Guess' Inc. (NYSE:GES) Q3 2019 Earnings Conference Call Transcript

Nov 28, 2018 • 04:45 pm ET

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Guess' Inc. (NYSE:GES) Q3 2019 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good day everyone and welcome to the Guess Third Quarter Fiscal 2019 Earnings Conference Call. On the call are Victor Herrero, CEO and Sandeep Reddy, CFO.

(Forward-Looking Cautionary Statements). Now, I would like to turn the call over to Mr. Victor Herrera. Sir, you may begin.

Executive
Victor Herrera

Good afternoon, everyone. I am very pleased to report another quarter of a strong operating performance with double-digit revenue growth, adjusted operating profit growth of 70% (ph) and adjusted operating margin finishing higher than our expectations despite unexpected currency headwinds. This was our second consecutive quarter of double-digit revenue growth and the first time in eight years that we achieved double-digit revenue growth in the third quarter.

It is important to note that this is another quarter of positive comps in all regions. This is an exciting time for our company and our turnaround is gaining momentum as we relentlessly execute the five strategic initiatives, I lay out over three years ago. As we review the results of different regions, I will point out the link between our results and execution of these strategic initiatives.

Let's start with Europe. European revenues for the quarter grew 15% in U.S. dollar and 20% in constant currency, continuing the momentum from the successful implementation of our strategic initiative to elevate the quality of our sales and merchandising organization. The growth was driven by new store openings and increase in wholesale revenues and positive comps including e-commerce, up 8% in U.S. dollar and up 12% in constant currency.

The comp increase marked the 13th consecutive quarter of positive comps for the European region. During the quarter, we opened 20 directly operated stores in Europe. We opened stores in Italy, Spain, Turkey, Greece, UK, Hungary, Germany, Austria, Russia and Poland. This quarter is the first time the number of directly operated stores in Europe has exceeded the number of directly operated stores in the Americas.

Our European wholesale business also continued to be very strong. We closed our fourth consecutive season of double-digit growth in the Spring/Summer 2019, extending our progress in our strategic initiative to revitalize the wholesale channel, encouragingly the growth of the European wholesale channel is still coming predominantly from higher same door buys indicating increasing productivity for the wholesale partners.

The European segment margin contracted by 120 basis points primarily due to the pressure for incremental distribution costs related to the move of our distribution center. The pressure from these distribution cost on segment margin moderated comparing to the first half of the year.

Moving to Asia, third quarter revenues were up 20% in U.S. dollar and 22% in constant currency. Revenue growth in the region was driven by positive comps including e-commerce, up 8% in U.S. dollar and up 9% in constant currency and by new store openings. Performance in the quarter was driven by strong performances in China and Japan as these markets continue to take larger shares of our Asian business.

Our e-commerce business in China especially with Tmall continues to grow at