Victor Herrero - Chief Executive Officer and Director Sandeep Reddy - Chief Financial Officer Michael Relich - Chief Operating Officer

Erinn Murphy - Piper Jaffray John Kernan - Cowen & Company Dana Telsey - Telsey Advisory Group Eric Beder - Wunderlich Securities Betty Chen - Mizuho Securities Robert Ohmes - Bank of America/Merrill Lynch David Glick - Buckingham Research Dorothy Lakner - Topeka Capital Markets Randal Konik - Jefferies & Company Thomas Filandro - Susquehanna Financial Group Janet Kloppenburg - JJK Research Associates Jeff Van Sinderen - B. Riley & Company

Good day, everyone and welcome to the Guess? Third Quarter Fiscal 2016 Earnings Conference Call. On the call are Victor Herrero, Chief Executive Officer; Michael Relich, Chief Operating Officer; and Sandeep Reddy, 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 financial outlook. The Company's actual results may differ materially from current expectations based on risk factors included in today's press release and the Company's quarterly and annual reports filed with the SEC. Now, I would like to turn the call over to Victor Herrero.

Good afternoon and thank you for joining us today. We are very pleased to report that our third quarter earnings per share was $0.15 what is above the high-end of our guidance. Our operating earnings and margin were also above the high-end of our guidance we gave three months ago. Sandeep will talk more about the quarter results later in the call, but let me start by giving you an update on the progress that have made on our key initiatives. On the first initiative which is to elevate the quality of our sales and merchandising organization, we have to start to elevate the product knowledge of our entire organization, already we have implemented sales workshops including product training for the field and store employees. In addition we have introduced enhanced bestsellers’ reports that are resulting in review of merchandising on the sales floor to maximize sales of bestselling products and categories. Number two, we have hired a new Director of Social Media. As I mentioned during our last earnings calls, I consider digital marketing and social media capability to be critical for interact with our existing customers and gaining new customers. Number three, one of the big changes that we have already started to make is to ensure that the visual merchandising in our windows and in our stores is more commercially focused to ensure that the display, the display emphasizes bestsellers and diversity of categories in our lifestyle brand. Additionally the most crucial element of store management is to ensure that replenishment of product is our top priority. The key to this is to being in full control of the stockroom in every store to make sure that product from the stockroom moves to store shelves very quickly and at the same time meet for replenishment as communicated to corporate headquarters. Number four, plan of promotional cadence in retail calendar at the store district regional and national level is already underway to take advantage of micro-events that may occur at a more level and our store strategies and also more macro-events that are related to state or national holidays that will then relate to stores at a regional or national level. Number Five, we are in the process of hiring product managers who will be the interface between the sales organization and the merchants our corporate headquarters to ensure that the feedback from the consumers at the store level is incorporated into the merchandising planning and allocation process. Number six as I mentioned last time, we are aligning pricing between market and product categories, a specific example of this alignment of market pricing is in Europe wherein some cases we have had different retail price points for the same size within the EU countries where the currency is the euro. These differences have been eliminated. In addition, in some cases the relative pricing across product categories need to be realigned to ensure that pricing across the assortment is consistent and delivers the right value to the consumer regardless of product category. On our second initiative which is to build a major business in Asia, since our last earnings call, we have taken the following steps. Number one, we have hired a new Director Operator China a colleague of mine from my days at Inditex. I am very excited about these great first steps in building our business in Asia. Number two, we have hired a Director of the Middle East, India and Southeast Asia, also a former colleague of mine from Inditex. Number three, we have doubled our capital allocation to grow in stores in Asia. Number four, we have begun accelerating our e-commerce business in China through Tmall, JD.com, and Guess.cn. On our third initiative which is to reinforce a strong culture of purpose and accountability throughout the organization I am laser focused on the execution of our strategy. And my observation during these past few months is that there is nothing wrong with our strategy but we have a lot of room for improvement in our execution. Execution is a meeting link between aspirations and results. Execution is a systematic process for redelivering, discussing what to do, how to do it and why we do it, question internationally following through and ensuring accountability. This is so important to the improved results of our company that I have personally become involve in most of the substance and the details of our execution. I am not only the company’s Chief Executive Officer I am also its Chief Execution Officer. I am very aware that leaders get the behavior that they exhibit and that they tolerate. So in the past four months I have personally visited many of our stores, mostly unannounced to discuss execution issues directly with our store managers, because the discipline for execution doesn’t work unless people are schooling it and practice it consistently. It doesn’t if only a few people in the system practice it. Execution has to be part of an organization’s culture driving the behavior of all leaders at all levels. Organization don’t execute unless there are right people sincerely and collectively focus on the right details at the right time and on less rewards are linking to performance. I promise you that I have the emotional fortitude to put the right people in the right jobs to develop our social architecture of working together and to significantly improve the culture of execution of our company. On our fourth initiative which is to improve the cost structure we must be disciplined about. Number one, the optimal use of capital by allocating capital in accordance with growth opportunities. Number two, identifying synergies among departments to avoid duplication of cost and resources. Number three is strengthening the supply chain. We are increasingly using suppliers based on proximity to our core markets, also the continued improvement of fabric management i.e. securing trend fabric for the new season either internally or through our suppliers and maximization of open to buy resource in more competitive production cost. The supply chain is further strengthened through shorter lead times, through partnering with our suppliers, ability in the production process and the continued search for new suppliers as well as sourcing markets in reaction to new trends and ideas. Finally in our fifth initiative which is to revitalize the wholesale business. The main focus here is on partnering with our wholesale clients to infill our retail oriented mindsets and encourage the adoption of retail based practice including high quality source merchandising, frequent rotation of product and maximization of inventory turns. Before turning over to Sandeep to discuss the results of our last quarter you saw in our annual release that during the quarter we will purchase 2 million shares of our stock. Prior to my arriving to Guess? Paul Marciano built a strong balance sheet for the company, I was very lucky to have inherited such a strong balance sheet because the combination of the strong balance sheet and the ability to consistently generate free cash flow after that, the opportunity to pay a healthy dividend and at the same time to opportunistically repurchase our shares. I feel privileged to be the CEO of a company that not only has a dividend paying stock, but also has the financial flexibility to take advantage of price volatility in the financial market. I will now turning over to Sandeep to discuss our operating results.

Thank you, Victor and good afternoon. During this conference call, our comments may reference certain non-GAAP measures. Please refer to today's earnings release for GAAP reconciliations or descriptions of such measures. Moving on to the results, net earnings for the third quarter was $12 million. Diluted earnings per share was $0.15 which includes a negative impact of roughly $0.13 due to foreign currency movement. This compares to the diluted earnings per share of $0.24 in last year’s third quarter. Earnings per share declined 38% versus prior year including the negative foreign currency impact of roughly 55%. Third quarter revenues were $521 million, down 4% in constant currency and down 12% in U.S. dollars versus prior year. This was within the range of our guidance with a stronger than expected performance from Europe being fostered by relative softness in Americas region. Total company gross margin decreased 100 basis points to 35.3%, primarily due to the negative impact of currency. This decline in gross margin was slightly worse than our expectations as due more promotions than we plan to be in Americas retail during the quarter in light of the lower than expected sales of Liberty. SG&A as a percentage of sales decreased by 80 basis points versus prior year, primarily driven by lower impairment charges and partially offset by zero deleverage. Operating earnings for the third quarter was $21 million. Our operating margin finished down 20 basis points to 4%, including the negative impacts of foreign currency of roughly 170 basis points. Our effective third quarter tax rate was 38%, up from 33% in the prior year’s third quarter given the distribution of earnings between quarters and a larger mix of earnings in higher taxable jurisdictions. Moving onto segment performance, revenue for the Americas Retail segment decreased 3% in constant currency and 7% in U.S. dollars. We finished the quarter with comps down 2% in constant currency and down 6% in U.S. dollars. The results were below our expectations and were partly driven by the duration of performance in our tourist stores as well as overall lower average unit retails as we were more promotional. Additionally, the lower than expected weather since Labor Day negatively impacted our sales of cold weather tow notably outerwear. E-commerce, which continues to be one of our top priorities, had another strong quarter and delivered top-line growth of 18% in the quarter, marking the 17th consecutive quarter of growth in the U.S. and Canada. In terms of product, we were pleased by the overall performance of our women's category, as we posted positive comps in constant currency. Continued strength in dresses, wovens and knit tops drove the women’s performance. On the accessory side, we saw a continuation of softness in the watch category, as well as a slowing in our handbag and footwear categories. In Europe, third quarter revenues were down in constant currency and 15% in U.S. dollars. Retail comps in the region was very strong and were up in the low double-digits for the quarter. This was above the high end of our expectations and we are very pleased with the improving strength in the business as we posted positive comps in almost all countries including Italy and Iberia where we posted double-digit comp increases. This was more than offset by lower wholesale shipments for our fall winter collection consistent with our expectations. In Asia, third quarter revenues were down 9% in constant currency and down 17% in U.S. dollars. We were encouraged by the improving performance in Mainland China where we achieved positive comps in our retail stores. However, this was more than offset by a shift of wholesale shipments to our franchises in China into the fourth quarter. In Korea where we have nearly completed the phase out from our G by GUESS business, we saw a definite sequential improvement in comp trends relative to the second quarter. In Americas wholesale, third quarter revenues were down 3% in constant currency and down 12% in U.S. dollars. The decline in constant currency for the segment was primarily driven by softness in our U.S. wholesale business. Royalties generated from sales by our licensee partners were down 13% at $28 million, primarily driven by softness in watches. Moving on to the balance sheet, accounts receivable was down 8% in constant currency and down 17% in U.S. dollars. Inventories were $373 million, down 2% in constant currency and down 10% in U.S. dollars versus last year. Free cash flow for the nine months was $24 million, compared to a use of $58 million in the prior year first nine months, an increase of $83 million. This improvement was driven by changes in working capital and lower capital expenditures. As Victor mentioned earlier on the call, the Company repurchased 2 million share of common stock for $44 million during the quarter. At the end of the third quarter roughly $450 million of our previously improved share repurchase plan remain available. We ended the quarter with cash and cash equivalents of $402 million compared to last year's $375 million. During the last nine months we have returned $102 million to our shareholders in the form of dividends and share buybacks. In the year like this with significant headwinds from currency, we think it is n important to focus on the underlying results excluding the impact of currency. For this reason we have provided a table in the press release that shows the impact of currency on sales of each of our segments. With nine months of the year behind us, from a profitability point of view, we estimate that currency fluctuations negatively impacted operating margins for the company by approximately 130 basis points. Moving on to our guidance, excluding currency impacts the top end of our full year guidance reflects nearly 30% EPS growth and operating margin expansion for over 200 basis points. Our full year guidance assumes that the currency headwinds will impact EPS by roughly $0.40. In order to give better visibility to the underlying trends in our outlook, we will also provide constant currency metrics when applicable. Please note that guidance for revenues and comp sales by segment is included in the table in the press release. Please refer to this table for guidance by segment as we will only provide brief color on underlying segment drivers for the company guidance in the prepared remarks. For the full year we continue to expect consolidated revenues to be down 1.5% to down 0.5% in constant currency. At prevailing exchange rates we estimate that the impact of currency headwinds on consolidated revenue growth will be approximately 8 percentage points for the full year. For the full year we expect gross margins to be roughly flat due to the lower average unit costs, lower mark downs and targeted price increases offset by the currency headwinds. The SG&A rate is now expected to be down for the year. Our expectation of the tax rate remains unchanged at a 36% for the full year. We are planning an operating margin between 5.5% to 6% and the impact of the currency headwind of roughly 130 basis points and our guidance assumes foreign currencies remain roughly at prevailing rates. Earnings per share is now planned in the range of $0.93 per share and $1.02 per share. The earnings per share guidance included the currency headwind of roughly $0.40 per share. For the full year we plan to manage our CapEx carefully and opportunistically by investing between $55 million and $65 million in capital expenditures net of credit allowances. Moving to the fourth quarter, Americas retail comps have been down in the low single-digits in constant currency but sequentially slightly better than the third quarter in the lean up to Black Friday. In Europe our retail comps so far in the fourth quarter have been up in the low single-digits down sequentially versus the third quarter as we're up against stuff compared from November last year. In Europe wholesale our spring summer order book has closed and we finished down 8% versus prior year mainly driven by softness in Russia, France and the Middle East. The softness in the Middle East is driven by a heavier than planned inventory position for our partner. In Asia so far in the fourth quarter comps in Mainland China continue to be positive as we see strong demand for our brand there. Considering all these factors for the total company in the fourth quarter we expect consolidated revenues to range from decline of 1.5% to an increase of 1.5% in constant currency. At prevailing exchange we estimate that the impact of currency headwinds on consolidated revenue growth will be approximately 5.5 percentage points for the fourth quarter. For the quarter we expect gross margins to be roughly flat due to the fact that positive price increases lower markdowns and lower average unit costs are expected to be offset by the currency headwinds. SG&A is expected to be down in the quarter as a percentage of sales. We're planning operating margin between 11% and 12%, including the impact of the currency headwind of roughly 170 basis points. Earnings per share is planned in the range of $0.53 per share to $0.62 per share and is not assuming any share repurchases in the quarter. The negative impact of currency on earnings per share in the quarter is estimated at $0.18. Excluding the negative impact of currency, operating margins and earnings per share for the quarter are projected to be up versus the prior year quarter at both low-end and high-end of guidance. To conclude our remarks, we are broadly satisfied with the progress we've made in the past nine months and are looking forward to executing our plans for the holidays as well as making progress on the strategic initiatives that Victor has outlined. With that, I will conclude the Company's remarks and open the call up for your questions.

Thank you. We will now begin the question-and-answer-session. [Operator Instructions] And our first question comes from Erinn Murphy from Piper Jaffray. Please go ahead.

I was looking to talk a little bit more about the North American promotional environment, a little bit more promotional as you said post-Labor Day, how you're anticipating that to address the holiday season and any key differences in terms of what you're seeing at wholesale versus retail right now in the Americas would be helpful?

Hi, Erinn, it's Mike. Going into Labor Day, Labor Day it was still on a Wednesday this year so it was a little strange for us whether the crowds going to come and before or after, we found out that the sales we can materialize it's kind of overt situation. So obviously if we would thought a little more aggressively so we wanted to keep our inventory in line with sales and so that's we were little bit more promotional. Now going into the fourth quarter it's the same thing, we want to manage our inventories well but we want to be make sure that and it is a very competitive environment that we price accordingly and meet the competition at times when the traffics in the mall and when it's not in the mall, there is no reason to giveaway margin. And so I think that we will be promotional and may be a little more the next year but we definitely have to meet the competition.

And then I guess my feeling for you just on the wholesale margin the North American margin in the quarter it was a little bit worse than we anticipated and is that just the retailers coming down back to more markdowns dollars or is there something else specific to that? And then should we anticipate the wholesale margins continue to lie at least about the year?

So, right, I mean there is really three components there so one is currency, we have a wholesale business in Canada and that's basically and also in Mexico so no subject to currency so that was part of the margins decline. The second piece is, Victor is -- one of his initiative is to really align pricing and make sure that we're competitive and that we're offering value for the dollar and this was affected us in the U.S. wholesale market.

And our next question comes from John Kernan from Cowen & Company. Please go ahead.

Victor, one of that you could talk a little bit more about Asia you obviously part of very robust platform at your prior [indiscernible] can you help us understand how you reinvigorate the top line for Guess? within Asia and help that you think the segment can be at least you start to restore some of the profitability?

Basically we are focused at this moment in China and particularly in online and also retail stores, so we will open several stores in China and as well as I mentioned in my call what we're going to do reinforce our operations online with Tmall reinforcing a little bit our presence there as well we open as we speak gd.com and we are going also open our guess.cn.

And then I guess Sandeep can you talk a little bit about the lingering effects that might continue into next year, you're guiding to a pretty significant hit in the fourth quarter so I am assuming there is going to be from lingering effect as we go through the first half of next year, can you help us understand the transactional headwinds that you may face to gross margin next year?

Yes, John, this is Sandeep and you're right, I think what we've talked about currency headwinds we've had both the transition and transaction with the transaction being more significant, but remember in the first half of this year we already had hedges lot in a pretty favorable rates and as those rates started rolling off those figures start rolling up, we potentially are going to see a bit of headwind in the first half of next year after the first half of next year as we go into the year. And so it is too early for us to guide on this, we will actually guide on this specifically in March.

And our next question comes from Dana Telsey from Telsey Advisory Group.

You spoke about speed and shortening the lead time. Where do you think you could get to and what are the guide post that we should be watching for to increasing speed whether it’s the proximity forcing, whether it’s a change in fabric vendors that you are using, how should we think about it and what could it mean overtime?

Well for the time being I cannot answer the question because we are on the process of trying to improve a little bit speed but at the same time all these actions as you just mentioned and the actions that I just mentioned in the call will be basically the strategy in order to reduce lead times.

And then on the wholesale business, where are you on the wholesale business in terms of overseas and here in the U.S. in store shops, order trends in terms of what you are saying and just lastly how is denim doing versus the other categories? Thank you.

So let me start with the European wholesale book because that’s where our whole material wholesale business is and then I think Mike will actually pick up on the rest of the business as well. But I think on the European wholesale business which close to spring summer ’16 overload and we finished down 8% which sequentially was a slight improvement against fall winter ’15 which was down 10%. If you look at the drivers of this decline, the drivers were Russia and France which were the same offenders last time as well unfortunately but sequentially we saw a bit of an improvement in France while Russia has remained in the same trend. The place that is actually a new factor this time is the Middle East where our partners got a bit of excess inventory that they came and their orders basically has been adjusted accordingly and that’s what was a big driver. The good news is if you actually take out these three regions, the most of the markets are actually doing fairly well. Italy has been relatively flat for a while, Spain and Portugal are doing better too. So we are pretty comfortable that the health of the European wholesale business is improving relative to where it used to be.

Yes, and Dana looking at North America there is only components there with Canada and the U.S. and then Latin America which is Mexico and Brazil. So we are seeing relative strength in Canada and in Mexico and the wholesale business is doing well there. In the U.S. the trends pretty much configured from Q2 the department stores are taking conservative approaches to the receipts and we are continuing to see that. Now the second part of your question was with respect to denim. So in denim we really see kind of a split here. In our premium basics which is Smart GUESS, that would be the Flex, The Knit Denim, New Cut, the Shape Up, the Push Up et cetera we are actually seeing really healthy sales and the customers are reacting to these quite well. The problem is that we more than offset by weakness on our denim wall which is the five pocket basics. Now before in that wall we had about 16 different skews and we are reducing that down to eight and we had quite a bit of inventory that we had to work through and so we didn’t really initiate any newness into the wall and I think silver was a soft because of that. So now that we are getting inventories back in line and we plan to start to see newness there and try to get some strength back in the basic denim business.

Your next question comes from Eric Beder from Wunderlich Securities. Please go ahead.

Victor when should we start to see the gains from your three new initiatives and how should we look upon that as kind of when should we start to see that in the financial numbers?

Well I think that we have already seen some progress but I mean I cannot quantify at this moment the progress. But definitely we are very consistent on continuing with these three initiatives and hopefully we will see some results soon.

And when you look at Europe your comps are doing positive there, is there a thought process in terms of rolling out new stores TOWARDS Europe, how do you look upon that as a growth vehicle here?

Anywhere take opportunities anywhere in the world particularly in Europe as we are increasing our sales, we will be steady and will be identified and whenever we have good opportunity we will try to open stores wherever in the world we are.

Our next question comes from Betty Chen from Mizuho Securities. Please go ahead.

I was wondering if you can talk a little bit about the new Americas business, it sounds like the accessory category may have seen softness around watches and I think the ultimate handbags and shoes, what do you think is needed is that perhaps the mind set is shifting away from the category or we just need to see some revamp in units. And related to that Mike I think when you talked about ready to be investing unit in the basic denim category, should we start to see that in Q4 or is that more spring 2016?

Okay, to answer the denim question that’s probably in spring as we will see that but talking about accessories yes we did see some weakness in accessories, specifically around the watch category and watch category has been trending down for quite some time not just for us but for all our competitors and so, yes, we continue to see weakness there. Although so far this month is a slight sequential improvement but it's nothing major. Now looking at shoes, shoes is something where we bought heavily into booties and goods really more cold weather categories and they were performing well in Q3 in Canada in the cold weather areas, but we had a seasonally warm weather in the East Coast to West Coast and it suffered, well now that actually it's gotten cold, we’d actually in Q4 we are positive in shoes. So that is what is cooperating, so that’s the category that is doing much better now given that the seasonal different buys are cooperating with the weather. And then the last thing you mentioned was handbag. Handbags we have very well fairly lean assortment Dilanian or LUX and just quite frankly getting a little boring and from direct customer feedback we heard that they want a little more variety. So we have responded, and we bought a little bit wider in the assortment and going into Q4 was going to affect sequential improvement there in handbags.

I have follow-up also regarding China, it sounds like you’ve been building behind the team now hiring talent basically also expect that acceleration in store roll out and is there any way you can quantify the number of openings we may see starting next year?

For the time being I don’t have kind of visibility on the number of stores, so the number or when it's going to happen, but definitely we will open the several stores or few stores or many stores during fiscal year 2017. Regarding that, I think that we have seen some improvement already as Sandeep said basically we have positive comps in China and Greater China.

And our next question comes from Robert Ohmes from Bank of America/Merrill Lynch. Please go ahead.

Could you guys talk a little bit about the licensing revenue business, it was down I think 13% in the quarter? And just sort of thoughts on what that could trend like in the fourth quarter and maybe into next year and sort of what categories are pressuring, are causing the decline in that business? Thanks.

Yes the licensing revenue is kind of below our expectation and that was mainly driven by watches wear stuff. Now I was looking at the portfolio guidance, we’ve changed the guidance slightly we are guiding to be down in the mid single-digits versus prior guidance of low single-digits and that’s mainly driven by watches. Now keep in mind that licensing business is just a wholesale business and it's subject to the same timing issues that we see in our own business where you can take orders in these shipments. And so there is some volatility there now with respect to next sure we’re not guiding for next year yet.

And our next question comes from David Glick of Buckingham Research. Please go ahead.

So just a quick follow-up on licensing, because your guidance is down low singles in Q4, so it does sound like there is some in addition to watches there were some timing issues is that how we should think about the different between Q3 and Q4?

Yes, it's due to timing.

And then I just had a question on Europe and you said you had tougher compared to really strong third quarter comp slow from low doubles to low single-digits. Obviously there has been a lot of press reports about retailers and tariffs and Brussels seeing obviously a big slowdown in their business, I am just wondering how much of the deceleration is a function of some Turkey gateway cities, what are you seeing in terms of the tourist traffic is it just really centered and because transfer gateway size business for you if I am not mistaken. How are you thinking about that and how has that factored into your guidance and what’s clearly an uncertain situation?

This is Sandeep. So let me kind of help you with this because in Q3 we actually had a relatively easier compares because comps last year were down in the mid-single-digits in Europe and so we were up against that we deliver the low double-digit increase and it was as we said in our prepared remarks very strong across the board Italy and Spain especially double-digit comp increases, so very pleased with that. As we rolled into the fourth quarter, and in November specifically last year comps actually sequentially improved quite significantly in Europe, so we’re up against tougher compares and so the comps went from down in the mid-singles to up in the low-singles in November and so considering that for us to be up in the low-single against that on the stack races is not that different from where we were trending in Q3. And I think more specifically when you talk about the terrorist attack in comparison and the tragedy surrounding it, we were expecting to see a much bigger drop in comp trends then we’ve seen. It's softened, but not opportunity and we really haven’t broken trend the whole lot in aggregate across the entire region. And so we feel especially encouraged that it's been a couple of weeks in that incident and there hasn’t really been a material shift in the trend. And that’s why we’re guiding up the mid single-digits for the quarter as we actually will to.

And our next question comes from Dorothy Lakner from Topeka Capital Markets. Please go ahead.

Just following-up on the issue of tourist traffic, just wondered if you could speak to the Americas, I know that was a factor certainly in the third quarter but just what -- just remind us what were up against in the fourth quarter and how -- thing as you began November in those tourist market which are important for you and then just a follow up question on -- if you could comment on the Men's business that will be great? Thank you.

Okay. It is Mike in the tourist market we at the end of Q3 we actually saw a widening of the performance difference between our tourist stores and non-tourist stores, I think the gap got wider. Tourist stores continued to underperform and we see that in that issue. We also see -- we have AUR pressure as we're slightly more promotional but in terms of Men's, Men's actually and sequentially gotten better. So we went from -- it has been weak but we've seen sequential improvement in Men and that's driven specifically by knit tops, knit tops has performed very well in the category and going into Q4 as we see weather getting colder we can really-really strengthen outerwear and sequential improvement in denim also.

Our next question comes from Randal Konik from Jefferies & Company. Please go ahead.

I guess questions for Sandeep, first around margins and then around CapEx. If I think about the margin cyclicality of I will say North American retail is down from a peak I'd say just under 20 to 0 Europe from 20 to 5 or mid-single, and Asia peak 15 down like let’s say 3, what's a real risk to we capture margin rates for these different geographies in your perspective and if you don't want to give a single point type number or range or what have you if you can just help us to understand which of these three areas or geographies had the most opportunity to rebound and why and then my last question is on the CapEx, and the CapEx has come down over the years and it allowing you guys to -- it is full of depreciation and amortization and you're generating healthy free cash flows just want to get some perspective on how we should be thinking about the CapEx, free cash flow profile of the company in the next couple of years? Thanks.

So, let me start with the first part of the question which is related to our operating margins by segment and the pressure that we've seen recently I mean the reality is it is really been driven by sales and we've said all along whether it's a total company or specifically each region, the key through actually giving operating margin expansion is really getting the sales trend, going in the right direction again and so, I think we've talked about the initiatives that we're looking at whether it's e-commerce or omni-channel in Americas increasing store productivity in line with what Victor has been talking about through all the initiatives that he has laid out in Europe things are already beginning to work on the retail side as you have seen the comps have been much better this year and I think in Asia we really are talking about the massive geographical expansion with China being such a big focus. So, what I'm actually focusing on over here, right through this is sales, so sales will be the driver of how margin expansion is going to come and that's why we were so focused on driving that incremental sales opportunity. And then in terms of CapEx, I mean it's too early for us to guide but needless to say actually again whether we will actually be expanding in China, there's going to be incremental CapEx associated with that but keep in mind the base is very low. So -- and it's going to take a while to ramp up anyway but we'll give you more particulars on that when we guide in the New Year on fiscal '17.

Our next question comes from Thomas Filandro from Susquehanna Financial Group. Please go ahead.

I was hoping, this whole process of hiring the product managers in the stages and the merchants at headquarters in sales organizations, I was wondering that could you give us a better understanding of what that feedback moved facets will be light, it sounds like you haven't implemented yet when will you fully implement it and what is the expected outcome and then my second question is Victor I think earlier you stated there was some pricing adjustments that were going in tickets and may be just this first just in general how should we think about your ticket, your global ticket going forward or they're going to be about the same lower or higher on average? Thank you.

Basically what we're trying to do is -- on this initiative, is trying to approach or trying to understand customer's feedback and customer perception about our collection into our headquarters to try to create a better collection and this is basically -- all this initiatives about a new product managers, about the store managers as total figure in the company and everything has to be related to the product and that's why we're doing on this initiatives and I think for the time being we haven’t seen lot of results, good results and also the sales team is very excited of this new initiatives.

I think you had a follow up on the pricing as well Tom, so in terms of where the pricing we specifically talked about what we do in Europe where we just really focused on alignment of price that's one of the key focus. Now alignment of prices is really to create simplicity and communication to the customers so they understand the value. So in terms of what's going to happen in some cases prices may come down or some cases price may go up, but the whole objective over here is to make sure a very consistent method to the customer.

Our next question comes from Janet Kloppenburg from JJK Research Associates. Please go ahead.

Sandeep, if you could stay on that for a second I think that you talked about executing price increases in Europe this year or this fall and at the same time Victor is talking about aligning prices, so I think that is a more on power between markets, so I am a little bit confused on that and I know you've talked about it, but maybe if you could help me understand it a little bit better? And secondly, I was wondering Victor or whoever when you look at the performance in North America the retail stores, if you think that it's largely due to the competitive environment and maybe lower priced competitors promoting more aggressively than we expected or perhaps if you think this is mostly done in some of the underperforming product category. So I really love your view there and if we were to look forward to some merchandising strengthening as we go through next year or few things is just matter of the promotional environment continuing to be very challenging? Thank you.

So I'll talk actually multiple things on that, so let's talk about the price increase first and I thing from a price increase perspective, we've already executed on price increases specially for our wholesale customers quite early in the year and so that's in place for those are actually shipping as we speak into the wholesale channel specifically spring summer ’16 which is actually shipping in right now. And I think when we talk about the wholesale versus the retail business, keep in mind that the assortment from wholesalers is very wide relative to the retailer assortment. And so we're looking at specific items within the retailer assortment where there could have been some inconsistency that have been adjusted, but in relative terms it's quite small compare to what's in the wholesale pricing. And so I think that's on the price increases themselves, but I think the other one you were talking about was EU retail sales performance in general what's really been very good to see is and the first quarter sequentially over the previous one. Traffic has eventually improved over Q2 and there has been a big help and also conversion has improved quite significantly. And so this coming after the health of European retail market, it's extremely strong and we're actually capitalizing on that.

Our next question comes from Jeff Van Sinderen from B. Riley & Company. Please go ahead.

Maybe I could just jump in on for target above pricing I know you've mentioned the basic denim while maybe you can give us your latest thoughts on pricing in denim if there is any shifts you think there that's needed?

No, I don’t really think there is any shift that's needed. I think our basic Denim wall the entry level there is one of suitcase is $79, immediately I said 89 and then it goes to 99. And that's where we see the performance is weak and I think it's really driven by injecting newness in the product where we see strength is actually in $100 plus denim. So I don't think it's really a matter of pricing, it's a matter of having a product that the consumer wants.

And then I understand supply chain is somewhat of a work in progress and there is more to come in there, but any thoughts you can give us at this point in terms of what you think the potential is to in that gross margin from supply chain?

So Jeff this is Sandeep. So I think at this points it's really too early to actually quantify this, the initiatives that Victor laid out in his prepared remarks basically the roadmap for how we're going to go after this opportunity and it will take us from track to get through all of them and once we have more visibility we'll come back to you on that.

[Operator Instructions] And our next question comes from Erinn Murphy from Piper Jaffray.

I just have two follow, I guess, first on Korea, could you talk about it improving during the third quarter you backed out but as you by get could you just talk about what it is doing quarter today and fourth quarter, I may have missed that? And secondly going back to some other previous conversion on the licensing business I believe the watch license expires to be getting at 2017 unless it's been updated recently any thoughts about how you're thinking about the renewal process there or it would be anticipated kind of change in royalty or timeline or contract minimum for that line just given the underperformance of kind of its base right now?

Hi, Erinn it is Sandeep. So I think your first question was on Korea, so in Korea what happened was G by Guess excluded. What we saw a sequential improvement in comp in Q3 versus Q2 and what we have seen since Q3 and think of Q4 so far. There is a bit of volatility so it’s hard to see a clear trend but broadly it’s not that different when you aggregate it but it’s been very volatile in the three and half weeks that we’ve had the quarter so far. Then in terms of the licensing business, I am not going to actually talk about watches specifically, but globally across all of the licensing business, our licensing business has built with long-term partnership with partners across all the categories that we do the licensing. And so the contract term is one thing but I think it’s more of the long-term relationship. And so we are just looking at it from a very long-term perspective all the time with all these relationships and we will do what’s right for the business and it’s still a couple of years. So we have to wait and see how things evolve.

Our next question comes from Betty Chen from Mizuho Securities. Please go ahead.

I’ve got a quick follow-up SG&A was down a lot in the third quarter. I believe you mentioned that it was mainly due to lower impairment charges. Just wanted to kind of double check that and see if there were any other variables like favorable currency that may have helped SG&A and whether we could benefit going into Q4 and 2016? Thanks.

Yes, so I think Betty on this specifically the driver was impairment last year, last year we took a pretty big impairment charge of close to $10 million and I think all the details indicate. And so that was the big driver of the benefit to SG&A rate. Our currency doesn’t really impact the rates because the sales and SG&A get impacted by the same impact on currency. So if we look into Q4 we are guiding down again because I think we are coming up against the impairment charge in Q4 as well that we took last year which was not similar -- dissimilar to Q3. And that’s part of the reason why we are guiding SG&A rate down in Q4 as well. Regarding next year, it’s too early to guide so we will give you more on that in March.

And our next question comes from John Kernan from Cowen and Company. Please go ahead.

Hi thanks for letting me in for one quick follow up. One thing regards as your licensee store base continues to contract both in Europe and Asia, can you help us to understand the dynamic there and what we should expect going forward?

Yes John this is Sandeep. So I think you are right the licensee store base has contracted a bit. I think it's a bit of a different story in Europe where we actually had a lot of licensee partnerships, especially in Southern Europe where when the crisis came on in 2011 you saw a lot of them getting kind of splits for liquidity and many of those stores that end up closing because of that. And in some cases because we saw that it was good for the brand to make sure we retained the store we actually brought back to stores from the licensee to retained the sales of the business. And then apart from that I think in China it's a little bit more new it’s less mature than the European region but I think as they are ramping up on our expansion plan over there we are just reevaluating whether it make sense to gain a licensee relationship on retail.

And at this time there are no further questions. Thank you ladies and gentlemen this concludes today's conference. Thank you for your participation you may now disconnect.