Guess' Inc. (NYSE:GES) Q1 2020 Earnings Conference Call Transcript

Jun 06, 2019 • 04:45 pm ET

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Guess' Inc. (NYSE:GES) Q1 2020 Earnings Conference Call Transcript

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Executive
Carlos Alberini

a better place. With a sharing of our vision statement with our entire team, we officially launched our strategic planning cycle this year. At the end of the conference, key members of our executive team stayed on to kick off the process. The team is already working hard to complete the project and as I committed to you during our last call, we plan to come back to you with an update on it after the end of the summer.

In the meantime, we continue to make solid progress on key projects that we have launched applying the key principles that I mentioned before to take advantage of value creation opportunities for our Company. Let me start with capital allocation. As we reviewed the value creation opportunity relative to our operating performance and our expected future cash flows, it was clear to us that there is material incremental value in our Company, as we take actions to improve our operating performance. These represent changes that are completely under our control, and we plan to attack in the short to medium term. For this reason, we made a strategic decision to redeploy capital and return incremental value to our shareholders through significant share repurchases, while reducing our dividend by 50%.

As you know, our Board approved a plan to raise $300 million in convertible debt, which we executed during the quarter and the majority of the net proceeds have already been deployed or have been committed to repurchase stock. We expect the impact from the convert transaction and share repurchases to be accretive to our adjusted EPS this year by $0.10 per share. We are really excited with the transaction, as we achieved very favorable terms. Our interest coupon is 2% and we were able to buy a bond hedge and warrants to eliminate the economic dilution unless the stock price exceeds $47. With the shares repurchase so far and the completion of the ASR, we expect to buy about 17% of the shares that were outstanding at the beginning of the year. And we believe the incremental value to shareholders over time will be very material.

At the same time, we'll continue to prioritize our capital allocation towards investments that support growth and infrastructure, based on their strategic significance and the return on invested capital expectations. Additionally, we have already taken steps from an inventory management perspective to ensure that inventories are planned and managed in a very disciplined way. The results of this actions are already materializing in our inventory forecasts for the remainder of the year.

Second, product development and distribution optimization. As I mentioned last time, we have a number of key product categories such as denim, accessories, Marciano and men's, that if better assorted and represented in stores and online can drive incremental sales for us. For instance, we have already implemented plans to increase capacity for our denim product in 219 of our stores globally for foreign holidays. This includes 90 stores in the US.