Victor Herrero - Chief Executive Officer Sandeep Reddy - Chief Financial Officer

Eric Beder - FBR and Co. Randal Konik - Jefferies Omar Saad - Evercore ISI John Kernan - Cowen & Company Dana Telsey - Telsey Advisory Bridget Weishaar - Morningstar

Good day, everyone and welcome to the Guess? Second Quarter Fiscal 2018 Earnings Conference Call. On the call today 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 by the SEC. Now, I would like to turn the call over to Mr. Herrero.

Good afternoon, everyone. This is my second anniversary as the CEO of Guess?. The first two years was a period of rebuilding, of reinvesting, and of repositioning Guess? worldwide. As a result, our operations are now at an inflection point and we are poised to reap the rewards of our strategic initiatives. As you saw in our earnings release today, we reported that our revenue growth, our adjusted second quarter operating margin, and our adjusted earnings per share finished above the high end of our guidance. And as Sandeep will detail in a moment, we are significantly increasing our adjusted guidance for this fiscal year '18. Let me start by discussing Europe. Revenues for the quarter grew 20% in US dollars and 19% in constant currency, showing continued momentum from successful implementation of our strategic initiatives to elevate the quality of our sales and merchandising organization. The growth was driven by new store openings, by comps including e-commerce, up 5% in US dollars and in constant currency, and by double-digits wholesale revenue growth. We are thrilled with the increasing strength of our European wholesale business. As we told you on our - on the last call, the fall/winter 2017 order book is up in the low-double digits in constant currency, and we are seeing a slightly accelerating trend so far in the spring/summer 2018 order book. This is a clear indication to us that the sell-through and profitability of our wholesale customer doors continues to improve, while the number of doors we are doing business with in aggregate have not changed materially over the past year. During the quarter, we opened 9 directly operated stores in Europe on a net basis. We added new stores to our existing fleet in Italy, Spain, UK, Netherlands, Switzerland, Russia, and Poland. In addition, we opened our first owned and operated stores in Norway and Greece during the quarter. Importantly, the adjusted operating margin of the European segment improved 150 basis points in the quarter, continuing the margin expansion that we have seen for four consecutive quarters now. This margin expansion was driven by a strong cost control, especially in our supply chain, where we have achieved significant cost reductions. Speaking of supply chain, we are already fairly operational in our new 625,000 square-foot distribution center in Venlo, in the Eastern part of the Netherlands. We expect the distribution center to be fully operational with best-in-class automation by the end of this fiscal year. The move to this location in Europe makes a lot of strategic sense for us, given the incremental white space and growth potential of the Northern and Eastern European markets, including Russia and their proximity to Venlo. Moving to Asia, second quarter revenues were up 17% in US dollars and in constant currency. Revenue growth in the region was driven by store openings and by comps, including e-commerce that were up 7% in US dollars and 6% in constant currency. We are especially pleased that the adjusted operating margin of the Asia segment improved 920 basis points in the quarter marking the third consecutive quarter where we have experienced margin expansion in Asia. As you can see, we are executing very well on our strategic initiatives to build a major business in Asia. Finally, some color on the Americas, which includes the US, Canada, Mexico, and Brazil. This is certainly the region where we continue to face structural challenges like many in the industry. Americas Retail revenues for the quarter decreased 11% in US dollars and in constant currency. Comparable sales, including e-commerce for the quarter were down 10% in US dollars and in constant currency. This was a sequential improvement from the first quarter comps that were down 15%. The decline was driven by lower traffic and conversion, as the promotional environment continued to be challenging. We made good progress on our store closures in the US and Canada. We closed 18 stores in the quarter. We are updating our projection of closures for the year from 60 to 70 stores. Also, as more than half of our leases will expire or have kick-out closes in the next 3 years, we have a lot of flexibility to continue with the closure past this year to further improve profitability. However, we are not restricting ourselves to waiting for lease expirations or kick-outs to close the stores or renegotiate rents. In order to accelerate the reduction of our footprint in North America, we have recently executed an agreement with one of our landlords to restructure their terms of 26 of our leases with expirations of all 26 leases, now occurring less than 24 months from now. Once we pass the initial 24-month lease expiration period, we will realize roughly $8 million of annualized earnings from operation improvement resulting from loss avoidance. As you can see, we remain laser focused on improving the profitability of the Americas Retail business. We are continuously focused on elevating our brand presence through our digital and social media initiatives, such as endorsements and collaborations with celebrities like A$AP Rocky, Joe Jonas, or Camila Carrillo. America’s wholesale revenues grew 7% in US dollars and in constant currency, driven by growth in both the US and Mexico in the quarter, partly assisted by the timing of some shipments in the US. I continue to be pleased at the relative stabilization of the wholesale channels in the past few quarters, and we remain on track with our projection for this fiscal year. So in summary, at this pivotal point of our company, we just report our fourth consecutive quarter of revenue growth. We expect consolidated revenues to continue to increase even after closing many stores in North America. We are significantly raising the adjusted guidance for fiscal year '18. Europe and Asia continue to grow in strong double-digits for several consecutive quarters with continuing margin expansion. We have achieved meaningful cost reductions, especially in our supply chain. And we are accelerating the reduction of our footprint in the US, which currently represents less than 36% of our global business. This is an exciting new chapter in the history of Guess?. As I look ahead, I see a company with continued strong growth in Europe and in Asia, and with the United States expected to represent only about 25% of our global business over time. As the saying goes, the best way to predict the future is to create it. Sandeep?

Thank you, Victor, and good afternoon. During this conference call, our comments reference certain non-GAAP or adjusted measures. Please refer to today's earnings release for GAAP reconciliations or descriptions of such measures. Second quarter revenues were $574 million, up 5% in US dollars and in constant currency versus prior year. I would like to highlight that this was the fourth consecutive quarter of revenue growth, and revenues finished above the high end of our guidance. Total company gross margin increased 40 basis points to 34.5%, as higher IMUs more than offset the negative impact of occupancy deleverage in the Americas and reflected in our sales growth was achieved with good quality of sales. SG&A as a percentage of sales decreased by 80 basis points, mainly driven by overall leveraging and reflecting strong control of our operating expenses. During the second quarter of fiscal 2018, we recorded asset impairment charges of $1 million related to store impairments, primarily in the Americas. Adjusted operating profit for the second quarter was $24 million and grew 52% over adjusted operating profit last year. Adjusted operating margin finished up 130 basis points at 4.3%, including the negative impact of foreign currency of roughly 20 basis points. Please refer to our press release from today for additional information on operating margins by segment. Our second quarter adjusted tax rate was 29%, down from 42% last year, as we experienced a favourable change in mix of statutory earnings. Adjusted diluted earnings per share finished above the high end of our guidance at $0.19. This compares to adjusted diluted earnings per share of $0.15 in last year's second quarter. The net unfavourable impact of currency on earnings per share in the quarter was roughly $0.05. Moving on to the balance sheet. Accounts receivable was $234 million, up 16% in US dollars and 12% in constant currency. Inventories were $436 million, up 15% in US dollars and 11% in constant currency versus last year. This marked a sequential improvement in constant currency versus the prior quarter. The increase in inventory is driven entirely by Europe and Asia to support their revenue growth plans. Inventory receipts are now aligned with future sales expectations in the Americas and in Asia, but we have accelerated inventory receipts in Europe in light of the significant upcoming new store openings, as well as the shift to new distribution center in Venlo that Victor discussed earlier. Free cash flow was negative $49 million, a $12 million improvement versus prior year. We ended the quarter with cash and cash equivalents of $316 million compared to last year's $415 million. Cash less debt at the end of the second quarter was $275 million compared to $391 million last year. Moving on to the guidance. I should point out that our outlook for third quarter of fiscal 2018 and the remainder of 2018 does not assume any asset impairment charges. I would like to provide more detail on the recently executed agreement with a landlord in North America to restructure our 26 lease agreements with them. During the third quarter, we expect to make cash payments of approximately $22 million. $12 million is expected to be reported as the lease termination charge and $10 million is expected to be treated as an advance on future rent to be amortized over the remaining lease terms. We expect the cash on cash payback on this $22 million investment in less than 3 years. Also, guidance for revenues and comp sales for the total company and by segment is included in the supplemental table attached to our earnings release. Based on the better than expected results in the first half of the year and the visibility we have so far into the second half of the year, we are raising our guidance for the year from a range of $0.34 to $0.44 in adjusted EPS to a range of $0.52 to $0.60 in adjusted EPS. For clarity, the expected lease termination charge of $12 million discussed earlier is not included in the adjusted EPS guidance. Excluding currency impacts, the top end of our guidance for the year reflects 32% adjusted EPS growth and operating margin improvement of 40 basis points, as strength in the Europe and Asia business is expected to more than offset the weaknesses in the Americas Retail segment. For the third quarter of fiscal 2018, we expect revenues for the quarter to be up 2% to 4% in constant currency. This is driven by expected strong growth in Europe and Asia, partially offset by an expected decline in Americas Retail. At prevailing exchange rates, we expect - we estimate that currency will be roughly a 2 percentage point tailwind on consolidated revenue growth for the quarter. Our gross margin is expected to be up due to the IMU improvement from our supply chain initiatives. The SG&A rate is expected to be up compared to last year, primarily due to reset of performance based compensation. We are planning an adjusted operating margin for the quarter between 2.2% and 3% with minimal currency impact. Adjusted earnings per share is planned in the range of $0.08 per share to $0.11 per share and does not assume any further share repurchases. The top end of our guidance for the quarter reflects roughly flat adjusted EPS at adjusted operating margin for the quarter. Our adjusted tax rate for the third quarter is estimated to be 36%. We expect consolidated revenues for the year to be up between 4% and 5.5% in constant currency. It should be noted that we expect an increase in revenues even after closing many stores in the Americas. At prevailing exchange rates, we estimate that currency will be a roughly 2 percentage-point tailwind on consolidated revenue growth for the year. For the full year, we expect gross margins to be up due to improved IMUs in the both Americas and Europe. The SG&A rate is expected to be up for the year due to deleverage in the Americas business and a reset of incentive compensation. Our adjusted tax rate for the year is estimated to be 36%. We are planning an adjusted operating margin between 3.1% and 3.5%, including the impact of a currency tailwind of roughly 20 basis points, and our guidance assumes foreign currencies remained roughly at prevailing rates. Adjusted earnings per share is planned in the range of $0.52 and $0.60 per share. The earnings per share guidance includes a currency tailwind of roughly $0.02 per share. CapEx for the year is expected to range from $85 million to $95 million, as we continue to invest in our retail expansion in Europe and Asia, and our technology, infrastructure to support that long-term growth. The Board of Directors has approved a quarterly dividend of $0.225 per share payable to shareholders of record at the close of business on September 6, 2017. With that, I will conclude the company's remarks and open the call up for your questions.

Thank you. [Operator Instructions] Our first question comes from Eric Beder from FBR and Co. Please go ahead.

Good afternoon. Congratulations on a solid quarter and nice guidance.

Thank you, Eric.

Thank you.

Thank you. Could you talk a little bit about, I guess, a few things here. You talked historically about reducing the US to about 300 doors or so. Has that margin changed, given what you're doing here? Or are we just seeing kind of a more aggressive closing schedule?

No, we are still in line with that estimation of 300 stores. But at the same time, I mean, we are reducing our US footprint. But, I mean, we are increasing our European footprint on - with 70 stores this year, and in Asia we will do 35 stores.

And let’s talk about Asia a little bit. So obviously, you have a lot of sales in South Korea, they have had their own issues here. What have you been seeing in South Korea as a market?

Korea - South Korea is a mature market for us, very stable but at the same time very volatile concerning all the political situations that they are facing over there. But at the same time, our brand is very relevant in that market, and I think we are one of the main players on aspirational brands.

Okay. And finally, actually US wholesale, that was up significantly despite closing stores. Where do you see US wholesale going, and what is working at US wholesale as opposed to US retail?

Well, I think, Eric, I'll take this one. We will talk about wholesale in North America or the Americas. It's really the combination of the four different countries, right? It's the US, Canada, Mexico, and Brazil. And the proportion of the last three countries is not the same in the wholesale segment as it is in the retail segment. So what we are seeing is across the segment, we are expecting to be roughly flat. There was some timing benefits in the quarter, which made it look a little bit better than what we anticipated it when we first guided. But overall, I think we’ve characterized the environment in the US wholesale as challenging, and for reasons that we will know and that outlook is included in our guidance. But on balance, when we look at the different four countries, we believe that we should be roughly flat across the segment.

One of my first initiative, Eric, when I arrived two years ago, it was a stabilization of the wholesale business. And I mean, we are seeing that at this moment because basically in the US - in Americas, wholesale is kind of stable and we are growing in Europe significantly. And the reason why -- I mean, we implemented several initiatives, but what we're trying to do is to improve our product offering as much as we can. And also I think on wholesale, we are implementing the same initiative that we are doing in other channels, like for example, the same standardizing that we saw in merchandising, trying to operate the same way that we are doing in retail.

Great. Saw this come through. Congratulations.

Thank you very much.

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

Yes, thanks a lot. Great job, guys. So I guess, a couple of questions. I actually want to talk about the model a little bit past at the end of the year here. So you gave us some good perspective on capital expenditures, Sandeep, how do you think about like the capital intensity of the business. Looking further out, how much do you really need to run the business or grow the business particularly in Europe? Trying to get a sense of how you kind of generate more free cash flow in the business? And then, as you are kind of reinventing the US business and taking down fiscal exposure and your Asia margins are growing, your Europe margins are growing, how do I think about the normalized kind of margin rate that we should expect for the Americas? And what's your proactive approach to real estate? What does the leverage point start to look like in the Americas region as you're doing a good job of closing stores plus reducing rent profiles on stores that you may keep open, I am just trying to kind of math equation for other people on the line? Thanks.

Sure, Randy. I think it’s quite a few pieces to it. But I think its – some of the right questions to be asking. So, let’s start with the CapEx, because that's where you started the list of questions with. One thing that's certainly sure is from a maintenance capital perspective, the investment that we need to keep on making in technology will continue, because as the business evolves and become more and more well developed globally, we need to make sure that we're continuously investing in that technology infrastructure to support it. But I think apart from that, we see material amounts of white space in both Europe and Asia where there's opportunity to expand our business. But of course, we are going to have to do this in a very responsible way depending on the returns that we are expecting to get from the opportunities we have from a store expansion perspective. So it's too early for us to basically make a call on exactly what that level of spend will be, because it really depends on what opportunity is in front of us at that given point in time. But the white space exists, so if the opportunity comes, we will spend the CapEx to drive the revenues and the free cash flows from it. So then I think the next piece was about the Americas, and really margin management and expectations of margin trajectory for the Americas. The problem we have, Randy, in this specific year is, our comps have been so difficult and we are guiding briefly for the year to be roughly down in the low-double digits. And when you have this kind of comp degradation, no matter how many profit improvement initiatives you take like we have been doing for the last 12 months, there is going to be a material impact on margins which are often a negative measure. And so we continue to deal with that and we’re going to keep on shrinking the footprint of this comp degradation continues. But until we actually get to the point where we can stabilize that comp level, it's very difficult to make a call on the margin, but the business will have to keep on shrinking, if this is what keeps going on. But what I would actually try to cap this with it, take a look at the last quarter that it past, despite a 10% comp decline in the Americas we expanded the company operating margins by 130 basis points. We've been talking about this inflection point coming. We're in the midst of a turnaround and have been for the last couple of years, but now we're beginning to see the investments that we made on our international business coming through and more than offsetting the softness in the Americas Retail business. And for us, it's a beginning of for that inflection.

Just a last follow-up. Does the long-term margin thought process changed at all on the Americas i.e. worse or as is, then you kind of thought previously and how about the same question for Europe and Asia, given you saw a really nice - particularly in Asia, its really massive improvement in the profit margin - segment margin or geographic margin in the quarter. Just how do you think about those longer term kind of goals, if you will?

Yes, I think the longer term goal is still in the 7.5% that we talked about on the last call as well for the total company. And I think, if you think about the trajectory and the path towards getting there, if anything, I think the Americas came in roughly where we expected to in the second quarter. But I think the European and Asian businesses perhaps performed a little bit compared to our expectations in the quarter, getting us to the 4.3% for the company on an adjusted basis. What I would say is longer term, the answer I just gave you on the Americas still holds, so until we actually get some stabilization in the comps, very difficult to call a number on that one. But will happen is that the degradation continues on comps to the trajectory it is, it will just shrink so much that the weight of the business will be much less material to what it is right now. Whereas, when it comes to the European and Asia businesses, I think what we’ve seen in the second quarter, especially, for Europe is that the US dollar has weakened quite significantly against the euro. And that makes a difference. And if it continues to hold, there could be some relief in terms of the paths towards getting to the 7.5%, especially on the European business. And on the Asian business, we were expecting directionally the margin expansion that we got absolutely a bit better, but what we're really done is done a good job of leveraging the cost structure that we actually built out in the past one year. We were messaging it for the last couple of quarters and now it's coming through. So the thesis holds for all the businesses. We're quite comfortable that we are on the right path. And if anything, we are slightly ahead of the game based on the second quarter.

Great. Thanks, Sandeep. Thanks, Victor.

Thank you.

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

Thank you. Thanks for taking my question. Good evening, gentlemen. Congrats on a nice quarter.

Thank you.

Thanks.

It's great to see the guidance raised to as the confidence going forward. So Victor, you mentioned, you'd been at the company two years now, I'm sure you remember, when you first joined the company was still thinking about opening new stores, and positive square footage growth in North America, and here we are today, you know, obviously, closing stores. And we have maintaining the flexibility to close stores more aggressively, if the comps continue to decline, as Sandeep was just discussing. But if you really step back and think about what’s happened in North America, maybe walk through what you think really has gone wrong? Is it really purely just the marketplace and the competitive forces out there? Are there things that you’ve learned about the brand in North American market and consumer that you can use going forward? Are there any kind of glimmers of hope or signs of light, rays of light out there in North America that you've noticed anecdotally? Thank you.

Thank you, Omar . Basically, I think that two years ago when I arrived, I starting such a promotional cadence on the retail business here in North America that we started to realize, I mean, opening new stores was not a right strategy. And it was much more about trying to stabilize the business, as the promotion and the comps were going down. We were thinking that it is the right time to start closing stores. But at the same time, I think it's much more and a – the structural environment in North America. So - but what we are trying - we are not wasting time on saying, okay, we want to turn around even the business in North America as soon as we can. So we are making a lot of initiative everywhere, like improving our product offering and this is work in progress. I mean, it's not going to be only for one particular moment that we are going to improve our product. The product will be improved every day, every week, every month, every year. And we will listen a lot to our customers in order to know what do they expect from us, what type of things do we need to be. Regarding the product, I think that we are trying to do two things beyond trend, trying to do an appealing collection, but also we say our core values of sexiness, coolness and easiness. At the same time, we are doing a big push on digital marketing versus traditional marketing. We are also working a lot - we are doing a lot of celebrity endorsement, for example, we did several celebrity endorsements like for example, A$AP Rocky, Joe Jonas, and also Camila Carrillo. And all these celebrity endorsements are helping us well for the brand relevancy worldwide, not only - I think they are based - American-based endorsements, but at the same time what we see is that these endorsements are helping us worldwide, and also in the US and Canada or North America. At the same time also, we are doing a big push on our e-commerce initiative with e-mailing, with improving our mobile application. We are trying, as well to improve or to have a comprehensive omni-channel capability. Also for example, this quarter we became prime in Amazon, also we think that we have a lot of white space on marketplace in North America. So we started collaborating with Jet.Com, which belongs to Wal-Mart. So there are plenty of initiatives, you know, no matter - I see this as an opportunity, what is happening in North America, particularly because all the initiatives that we took outside North America is in 90 markets. I mean, we are almost successful, let's say, in most of our markets. And we are in more than 90 markets. So this is very encouraging, not to continue doing exactly or trying to extend, to even being more aggressive with all this initiative in the US.

Thank you for that response, Victor, very expansive and detail, I appreciate that. Are there any - are you seeing any green shoots or are you seeing efficacy with the social media, the influencers, you mentioned A$AP Rocky. I mean, you clearly are being very flexible and creative and aggressive trying many different things, I’d love to see here - here are you seeing any traction with any of these initiatives in North America?

For example, with all these celebrity endorsements, I mean, we were having - when we put some of the product inside the stores, there was a lot of excitement, I mean, there was queues on our main dollars for opening and buying the product. Also we have seen as well new customers that we were not having in the past. So also a diversity in terms of the people and the customers that are coming. And this is giving us a lot of hope in terms of what we - when we are going to turn around the business in North America. But at the same time, it's not only the celebrity endorsement, is that we - I think also the constant improvement on the product and being very agile in these type of initiative are helping us a lot to see a little bit that, I mean, we will see a turnaround at one point. But I mean, we don't know when it’s going to reap, but at the same time, we are very excited with the momentum that we are having outside the North America. But at the same time that in a way is reflecting in North America.

Our next question comes from John Kernan with Cowen & Company. Please go ahead.

Good afternoon, Victor and Sandeep. Congrats on the momentum.

Thank you.

Very helpful commentary, Victor on North America. But can you also talk to the inflection you are seeing in Europe and Asia from a top line prospective? What are you doing differently from a merchandising perspective, marketing perspective, sourcing perspective? And what makes this sustainable versus some of the volatility we’ve seen in the past?

Well, in Europe, we have to take into consideration that we have around 25 markets. It's not like North America, where we have 5 or the Americas where we have 5 markets. So these are completely different. I mean, we have the consolidated markets, which is Spain, France, Italy, and then we have the market with lot of white space. I mean, we basically - we were under-penetrated in the past, so such as for example, Russia, Turkey, Northern European country, where for example, we opened in Norway this year. And it's performing quite well. I mean, it's performing okay. And also we opened Greece with our own stores and we are performing or we are seeing kind of a momentum. At the same time, I mean the marketing activities that we are doing, they are global marketing activities. So I mean, we generate those marketing activities here in the US, but those marketing activities we are seeing that they are very well received by our customers or by potential customer outside the US, particularly in Europe and for example, in Asia, in Japan, in Korea, and mainly in China. And regarding, there is no structural - for example, in Europe and in Asia, there is no structural headwind like in North America. And this is helping us, but at the same time, you know, probably you are wondering, I mean, if we are going to open between Asia and Europe more than 100 stores, why this is not - in our real strategy in worldwide strategy very responsible, but at the same aggressive. So what is responsible? It means, that I mean, we’ll have kick-out closes on year 3 and year 5, even on year - on the second year. It depends. So we have an exit – an easy exit or an easier exit than we had at this moment in North America, but I mean, with good results in North America as well on this. So I don't think that at the end of the day all these structural headwinds that we are facing in North America will happen in Europe, maybe it can happen in one particular country, at one particular moment. But, I mean, we have so many markets that it's a completely different ballgame comparing with one in Americas, in terms of - to predict that the downturn of one particular market.

Okay. So if you don't mind me asking, it seems like there is lot of optionality and flexibility within the North American retail store base and you’re certainly moving towards more closures, obviously with the 26 leases that you're modifying with the announcement today. I'm wondering how these door closures affect you your licensing business. Obviously, some of that license product is sold through directly operated in North American retail doors. Is there other ways to extend the license content into other channels, like Amazon and other .com venues? Just wondering how overall these door closures potentially affect your licensing business? Thank you.

So John, this is Sandeep. I think on the licensing business, just remember, it's a wholesale business. So it’s not a wholesale business that already exist for those licensees and its wholesale business on the global basis. So as much natural expansion is generating more stores and more footprint and more business that increases the licensing business for our licensees. And I think even within North America, than the Americas, the amount of licensing income that's coming specifically from our owned-and-operated stores is relatively immaterial to the total licensing revenues we generate. So we are really - we are really quite comfortable with where things are going on an aggregated basis, because I think the offsets from the international business to the domestic door closures take us in the right direction. And one more thing I'll add to this, John, is, if you think about the licensing business. Last year we actually finished on double-digits. And this year already in the first quarter we saw a sequential improvement to down in the high single. In the second quarter we were flat. We're guiding to down in the mid-singles. So sequentially we are improving. This is the same argument I was making for the same company where now the portfolio is beginning to play and the international business growth is beginning to offset some of the softness that we are seeing in the Americas. So overall, we are quite comfortable with what the trajectory.

You know, one important thing that I want to mention is that and I just mentioned, that we are present in more than 90 markets and in most of them, we are successful. So the brand is basically well-known everywhere. And also our product offering or our business model is successful in those markets. So the thing is that we are going to go to 25% total business from the United States. And I think this is going to help us to balance all the other successful markets that are there.

Our next question comes from Dana Telsey from Telsey Advisory. Please go ahead.

Good afternoon, everyone. Nice to see the improvement. As you think about the slightly accelerating increase that you are seeing in the order book, what are you seeing in terms of whether it's the men's business versus the women's business, the denim business, any exchanges in pricing that’s being incorporated into this? Thank you.

Thank you. What I would say is that for this quarter, basically we were selling a lot of T-shirts, we were selling a lot of knit tops and we were selling a lot of stretch denim. I think for next quarter stretch denim will be continue - be successful trend versus the rigid denim. At the same time, I think it's very important for this quarter the graphic Ts and all graphic and all type of denim plants that are having embellishment and perfect for us actually, perfect for Guess?. And this is the most important thing at this moment and T-shirt is very popular versus for example woman shirts and regarding men or women, I think basically the trend is quite similar to both of them.

And any changes in pricing going forward?

Well, our pricing is a global pricing policy. And basically, we have benchmark at US price. And, I mean, we work on pricing. Being a global company, it's very difficult to have a lot of discrepancy between markets. And I think we will continue being very consistent in terms of our product offering and the value perception of that product offering.

Okay. Thank you.

Our last question comes from Bridget Weishaar from Morningstar. Please go ahead.

Hi. Congratulations on the quarter. My first question is just given the vast difference in performance between Europe and the US, is that due to a fundamental difference in the way consumers shop and dress in the two markets or is it simply due to the fact that the US is over stored and Europe still has opportunities for expansion?

I think due to the challenges that the - the structural challenges we are facing at this moment in North America. The collection - the North America collection we are selling in other several markets and we’ve been very successful in terms of the product that we are selling in those markets. So I think it's more a question of a tough environment in North America and basically, I don't think that is something else than that. Of course, some of the things are self-inflicted and, I mean, we are basically working on trying to apply several initiatives in order to improve - to improve that.

Great, okay. And then looking at Europe and Asia, it looks like both wholesale and retail are doing well there, as of you’ve had any changes and how you're thinking about the balance of the two and where the normalized margin can go for those regions because of that?

Yes, I think when we talk about Europe, we've actually seen a good performance from the wholesale business clearly in the fall/winter ‘17 book, and so far what we are seeing in spring/summer '18. That being said, much as its improving, the retail business is growing at a faster rate. So the balance in Europe is for sure expected to pivot more towards the retail versus wholesale. And on the balance basis, I think we’ve already given you a prediction that we’re expecting to see margin expansion. So on the Asian business, it's very differently structured because there are so many different markets, which actually has different attributes. But the expansion that's coming in Asia mostly is through direct retail. And because it's through direct retail, that balance of the business will move into more direct retail over time. But we still expect to see margin expansion in that model.

[Operator Instructions] I'm showing no further questions at this time.

That's great. Thank you very much.

Thank you.

Thank you, ladies and gentlemen. This concludes today's call. Thank you for participating. You may now disconnect.