Lastly, the adjustments that we're making to our revenue outlook are driven primarily by our retail differences, which are essentially cash businesses, so that will immediately impact on our cash flows.
Speaker Change: So with that, we'll end our prepared remarks and open the call-up to your questions. Operator.
Speaker Change: Thank you. If you would like to ask a question, please press star one one on your telephone.
Dennis Secor: Performance-based compensation should also be lower than our prior expectations given the reduction of our earnings expectations. Overall, our efforts have reduced our spending plans by roughly $15 million. For the full year, we now expect adjusted operating margin between 7.3 and 7.8% and adjusted earnings per share in the range between $2.42 and $2.70. For the third quarter, we expect adjusted operating margin in the range of 4.7 and 5.8% and adjusted earnings per share in the range between 33 and 45 sets.
Speaker Change: You will then hear an automated message that advises your hand is raised. If you would like to remove yourself from the case, please press star 1-1 again. We also ask that you please wait for your name and company to be announced before you proceed with your question.
Speaker Change: One moment while we compiled the Q&A roster.
Speaker Change: and our first question today will be coming from Dana, Tessley of Tessley Advisory Group. Your line is open.
Dana Tessley: I think I'd have to knew everyone.
Speaker Change: So, lots of unpack there.
Carlos Alberini: Carlos, as you think about the guest brand and the rag and bone brand, are the trends that you're seeing globally.
Dennis Secor: Let me share some additional insight on the flow of earnings for the second half of this year. While we anticipate that the third quarter will be our strongest quarter for revenue growth this year, it will be the fourth quarter where we have the opportunity to drive bottom line. There are two significant drivers affecting our margins in the third quarter. First, we expect that the third quarter will absorb the greatest increase in market- And second, the additional freight charges I discussed earlier should affect the third quarter more so than the fourth.
Speaker Change: Bitmore for each brand in terms of their performance given a little bit of a different customer. And then as you talked about great and marketing.
Speaker Change: How much or what percentage is a difference this year versus last year and that cadence between Q3 and Q4 of how you're unpacking it. Thank you.
Speaker Change: Hi Dana, how are you? Thank you for your questions. So let me start with your first question about Dragonbone and guess.
Dennis Secor: As to the fourth quarter, last year in Europe, we operated with a greater level of markdowns as we cleared some of our older wholesale inventories. We're also operating with a much stronger IMU in our European businesses fourth quarter compared to last year. And currencies are expected to be more favorable this year than they were a year ago. In North America, similarly we plan to operate this fourth quarter with fewer markdowns than last year given our expectations of traffic.
Speaker Change: Very, very different and complementary brands, and this is one of the big reasons why we were so excited about having the opportunity to acquire Ragnarouche with WHP Global.
Speaker Change: In obviously, Ragnbone caters to a much more affluent consumer, and it has a very strong position in the marketplace with that consumer. We, that's not the customer that we have, I guess.
Dennis Secor: So overall, then for the fourth quarter based on our plans now, we expect to deliver meaningful gross margin expansion. In addition, we've also identified areas in our North America stored where we can operate with lower levels of operating expenses. Turning to free cash flow, we now expect free cash flow for the year of about $100 million. This is lower than we had previously expected for three reasons. First, as shipping capacity began to become constrained, we acted quickly to protect our business and ensure our delivery.
Speaker Change: and also the distribution and geographically is very, very different. So, this is one of the reasons why we were very excited about the opportunities to grow the business right and bone by expanding the distribution into many of the international markets work. Guess has a very strong positioning, but right and bone has almost no distribution.
Speaker Change: For that reason we are so invested and focused on the distribution into Europe, for example. Paul has already been marketing a lot of the brands in multiple cities and markets.
Dennis Secor: That resulted in the additional freight costs that we will absorb this year. Beyond that, we've also accelerated some receipts resulting in an expected increase in inventory of roughly $35 million. To be clear, we are not ordering more just earlier. One of the key learnings during the supply chain crisis that followed COVID was that our partners placed an enormous value on reliable delivery. As I shared earlier, we believe our reliability has allowed us to gain share among our European wholesale partners.
Speaker Change: And we think that this can be an enormous opportunity for the brand to expand that distribution, with that customer that is also very present in European markets as well.
Speaker Change: I think that one of the big differences here too.
Speaker Change: is the fact that this is a completely different need of positioning as a lifestyle.
Dennis Secor: If they short-term but important working capital investment, protect ours and our partners' businesses. Lastly, adjustments that we're making to our revenue outlook are driven primarily by our retail businesses, which are essentially cash businesses, so that will immediately impact on our cash flow. So with that, we'll end our prepared remarks and open the call up to your question. Operator? Thank you. If you would like to ask a question, please press star 1-1 on your telephone.
Speaker Change: which we think compliments what we're doing at gas.
Speaker Change: and we love the ideas that both women and men support the assortmentist.
Speaker Change: catering to those two customers. They have a very strong business and women's, but also a very, very strong business and immense as well.
Dennis Secor: You will then hear an automated message that advises your hand is raised. If you would like to remove yourself from the queue, please press star 1-1 again. We also ask that you please wait for your name and company to be announced before you proceed with your question, one moment while we compile the Q&A roster. And our first question today will be coming from Dana Tesley of Tesley Advisory Group. Your line is open.
Speaker Change: and we feel that...
Speaker Change: There are significant product categories that are not yet fully represented in the brands and this is another one of our...
Speaker Change: Catalyst for the brand, so we are working very hard on finding big opportunities to really add some of this product.
Speaker Change: The one that comes to mind very, very first and top on the list is
Speaker Change: is the whole line of accessories and um...
Dennis Secor: Good afternoon, everyone. So a lot to unpack there. Carlos, as you think about the guest brand and the reg and bone brand, are the trends that you're seeing globally similar for each brand in terms of their performance, given a little bit of a different customer. And Dennis, you talked about great and marketing. How much or what percentage is the difference this year versus last year, and that cadence between Q3 and Q4 of how you're unpacking it?
Speaker Change: You know, I'm sure you heard in my preparing remarks. We talked a little bit about one of those licenses that's already been secured for handbags and the teams are working together to increase and strengthen the assortment of handbags for the brand.
Speaker Change: So, let me stop there, maybe you can jump on a thing of question. Yeah, sure. Data. So, Carlos said in his prepared remarks that we view this as an inflection point for the company, a year of transition where we're making some additional investments, shared with you the brand study that we did and some of the benchmarking that we've done. Let's suggest that there are opportunities for us.
Dennis Secor: Thank you. Hi, Dana. How are you? Thank you for your questions. So let me start with your first question about the reg and bone and guess. I mean, these are very, very different and complimentary brands, and this is one of the big reasons why we were so excited about having the opportunity to acquire reg and bone with WHP Global. Obviously, reg and bone cater to a much more affluent consumer, and it has a very strong position in the marketplace with that consumer.
Dennis Secor: We, that's not the customer that we have at guest, and also the distribution and geographically is very, very different. So, and this is one of the reasons why we were very excited about the opportunities to grow the business right and bone by expanding the distribution into many of the international markets where guests has a very strong position, but reg and bone has almost no distribution. And for that reason, we are so, you know, just invested and focused on the distribution into Europe, for example.
Speaker Change: to make those investments to build awareness.
Speaker Change: for our new brands and new markets where those brands aren't well known yet and as well as to expand the awareness for the gift brand around the world.
Speaker Change: So what you see in the second quarter is really the way we're thinking about the rest of the year we've said in the earlier that we've more than doubled our marketing spend in the second quarter and you should think about the full year and that general same perspective that we are getting behind those investments.
Speaker Change: As we went through because of some of the challenges for the year, we looked at opportunities for some expense reductions but we protected those investments because we really believe in them.
Speaker Change: The way they flow in the quarter to quarter, the third quarter, as we said earlier, should be the largest dollar increase.
Speaker Change: So you'll see the impact on the margins. We're still planning to invest more in the fourth quarter, not quite as much as in the third, but just simply because of the size of the revenue base in that fourth quarter, the impact on the margins will be less impactful than the third quarter. But we expect that that additional investment will go on for the full year.
Dennis Secor: You know, Paul has already been marketing a lot of the brands in multiple cities and markets. And we think that this can be an enormous opportunity for the brand to expand that distribution with that customer that is also very present in European markets as well. I think that one of the big differences here, too, is the fact that this is a completely different, you know, positioning as a lifestyle, which we think complements what we're doing at guest.
Speaker Change: Thank you.
Speaker Change: Thank you very much.
Speaker Change: Thank you, and one moment while we go on with the next questions.
Speaker Change: and the next question for the day, will be coming from Tori?
Speaker Change: I'm sorry Cory Tarlo of Jeffries Jalanis Opens.
Dennis Secor: And we love the idea that it's both women's and men's, the assortment is catering to those two customers. They have a very strong business and women's, but also a very, very strong business and men's as well. And we feel that there are significant product categories that are not yet fully represented in the brands, and this is another one of our catalyst for growth for the brand. So we are working very hardly on finding big opportunities to really add some of this product.
Speaker Change: Great thanks.
Cory Tarlo: Carlos, I was wondering if you could break downtrends for us by geography and on the America's business, when do you anticipate that we might see a turn in that geography? Thanks.
Speaker Change: Hi Corey, thank you for your questions. So the trends have been different.
Speaker Change: You know, just a little bit of a continuation of the trends that we have been experiencing now for a few quarters. You know, starting with America's retail, we're North America business.
Dennis Secor: The one that comes, you know, to mine very, very, you know, first and top on the list is the whole line of accessories. And, you know, I'm sure you heard in my prepare remarks. We talked a little bit about one of those licenses has already been secured for handbags and the teams are working together to increase and strengthen the assortment of handbags for the brand. So, let me stop there. Dennis, maybe you can jump on Dana's question.
Speaker Change: this has been
Speaker Change: Challenging the challenges have started with.
Speaker Change: a lower customer traffic.
Speaker Change: In the US first and now we have extended into Canada.
Speaker Change: and this continues to be challenging for us and we have incorporated that kind of trend and thoughts into the remaining of the year.
Speaker Change: One of the biggest resources to why we have, you know, lower our expectations for retail business performance in the second half.
Dennis Secor: Yes, sure. Data. So, you know, as Carlos said in his prepared remarks that we view this as an inflection point for the company a year of transition where we're making some additional investments, he shared with you the brand study that we did and some of the benchmarking that we've done that suggests that there are opportunities for us to make those investments to build awareness for our new brands and new markets where those brands aren't well known yet and as well as to expand the awareness for the get brand around the world.
Speaker Change: The traffic has
Speaker Change: Impacted ourselves and we have not been able to offset.
Speaker Change: You know, some of that weakness with any of the other KPI metrics that you would expect like, you know, averaging a retail or conversion.
Speaker Change: and we are working and focusing on all the things that we can control to really improve upon this. One of the big things that we're looking at is the product assortment of course.
Dennis Secor: So, what you see in the second quarter is really the way we're thinking about the rest of the year. We said in the earlier that we've more than doubled our marketing spend in the second quarter and you should think about the full year in that general same perspective that we are getting behind those investments as we went through because of some of the challenges for the year. We looked at opportunities for some expense reductions but we protected those investments because we really believe in them.
Benarouche: Benarouche is an area that we are very focused on.
Benarouche: We see some changes in silhouettes that we are trying to capitalize on. We are looking at what's happening with weather patterns. We saw that summer months and the summer weather has expanded or extended.
Benarouche: and we think that we have some opportunities there that we could capitalize on looking at the transitional products and that's how we are trying to improve our sort of strength in it.
Dennis Secor: The way they flow in the in the quarter to quarter of the third quarter as we said earlier should be the large dollar increase. So, you'll see the impact on the margins. We're still planning to invest more in the fourth quarter not quite as much as in the third but just simply because of the size of the revenue base in that fourth quarter the impact on the margins will be less impactful than the third quarter.
Benarouche: We have tried different promotional tactics or initiatives.
Benarouche: And frankly, what we see is that the customer is a lot more sensitive to price.
Benarouche: We have been very, very careful with not going into a heavy discounting.
Benarouche: and we see that some of our competitors are doing this but we have been very disciplined in the way we are by inventories and trying to really...
Dennis Secor: But we expect that that additional investment will go on for the full year. Thank you. Thank you, Dana. Thank you and one moment while we go on with the next question. And the next question for the day will be coming from Tori. I'm sorry, Quarry, Tarlow of Jeffries, Jalana's open. Great. Thanks. Carlos, I was wondering if you could break down transfer us by geography and on the America's business. When do you anticipate that we might see a turn in that geography?
Benarouche: Keep this discipline in the way we are running the business. So the customer will contribute to see this brand as a full price brand, as opposed to something that we are constantly promoting.
Speaker Change: One of the big things that didn't spoke about and I had a few comments on our prepare remarks is about marketing and about this brand study that we have been conducting with an external partner.
Speaker Change: And what we see is that there is probably more that we can do to really increase the level of engagement with our customers.
Dennis Secor: Thanks. Hi, Quarry. Thank you for your question. So, the trends have been different. You know, just and this is this quarter. It's a little bit of a continuation of the trends that we have been experiencing now for a few quarters, you know, starting with America's retail or North America business. This has been challenging. The challenges have started with slower customer traffic in the US first and now it has extended into Canada.
Speaker Change: We looked at the level of spending and investing in marketing that our company incurred and compared to many others in our industry.
Speaker Change: We see that we have an opportunity to make deeper investments in marketing.
Speaker Change: And that's what we are looking at developing a strategy that we'll do that. So we're looking at incremental investments in social media, collaborations, creating a community of customers.
Dennis Secor: And this continues to be challenging for us and we have incorporated that kind of trend and thought into the remaining of the year. And this is one of the biggest reasons as to why we have, you know, lower our expectations for retail business performance in the second half. The traffic has impacted our sales and we have not been able to offset, you know, some of that weakness with any of the other KPI metrics that you would expect like average in the retail or conversion.
Speaker Change: Increasing engagement and investing more in our CRM programs.
Speaker Change: So, um, overall.
Speaker Change: We have a lot of ideas and we are excited about what this can bring.
Speaker Change: You know, you ask me about the different geographies, you know, the situation that I just described for America
Speaker Change: It's very different in Europe. We have had positive, same-score sales growth.
Speaker Change: Now for quite some time in several quarters and the numbers were big. We saw a little bit of a slowing in...
Speaker Change: from the traffic as well, but we were able to offset normal and assess the weakness with a significant increase in a U.R. and better conversion rates.
Dennis Secor: And we are working and focusing on all the things that we can control to really improve upon this. One of the big things that we're looking at is the product assortment, of course. The denim trends is an area that we are very focused on. We see some changes in silhouettes that we are trying to capitalize on. We are looking at what's happening with weather patterns. You know, we saw that summer months and the summer weather has expanded or extended.
Speaker Change: and we think that...
Speaker Change: This is more a function of what's happening in the marketplace, we think that there is a lot of geopolitically that is happening in Europe and multiple points.
Speaker Change: and we think that that is definitely impacting how the customers is looking at the disposal income and how they are spending and their habits in that.
Dennis Secor: And we think that we have some opportunities there that we could capitalize on looking at transitional products. And that's how we are trying to really improve our assortment or strengthen it. We have tried different promotional tactics or initiatives. And frankly, what we see is that the customer is a lot more sensitive to price. We have been very, very careful with not going into a heavy discounting. And we see that some of our competitors are doing this.
Speaker Change: We also know that people are spending more in activities and so forth.
Speaker Change: Not something new, but we feel that because the product is very well positioned and the assortment that has been very strong, we have been able to more than offset those trends.
Speaker Change: and deliver really strong comes to ourselves.
Speaker Change: We see that also in our wholesale business which is a very big part of the business in Europe
Dennis Secor: But we have been very disciplined in the way we are buying inventory and trying to really keep this discipline in the way we are running the business. So the customer will continue to see this brand, that's a full price brand, as opposed to something that we are constantly promoting. One of the big things that Dennis spoke about and I had a few comments in our prepare remarks is about marketing and about this brand study that we have been conducting with an external partner.
Speaker Change: and I think Dennis mentioned that, you know, this is our wholesale test of Earth.
Dennis: You know, they want to invest in brands that are very reliable, they are plantable.
Dennis: Brands that can deliver product on time to be able to release service with business effectively. And we think that we have been doing a very good job on us. A result of that.
Dennis: We have been able to really increase our share with those customers.
Dennis: I think that this company has done a war in terms of the units and...
Speaker Change: I'm adding new businesses, you know, just our leisure line, for example.
Dennis Secor: And what we see is that there is probably more that we can do to really increase the level of engagement with our customers. When we looked at the level of spending and investing in marketing that our company incurred and compared to many others in our industry, we see that we have an opportunity to make deeper investments in marketing. And that's what we are looking at developing a strategy that would do that.
Speaker Change: is now representative of a very sizable piece of the business three or four years ago, you know, that business did not even exist.
Speaker Change: So all that is also driving growth for the business. Another good example is now Gistines. You know, this is a category that did not exist. A brand that we didn't have. And that is adding to our wholesale business growth.
Dennis Secor: So we are looking at incremental investments in social media, collaborations, creating a community of customers, increasing engagement and investing more in our CRM programs. So overall, we have a lot of ideas and we are excited about what this can bring. You know, just when you ask me about the different geographies, you know, the situation that I just described for America is very different in Europe. We have had a positive same-store sales growth now for quite some time in several quarters and the numbers were big.
Dennis: 10% that Dennis spoke about for spring summer 2025.
Dennis: [inaudible]
Dennis: The consumer is definitely going through a more challenging.
Peerio: Peerio, they are more prudent, they are more discerning, but we think that we are very well positioned to really take advantage of some others that are having some type of weakness or they are delivering products.
Peerio: Lake, and as a result we think that we can take a bigger slice of the market as opposed to having to rely on an overall growth of the consumer base.
Peerio: and with respect to the state of the consumer in Asia that has been challenging.
Dennis Secor: We saw a little bit of a slowing in customer traffic as well, but we were able to offset more than offset the weakness with a significant increase in AUR and better conversion rates. And we think that this is more a function of what's happening in the marketplace. We think that there is a lot geopolitically that is happening in Europe and multiple points. And we think that that is definitely impacting how the customer is looking at the disposable income and how they are spending and their habits in that.
Peerio: and we think that we are not alone in this.
Peerio: But we continue to work on improving our products, you know, just to think about places like China, you know, we had some weakness in the second quarter.
Peerio: We're working with a third party there to help us, we are doing a lot to change the product equipment and be a lot more localized with the product direction and we are doing the same with marketing.
Peerio: and then outside China, you know, this we had
Peerio: Some challenging times in Korea, we have a big business there, it's a very profitable business and a good business for us. We think that that is only temporary, and we expect to recover throughout the rest of the year in there.
Dennis Secor: We also know that people are spending more in activities and so forth. This is not something new, but we feel that because the product is a very well-positioned and the assortment that has been very strong, we have been able to more than offset those trends and deliver really strong CRM stores sales. We see that also in our wholesale business, which is a very big part of the business in Europe. And I think Dennis mentioned that, you know, just these are our wholesale customers.
Speaker Change: Great, thanks so much for all the color, best of luck.
Speaker Change: Thank you, Kurt. Thank you.
Speaker Change: If you would like to ask a question, please press star one on your telephone.
Speaker Change: One moment for the next question and our next question we'll be coming from Eric Beter of Small Cap Consumant Researcher, line is open.
Eric Beter: Good afternoon.
Dennis Secor: You know, they want to invest in brands that are very reliable, they are planable brands that can deliver product on time to be able to really service the business effectively. And we think that we have been doing a very good job and as a result of that, we have been able to really increase our share with those customers. And on top of that, I think that this company has done a lot in terms of newness and adding new businesses.
Eric Beter: Montaieric
Eric Beter: Hi, I want to step back a little bit, we can talk a lot about the short term here. It's obvious this year you're doing a lot of things for the longer term. You know, what should we be thinking about as a potential goals here, either from wholesale retail or...
Speaker Change: Marks and lies looking at this from a few years now when some of these investments
Speaker Change: starts a pull through.
Speaker Change: There's a lot of moving parts, but if I look at it, it's really a function of that you're planning a lot for the future. Help us a little bit in understanding where the potential is here for the future in terms of returns.
Dennis Secor: You know, just our leisure line, for example, is now representative of a very sizable piece of the business three or four years ago, you know, that business did not even exist. So all that is also driving growth for the business. Another good example is now guest jeans. You know, this is a category that did not exist, a brand that we didn't have. And that is adding to our wholesale business growth, the 10% that Dennis spoke about for spring summer 2025.
Speaker Change: Thank you.
Speaker Change: Yeah, thank you very much. I'll start and I'm sure Benarouche will have things to rush here.
Benarouche: We tried to focus on the big picture and more of the strategic points that we are looking at right now as a company. We consider this year.
Benarouche: as a year of transformation.
Benarouche: and a year of investment, like you point out.
Dennis Secor: So, the consumer is definitely going through a more challenging period, they are more prudent, they are more discerning, but we think that we are very well positioned to really take advantage of some others that are having some type of weakness or they are delivering product late and as a result we think that we can take a bigger slice of the market as opposed to having to rely on an overall growth of the consumer base. And with respect to the state of the consumer in Asia that has been challenging and we think that we are not alone in this but we continue to work on improving our product just if you think about places like China, we had some weakness in the second quarter, we are working with a third party there to help us, we are doing a lot to change the product assortment and be a lot more localized with the product direction and we are doing the same thing with the marketing.
Benarouche: and it's transformation because it's the first time that we're taking this platform and you know just expanded it to really receive a new brand, you know, into our portfolio, this something we never done.
Benarouche: And it's the first time that we're doing this with Regambona, we are super excited about how things are going there and the opportunities that we see, we couldn't be more air.
Benarouche: Excited about the grand itself and the team, working with Andrew Rosen and the entire team, which is a top notch best in class team. So we are super excited about that and we think that.
Benarouche: We have a lot of capabilities in the companies in that platform that can be used to really optimize that business and that's what we're going for. And we think that...
Benarouche: The brand has a lot of potential.
Benarouche: and it can grow fast pace but also to become a very large business.
Benarouche: It's all the different characteristics that we will be looking for to have a brand into our portfolio. Now in order to do that, there is a lot that needs to happen. Just one of those big things is brand awareness because you know not having
Dennis Secor: And then outside China, we had some challenging times in Korea, we have a big business there, it's a very profitable business and a good business for us, we think that that is only temporary and we expect to recover throughout the rest of the year and there. Great, thanks so much for all the color, that's the luck. Thank you, Kurt. Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone.
Benarouche: Distribution internationally or in Europe, primarily, except for the UK, you know, just you have to.
Benarouche: Planned the seeds they are and so for the consumer to really realize.
Benarouche: What we are doing and what the grab stands for and what it is and experiences.
Benarouche: And for that, we think that we have to invest in marketing, but also we have to open stores. We have to make the line, the collection available for different players in the territory to see it and experience it. And those all those things are happening, but they're going to take some time for us to reach. Then you look at even the domestic business, what it is doing very well.
Dennis Secor: One moment for the next question. And our next question will be coming from Eric Beater of Small Cap Consumer Researcher Line is open. Good afternoon. Hi, Eric. Hi. I want to step back a little bit, we've been talking a lot about the short term here. It's obvious this year you're doing a lot of things for the longer term. You know, what you would be thinking about as the potential goals here, either from wholesale retail or margin wise, looking at this from two years ago when some of these investments start to pull through.
Benarouche: We had a great wholesale business during the second quarter
Speaker Change: and also, you know, just the company has a nice chain of stores in full price stores and even in the off price division, we see a lot of opportunity to increase.
Speaker Change: That penetration, you know, that presence and even domestically. So we are looking for locations for that as well.
Dennis Secor: You know, there's a lot of moving parts, but if I look at it, it's really a function of that you're planning a lot for the future. Or help us a little bit in understanding where the potential is here for the future in terms of returns. Thank you. Yeah, take care, Eric. I'll start, and I'm sure Dennis will have things to watch here. You know, just, we try to really focus on the big picture and more of the strategic points that we are looking at right now as a company.
Speaker Change: And by the end, that is going to take time. You know, growing our e-commerce business is going to take time. We're trying to perfect what we're doing there. They have a very meaningful...
Speaker Change: Business, but it's gonna take time. And then you look at the guests' genes, you know, moving, you know, on to, this is a new brand. This is something that is basically looks...
Dennis Secor: You know, we consider this year as a year of transformation and a year of investment, like you point out. And it's transformation because it's the first time that we're taking this platform and, you know, just expanded it to really receive and welcome a new brand, you know, into our portfolio. This is something we have never done. And it's the first time that we're doing this with Dragonborn and we are super excited about how things are going there and the opportunities that we see.
Speaker Change: and just strength and part of our DNA, especially with denim.
Speaker Change: but it's a new brand and we're trying to cater to...
Speaker Change: I'm younger consumer
Speaker Change: This is also required significant visibility and more marketing investments, and we are doing that, but we feel that it's going to take some time to be able to do that as well, we open two stores.
Speaker Change: One in Amsterdam, one in Berlin, that's just happened.
Speaker Change: We have some other locations that we are going to open one here in LA.
Dennis Secor: We couldn't be more excited about the brand itself and the teams and, you know, working with Andrew Rosen and the entire team, which is a top notch, you know, best in class team. So we are super excited about that and we think that we have a lot of capabilities in the company in that platform that can be used to really optimize that business and that's what we're going for. And we think that the brand has a lot of potential and it can grow at a fast pace, but also to become a very large business.
Speaker Change: and incredible location, but it's going to take us sometimes to build the store. We are also going to open one location in Tokyo in Japan. We have several others that we are looking at.
Speaker Change: But you know just the customer has to see that and experience that and understand the product.
Speaker Change: We are happy with the initial breath that we are having in wholesale, especially in Europe with the introduction of the guest James Brandeer.
Speaker Change: and we have exceeded our initial expectations and of course it's early but we feel that we are on the right path and we continue to improve the product assortment. This is something that is going to be an ongoing process
Dennis Secor: So, you know, it fits all the different characteristics that we will be looking for to add a brand to our portfolio. Now, in order to do that, you know, just do this a lot that needs to happen. You know, just one of those big things is brand awareness because, you know, not having distribution internationally or in Europe primarily except for the UK. You know, just you have to plant the seeds there and so for the consumer to really realize what we are doing and what the brand stands for and what it is and experiences.
Speaker Change: Then you look at all the other things that I mentioned, you know, the marketing opportunities that we see as a company I'm talking about
Speaker Change: Hi everybody, this is Maureen Basman
Speaker Change: We are looking at some other ways to really improve our decision-making and lines of accountability.
Speaker Change: We think that this is going to take a dis showing investment in terms of talent.
Dennis Secor: And for that, you know, we think that we have to invest in marketing but also we have to open stores. We have to make the line, the collection available for different players in the territory to see it and experience it. And those all those things are happening but they are going to take some time for us to reach. Then you look at even at the domestic business, what it is doing very well, you know, just we have a great host of business during the second quarter.
Speaker Change: and we are very actively involved with several such as today and I mentioned
Speaker Change: Chief Comers of Officer at Dimension Chief Digital Officer, we also have a position for Head of Human Resources in Lugano, Switzerland. We are looking for now with Marcus Leading. We are looking for a permanent Chief Financial Officer and we think that these are all big opportunities for us to bring strong talent in.
Speaker Change: So, you know, since I've stopped there, I've been seeing one talking a little bit about Pablo. Yeah, I think, you know, I support everything that Carlos just just said, and if I look at it through a financial lens.
Dennis Secor: And also, you know, just we, the company has a nice chain of stores in full price stores and even in the off price division. We see a lot of opportunity to increase that penetration, you know, that presence in even domestically. So we are looking for locations for that as well. And but again, that is going to take time. You know, growing our e-commerce business is going to take time. You know, we are trying to perfect what we are doing there.
Speaker Change: We have a very strong balance sheet we have generated very strong cash flows.
Speaker Change: and important for us to support that longer-term vision is to make sure that the capital structure is ready and prepared for that. So, you know, the last couple years we have essentially refinance, the vast majority of our 2024 converts. Those are now been pushed into 2028. We
Dennis Secor: They have a very meaningful business but it's going to take time. And then you look at get jeans, you know, moving on to this is a new brand. This is something that basically looks back to our key strengths and part of our DNA, especially with denim. But it's a new brand and we are trying to take it to a younger consumer. This is also required significant visibility and more marketing investments and we are doing that.
Speaker Change: U.S. Credit Facility to accommodate the Reagan-Bone. We just expanded another 100 million euros.
Speaker Change: in Europe to add additional capacity, so you heard on the call.
Speaker Change: Earlier, we have $600 million of available liquidity. You know, opportunities don't always present them themselves in a predictable way, but we want to make sure that we are ready to support the growth for this business.
Speaker Change: Okay.
Speaker Change: Thank you and good luck in the holiday season.
Dennis Secor: But we feel that it's going to take some time to be able to do that as well. We open two stores, one in Amsterdam, one in Berlin, that just happened. We have some other locations that we are going to open, one here in LA. An incredible location but it's going to take some time to build the store. We are also going to open one location in Tokyo, in Japan. We have several others that we are looking at.
Eric Beter: Thank you, Eric.
Eric Beter: i
Ariel Sonier: and our next question will be coming from a reveal sooner of UBS, your line is open.
Ariel Sooner: Great, good afternoon. Thanks for taking my questions. Guess I just wanted to get more detail on a rock and bone business. Could you give us some details on an idea of like the growth margin profile?
Dennis Secor: But, you know, just the customer has to see that and experience that and understand the product. We are happy with the initial reads that we are having in wholesale, especially in Europe with the introduction of the get jeans brand there. And we have exceeded our initial expectations and, you know, of course it's early but we feel that we are on the right path. And we continue to improve the product assortment. This is something that is going to be an ongoing process.
Speaker Change: versus Gas and Martiano Brown, just curious to see the impact that you saw in operating margins was more related to growth margin or just like a higher SNA.
Speaker Change: Constructor, and then maybe we'll take you to hear more details about what you're seeing across the consumer in Europe. I don't know you talked about it before.
Speaker Change: But just when you know on some of your key regents would be good to hear, good
Speaker Change: I guess I've seen as the whole business is performing very well, but TTT is slowing down to just going on and also there what's the dynamic behind that. Thank you so much.
Dennis Secor: Then you look at all the other things that I mentioned, you know, the marketing opportunities that we see. As a company I'm talking about, but again, this is more investment. We are looking at some other ways to really improve our decision making and lines of accountability. We think that this is going to take additional investment in terms of talent. And we are very actively involved with several searches today. And I mentioned Chief Commercial Officer, I mentioned Chief Digital Officer.
Carlos Alberini: Yes, Mauricio, thank you, it's Carlos. I, with respect to right on bone, you know, we are knowing a position to start giving different margin numbers or things like that. We are, you know, just giving you a much color as we can.
Carlos Alberini: So then you can appreciate the business, seasonality and also you can model the business appropriately. But you know just I can tell you that of course these are significantly higher prices.
Speaker Change: Then what we have in the gate portfolio
Dennis Secor: We also have a position for head of human resources in Lugano, Finland that we are looking for. Now with Marcus leaving, we are looking for a permanent Chief Financial Officer. And we think that these are all big opportunities for us to bring strong talent in. So, you know, just how stuff they are, Dennis, you want to talk a little bit about capital? Yeah, I think, you know, I support everything that Carlos just just said.
Speaker Change: and on the margins, that's very healthy.
Speaker Change: and just the company has been...
Barry: Barry, discipline and not promoting, significantly here, ever.
Barry: which is something that we find the very...
Speaker Change: Peeling the God.
Speaker Change: The brand has been in business now for over 20 years.
Speaker Change: and they have always been so, so careful.
Dennis Secor: And if I look at this through a financial lens, you know, we have a very strong balance sheet. We have generated very strong cash flows. And important for us to support that longer term vision is to make sure that the capital structure is ready and prepared for that. So, you know, the last couple years we have essentially refinanced the vast majority of our 2024 converts. Those are now been pushed into 2028.
Speaker Change: with how the brand is presented to the customer and they have never been, you know, just in a position. Even if business was difficult over those years.
Speaker Change: They have never been in a position to really discount the brand significantly so we benefit from that today because I think that the customer sees the brand as a pristine offering.
Speaker Change: The one thing that is very interesting here is that similar to gas.
Dennis Secor: We expanded our U.S, credit facility to accommodate the Reagan bone. We just expanded another 100 million euros in Europe to add additional capacity. So, you heard on the call earlier, we have $600 million of available liquidity. You know, opportunities don't always present themselves in a predictable way. But we want to make sure that we are ready to support the growth for this business. All right, guys. Thank you, and good luck in the holiday season.
Speaker Change: The brand has a great distribution that is a multi-channel.
Speaker Change: and we see that it's also a big advantage because in many cases, you know, just what we learn at retail.
Speaker Change: We can use to really improve our whole business and buy firsts and in this case the businesses are very synergistic and we think that those are very beneficial to optimizing both businesses.
Speaker Change: and then you know just with respect to the European consumer which was your second question.
Dennis Secor: Thank you, Eric. Thank you. One moment for the next question, please. And our next question will be coming from a reseal center of UBS. Your line is open. Great. Good afternoon. Thanks for taking my questions. Guess I just wanted to get more details on a rag and bone business. Could you give us some details on, you know, an idea of like their gross margin profile versus gas and Marciano brands. It's curious to see like if the impact that you saw on operating margins was more related to gross margin or just like the higher SNA cost structure.
Speaker Change: You know what I mentioned is that, yeah, we did see a little bit of a desoloration. We don't know exactly if this is more a function of what's happening with the weather patterns in Europe.
Speaker Change: We saw that the summer got extended.
Speaker Change: You know, just as they work, you know, several weeks, you know, after the clearance.
Speaker Change: Periard, where you would expect that, you know, just the new product, the full product would start selling and that did not happen with the same level of intensity as in periards because the weather was still so hot throughout Europe.
Dennis Secor: And then maybe it's curious to hear more details about what you're seeing across the consumer in Europe. I know you talked about it before, but just, you know, like on some of your key regions would be good to hear, because I guess I see the wholesale businesses performing very well, but TTC slowing down to just going to understand also there what's the dynamics behind that. Thank you so much. Yes, Mauricio, thank you.
Speaker Change: So, you know, just as difficult for us to really
Speaker Change: No, exactly if those trends were more a function of weather or if there were a function of consumer being not as intensely focused on shopping in our categories.
Dennis Secor: It's Carlos. I, with respect to rag and bone, you know, just we are not in a position to start giving different margin numbers or things like that. We are, you know, just giving you as much color as we can. So then you can appreciate the business seasonality and also you can model the business properly. But you know, just I can tell you that of course these are significantly higher prices than what we have in the gas portfolio.
Speaker Change: During the time.
Speaker Change: It's just in case, you know, we think that the weather patterns are changing.
Speaker Change: and for that reason, we are really looking at the specialyest transition seasons, like you know the...
Speaker Change: The June July timeframe and January February timeframe.
Speaker Change: We are looking at changing some of those.
Speaker Change: Transitional collections to really make those seasons more extended in summer months and in the winter months. And I'm playing with Fabrications that will be more conducive to those weather patterns.
Dennis Secor: And the margins are very healthy. And you know, just the company has been very disciplined and not promoting significantly here ever, which is something that we find very appealing because, you know, just the brand has been in business now for over 20 years. And they have always been so, so careful with how the brand is presented to the customer. And they have never been, you know, just in a position, even if business was difficult over those years, they have never been in a position to really discount the brand significantly.
Speaker Change: You know, just with respect to the European region, of course, it's a very challenging thing because...
Speaker Change: is this is not one area that is, you know, behaves in a very homogenous way.
Speaker Change: They are multiple markets there that are behaving very different, you know, we continue to see
Speaker Change: a very strong business trends in Turkey, for example.
Speaker Change: We have seen, you know, just...
Speaker Change: Disman patterns in countries in the southern region versus the north.
Dennis Secor: So we've benefited from that today because I think that the customer sees the brand as a pristine offering. The one thing that is very interesting here is that similar to gas, the brand has a great distribution that is multi-channel. And we see that also is a big advantage because in many cases, you know, just what we learn at retail, we can use to really improve our wholesale business and vice versa. In this case, the businesses are very synergistic.
Speaker Change: and we, it's very difficult to generalize here, you know, as to the European consumer.
Speaker Change: but we feel that you know just we have
Speaker Change: Big opportunities to continue to deliver St. Storcell's growth there. One of the issues that impacted us, especially on conversion, was that with the Red Sea crisis.
Speaker Change: We saw some slowness in the delivery of products, you know, just we saw that because of everything that is happening there coming to Europe.
Speaker Change: and we have a lot of problems that is coming from China, you know, just as those supply chains were disrupted, similar to what we experienced back in the Covid days.
Dennis Secor: We think that those are very beneficial to optimizing both businesses. And then, you know, just with respect to the European consumer, which was your second question, you know, just as what I mentioned is that, yeah, we did see a little bit of a desaleration week. We don't know exactly if this is more a function of what's happening with the weather patterns in Europe. You know, just we saw that the summer got extended, you know, just that they were several weeks, you know, after the clearance period where you would expect that, you know, just the new product, the full product would start selling.
Speaker Change: And we have seen like a delay of about three weeks in general, depending on the time, but you know in the towards the end of the second quarter that was exactly the case.
Speaker Change: and in many cases we didn't get the product on time and we think that's that in fact it's negatively our conversion rate. So we made a strategic decision to really invest in.
Speaker Change: I'm just air freight in some cases just to make sure that we protect the business.
Speaker Change: for both our retail business but also our host of business and that's one of the reasons why you saw an increase in and about a break for the remaining of the year.
Dennis Secor: And that did not happen with the same level of intensity as in prior years because the weather was still so hot throughout Europe. So, you know, just as difficult for us to really know exactly if those trends were more a function of weather, or if they were a function of the consumer being not as intensely focused on shopping in our category during that time. Just in case, you know, we think that the weather patterns are changing and for that reason, you know, we are really looking at, especially at transitional seasons, like, you know, the June July timeframe and January February timeframe, we are looking at changing some of those transitional collections to really make those seasons more extended in summer months and in the winter months.
Speaker Change: One of the reasons is that trade rates are higher, but another reason is that we are choosing alternative methods to bring the product faster, so then we can perfect the business.
Speaker Change: Carlos, very helpful. I just could one quick follow up. You also mentioned that you're looking for ways to reduce the operating expense in America's retail. Could you talk about maybe some of the initiatives that you are looking into, you know, to just have like a better margin in that, in that division? Thank you.
Speaker Change: The big issue here has been that when you have negative comments like we have experienced.
Speaker Change: and your running stores is just very difficult to really follow, you know, just the contraction of the top nine with a lot of the calls that are in nature fixed.
Dennis Secor: And I'm playing with fabrications that would be more conducive to those weather patterns. You know, just with respect to the European region, of course, it's a very challenging thing because this is not one area that is, you know, behaves in a very homogeneous way. There are multiple markets there that are behaving very differently. You know, we continue to see very strong business trends in Turkey, for example. We have seen, you know, just different patterns in countries in the southern region versus the north.
Speaker Change: So, you know what we are doing is just looking at every area where we could contract calls to really protect the profit of the region of the business.
Speaker Change: And when you look at that, you know, there is very little that you can do an occupancy, for example.
Speaker Change: There is very little that you can do in some of the margin numbers, you know, the gross margin other than protecting, you know, pricing, which we are doing.
Speaker Change: But then there are some variable costs like payroll in the stores.
Dennis Secor: And it's very difficult to generalize here, you know, as to the European consumer. But we feel that, you know, just we have a big opportunity to continue to deliver things to ourselves growth there. One of the issues that impacted us, especially on conversion, was that with the Red Sea crisis, we saw some slowness in the delivery of products, you know, just we saw that because of everything that is happening there, coming to Europe and we have a lot of products that is coming from China, you know, just as those supply chains were disrupted, similar to what we experienced back in the COVID days.
Speaker Change: Like other variable costs within supply or anything that is variable.
Speaker Change: and we are trying to really be very, very careful with that. So if you look at our performance in the second quarter, we were able to respond to the negative same store sales with a lower cost at the store level. Of course, this is a double edge sort here because what we don't want is to really...
Dennis Secor: And we have seen like a delay of about three weeks, you know, in general, depending on the time. But, you know, in the towards the end of the second quarter, that was exactly the case. And in many cases, we didn't get the product on time and we think that that impacted negatively our conversion rates. So we made a strategic decision to really invest in just air freight in some cases just to make sure that we protect the business for both our retail business but also our wholesale business.
Speaker Change: In fact, natively our conversions opportunities, we want to provide a great customer experience to our customers.
Speaker Change: And in order to do that, you have to have a very good coverage on the sales floor. And we are doing that, but you know just being more careful with how we devote those hours has been, you know, just a good way to really control cost.
Speaker Change: and then we are looking at other areas that are not necessarily at the store level.
Speaker Change: But things that we think that we can be more careful with, you know, just we're looking at our organizational structures.
Speaker Change: and trying to see how we can be more efficient in certain areas. And then there is one big line item that also impacted our outlook here and is a viable compensation because as we saw that.
Speaker Change: The business and our results are not going to be in line with what we expected, you know, that is going to drive a lower variable compensation pay and that is a big number and that is included in our outlook. What we did not touch.
Dennis Secor: And that's one of the reasons where you saw an increase in environmental freight for the remaining of the year. One of the reasons is that freight rates are higher. But another reason is that we are choosing alternative methods to bring the product faster so then we can protect Karl, very helpful. I just could, one quick follow-up. You also mentioned that you're looking for ways to reduce the operating expense in America's retail.
Speaker Change: and we and this has been completely intentional is our marketing budget because we think that like we said in our remarks.
Speaker Change: This is a big opportunity for this company and we are going to protect it.
Dennis Secor: Could you talk about maybe some of the initiatives that you are looking into, you know, to just have like a better margin in that, in that division? Thank you. Yeah, I'll start on Dennis, you can jump in. But, you know, just at the, the biggest issue here has been that, you know, when you have negative comps like we have experienced, it's just, and you're running stores, it's just very difficult to really follow, you know, just the contraction of the top line with a lot of the calls that are in nature fixed.
Speaker Change: We are going to go because we are not running the company for the next quarter, but we are thinking about the long term. We want to build like Eric was saying before we are doing things for the long term. And we think that we have an incredible opportunity in front of us.
Speaker Change: with what we have, you know, I guess has big opportunities in multiple product categories and in multiple markets, you know, we have a market like India that is growing really in a very aggressive way.
Speaker Change: We have opportunities in the Middle East where we think that there is a big, big plan. You know, just we are working with a great partner, Shalu organization. They are new partner for us, you know, for the last two or four years.
Dennis Secor: So, you know, what we are doing is just looking at every area where we could contract costs to really protect the profitability of the business. And when you look at that, you know, there is very little that you can do an occupancy, for example. There is very little that you can do in some of the margin numbers, you know, there's a gross margin other than protecting, you know, pricing, which we are doing.
Speaker Change: and we see a lot of opportunities to grow. They are multiple markets like that. We don't want to really stay on this site lens when we have an opportunity to grow the business and then, you know, right and right, I thought quite a bit about it.
Speaker Change: Thank you so much and I'm in good luck on the holiday season.
Dennis Secor: But then there are some variable costs like payroll in the stores, like other variable costs within, you know, supplies or anything that is variable. And we are trying to really be very, very careful with that. So, you know, just if you look at our performance in the second quarter, we were able to respond to the negative same store sales with a lower cost at the store level. Of course, this is a double edge sort here, because what we don't want is to really impact negatively our conversion opportunities.
Markus: Thank you, Markus.
Markus: Thank you. This does include the Q&A session for today and I would like to go ahead and turn the call back over to Carlos for closing remarks. You have the floor.
Carlos Alberini: Yes, thank you. Well, thank you all for your participation today.
Speaker Change: I'm sorry if we were in long in several answers but you know we're excited
Speaker Change: We are pleased with our progress in the year that we are calling out transformation on investment, as I said.
Speaker Change: This will remain very, very excited about our future. We look forward to speaking with you at the Goldman Conference, that is coming up on September 4th. So thank you again and we see you soon. Have a great day.
Dennis Secor: We want to provide a great customer experience to our customers. And in order to do that, you have to have very good coverage on the sales floor. And we are doing that. But, you know, just being more careful with how we devote those hours, it has been, you know, just a good, you know, way to really control costs. And then we are looking at other areas that are not necessarily at the store level, but things that we think that we can be more careful with.
Speaker Change: Thank you all for joining today's conference call, you may disconnect.
Dennis Secor: You know, just we are looking at our organizational structures and trying to see how we can be more efficient in certain areas. And then there is one big line item that also impacted our outlook here. And it's, you know, variable compensation because, you know, as we saw that the distance and our results are not going to be in line with what we expected, you know, that is going to drive a lower variable compensation pay.
Dennis Secor: And that is a big number. And that is included in our outlook. What we did not touch is, and this has been completely intentional, is our marketing budget. Because we think that, like we said in our remarks, this is a big opportunity for this company and we are going to protect it. And we are going to go because we are not running the company for the next quarter, but we are thinking about the long term.
Dennis Secor: We want to build like Eric was saying before, you know, just we are doing things for the long term. And we think that we have an incredible opportunity in front of us with what we have, you know, guess has big opportunities in multiple product categories and in multiple markets, you know, we have a market like India that is growing really in a very aggressive way. We have opportunities in the Middle East where we think that there is a big, big plan, you know, just we are working with a great partner, Shalu organization.
Dennis Secor: They are a new partner for us, you know, for the last two or four years. And we see a lot of opportunities to grow there. And there are multiple markets like that. We don't want to really stay, you know, just on the sidelines when we have an opportunity to grow the business. And then, you know, right and wrong, I talked to quite a bit about. Got it. Very helpful. Thank you so much, and good luck on the holiday.
Dennis Secor: Thank you, Marisa. Thank you. This does include the Q&A session for today, and I would like to go ahead and turn the call back over to Carlos for closing remarks. You have the floor. Yes, thank you. Well, thank you all for your participation today. I'm sorry if we weren't long in several answers, but we're excited. We are pleased with our progress in a year that we are calling of transformation and investment, as I said.
Dennis Secor: We remain very, very excited about our future, and we look forward to speaking with you at the Goam on Conference that is coming up on September 4th. So thank you again, and we see you soon. Have a great day. Thank you all for joining today's conference call. You made this connect. [inaudible] you, thank you, thank you, thank you, thank you,[inaudible] thank you, thank you, thank you, thank you,[inaudible][inaudible] Fiscal 2025 earnings conference call.
Markus: [inaudible] Neubrand, my name is Markus
Speaker Change: Hello everyone, welcome back to my channel.
Markus: Hello everyone, welcome back to my channel. Welcome back to my channel.
Markus: Music
Markus: Hello, welcome to my channel.
Markus: Good day everyone and welcome to the guest second quarter.
Speaker Change: Fiscal 2025 earnings conference call.
Fabrice Benarouche: I would now like to turn the call over to Fabrice Benarouche, Senior Vice President of Finance and Investor Relations, and Chief Accounting Officer.
Fabrice Benarouche: Thank you, Alberto. Good afternoon, everyone and thank you for joining us today.
Speaker Change: On the call today with me, Carlos Alberini, Chief Executive Officer and Denis Cole, Interim Chief Financial Officer.
Speaker Change: During today's call, the company will be making forward-looking statements, including comments regarding future plans, strategic initiatives, capital allocation and short and long-term outlooks.
Speaker Change: The company's actual results made this very materialy from current expectations based on the expectors included in today's press release and the company's quarterly and annual report five with the SEC.
Speaker Change: Comments will also reference certain old gut or adjusted measures. Gut reconciliation and descriptions of these measures can be found in today's earnings release.
Speaker Change: Now I will turn it over to Carlos.
Carlos Alberini: Thank you Fabrice, and thank you all for joining us for our Q2 fiscal 2025 quarterly conference call.
Carlos Alberini: Before I discuss our operating results, I want to briefly touch on our CFO transition.
Carlos Alberini: As you all know, Markus Neubrand has stepped down from his CFO position with us to pursue another opportunity that will bring him closer to his family.
Carlos Alberini: We wish Markus the best in his future endeavors.
Speaker Change: We have opened the search for a currency of food to be based in Lugano, Switzerland.
Speaker Change #100: While that search is ongoing, I am extremely pleased that Benarouche was step into the interim chief financial office of position.
Speaker Change #101: Dennis helped this role before Markus joined
Speaker Change #102: He brings a wealth of experience to the role and works very well with our teams across the company.
Speaker Change #102: I have great confidence in Dennis and our entire finance team as we move forward.
Speaker Change #102: So with that, let me review our operating results.
Speaker Change #102: In the quarter overall we performed in line with our expectations.
Speaker Change #102: Revenue's Group, 10% in US dollars and 13% in constant currency, reaching 733 million dollars.
Speaker Change #102: During the period, all our segments, except for Asia, have posted revenue growth.
Speaker Change #102: Our core gives business performed well in European wholesale, as it has been consistently for several years now.
Speaker Change #102: We also drove growth in our America's wholesale business delivering strong top-lining creases in the US and Mexico.
Speaker Change #102: In our European retail business, what we still delivered a positive calm sales increase, we did experience lower traffic into our stores, but we were able to more than upset the traffic hit when with stronger conversion and higher AUR.
Speaker Change #102: In our gifts, America's retail business, our performers did not mean our expectations.
Speaker Change #102: Traffic continues to be tough in that market and our consoles declined.
Fabrice Benarouche: I would now like to turn the call over to Fabrice Benarouche, Senior Vice President of Finance, Investor Relations, and Chief Accounting Officer. Please go ahead. Chief Executive Officer and Dennis Secor, Interim Chief Financial Officer.
Speaker Change #102: Similarly, sales in our Asia business declined and did not meet our expectations.
Speaker Change #102: Turning to our product performance, we continue to see different levels of performance across regions.
Speaker Change #102: In Europe, our footwear and accessories were the leading categories, contributing to the positive cons with strong momentum and sneakers and handbags.
Speaker Change #102: In a peril, knit tops for both genders and women's denim delivered positive cons while dresses and outerwear saw some decline in sales.
Fabrice Benarouche: During today's call, the company will be making forward-looking statements, including comments regarding future plans, strategic initiatives, capital allocation, and short and long term outlooks. The company's actual results made this very materially from current expectations based on risk factors included in today's press release, and the company's quarterly and annual report filed with the SEC. Comments will also reference certain on-guard or adjusted measures. Guard reconciliation and descriptions of these measures can be found in today's earnings release.
Speaker Change #102: In the Americas, consistent with the first quarter, we saw the clients in both our women's and men's businesses, while active wear was our best performing category across both genders.
Speaker Change #102: Similar to the first chorus well, accessories outperform the barrel with positive momentum in both travel accessories and women's watches.
Speaker Change #102: And finally, our licensing business performed well, delivering a revenue increase of 4% to 29 million dollars, mainly with footwear being the best performing category for the period.
Fabrice Benarouche: Now, I will turn it over to Carlos. Thank you, Fabrice, and thank you all for joining us for our Q2 fiscal 2025 quarterly conference call. Before I discuss our operating results, I want to briefly touch on our CFO transition.
Speaker Change #103: Turning to Ragamon, we are extremely pleased with how the business performed and how the assimilation of the business on to our platform is progressing.
Speaker Change #103: Overall, the business delivered a good quarter contributing solid growth for the company and inline with our expectations.
Carlos Alberini: As you all know, Markus Neubrand has stepped down from his CFO position with us to pursue another opportunity that will bring him closer to his family. We wish Markus the best in his future endeavors. We have opened the search for a permanent CFO to be based in Lugano, Switzerland.
Speaker Change #103: This results were driven by a great performance of the wholesale business, which experienced strong demand of new product and key categories from multiple customers.
Speaker Change #104: It's highly rewarding to note that the sellout this customer service experiencing is above expectations contributing to higher ordering activity.
Carlos Alberini: While that search is ongoing, I am extremely pleased that Dennis Seeker will step into the Interim Chief Financial Officer position. Dennis helped this role before Markus joined. He brings a wealth of experience to the role and works very well with our teams across the company. I have great confidence in Dennis and our entire finance team as we move forward.
Speaker Change #104: The direct to consumer business performs slightly below expectations.
Speaker Change #104: Then only four months since we completed the acquisition, but the transition is going smoothly and our teams are working very well together already.
Speaker Change #104: Turning to Total Company SNA.
Speaker Change #104: In the quarter, we invested significantly to support our objectives to drive long-term growth.
Carlos Alberini: So with that, let me review our operating results. In the quarter overall, we performed in line with our expectations. Revenue's grew 10% in US dollars and 13% in constant currency reaching $733 million. During the period, all our segments, except for Asia, posted revenue growth. Our core guest business performed well in European wholesale as it has been consistently for several years now. We also drove growth in our America's wholesale business delivering strong top line increases in the US and Mexico.
Speaker Change #104: While we increased our adjusted SG&A spending year over year, about 70% of that increase was directed towards our growth initiative.
Speaker Change #104: That includes investing in Dragonborn growth and more than doubling our marketing and advertising investments for the whole company to build stronger brand awareness across our entire portfolio.
Speaker Change #104: In the quarter, we delivered adjusted operating profit of $38 million, and an adjusted operating margin of 5.2%. Just outside of the range of our expectations.
Carlos Alberini: In our European retail business, while we still delivered a positive pump sales increase, we did experience lower traffic into our stores. But we were able to more than upset the traffic headwind with stronger conversion and higher AUR. In our guest America's retail business, our performance did not mean our expectations. Traffic continues to be tough in that market and our com sales. Declined. Similarly, sales in our Asia business declined and did not meet our expectations.
Speaker Change #104: and we delivered a doctor to Ernings Perceir of 42 cents.
Speaker Change #104: We are clearly operating in a dynamic environment where the customer is very selective and more sensitive to price and promotions.
Speaker Change #104: Also, as we all know, during the last few years, Alberini crossed across the board, having increased as a result of inflationary factors.
Speaker Change #104: All considered our teams have been doing a remarkable job to grow our business and control what is controllable, including costs, inventories and margins to optimize our results.
Carlos Alberini: Turning to our product performance, we continue to see different levels of performance across regions. In Europe, our footwear and accessories were the leading categories contributing to the positive counts with strong momentum in sneakers and handbags. In apparel, knit tops were both genders and women's denim delivered positive counts while dresses and outerwear sold some decline in sales. In the Americas, consistent with the first quarter, we saw declines in both our women's and men's businesses, while activewear was our best performing category across both genders.
Speaker Change #104: which brings me to our outlook that we have updated to reflect the softer consumer environment that we are seeing and expect will continue through the second half of the year.
Speaker Change #104: We still expect to exceed 3 billion dollars in revenues this year, although now we expect revenue growth between 9.5 and 11%.
Speaker Change #104: And we now have revised our adjusted earnings per share expectations for the year to be between $2.42 and $2.70
Speaker Change #104: Dennis will take you through our outlook in more detail in just a few minutes.
Carlos Alberini: Similar to the first quarter as well, accessories outperformed the peril with positive momentum in both travel accessories and women's watches. And finally, our licensing business performed well, delivering a revenue increase of 4% to $29 million, mainly with footwear being the best performing category for the period.
Dennis: Even as we have updated our guidance for the year, we continue to make progress against the number of important operational strategic and financial objectives.
Dennis: On our last call, I spoke about how we have built a company that is more than just one brand, it's a platform.
Dennis: In the fourth-class decade since Paul and his brothers founded Gets, we have expanded the distance and created a wide global footprint, broad channel capabilities, extensive supply chains, and a diverse category portfolio.
Carlos Alberini: Turning to Ragamon, we are extremely pleased with how the business performed and how the assimilation of the business onto our platform is progressing. Overall, the business delivered a good quarter contributing solid growth for the company and in line with our expectations. This results were driven by a great performance of the wholesale business, which experienced strong demand of new product and key categories from multiple customers. It's highly rewarding to note that the sell-out these customers are experiencing is above expectations contributing to higher ordering activity. The direct-to-consumer business performs slightly below expectations. It's been only four months since we completed the acquisition, but the transition is going smoothly and our teams are working very well together already.
Dennis: All of that is a powerful arsenal, providing us with significant competitive advantages and affording us the opportunity to drive long-term sustainable growth and shareholder value creation.
Dennis: We believe that we can do things that others simply cannot do, to take regional brands and extend them globally and transform single category brands into lifestyle brands.
Dennis: We can grow things exponentially because we can do it across multiple dimensions.
Dennis: We are well positioned to do it supported by a strong capital structure, significant cash flow generation and ample access to capital.
Dennis: I am very excited about the opportunities that live before us.
Carlos Alberini: Turning to total company SGNA. In the quarter, we invested significantly to support our objectives to drive long-term growth. While we increased our adjusted SGNA spending year over year, about 70% of that increase was directed towards our growth initiative. That includes investing in Ragamon growth and more than doubling our marketing and advertising investments for the whole company to build stronger brand awareness across our entire portfolio. In the quarter, we delivered adjusted operating profit of $38 million and an adjusted operating margin of 5.2%, just outside of the range of our expectations, and we delivered a just earnings per share of 42 cents.
Carlos Alberini: We are clearly operating in a dynamic environment where the customer is very selective and more sensitive to price and promotions. Also, as we all know, during the last few years, operating costs across the board have increased as a result of inflationary factors.
Carlos Alberini: All considered, our teams have been doing a remarkable job to grow our business and control what is controllable, including costs, inventories and margins, to optimize our which brings me to our outlook that we have updated to reflect the softer consumer environment that we are seeing and expect will continue through the second half of the year. We still expect to exceed 3 billion dollars in revenues this year, although now we expect revenue growth between 9.5 and 11%. And we now have revised our adjusted earnings per share expectations for the year to between $2.42 and $2.70. Dennis will take you through our outlook in more detail in just a few minutes.
Carlos Alberini: Even as we have updated our guidance for the year, we continue to make progress against a number of important operational, strategic, and financial objectives. On our last call, I spoke about how we have built a company that is more than just one brand. It's a platform. In the four-plus decade since Paul and his brothers founded Guess, we have expanded the business and created a wide global footprint, broad channel capabilities, extensive supply chains, and a diverse category portfolio.
Carlos Alberini: All of that is a powerful arsenal, providing us with significant competitive advantages and affording us the opportunity to drive long-term sustainable growth and shareholder value creation. We believe that we can do things that others simply cannot do to take regional brands and extend them globally and transform single category brands into lifestyle brands. We can grow things exponentially because we can do it across multiple dimensions. And we are well positioned to do it, supported by a strong capital structure, significant cash flow generation, and ample access to capital. I am very excited about the opportunities that lie before us, as are Paul and our entire team who are all fully committed to this vision.
Carlos Alberini: This year is the infection point, a year of transition and investment as we begin to execute on our vision. So let me share how our key initiatives are working together to put the company on the path to accelerated growth. I will touch specifically on the progress that we are making at Ragon Bones, the growth genes launch, our new marketing strategy, our organizational development plan, our logistics network, and our capital structure. I will review our accomplishments from the second quarter and how our quarter's activity support our overall long-term strategic objectives.
Carlos Alberini: Let me begin with Ragon Bones. We completed this acquisition with WHP Global just a short four months ago, and the transition has been going smoothly as I mentioned earlier. Our teams are working seamlessly together led by Andrew Rosen and Paul. We have already begun leveraging our platform's capabilities that will enable us to realize the full potential of this amazing brand. In the second quarter we began expanding our Ragon Bones marketing investments in existing markets, mainly the US, but also in new markets like Europe, where the brand is not yet fully recognized except in the US.
Carlos Alberini: We have begun looking for locations to open new stores in multiple important cities in Europe and beyond. In fact, we already signed an agreement for a new store in a great location in Amsterdam that will be an incredible introduction of the brand to consumers in that market. In addition to Europe, we are in discussions with potential partners to represent the Dragonborn brand in other new markets, including Mexico, Latin America, Middle Eastern, Australia.
Carlos Alberini: Paul and our teams are also leveraging our relationships with product licensee partners to expand the brand's offering and bring more categories to the brand. We have reached an agreement with one of our partners that will enable us to increase and enhance Dragonborn's brand by offering with more to come. We are also working with the WHP Management team led by Yehuda Schmidtman to explore other licenses for products and territories. An Andrew and his team are now working closely with our product development and sourcing teams to leverage our vendor relationships, take advantage of our combined volumes and drive efficiencies into the Dragonborn business.
Carlos Alberini: So much done in such a short period of time with so much more opportunity in front of us.
Carlos Alberini: Next is guest genes, which we see as another opportunity to drive growth and address a very important customer category. As you know, under Nicolai Marciano's leadership, we brought guest genes to market as a completely new lifestyle brand with its own identity and a multi-category assortment for women and men. The brand employs a new store concept, a beautiful design that targets the younger Gen Z customer but is welcoming to all customers. And with its casual offering and compelling price points, it fits well within our overall brand and pricing architecture to build an incremental business.
Carlos Alberini: Since launching this brand in the first quarter, we have presented the line to a select group of customers in Milan and to a much larger audience in Florence at PD Warmo where we showed the collection twice in January and again in June. Guest genes again hosted an extremely successful weekend event at Coachella, also led by Nicolai. The event garnered billions of impressions and millions of views. Our first guest genes sales campaign delivered orders well ahead of our expectations and the wholesale business is off to a strong start. And we have opened two new stores, one in Amsterdam, the other one in Berlin. Both terrific locations that we believe will do a great job introducing this new brand to the European consumer.
Carlos Alberini: Turning to marketing, consumers are becoming more selected in how to manage their disposable income and the world of social media and customer engagement has evolved tremendously in the last few years. As a result, we are challenging ourselves to enhance our marketing organizational capabilities to better support our existing brands as well as those to come. This year, we have engaged an external partner to conduct a brand review and we have benchmarked our marketing investments against many other companies in ours.
Carlos Alberini: From that work, we believe that there are opportunities to make incremental investments in social media, collaborations, customer engagement and CRM, to connect more and differently with our customers, to ensure that we are listening to our customers and putting them at the center of everything we do. All designed to drive improved customer traffic to our stores and to our website. We have already begun this investment. As I shared earlier, we more than doubled our marketing investments in the second quarter, and we plan to continue to invest at higher levels than last year in the second half of the year as well.
Carlos Alberini: You will see this investment in our operating margin near term, as they don't necessarily deliver immediate returns. However, building this capabilities into our platform is critical to support and grow our core brands and a larger portfolio brand.
Carlos Alberini: We have made significant strides in reinventing our organization structure, but we see opportunity for additional refinement to better support a more global business with a broader brand portfolio. When I returned to the company in 2019, the company was being run with regional autonomy. That was fit for purpose at the time, but it limited our ability for our whole team to leverage the full capabilities of our entire company. At the time, Pol and I saw an opportunity to globalize multiple functions to add brand consistency and increase operating efficiency.
Carlos Alberini: As you know, based on this vision, we began the process of migrating to a more global structure, one that provides services to multiple regions that maintains critical products and market decision making at the local level. We were pleased to launch one global line for all categories over the last few years, and to be able to consolidate many related functions like design, product development, and sourcing under one growth in Switzerland. We also moved our intellectual property to Switzerland and are at various stages of completion in globalizing other functions like IT, legal, finance, inventory management, logistics, marketing and licensing, just to name a few.
Carlos Alberini: As we continue this work and as we bring other brands onto our platform, it is an opportune time to enhance our organizational design to improve our kind of ability and optimize decision making. As part of this, we will continue to strengthen our leadership to provide decision making at the regional level, and with global positions such as Chief Commercial Officer and Chief Digital Officer, we have searches out for these roles in addition to our CFO search. We are also focused on optimizing our operations to help ensure that we can access the best talent to execute our business.
Carlos Alberini: This has been the guiding principle that underpins our product licensee relationships, for example. We want to own those areas of our business while we feel that we are best and leverage outside relationships and expertise in other...
Carlos Alberini: And Logistics, a vital part of our business, is a great example of that. We conducted a review of our Logistics function and network in the US, which we have traditionally managed internally and concluded that we were operating sub-optimally in this critical function. This year, we transitioned our US Logistics function to GXO Logistics, the same third party who has managed our European function for years. In addition, we are extending our GXO contract in Europe to leverage our combined volumes to drive even better economics. And in the second quarter, we saw the US facility freeing up important capital, which we expect to deploy more strategically.
Carlos Alberini: As we look to the future, we will be prudent as we execute our plans, always discipline and present in our stewardship of our shareholders capital. We also recognize that investment opportunities, including potential acquisitions, may emerge at any time, and we want to have the flexibility to take advantage of the right opportunities when they present themselves. To support that and help ensure that we are operating with ample access to capital, during the last few years, we had refinanced our convertible bonds, extending maturities for over $360 million until 2028, and we did this under very favorable terms. We also recently expanded our US credit facility by $50 million to accommodate the addition of the Reagan-Bone business. And last month, we completed a 100 million euro expansion of our credit facility in Europe.
Carlos Alberini: Dennis will share more about this in a moment. But with these actions, we have additional access to capital to support our vision for the continued growth of the business.
Carlos Alberini: Before I pass the call to Dennis for his remarks, I want to leave you with a couple of thoughts regarding our culture at Guest, and how I see that as driving our ability to continue to grow and succeed for many years to come. As you know, my time with Guest goes back to when I started as chief operating officer and president in the year 2000. At that time, the company had annual sales of $600 million, and it was primarily a US business.
Carlos Alberini: Since then, Guest grew through international expansion that capitalized on a strong lifestyle brand positioning, and today has sales of $5.5 billion of retail value. The company has relentlessly adapted to market changes and succeeded when many others failed. I strongly believe that this capacity to adapt is at the core of our DNA as an organization, and while it started with our founders, it has permeated the whole company. As our team continues to adapt, we are on a mission together.
Carlos Alberini: We wake up every morning, inspired to delight our customers with amazing products and an extraordinary We make decisions based on the long term. We don't have our eyes just on the next quarter. We are focused on the next generation. We want to grow our business and the profitability of our company and to reward all our shareholders with extraordinary returns. To me, that relentless focus on mission and our ability to adapt are central to what makes this culture so special.
Carlos Alberini: And you don't find it every day or in everyone, but when you do, when you blend the right people with that culture, it can be so powerful and something people want to be a part of for years to come. I think that explains why we have such long standing relationships in this company. I'm not unique. We have tremendous tenure throughout our team, including Paul, our leaders, those who have been promoted to our organization time and time again and most of our licenses. And we couldn't be more thrilled to have well-tuned Andrew and the entire Reagan-Bond team who share the same focus on mission and ability to adapt.
Carlos Alberini: Paul and I thank all our teams for a job well done in a challenging environment. Our thank you extends to all our associates worldwide, including all the members of the new Reagan-Bond team. We greatly appreciate everyone's contributions.
Carlos Alberini: I couldn't be more proud of what we have accomplished together and more excited about how we are positioned and what lives in front of us. Thank you.
Dennis Secor: And with that, I pass it to Dennis. Dennis, please go ahead. Thank you, Carlos, and good afternoon, everyone.
Dennis Secor: I'm pleased to step back into the interim CFO role and help support the company in a smooth transition both now and as we bring on a new CFO in the near future. My thanks to you, Carlos, and to the board for your confidence. So now let's talk about our business. And just a reminder, we acquired Reagan-Bond towards the end of the first quarter of this year. So our second quarter results include a full quarter of Reagan-Bond's operations and those results have been integrated into our existing segments.
Dennis Secor: So now onto the second quarter results. As Carlos mentioned, Q2 revenues increased 10% in U.S, dollars reaching $733 million. In constant dollars, our revenues grew 13%. Overall, our constant dollar revenue growth was driven primarily by the addition of Reagan-Bond where we achieved sales that aligned with our expectations for the quarter. Constant dollar revenues for the core guests in Marciano business grew modestly with growth in the America's wholesale and European businesses offsetting declines in both our America's retail and Asia businesses.
Dennis Secor: In Europe, we grew U.S, dollar revenues by 5% reaching $383 million. Revenue grew 8% in constant currency. Retail comps including ECOM increased 1% in U.S, dollars and 4% in constant currency. As in the past few quarters, Turkey's hyperinflation had a meaningful impact on those costs, excluding Turkey, that constant dollar-comp increase would have been 1%. In our stores, we delivered a constant currency-comp increase of 3%. While we did experience softer traffic than a year ago, our performance benefited from higher conversion and AUR growth, driven by improved assortments and replenishment and a better customer experience.
Dennis Secor: Our e-com business improves sequentially with a 5% constant currency-comp increase. Our European wholesale business continues to perform well, in fact, more strongly than we had expected for the quarter. We had assumed that some deliveries would slip into the third quarter, given the current shipping challenges caused by the Red Sea crisis. However, while there are still some pockets of delays, our teams manage well and mitigated that risk, wholesale revenues increased in the mid-single digits in constant currency, as our wholesale partners welcomed our product to support good sales momentum in their businesses.
Dennis Secor: The operating margin in our European business was 9.8%. 310 basis points lower than a year ago, given higher operating expenses and further marketing investments. In the America's retail, revenue is through 8% reaching $181 million. In constant dollars, the growth was 9%. The addition of rag and bone drove the segments growth for the quarter and more than offset the headwinds coming from our guest stores. Our North America core business remained challenging as headwinds in traffic persisted.
Dennis Secor: Those traffic headwinds, coupled with the decline in conversion, resulted in an overall 10% constant currency-comp decline in our retail stores, including our e-com business, that comp decline was also 10%. America's retail posted a 1.5% operating margin about an 8.0 decrease from last year's Q2. While product margins improved in the quarter, the unfavorable impact of the comp decline on our core business expense base drove the operating margin decline. In America's wholesale, revenues increased by 93% in U.S, dollars to $84 million, driven by the addition of rag and bone, along with higher shipments in both the U.S, and Mexico.
Dennis Secor: The revenue increase in constant dollars was 94%. Operating margin reached 18.9% about 6 points lower than last year's Q2, driven mainly by the addition of rag and bone. At Asia, revenues were $54 million, down 8% in U.S, dollars and 4% in constant currency. Growth from our new business in India and rag and bone was more than offset by lower retail comps, especially in Korea and China and currency headwinds. Retail comps, including e-com for the region, decreased 10% in constant currency.
Dennis Secor: Operating margin in Asia decreased 140 basis points to a negative 2.3%. And finally, our licensing segment performed well with revenues increasing 4% in both U.S, dollars and constant currency. Segment operating margin was 93.3%. In Q2, total company growth margin reached 43.7%. 60 basis points below a year earlier, mainly driven by higher store occupancy expenses from rent increases and slightly higher markdowns partially offset by improvements in our IMUs. Adjusted SGNA expenses for the quarter increase 23% to 281 million dollars to reiterate Carlos's point.
Dennis Secor: 70% of this growth comes from adding rag and bone and stepping up our marking investments, including increasing advertising exposure for guests and building grant awareness for guest genes. Infrastructure expenses also increase primarily in Europe. For the quarter, our adjusted SGNA rate increased 3.9 points to 38.4%. In the quarter, our adjusted operating margin declined 4.6 points to 5.2% driven by our acquisition of rag and bone, investments in marketing, along with higher operating and store occupancy expenses.
Dennis Secor: In the quarter, we recorded an adjusted effective tax rate of 26.3%. Adjusted Q2 diluted earnings per share was 42 cents compared to 72 cents in last year's second quarter. Two other items of significance. In the quarter, within non-operating activity, we reported a net loss of 40 million dollars related to a non-cash unrealized loss due to the remeasurement of derivatives associated with our convertible notes and related hedge. We also recorded as an increase to operating income a 14 million dollar gain on the sale of our US distribution center property.
Dennis Secor: We have excluded both of these amounts from the adjusted results I just reported given both their size and a typical nature in order to facilitate a better understanding of our normal commercial operation. Moving now to the balance sheet, our inventories were $603 million at the end of the quarter, up 9% from a year ago, and they align well with our expectations for growth in the business. The additional inventory relates primarily to the acquisition of rag and bone.
Dennis Secor: We continue to manage our inventory well and feel good about the composition of our inventory and our ability to service our business. For the first six months of the year, Capix was roughly $41 million, mainly driven by investments in story models and openings and technology. In the quarter, we also returned additional capital to our shareholders as we repurchased $50 million of our own shares. We ended the quarter with $219 million in cash compared to $303 million a year ago.
Dennis Secor: Over the last four quarters, we've generated $216 million of free cash flow and realized $40 million from the sale of our USBC. We also have paid $185 million in dividends, invested $57 million to acquire rag and bone, and repurchased $82 million of our shares. We ended the quarter with $389 million of borrowing capacity on our various global facilities, so more than $600 million of available- This liquidity includes the 100 million-year-old expansion of our European credit facility that we announced last month. We are very pleased to have secured that additional capacity, enhancing our access to long-term capital. The expansion reflects our lender's confidence in our strategy and the importance of Europe to our company.
Dennis Secor: As I move to our outlook, I first want to summarize the key factors that we experience in the second quarter and how those of affected our outlook for the remainder of this year. I'll start with sales trends. In many of our businesses, during the second quarter, we encountered some softwares and what appears to be a consumer who is being more prudent in their discretionary spending habits. That manifested itself in greater traffic headwinds to our stores and lower than expected conversions, leading to lower comp sales than we had expected.
Dennis Secor: We estimate the net impact of these factors result in a global shortfall between $20 and $25 million in the second quarter. We have reduced our retail revenue expectations for both the third and fourth quarters in a similar magnitude. Next, related to European wholesale, our business appears to be outperforming the market. While our wholesale accounts certainly operate in the same consumer environment as our retail stores, we believe, as we have for the last few years, that we are gaining share among our wholesale accounts.
Dennis Secor: As those customers allocate more of their buys to their best brands, those brands with stronger sell streets with better assortment and more reliable deliveries, we take all of those boxes for them. We now have good visibility into our spring summer 25 order book, which is nearly complete. Based on what we have seen thus far, we expect that order book will grow by roughly 10% compared to spring summer 24. For stronger than we had initially planned, that product is expected to begin shipping in the fourth quarter of this year, and we have reflected these higher expectations in our outlook.
Dennis Secor: Finally, currencies, since we last provided our outlook, the US dollar has weakened against some of our key operating currencies, most importantly for us, the euro. Its exchange rates remain roughly in line with where they are now. It should result in a modest increase in third and fourth quarter revenues versus our prior expectations, and a tailwind in both those quarters compared to last year.
Dennis Secor: Based on these factors that we have incorporated into our outlook for the remainder of the year, we now expect full year revenue growth between 9.5 and 11% compared to 10.7 and 12.7% in our prior expectations. Turning to the third quarter, we expect to continue to benefit from the inclusion of Reagan-Bone revenues compared to last year. However, while the fourth quarter has historically been the largest revenue quarter for our core guest business and still is, that is not the case for Reagan-Bone.
Dennis Secor: Given their larger mix of wholesale business, their revenues are highest in the third quarter to get deliveries into their partner channels for the holiday season. Also, as previously shared, we expect to fully benefit from the internalization of outerwear in our America's wholesale business in the third quarter, as this is the most important quarter in terms of product delivery for that product, of category. Finally, as I mentioned earlier, we expect currencies to turn from a revenue headwind in the second quarter to a tailwind in the third quarter.
Dennis Secor: Based on these factors, we expect our sequential revenue growth rate to accelerate from the second quarter into the third with third quarter revenue to increase between 14 and a half and 16 and a half percent. Then moving from the third to the fourth quarter, we expect that growth rate to moderate somewhat, given last year's extra week and because of the rag and bone seasonality step down into the fourth quarter, somewhat offsetting those Q4 factors should be the benefit from the stronger spring summer orders in Europe wholesale.
Dennis Secor: A move next to gross margin where we now expect freight cost will be an incremental headwind for the second half of this year given the continuing shipping challenges caused by the red sea crisis. Ocean freight rates accelerated again in Q2 and we now anticipate that we will incur additional ocean freight charges. Capacity challenges will also necessitate using more expensive air freight to ensure product deliveries. Some very recent data suggests that rates have begun to ease and we will continue to monitor that carefully.
Dennis Secor: We estimate that the additional cost in the back half will total roughly 10 million dollars affecting operating profit in both the third and fourth quarters, though more so the third. Lastly, to help mitigate the impact of the lower expectations for revenues for the year, our teams have gone back to their spending plans and identified areas where we can tighten our expenses. We have, however, protected the important investments that we intend to make in marketing and brand awareness. Performance based compensation should also be lower than our prior expectations given the reduction of our earnings expectations. Overall, our efforts have reduced our spending plans by roughly 15 million dollars.
Dennis Secor: For the full year, we now expect adjusted operating margin between 7.3 and 7.8 percent and adjusted earnings per share in the range between $2.42 and $2.70. For the third quarter, we expect adjusted operating margin in the range of 4.7 and 5.8 percent and adjusted earnings per share in the range between 33 and 45 cents. Let me share some additional insight on the flow of earnings for the second half of this year.
Dennis Secor: While we anticipate that the third quarter will be our strongest quarter for revenue growth this year, it will be the fourth quarter where we have the opportunity to drive bottom line growth. There are two significant drivers affecting our margins in the third quarter. First, we expect that the third quarter will absorb the greatest increase in marketing investments. And second, the additional freight charges I discussed earlier should affect the third quarter more so than the fourth.
Dennis Secor: As to the fourth quarter, last year in Europe, we operated with a greater level of markdown as we cleared some of our older wholesale inventories. We're also operating with a much stronger IMU in our European businesses' fourth quarter compared to last year, and currencies are expected to be more favorable this year than they were a year ago. In North America, similarly, we plan to operate this fourth quarter with fewer markdowns than last year, given our expectations of traffic.
Dennis Secor: So overall then for the fourth quarter, based on our plans now, we expect to deliver meaningful gross margin expansion. In addition, we've also identified areas in our North America stores where we can operate with lower levels of operating expenses.
Dennis Secor: Turn it to free cash flow. We now expect free cash flow for the year of about $100 million. This is lower than we had previously expected for three reasons. First, as shipping capacity began to become constrained, we acted quickly to protect our business and ensure our delivery. That resulted in the additional freight costs that we will absorb this year. Beyond that, we've also accelerated some receipts resulting in an expected increase in inventory of roughly $35 million.
Dennis Secor: To be clear, we are not ordering more just earlier. One of the key learnings during the supply chain crisis that followed COVID was that our partners placed an enormous value on reliable delivery. As I shared earlier, we believe our reliability has allowed us to gain share among our European wholesale partners. If a short term but important working capital investment, protect ours and our partners' businesses. Lastly, the adjustments that we're making to our revenue outlook are driven primarily by our retail businesses, which are essentially cash businesses. So that will immediately impact on our cash flow.
Operator: So with that, we'll end our prepared remarks and open the call up to your question. Operator. Thank you. If you would like to ask a question, please press star 11 on your telephone. You will then hear an automated message that advises your hand is raised. If you would like to remove yourself from the camera, please press star 11 again. We also ask that you please wait for your name and company to be announced before you proceed with your question, one moment while we compile the Q&A roster.
Dana Telsey: And our first question today will be coming from Dana Tesley of Tesley Advisory Group. Your line is open. Good afternoon, everyone. So a lot to unpack there. Carlos, as you think about the guest brand and the reg and bone brand are the trends that you're seeing globally, similar for each brand in terms of their performance, given a little bit of a different customer. And Dennis, you talked about great and marketing. How much or what percentage is the difference this year versus last year and that cadence between Q3 and Q4 of how you're unpacking it?
Dana Telsey: Thank you. Hi, Dana. How are you? Thank you for your questions. Well, so let me start with your first question about rag and bone. I guess I mean, these are very, very different and complimentary brands. And this is one of the big reasons why we were so excited about having the opportunity to acquire rag and bone with WHP global. Obviously, rag and bone caters to a much more affluent consumer. And it has a very strong position in the marketplace with that consumer.
Dana Telsey: We, that's not the customer that we have at guest. And also the distribution and geographically is very, very different. So, and this is one of the reasons why we were very excited about the opportunities to grow the business right and bone by expanding the distribution into many of the international markets where guests has a very strong position. But rag and bone has almost no distribution. And for that reason, we are so, you know, just invested and focused on the distribution into Europe, for example, you know, Paul has already been marketing a lot of the brands in multiple cities and markets.
Dana Telsey: And we think that this can be an enormous opportunity for the brand to expand that distribution with that customer that is also very present in European markets as well. I think that one of the big differences here too is the fact that this is a completely different, you know, positioning as a lifestyle, which we think complements what we're doing at guest. And we love the idea that it's both women's and men's, the assortment is catering to those two customers.
Dana Telsey: They have a very strong business and women's, but also a very, very strong business and men's as well. And we feel that there are significant product categories that are not yet fully represented in the brands. And this is another one of our catalyst for growth for the brand. So we are working very hardly on finding big opportunities to really add some of this product. The one that comes, you know, to mine very, very, you know, first and top on the list is the whole line of accessories.
Dana Telsey: And, you know, I'm sure you heard and might repair remarks. We talked a little bit about one of those licenses has already been secured for handbags and the teams are working together to increase and strengthen the assortment of handbags for the brand. So, let me stop there, Dennis. Maybe you can jump on Dana's question. Yeah, sure. Thanks. Dana. So, you know, as Carlos said in his prepared remarks that we view this as an inflection point for the company a year of transition where we're making some additional investments.
Dana Telsey: He shared with you the brand study that we did and some of the benchmarking that we've done. That suggests that there are opportunities for us to make those investments, to build awareness for our new brands and new markets where those brands aren't well known yet and as well as to expand the awareness for the guest brand around the world. So, what you see in the second quarter is really the way we're thinking about the rest of the year.
Dana Telsey: We said in the earlier that we've more than doubled our marketing spend in the second quarter and you should think about the full year in that general same perspective that we are getting behind those investments as we went through because of some of the challenges for the year. We looked at opportunities for some expense reductions but we protected those investments because we really believe in them. The way they flow in the quarter to quarter, the third quarter as we said earlier should be the larger dollar increase.
Dana Telsey: So, you'll see the impact on the margins. We're still planning to invest more in the fourth quarter, not quite as much as in the third. But just simply because of the size of the revenue base in that fourth quarter, the impact on the margins will be less impactful than the third quarter. But we expect that that additional investment will go on for the full year. Thank you. Thank you, Dana.
Operator: Thank you and one moment while we go on with the next question.
Corey Tarlowe: And the next question for the day will be coming from Tori. I'm sorry, Quarry, Tarlo. Of Jeffrey, Jalana's open. Great. Thanks. Carlos, I was wondering if you could break down trends for us by geography. And on the America's business, when do you anticipate that we might see a turn in that geography? Thanks. Hi, Quarry. Thank you for your question. So, the trends have been different. You know, just and this is this quarter.
Corey Tarlowe: It's a little bit of a continuation of the trends that we have been experiencing now for a few quarters. You know, starting with America's retail or North America business. This has been challenging. The challenges have started with slower customer traffic in the US first. And now it has extended into Canada. And this continues to be challenging for us. And we have incorporated that kind of trend and falls into the remaining of the year.
Corey Tarlowe: And this is one of the biggest reasons as to why we have, you know, lower our expectations for retail business performance in the second half. The traffic has impacted our sales. And we have not been able to offset, you know, some of that weakness with any of the other KPI metrics that you would expect like an average unit retail or conversion. And we are working and focusing on all the things that we can control to really improve upon this.
Corey Tarlowe: One of the big things that we're looking at is the product assortment, of course. Danum trends is an area that we are very focused on. We see some changes in silhouettes that we are trying to capitalize on. We are looking at what's happening with weather patterns. You know, we saw that summer months and the summer weather has expanded or extended. And we think that we have some opportunities there that we could capitalize on looking at transitional products.
Corey Tarlowe: And that's how we are trying to really improve our assortment or strengthen it. We have tried different promotional tactics or initiatives. And frankly, what we see is that the customer is a lot more sensitive to price. We have been very, very careful with not going into a heavy discounting. And we see that some of our competitors are doing this, but we have been very disciplined in the way we are buying inventory and trying to really keep this discipline in the way we are running the business.
Corey Tarlowe: So the customer will continue to see this brand as a full price brand, as opposed to something that we are constantly promoting. One of the big things that Danus spoke about, and I had a few comments in our preparing remarks, is about marketing and about this brand study that we have been conducting with an external partner. And what we see is that there is probably more that we can do to really increase the level of engagement with our customers.
Corey Tarlowe: We are when we looked at the level of spending and investing in marketing that our company incurred and compared to many others in our industry, we see that we have an opportunity to make deeper investments in marketing. And that's what we are looking at developing a strategy that will do that. So we are looking at incremental investments in social media, collaborations, creating a community of customers, increasing engagement and investing more in our CRM programs.
Corey Tarlowe: So overall, we have a lot of ideas and we are excited about what this can bring. You know, just when you asked me about the different geographies, the situation that I just described for America is very different in Europe. We have had a positive same-store sales growth now for quite some time in several quarters and the numbers were big. We saw a little bit of a slowing in customer traffic as well, but we were able to offset more than offset the weakness with a significant increase in AUR and better conversion rates.
Corey Tarlowe: And we think that this is more a function of what's happening in the marketplace. We think that there is a lot geopolitically that is happening in Europe and multiple points. And we think that that is definitely impacting how the customer is looking at the disposable income and how they are spending and their habits in that. We also know that people are spending more in activities and so forth. This is not something new, but we feel that because the product is a very well-positioned and the assortment that has been very strong, we have been able to more than offset those trends and deliver really strong CRM-store sales.
Corey Tarlowe: We see that also in our wholesale business, which is a very big part of the business in Europe. And I think Dennis mentioned that just these are our wholesale customers. They want to invest in brands that are very reliable, they are planable brands that can deliver product on time to be able to really service the business effectively. And we think that we have been doing a very good job and as a result of that, we have been able to really increase our share with those customers.
Corey Tarlowe: And on top of that, I think that this company has done a lot in terms of newness and adding new businesses. Just our leisure line, for example, is now representative of a very sizable piece of the business. Three or four years ago, that business did not even exist. So all that is also driving growth for the business. Another good example is now guest jeans. This is a category that did not exist, a brand that we didn't have.
Corey Tarlowe: And that is adding to our wholesale business growth, the 10% that Dennis spoke about for spring summer 2025. So, the consumer is definitely going through a more challenging period, they are more prudent, they are more discerning, but we think that we are very well positioned to really take advantage of some others that are having some type of weakness or they are delivering product late and as a result we think that we can take a bigger slice of the market as opposed to having to rely on an overall growth of the consumer base.
Corey Tarlowe: And with respect to the state of the consumer in Asia, that has been challenging and we think that we are not alone in this but we continue to work on improving our product, you know, just if you think about places like China, you know, we had some weakness in the second quarter, we are working with a third party there to help us, we are doing a lot to change the product assortment and be a lot more localized with the product direction and we are doing the same thing with the marketing. And then outside China, you know, just we had some challenging times in Korea, we have a big business there, it's a very profitable business and a good business for us, we think that that is only temporary and we expect to recover, you know, throughout the rest of the year and there.
Corey Tarlowe: Great, thanks so much for all the color, that's the look. Thank you, Kurt. Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone. One more for the next question.
Eric Beder: And our next question will be coming from Eric Beater of Small Cap Consumer Researcher Line is open. Good afternoon. Hi, Eric. Hi, we're talking, you know, I want to step back a little bit, we can talk a lot about the short term here. It's obvious this year you're doing a lot of things for the longer term, you know, what you would be thinking about as the potential goals here, either from wholesale retail or margin wise, looking at this from two years now, when some of these investments start to pull through, you know, there's a lot of moving parts, but if I look at it, it's really a function of that you're planning a lot for the future.
Eric Beder: Help us a little bit in understanding where the potential is here for the future in terms of returns. Thank you. Yeah, thank you. Eric, I'll start and I'm sure Dennis will have thanks to us here. You know, just we try to really focus on the big picture and more of the strategic points that we are looking at right now as a company. Now we consider this year as a year of transformation and a year of investment, like you point out.
Eric Beder: And it's transformation because it's the first time that we're taking this platform and, you know, just expanded it to really receive and welcome a new brand, you know, into our portfolio. This is something we have never done. And it's the first time that we're doing this with Ragnbonne and we are super excited about how things are going there and the opportunities that we see, we couldn't be more excited about the brand itself and the teams and, you know, working with Andrew Rosen and the entire team, which is a top-notch, you know, best-in-class team.
Eric Beder: So we are super excited about that and we think that we have a lot of capabilities in the company in that platform that can be used to really optimize that business and that's what we're going for. And we think that the brand has a lot of potential and it can grow at a fast pace but also to become a very large business. So, you know, it fits all the different characteristics that we will be looking for to add a brand to our portfolio.
Eric Beder: Now, in order to do that, you know, just to do this a lot that needs to happen, you know, just one of those big things is brand awareness because, you know, not having distribution internationally or in Europe primarily except for the UK, you know, just you have to plan the seats there and so for the consumer to really realize what we are doing and what the brand stands for and what it is and experience it. And for that, you know, we think that we have to invest in marketing but also we have to open stores.
Eric Beder: We have to make the line, the collection available for different players in the territory to see it and experience it. And those all those things are happening but they are going to take some time for us to reach. Then you look at even at the domestic business, what it is doing very well, you know, just we have a great host of business during the second quarter and also, you know, just we, the company has a nice chain of stores in full price stores and even in the off-right division.
Eric Beder: We see a lot of opportunity to increase that penetration, you know, that presence in even domestically so we are looking for locations for that as well. And but again, that is going to take time, you know, growing our e-commerce business is going to take time, you know, we are trying to perfect what we are doing there. They have a very meaningful business but it's going to take time. And then you look at guest genes, you know, moving, you know, on to this is a new brand.
Eric Beder: This is something that it basically looks back to our key strengths and part of our DNA, especially with denim. But it's a new brand and we are trying to take it to a younger consumer. This is also required significant visibility and more marketing investments and we are doing that but we feel that it's going to take some time to be able to do that as well. We open two stores, one in Amsterdam, one in Berlin, that just happened.
Eric Beder: We have some other locations that we are going to open, one here in LA, an incredible location but it's going to take some time to build the store. We are also going to open one location in Tokyo, in Japan. We have several others that we are looking at but, you know, just the customer has to see that and experience that and understand the product. We are happy with the initial reads that we are having in wholesale, especially in Europe with the introduction of the guest genes brand there.
Eric Beder: And we have exceeded our initial expectations and, you know, of course, it's early but we feel that we are on the right path and we continue to improve the product assortment. This is something that is going to be an ongoing process. Then you look at all the other things that I mentioned, you know, the marketing opportunities that we see as a company I'm talking about. But again, this is more investment. We are looking at some other ways to really improve our decision making and the lines of accountability.
Eric Beder: We think that this is going to take additional investment in terms of talent. And we are very actively involved with several searches today and I mentioned Chief Commercial Officer, I mentioned Chief Digital Officer. We also have a, you know, position for head of human resources in Lugano, Switzerland that we are looking for. Now with Marcus leaving, we are looking for a permanent Chief Financial Officer. And we think that these are all big opportunities for us to bring strong talent in.
Eric Beder: So, you know, just how stuck they are, Dennis, do you want to talk a little bit about capital? Yeah, I think, you know, I support everything that Carlos just just said. And if I look at this through a financial lens, you know, we have a very strong balance sheet. We have generated very strong cash flows. And important for us to support that longer term vision is to make sure that the capital structure is ready and prepared for that.
Eric Beder: So, you know, the last couple years we have essentially refinanced the vast majority of our 2024 converts. Those are now been pushed into 2028. We expanded our US credit facility to accommodate the Reagan bone. We just expanded another 100 million euros in Europe to add additional capacity. So, you heard on the call earlier, we have $600 million of available liquidity. You know, opportunities don't always present them themselves in a predictable way, but we want to make sure that we are ready to support the growth for this business.
Eric Beder: Okay. All right, guys, thank you and good luck in the hall. Thank you, Eric. Thank you.
Operator: One moment for the next question, please. And our next question will be coming from a reseal center of UBS. Your line is open. Great. Good afternoon. Thanks for taking my questions. Guess I just wanted to get more details on a rag and bone business. Could you give us some details on, you know, an idea like the gross margin profile versus guess and Marciano brands just curious to see like if the impact that you saw on operating margins was more related to gross margin or just like a higher S.G.N.A, cost structure.
Operator: And then maybe I'll just curious to hear more details about what you're seeing across the consumer in Europe. I don't know you talked about it before, but just like on some of your key regions would be good to hear because I guess I see the wholesale businesses performing very well, but TTC is slowing down. So just want to understand also there what's the dynamic behind that. Thank you so much. Yes, Mauricio, thank you, Carlos.
Operator: With respect to rag and bone, you know, we are not in a position to start giving different margin numbers or things like that. We are just giving you as much color as we can. So then you can appreciate the business seasonality and also you can model the business appropriately. But you know, I can tell you that of course these are significantly higher prices than what we have in the gas portfolio. And the margins are very healthy.
Operator: And you know, just the company has been very disciplined and not promoting significantly here ever, which is something that we find very appealing because you know, just the brand has been in business now for over 20 years and they have always been so, so careful with how the brand is presented to the customer. And they have never been, you know, just in a position even if business was difficult over those years, they have never been in a position to really discount the brand significantly.
Operator: So we benefit from that today because I think the customer sees the brand as a pristine offering. The one thing that is very interesting here is that similar to gas, the brand has a great distribution that is multi-channel. And we see that it's also a big advantage because in many cases, you know, just what we learned at retail, we can use to really improve our wholesale business and vice versa. In this case, the businesses are very synergistic.
Operator: We think that those are very beneficial to optimizing both businesses. And then you know, just with respect to the European consumer, which was your second question, you know, just as what I mentioned is that, yeah, we did see a little bit of a deceleration week. We don't know exactly if this is more a function of what's happening with the weather patterns in Europe, you know, just we saw that the summer got extended, you know, just that they were, you know, several weeks, you know, after the clearance period, where you would expect that, you know, just the new product, the full product would start selling.
Operator: And that did not happen with the same level of intensity as in prior years because the weather was still so hot throughout Europe. So, you know, just as difficult for us to really know exactly if those trends were more a function of weather or if they were a function of the consumer being not as intensely focused on shopping for our categories during that time. Just in case, you know, we think that the weather patterns are changing.
Operator: And for that reason, you know, we are really looking at, especially at transitional seasons, like, you know, the June July timeframe and January February timeframe, we are looking at changing some of those transitional collections to really make those those seasons more extended in summer months and in the winter months. And I'm playing with fabrications that would be more conducive to those weather patterns. You know, just with respect to the European region, of course, it's a very challenging thing because this is not one area that is, you know, behaves in a very homogeneous way.
Operator: There are multiple markets there that are behaving very differently. You know, we continue to see very strong business trends in Turkey, for example. We have seen, you know, just different patterns in countries in the southern region versus the north. And we, it's very difficult to generalize here, you know, as to the European consumer. But we feel that, you know, just we have a big opportunity to continue to deliver same-store-sales growth there.
Operator: One of the issues that impacted us, especially on conversion, was that with the slowness in the delivery of products, you know, just we saw that because of everything that is happening there, coming to Europe and we have a lot of products that is coming from China. You know, just those supply chains were disrupted, similar to what we experienced back in the COVID days. And we have seen like a delay of about three weeks, you know, in general depending on the time.
Operator: But, you know, in the towards the end of the second quarter, that was exactly the case. And in many cases, we didn't get the product on time and we think that that impacted negatively our conversion rates. So we made a strategic decision to really invest in air freight in some cases just to make sure that we protect the business for both our retail business but also our wholesale business. And that's one of the reasons where you saw an increase in environmental freight for the remaining of the year.
Operator: One of the reasons is that freight rates are higher. But another reason is that we are choosing alternative methods to bring the product faster so that we can protect the business. Karl, very helpful. I just could one quick follow up. You also mentioned that you're looking for ways to reduce the operating expense in America's retail. Could you talk about maybe some of the initiatives that you are looking into, you know, to just have like a better margin in that division?
Operator: Thank you. Yeah, I'll start on Dennis. You can jump in. But, you know, just at the, the biggest issue here has been that, you know, when you have negative costs like we have experienced, it's just, and you're running stores. It's just very difficult to really follow, you know, just the contraction of the top line with a lot of the costs that are in nature fixed. So, you know, what we are doing is just looking at every area where we could contract costs to really protect the profitability of the business.
Operator: And when you look at that, you know, there is very little that you can do an occupancy, for example. There is very little that you can do in some of the margin numbers, you know, just a gross margin other than protecting, you know, pricing, which we are doing. But then there are some variable costs like payroll in the stores, like other variable costs within, you know, supplies or anything that is variable.
Operator: And we are trying to really be very, very careful with that. So, you know, just if you looked at our performance in the second quarter, we were able to respond to the negative same store sales with a lower cost at the store level. Of course, this is a double-edged sort here, because what we don't want is to really impact negatively our conversion opportunities. We want to provide a great customer experience to our customers and, you know, to do that, you have to have very good coverage on the sales floor.
Operator: And we are doing that. But, you know, just being more careful with how we devote those hours has been, you know, just a good, you know, way to really control costs. And then we are looking at other areas that are not necessarily at the store level, but things that we think that we can be more careful with, you know, just we are looking at our organizational structures and trying to see how we can be more efficient in certain areas.
Operator: And then there is one big line item that also impacted our outlook here. And it's, you know, a variable compensation, because, you know, as we saw that the distance and our results are not going to be in line with what we expected, you know, that is going to drive a lower variable compensation pay. And that is a big number. And that is included in our outlook. What we did not touch is, and this has been completely intentional is our marketing budget, because we think that like we said in our remarks, this is a big opportunity for this company.
Operator: And we are going to protect it. And we are going to go because we are not running the company for the next quarter, but we are thinking about the long term. We want to build like Eric was saying before, you know, just we are doing things for the long term. And we think that we have an incredible opportunity in front of us with what we have, you know, guess has big opportunities in multiple product categories and in multiple markets, you know, we have a market like India that is growing really in a very aggressive way.
Operator: We have opportunities in the Middle East where we think that there is a big, big plan, you know, just we are working with a great partner, Shalu organization. They are a new partner for us, you know, for the last two or four years. And we see a lot of opportunities to grow. They are in their multiple markets like that. We don't want to really stay, you know, just on this sidelines when we have an opportunity to grow the business. And then, you know, right and what I talk to quite a bit about. Got it. Very helpful. Thank you so much, and good luck on the holiday. Thank you, Mauricio. Thank you.
Carlos Alberini: This feels good to include the Q&A session for today, and I would like to go ahead and turn the call back over to Carlos for closing remarks. You have the floor. Yes, thank you. Well, thank you all for your participation today. I'm sorry if we weren't long in several answers, but, you know, we're excited. We are pleased with our progress in a year that we are calling of transformation and investment, as I said.
Carlos Alberini: This we've remained very, very excited about our future, and we look forward to speaking with you at the Goldman conference that is coming up on September 4th. So thank you again, and we see you soon. Have a great day.
Operator: Thank you all for joining today's conference call. You made this[inaudible]