Victor Herrero - CEO Sandeep Reddy - CFO

Erinn Murphy - Piper Jaffray Krista Zuber - Cowen & Co. Janine Stichter - Jefferies & Company Dana Telsey - Telsey Advisory Group Bryan Caronia - Wunderlich Securities Omar Saad - Evercore ISI Betty Chen - Mizuho Securities USA Dan O'Hare - Bank of America Merrill Lynch David Glick - Buckingham Research Dorothy Lakner - Topeka Capital Markets Bridget Weishaar - Morningstar

Good day, everyone, and welcome to the Guess? First Quarter Fiscal 2017 Earnings Conference Call. On the call are Victor Herrero, Chief Executive 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 short and long-term 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’d like to turn the call over to Victor Herrero.

Good afternoon, everyone. As you saw in our first quarter earnings release today our adjusted operating loss finished in line with the low-end of our guidance. But our adjusted earnings per share finished below our expectations. Sandeep will talk more in detail about the financial results of the quarter later in the call. You have already heard of course about the challenges in the U.S. Retail sector. These challenges are been experienced by department stores as well as by Retail stores. At times like this, I think that it is very important to articulate why Guess? is different and why I believe that the negative impact that you read and hear about should not affect Guess? in the same magnitude as many other companies. With respect to the department stores, two things are happening. One, their footprint is mainly in the U.S. And two, business is shifting from bricks and mortar department store to online, especially online only, multibrand retailers. It is very important to know that in the U.S. Guess? is not a big supplier to department stores, whether brick-and-mortar or online. Wholesale revenues represent only about 10% of our total revenues in the U.S. So we are not impacted very much by the shifting landscape in U.S. department stores. Also, we are one of the very few U.S. based retailers that has the majority of its revenues from outside the U.S. Last year, almost 60% of our sales was generated from international markets. In fact, in our three-year plan, we expect roughly two-thirds of our growth in revenues and roughly two-thirds of our growth in profits to come from our following operations. This is what makes Guess? very different from many other company's, that you cover or that you invest in. Guess? is not a U.S. centric company. Guess? is a global brand with distribution in over 90 markets which happens to be headquartered in the U.S. And our business outside the U.S. is currently thriving. In Europe, we have a three-year revenue growth target of $300 million. This quarter our retail comps were up in the mid-teens with positive comps in almost all markets in the region. Our e-commerce business, although still relatively small continue to grow very rapidly. And in wholesale, the order book for fall winter 2016 finished up 3%. We are on track to open 45 stores in Europe this year. 10 of the 45 will be open in Russia through our newly formed joint venture partnership there which I am very excited about. We're also excited by the upcoming opening of our new [5000][ph] square foot flagship store at the Europeisky Mall in Moscow at the end of this week. It will be designed in the new Guess? lifestyle concept. This new Guess? concept aims to welcome customers into an exciting and contemporary atmosphere. The new layout celebrates the Guess? heritage through stunning digital videos and [imaginative] [ph] while enhancing the focus on product displays. White shelving along the walls host the brands fashion forward clothing while a curated assortment of handbags and shoes are featured throughout the store and accessories are displayed in sleek central displays. To further guide our customer experience, the stores feature fully accessorized must have looks. I have described this in detail as all our new stores and remodels globally will have this new, fresh and exciting design. Apart from Russia, we are opening stores in Turkey, Ireland, Finland, Sweden, and Denmark. This, of course, is in addition to our continued store expansion in Italy, France, Spain, Portugal, in Southern Europe as well as the United Kingdom, Belgium, Netherlands, Germany, and Poland, in Northern and Eastern Europe, where we still see whitespace. In Asia, we have a three-year revenue growth target of US$200 million. This quarter we had positive comps in Korea, in Mainland, China and in Japan. However, revenue growth was below our expectations in Greater China, as we transition to a more direct model there. We are on track to open 65 stores in Asia this year, mostly in Greater China. In the first quarter, we opened seven stores in China across Shanghai, Wangchao, Chongqing, Tianjin and [Wangchao] [ph]. The majority were Guess? concepts in larger formats showcasing our lifestyle collection. In addition, we launched our first underwear store concept at Crystal Galleria, one of the newest mall in the heart of Shanghai located in one of the busiest and wealthiest districts in the city. So, you can see why I am so excited about our international operations, which again, will continue to grow at a faster pace than our U.S. operations. Moving to the Americas, which includes the U.S., Canada, Mexico and Brazil, we have our revenue growth target of $300 million over three years. This is the region where we see the biggest degree of risk in achievement - in achieving our plan, primarily due to the challenges of the U.S. market. Our comps were down 3% in constant currencies for the quarter in U.S. and Canada with unseasonably cold weather in April and continued weakness in tourist dollars being the major contributing factors. While I’m convinced that the execution of the strategic initiative I outlined previously will eventually drive sustainable improved productivity in the stores and e-commerce, I’m continuing to monitor the performance of the Americas fleet as we execute the store expansion plan of net 50 new stores, focused on Factory and G by GUESS formats this year. In fact G by GUESS was our best-performing concept for the quarter. We have a lot of flexibility as roughly half our existing leases in the U.S. and Canada are either expiring or have kick out clauses in the next three years should we need to moderate our expansion plan or prune the store base based on productivity of existing stores. The timing of this lease expirations also provide us an opportunity to renegotiate lower rents to make [on] [ph] profitable stores which we will otherwise exit, profitable again on a forward basis. In summary, we are confident in our ability to achieve the three-year plan and are prepared to adapt our plans over time as conditions dictate and will update you on our progress during the year. Before I turn over to Sandeep, please keep in mind my comment in our last earnings call that the first six months of this year is a transition period for our three-year plan. We are now a little more than halfway through this transition. Investment made in the first half of this year will start generating revenue increases in the second half and continuing into the second and third year of our three-year plan. We are doing what we need to do, and are on the right path to becoming a stronger company and creating more shareholder value. Sandeep?

Thank you, Victor, and good afternoon. During this conference call, all of our comments for the first quarter are on an adjusted basis which excludes the impact of certain restructuring labor charges incurred during the quarter. In addition, our comments may also 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, adjusted diluted loss per share was $0.23 and includes a negative impact of roughly $0.08 due to foreign currency movement. This compares to a diluted earnings per share of $0.04 in last year’s first quarter. Before we move into discussion of the P&L, I would like to point out that roughly half of the decline in adjusted earnings per share versus last year was driven by the negative impact of currency and a change in the tax rate. The negative impact of currency and the change in tax rate were both worse than our expectations. Excluding these impacts, our adjusted earnings per share would have finished within the range of our expectations. First quarter revenues were $449 million, down 5% in constant currency, and down 6% in U.S. dollars versus the prior year. Total Company gross margin decreased 280 basis points to 31.8%, due to the negative impact of currency and deleverage, due to a decline in sales. SG&A as a percentage of sales increased by 320 basis points versus prior year, primarily driven by deleverage, due to the decline in sales, investments in new store openings and increased advertising. Adjusted operating loss for the first quarter was $23 million. Adjusted operating margin finished down 600 basis points to a negative 5.1%, including the negative impacts of foreign currency of roughly 150 basis points. Moving on to segment performance, revenue for the Americas Retail segment decreased 3% in constant currency and 5% in U.S. dollars. We finished the quarter with comps in the U.S. and Canada, down 3% in constant currency and down 4% in U.S. dollars. This was below the low-end of our guidance, as we saw a steep decline in traffic and conversion during the unseasonably cold weather during the month of April. Spring product in the stores significantly underperformed to cold weather product. In terms of product com trends in constant currency, our women's apparel category finished down as strength in knit tops, wovens and outerwear were more than offset by softness in dresses and denim. On the Accessories side, we come positive in our handbag category, but the watch category continued to be very soft and declined quite significantly. Tourist stores continue to underperform non-tourist store sales. E-commerce, which continues to be one of our top priorities, finished in line with our expectations, as we delivered topline growth of 11%, marking the 19th consecutive quarter of growth in the U.S. and Canada. In Europe, first quarter revenues were down 3% in constant currency and down 1% in U.S. dollars. Retail comps in the region were very strong and were up in the mid-teens for the quarter. This was within our expectations and we are pleased with the continuing strength in the business as we posted comp increases in almost all markets in the region with Italy and Spain performing especially well. Our wholesale revenues however finished slightly lower than expected due to a shift in the timing of shipments. In Asia, first quarter revenues were down 11% in constant currency and down 15% in U.S. dollars. In Korea, we ended the first quarter with comps up in the mid single-digits. This is a continuation of improving trends we saw in the back half of last year. Keep in mind that we're up against sales of G by GUESS product that we phased out towards the end of last year. Within greater China, sales finished below our expectations. Mainland China finished with positive comps in our Retail stores but lower than planned as we ramp up our business there. Our wholesale business was softer than expected as we continue to transition to a more direct model across the country. The sharp decline in tourist traffic into Hong Kong and Macau still continues to be a headwind and negatively impacted us in the quarter. We also experienced softness in shipments to our Southeast Asia distributors as they want to elevated inventory levels to enter the second quarter in a more healthy inventory position. In Americas wholesale, first quarter revenues were down 7% in constant currency and down 12% in U.S. dollars, primarily driven by softness in the U.S. market. Royalty generated from sales by our licensee partners were down 14% at $22 million. This was below our expectations for the quarter driven by weaker than planned results from the watch categories. Our adjusted effective first quarter tax rate was 19% down from 42% in the prior year's first quarter due primarily to a shift in the mix of statutory earnings. During the quarter we incurred $6.1 million in pretax restructuring charges related to the global cost reduction plan. These charges are all cash charges and are excluded from our adjusted operating earnings. Moving on to the balance sheet, accounts receivable was down 10% in constant currency and down 9% in U.S. dollars. The decrease in accounts receivable was driven by lower. Inventories were $358 million up 10% in constant currency and in U.S. dollars versus last year. The increase is driven by timing of receipts, inventory for new stores opening during the second quarter, and a buildup of excess inventory in the U.S. and Canada that we will work through. Free capital was an outflow $49 million compared to an outflow of $2 million in the prior year quarter, a decrease of $46 million. This decrease was driven by lower earnings, changes in working capital and additional capital expenditures. We ended the quarter with cash and cash equivalents of $427 million compared to last year's $459 million. Cash-less debt was $400 million compared to $451 million last year. Moving on to the guidance, as Victor mentioned earlier on the call, we expected fiscal year 2017 to include a transition period as we set the platform for our long-term growth goals. The transition period is proving more challenging than we anticipated and is reflected in our guidance for the second quarter as well as our updated guidance for the full year. Our full-year guidance assumes that the currency headwinds will impact EPS by roughly $0.12. It also gives better visibility to the underlying trends in our outlook we will also provide constant currency metrics when applicable. Consistent with Victor's fourth initiative to improve our cost structure, we have begun to implement a global cost reduction plan to generate future savings that we expect to fully realize in fiscal 2018. Our outlook for the second quarter of fiscal 2017 and the full fiscal year 2017 excludes any restructuring costs associated with this plan. 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 color on underlying segment drivers for the company guidance in the prepared remarks. In the second quarter, prior to the impact of the Memorial Day weekend shift, Americas Retail comps were down in the mid-single digits in constant currency. We continue to see significant headwinds in our tourist stores. We expect a headwind for tourist stores to continue through the first half of the year. In Europe, our Retail comps for the region so far in the second quarter have been up in the low double digits driven by improved traffic in conversion maintaining the strong momentum we have seen since the second half of last year. In Europe wholesale we are pleased to report that our fall winter order book finished up 3% as we saw our door comp stabilize and same-store buys up in the low single-digits. This is the material shift in trend from our spring/summer book, which was down 8%. Moving to Asia, while we still see the long-term opportunity for our brand in Greater China, the ramp-up of the business has been more challenging than we planned and we are lowering our revenue projections for the year. We expected that the growth will come more in the second and third year of our three-year plan. As a reminder, revenue growth for the Asia segment in the second quarter will be impacted by the G by GUESS product in Korea that was phased out late last year. With regards to our second quarter fiscal 2017 guidance for the company, we expect revenues for the second quarter to be up 0.5% to up 2.5% in constant currency driven by expected growth in Europe and China, partially offset by an expected decline in the Americas. At prevailing exchange rates, we estimate that the currency will not have a material impact on consolidated revenue growth for the quarter. For the quarter we expect gross margins to be down primarily due to the currency headwinds, as we come up against, as we hedges at favorable rates last year. The SG&A rate is expected to be up in the quarter as a percentage of sales due to investments in advertising and marketing and some timing of expenses. We are planning an operating margin for the quarter between 1.5% and 2.5% including the impact of currency headwinds of roughly 60 basis points. Earnings per share is planned in the range of $0.04 per share to $0.08 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 $0.06. For the total company, we expect consolidated revenues for the year to be up between 5% and 7% in constant currency. At prevailing exchange rates, we estimate that currency will be roughly 0.5 percentage point tailwind on consolidated revenue growth for the year. For the full year, we expect gross margins to be down slightly, to flat as the foreign currency headwinds are expected to be offset by better IMU’s. The SG&A rate is expected to be up for the year due to investments and amortizing and marketing to fuel our topline growth as well as a reset of planned incentive compensation versus prior-year levels partially offset by a slightly over $10 million of savings driven by our global cost reduction plans. We have updated our expectation on the full year tax rate from 34% to 36% based on a change in mix of projected statutory earnings. We are planning an operating margin between 3.5% and 4.5% including the impact of a currency headwind of roughly 40 basis points and our guidance assumes foreign currency to remain roughly at prevailing rates. Earnings per share is planned in the range of $0.55 per share and $0.75 per share. The earnings per share guidance includes a currency headwind of roughly $0.12 per share. CapEx for the year is expected to range from $90 million to $100 million net of tenant allowances. The Board of Directors has approved a quarterly dividend of $0.225 payable to shareholders of record at the close of business on June 8, 2016. With that I will conclude the Company's remarks and open the call up for your questions.

[Operator Instructions] And our first question comes from Erinn Murphy from Piper Jaffray. Please go ahead.

Great. Thanks. Good afternoon. I've got a couple of questions. I was hoping maybe first Victor for you to talk a little bit more about the store openings plans that you have particularly for the U.S. I think last quarter you talked particularly for the longer term, you’re really planning to accelerate the store growth in this market. And now it sounds like while you’re still opening new stores this year you are reserving the right to perhaps revisit some of those kick out clauses as lease expirations to potentially slow that growth rate if and when you need to. So maybe just help us a little bit more about what some of those thresholds are that you are monitoring in the stores if you start to maybe further refine that growth strategy in the North American fleet?

Thank you. For the stores that we’re going to open in North America basically as I mentioned in my call is going to be in two - in G by GUESS and Factory, and we will concentrate the openings there. And regarding your second question, I agree with you that I mean all these lease expirations and kick out that we are going to have for the next three years we have to take this is an opportunity to renegotiate with the landlords and engage that finally. We will not make any compromises in terms of the rent that we feel comfortable to pay for those rents will close some of the stores. But I mean this - I think these renovations that we are going to face for the next three years are going to - we have to take it as an opportunity to try to reduce the existing rents as much as possible.

Got it. And maybe just help us understand some of those internal thresholds where comps need to really be to kind of think about potentially changing that growth strategy, if you can't get comps to let's say low single-digit positive territory or is it have to be higher to kind of rethink about some of the some of your -

Yes. This is Sandeep. What I think is important to note is what Victor talked about is renegotiating rents to change the economic structure completely of the store. So, even if it's a profitable store, we want to basically see if we can make it even more profitable and if it's a loss making store, see if the rent can actually take it to profitability. So from a threshold perspective, the thresholds we are really looking at are more what I talked about last time for new stores, where we have a certain threshold of four wall profit that needs to be generated within a couple of years. And also, we need to make sure that we have a payback on the store in a two to three year timeframe.

Thank you. And our next question comes from Krista Zuber from Cowen & Co. Please go ahead.

Good afternoon. This is Krista Zuber on behalf of John Kernan. Just two questions please. First, could you just sort of share with us the performance of your various licensed categories you touched on, a little bit on watches here in Q1 and has your thinking changed at all with respect to your outlook for - I think you said on the last call negative mid-single-digit growth for fiscal 2017 in licensing and then flat licensing revenue by year three of the plan? And then I have a follow-up thanks.

So Krista, I think when you talk about the licensing the accessory segment which really is what drive the licensing segment a lot. We spoke about the Americas specifically on the call and here what we saw was bags were fine, but really we saw watches decline quite significantly. And so, really for the quarter itself, they actually came in lower-than-expected on licensing, driven really by underperformance of the watches. But looking into the full-year guidance, we updated guidance for the full-year to be down in the high-singles, as opposed to down in the mid- singles. And I think it's driven a lot by taking into consideration the watches softness that we saw.

Okay, thanks. And then with regard to cash flow I realize you don't guide specifically to the metric, but on the last call Sandeep, you commented that the cadence of free cash flow would be hampered in year one in part due to the step in CapEx and then as you build over years two and three of the three-year plan, how are you thinking about that now given results to date and can you just touch a little bit on the funding for the dividend this year? Thanks so much.

Yes. I think Chris when I talked about that last time, it's only been about eight weeks and nothing has really changed that materially for the structure of the cash flows to have altered significantly over a three year time period. I think it's a little bit more pushed into years two and three obviously given the trends that we’ve seen in the first quarter and what we’re seeing so far in Q2, but overall we feel very confident in this three-year plan generating enough free cash flow to cover the dividend. And you see our balance sheet, we've got a very solid balance sheet and a strong cash position as well. This is an investment year and we have the reserves to be able to actually drive through this investment year.

Thank you. And our next question comes from Janine Stichter from Jefferies & Company. Please go ahead.

Hi this is Janine Stichter on for Randal Konik. Just hoping to get a little bit more color on what you think is driving the trends in Europe. It seems like you saw a nice acceleration there that’s held into 2Q. Do you think its product marketing or more just the environment? And then we are also interested specifically in what you think cause the inflection in the order book? And then lastly on Europe, could you just comment on the promotional environment there even though sales were better it just seem like you saw some additional promotions that you mentioned in the gross margin commentary, I am wondering if that is stabilizing going forward? Thanks.

Well, yes our business in Europe is for the first quarter of this year is a positive news because basically regarding retail stores we are comping mid-teens up and in wholesale basically the order value for winter 2016 is going to be up by 3%. So the reason for this I think there are several reasons and starting from wholesale I think that the product, I think that we improved the product that we are offering to our wholesale partners and regarding the retail as well is basically several things. I mean, we are having a more comprehensive collection in our stores, and at the same time, we are trying to improve our comps by generating more traffic and as well by trying to outfit the collection as much as possible and trying to have a more comprehensive collection and try to - that our product is the main driver of our growth.

Any comments on the promotional environment?

I think from a promotional environment perspective the nice thing about Europe is we typically have two clearance periods by season and really the most of the promotion is limited to that period. What we're doing as a company is looking to actually maximize our full price sales during the rest of the season and early concentrating on clearing through inventory during that clearance period. And so from a gross margin perspective, this is very - this is the way we are managing it. And the good news is we are not in a promotional period right now so far in the second quarter. But we're trending in the low double digits which is showing the consumer understands the cadence of how we actually pricing the product and clearing through our inventory.

In a way we are coming back on the promotional cadence to our traditional model of promotional a cadence in Europe which is twice a year during the seasonal sales we will be on promotion. It is not during a normal or regular season we will try to do or to be less promotion as possible.

And Janine, I just wanted to add one thing on or question you asked on the order book inflection and what drove it. I've been saying for the last year or two that Retail is going to be a leading indicator what happens in wholesale and sure enough, I mean we've been seeing very strong comps for almost a year now in Europe, and the wholesale book is as followed. So I think it just lag factor that you see with wholesale but ultimately the same trends will play out.

Thank you. And our next question comes from Dana Telsey from Telsey Advisory Group. Please go ahead.

Good afternoon everyone. As you talk about occupancy costs and the opportunity to adjust rents, what is the opportunity there? How much of the store base? And what type of leverage do think you can get in terms of lowering the rents? And then as you think about the gross margin, how are you thinking about merchandise margin going forward? And the difference between Europe and North America and what's happening in China in wholesale and retail? Thank you.

Okay. So, I think from the occupancy cost and improvements in rent, it's going to be a case-by-case, store-by-store discussion. So it really depends on what does economic end up being for us to know what the impact. And so, at this time we really don't have any further guidance to give on that. But we just know this is an opportunity because we have so much flexibility in the portfolio in the U.S. and Canada. Moving onto the gross margin opportunity itself, I think this really ties into some of the things that we just talked about it in the supply chain previously. We believe that there is tremendous opportunity longer-term for us based on the priorities, we outlined on previous calls as well, which is to just strategically basically lineup a very strong supplier base and then the work with fabric platforming opportunities and ensure that we actually drive IMU improvement. That IMU improvements already embedded in the guidance that we provided for this year in our gross margins and it’s - I mean, I’m talking about at global basis it is export the U.S. and Europe. And I think for the - over the course of the three-year plan, we continue to work on this. Right now we really don't have IMU improvements embedded, but it is something we're going to continue to the work for.

In addition to that I would like to say about supply chains, all the initiatives that we are adding some initiative and I want to share with you, several all that initiative that we are trying to implement at this moment like for example, since I arrived to Guess?, but for example is reducing the calendar, trying to potential as much as possible a Open To Buy, and as well trying to optimize our sourcing country portfolio. So it means that and then try to be much more not so dependent on for example China and trying to open new markets or new sourcing markets that we believe we can get really good price without jeopardizing our qualities.

Thank you.

And our next question comes from Bryan Caronia from Wunderlich Securities. Please go ahead.

Yes good afternoon this is Bryan Caronia on behalf of Eric Beder. We had two questions. The first one being a little bit more short-term, and the second a little bit of a longer term outlook. In the short-term looking into the fall and winter season, somewhat related to the previous question on gross margin, any clarity or sort of insight you could give in terms of what you are expecting on the pricing front both from - what you're expecting your pricing strategy to be and any insight you might be having in terms of either the pricing strategies or the promotional activities of your competitors and then following that of the longer-term follow-up.

So I think from a gross margin perspective, we basically embedded in the U.S. and Canada especially nothing more promotional than last year. I think we expected to be roughly equivalent and so that’s what's assumed in the gross margin projections globally, not just in the U.S. and Canada actually.

And regarding our pricing strategy, we are trying to always be very consistent with the price that we have in the Americas, and basically try to do price alignment in all the markets. We just opened for example several markets where we tried to be much with U.S. That's our benchmark for other markets.

Great. That's very helpful. And then my follow-up in terms of the gross margins as well as overall operating margin over the long-term related to the supply chain initiatives that obviously you’ve spoken about in recent calls. In terms of an achievable lead time on a product basis what - any clarity you can offer in terms of how you are looking about at that and how it might have changed over recent quarters as well is if there is any disparity between major lead times both domestically or in foreign markets?

Regarding the lead times I think that we have to split it into two. The first one will be the formal collection that we'll have specifically time, but at the same time we have to take into consideration the open to buy. And open to buy basically what we are trying to do is have a newness on a monthly basis during the normal season into to our stores or into our partners. So this is important to take into consideration. It is not that as much as thinking about the traditional lead time that you have to do the collection itself. It is that we are leaving as much as we can in open to buy in order to ensure that the lead time for that open to buy

Thank you. And our next question comes from Omar Saad from Evercore ISI. Please go ahead.

Thank you. Thanks for taking my question. Victor, I wanted to ask you when you first came on board in the early months you talked a lot about products, the opportunity to improve the product and focus on product and process by and design product development go-to-market strategy. And I'd love to get your updated views on how that process is coming along. Maybe some examples or anecdotes of where you've been able to improve the product and seeing results at the consumer level whether responding and where else can the Company worked to improve on the product side of it?

Thank you for the question because I think it's a very relevant question. Basically, we continue 100% concentrated on improving our product. And basically, one of the reason as I mentioned before of the increase of order value in Europe wholesale is basically because I believe we are upgrading on elevating our product. And we are taking a lot of initiatives in order to do that. And basically, the product - before I think that we were pushing several categories like for example Linen dresses and knit tops. And right now what we are trying to do is outfitted collection, it means that I mean basically we are producing in product a whole collection with - inside the collection we have trends, we have all the things that they must have that we have to have in that particular collection. And at the same time, what we are trying to do is express in our stores or in our shopping shops in wholesale they are trying to be very outfitted. It means basically you can be dressed or you can lease our stores dress from top to bottom. It means you can buy several items at the same time. And always consent for example whenever we do our visuals, I mean probably say you went to our store lately, I think that you can see basically that we are presenting or we are doing additional merchandizing much more conventional than before and not how you say, not doing marketing on one particular product category more as a collection as a whole. So this is a very important point that we believe we will continue doing this. Because I mean, at the end for us what is important is expressing inside the store. And showing in the windows what we are able to do in product.

Thank you, that's very helpful. And then just one more follow-up on Europe. I just want to make sure I understand the differential between the trends you're seeing in your own stores which are obviously very good in the wholesale business, is just a matter of a kind of the time lags from Retail to wholesaler, did I understand that correctly?

Exactly. And not only that is that I mean, we are experienced I think more or less are in the same path. But what we are seeing in wholesale is taking a little bit more of time but that’s the only thing. But as you mentioned, I think we are experiencing really good comps in Europe and the point is not only that I believe that this is going to continue foreseeable future. I think that we will continue with these positive comps in the Retail and we will see much positive comps in the wholesale, in the near future.

Do you have any kind of initial thoughts or early views on maybe why the improvements in products and that kind of total look on merchandising in the stores maybe isn't translating as strongly in the North American market?

Well, in a way I think they are different markets. And also I think the U.S. at this moment is very challenging in general. So this is one of the reasons. But I mean, rest reassured that I mean, all the initiatives that we are doing in Europe we are doing in the U.S., even elevated I would say. So it’s a question of times that I will see results in the U.S. And I am very excited what is happening in Europe, but is not reflecting in the U.S. but definitely rest reassured that we are doing exactly the same thing as we are doing in Europe at this moment we are doing even in a more extreme way in the U.S. basically visual merchandizing replenishment, assortment, allocations, all the initiatives that we believe is the right path for us, in order to be successful and in order because I have some positive comps in the U.S., we're doing as well in the U.S. the same way as we are doing in Europe.

Thank you. And our next question comes from Betty Chen from Mizuho Securities USA. Please go ahead.

Thank you. Good afternoon everyone. Thanks for taking our question. Kind of just following up on Omar's earlier question about the Americas, can you talk to us about any sort of our regional variability in the quarter, in the first quarter that is since there were some really erratic weather pattern throughout the country. And also related to that, can you remind us sort of what percent of the Americas business would you attribute to be sort of tourist related and whether the underperformance of those stores has varied at all from prior quarter patterns? Thanks.

I'm going to answer to the first part of the question and Sandeep will answer on the second one. Regarding the first question, I think that what is important and that you should keep in mind that right now our allocation is not U.S. our allocation is what we are selling in that particular store in - I don't know in LA, comparing with the particular store in New York. And it's based on demographic behavior of each of the stores. So at the end what is important to know is that we are trying to tailor-made the product for each of the stores and also each of the cities and each of the regions.

Yes. And Betty, just following through on tourist versus non-tourist, we haven't really specify the number obviously it's materially enough for to drive the comp. That's why we are calling it out as a driver. But things have been tough I think consistently tough and we were expecting it to be tough in the first quarter as well. And we expect this to continue into at least end of the first half and so - let see if it is that's when we lap tourist drag at the experience from last year.

Sandeep at least for those four stores underperformance in line with what you thought?

Broadly yes.

Okay. My follow-up question if I could is I think you called out G by GUESS and I think Factory as some of the areas were focused, can you remind us sort of their productivity measures or profitability or kind of what are you seeing in those concepts that seems to be outperforming a little bit from the rest of the portfolio?

Yes. I think from a profitability perspective the threshold that we applied basically apply to all the concepts that we are looking at for new stores or renewals. And so for these particular stores, or these particular concepts are obviously are more profitable concepts, and we were able to get stores that are hitting our thresholds both from a four-wall perspective as well as a payback perspective, and that's why we’re looking to focus our expansion on these concepts.

And on a commercial point of view, I think both concepts have a lot of potential in the U.S and Canada. So, that's why we decided that I think we should concentrate more on the expansion of those two formats instead of the other formats. And that's why we are trying to develop both formats.

Thank you. And our next question comes from Dan O'Hare from Bank of America Merrill Lynch. Please go ahead. Dan O'Hare: Hi, good afternoon. This is Dan O'Hare on behalf of Robby Ohmes. The G by GUESS format performing the best in the quarter. What is driving the success there? And how are the trends different than in the other Guess? formats like Guess? and MARCIANO stores? And why is that G by GUESS format, the focus of your expansion plans? And then I have a follow-up. Thanks.

Well, actually, we are happy that they perform well during the quarter because if we believe that I think has a great potential, this is basically assurance for us that the G by GUESS is going to be or has the potential we think. At this moment we have few stores in G by GUESS, which you cannot compare with the other format because the other formats are bigger. No, but at the same time, we are performing very well in the quarter. And we believe that G by GUESS will be displayed between men's and women which is basically the penetration of both are the same. I think it's a very - well has a potential on a commercial point of view, and on a product point of view and on our product point of view for the U.S. and the Canadian market. Dan O'Hare: Got it. And then I know you called out that you are opening your first underwear store and I was just wondering what drove that decision to launch that format?

Well actually, it's our first underwear store in Mainland China. But as you may know, we have several underwear stores and we are very successful in Asia with that particular product category. So we believe that this underwear category could be very successful and has a lot of potential in Mainland China. Dan O'Hare: Got it. Thanks so much.

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

Thank you. I just had a follow-up Sandeep on the balance sheet and cash flow. I was just wondering how you think strategically about your cash and cash flow vis-à-vis your CapEx and dividend funding needs? Have you considered repatriating some of your international cash and do you think about, since most of your growth and CapEx requirements are in international markets? Do you look at your cash balances primarily funding growth internationally and funding the dividend with the strong licensing cash flow which is U.S. based?

Yes David. So I think - and you know balance sheet has a significant amount of cash in it, but lot of the cash is overseas and as you again said, most of our growth is focused on international expansion, so that’s quite convenient because the cash is already overseas. From a U.S. perspective, we basically see that our cash needs have been met with what cash we’re generating over here be it licensing on the businesses. So we haven't really contemplated any kind of repatriation because I think our cash is sufficient for our needs wherever it is.

Thank you. Our next question comes from Dorothy Lakner from Topeka Capital Markets. Please go ahead.

Thanks and good afternoon, everyone. Just wanted to follow up on China. Obviously you’ve talked about the opportunities that you see there, but you did have some challenges in this quarter. So I wondered if you could just provide a little bit more color on the retail side of things why that the things came in a bit below your expectations and caused you to kind of lower your growth expectations. And then on the wholesale side, just kind of talk about what’s going on there? And switching to Americas wholesale, I know it's a small component, but it does seem like you do expect some improvement for the year as a whole and just wondered what’s driving that.

For China, for China retail what I can tell you is that basically it’s a matter of timing. And definitely, we will continue I think we have positive comps during the quarter in mainland China, but it’s softer than we anticipated. The reason why is because we’re in a process of a trying to adapt to the new - I mean we are pushing retail versus wholesale at this moment, and basically this is taking a bit of time. But at the same time, we still - we open a lot of stores in several cities of China which is - I mean the receipt of the brand is quite positive. And at the same time, I think it's a question of timing, they - right now we are - all the process on an operational point of view, we have the accountability, and before we were having several partners that they were working with us, on all this. So I mean it's a little bit softer, but still very positive, and we will continue working in order to improve this. And I hope that the sales and the results in China, particularly in retail will continue to accelerate on a faster pace. Regarding the wholesale in China, basically what we are trying to do is moving some of the stores from our existing partners to retail. So this is taking a bit of time, but definitely I think it's according to our strategy of going much more into a direct model in China.

So it's just a period of adjustment in other words?

Exactly.

Okay. And on the Americas wholesale just as a reminder, the U.S., Canada and Mexico and Brazil in that category - in that segment, sorry. And so the U.S. is actually been slightly better, but I think the really important thing to note is that Canada and Mexico is doing very well within the - in the Americas Wholesale segment. So they have been doing well since the beginning of the year and the trend is continuing.

So that’s - okay, great. Thank you.

[Operator Instructions] Our next question comes from Bridget Weishaar from Morningstar. Please go ahead.

Hi, thanks for taking my question. I'm wondering if you’ve done any research into brand perception and core demographic group. And I'm wondering if it is the same globally? Basically what I'm trying to get to is our product fixes enough and the brand is strong and people will come back or do you have to change your brand image as you reposition yourself over the next three years? Thanks.

Brand perception for me what is important is whatever the customer perceives at one point of time in one particular place. So I mean, it will depends. Definitely our brand perception is different between let’s say, Los Angeles and in Shanghai or in London. But definitely we are not - I feel - and I think the company feels very comfortable with the brand position that we are having and basically with DNA that we’ve been having for the last 30 years. And definitely we will continue on this path and we will continue. What we have to try to do is basically elevate our product without - and trying to continue working in a comprehensive collection. And in our seated collection more than trying to develop or trying to push a one particular product category.

Thanks. And then on the wholesale side. You discussed the rising trend in pure play e-commerce, is that true globally and what are your thoughts in dealing with pure play e-commerce retailers?

I think this is particularly, as I was mentioning in the U.S. I don't think that this is happening somewhere, maybe a little bit in Europe, but not in Asia. But I think where it's very strong this is happening big time at this moment is in - specifically in the U.S. market.

Thank you. Ladies and gentlemen this concludes today's conference. Thank you for participating and you may now disconnect.