Good day, everyone and welcome to the Guess? Second Quarter Fiscal 2021 Earnings Conference Call. On the call are Carlos Alberini, Chief Executive Officer and Katie Anderson, 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 outlook, including potential impact from the coronavirus pandemic. 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. Comments will also reference certain non-GAAP or adjusted measures. GAAP reconciliations and descriptions of these measures can be found in today’s earnings release. Now, I would like to turn the call over to Carlos.

Thank you, operator. Good morning and thank you all for joining us today. Once again, I hope all of you and your families are safe and healthy during these unprecedented times. As you know, Maurice Marciano was injured in a bicycle accident recently. He is under great care, but we expect this will be a long recovery process for him. On behalf of Paul, our Board, and our entire Guess? Family, we pray for his fast and full recovery. Maurice is an amazing person. He is very strong, and we all hope to get him back soon. In the next few minutes, I will speak about the overall environment and our company, then I will touch on our second quarter results and I will close with how I see our outlook for this year and into the future. I am sure I speak for everyone on this call when I say that we all continue to be tested with the pandemic and its impact on life. At Guess?, we are managing through the situation with our eyes on the road and our hands firmly on the steering wheel. I am very proud that our teams around the world continue to rise to the challenge imposed by this crisis in an extraordinary way. I believe that the progress we made in the second quarter, both with our financial results and with our initiatives to better position the company for the future demonstrates our team’s strong leadership, their relentless hard work, and their amazing commitment to our customers and our company. Since we last spoke, a few things have changed in the world and in our company and some have stayed the same. Among those things that changed, the most important one is visibility, which has improved meaningfully. Starting with our store re-openings in all regions, we have had relatively consistent performance for several weeks now. Almost across the board, we have seen a significant reduction in customer traffic from the comparable prior year periods, partially offset by improved conversion rates. Improved visibility is helping us size our expected demand more effectively. And as a result, we can project our inventory needs more accurately, which is key to optimizing future sales, margins, and profitability. Improved visibility helped us to better assess our liquidity, enabling us to capitalize on share repurchases that we think offer a material long-term return opportunity for our shareholders and improved visibility gave our board the confidence to reinstate our quarterly dividend. The second change relates to customers’ lifestyles and shopping behaviors, which clearly have not returned to pre-pandemic conditions. This to us signals that the changes may be more permanent than we originally thought. While many people feel more comfortable shopping online than in stores, those that do venture out are much more intentional to make a purchase when they visit. Our e-commerce business in North America and Europe delivered high-single-digit revenue growth during the second quarter and gross profit dollars grew more than 20% as margins improved significantly as a result of increased full price selling and improved IMUs. We are confident that our e-commerce business will accelerate in the second half of the year as we increase our investment in marketing, continue to reposition our product offering, and complete our Salesforce platform implementation. We are encouraged with our digital business in August, which was up in the teens and again with improved margins driven by strong performance in Europe and to a lesser degree in North America. We continue to see that product priorities have shifted towards more casual dressing. We expect this to evolve over time as people begin to go out again, but we believe that casual and comfortable clothes will remain a key priority for our customers. Based on this trend, we are investing in the development of a strong assortment of active apparel, outerwear, stretch, and sustainable denim and an extensive line of tops and dresses in multiple colors that capitalize on high-quality and comfortable knit fabrications. We are also focused on seasonless and essential products and strong lines of accessories, including handbags. While we reduced marketing spend dramatically during the second quarter, we see an opportunity to increase our investment in the second half of the year to continue to strengthen our brand position and drive traffic. We are planning multiple campaigns for the season, featuring several of our product lines of women’s, men’s, accessories, and kids. Guess? has recently engaged Italian actor and singer, Michele Morrone as a new worldwide face of Guess? men’s. Michele is the lead actor in the movie, 365 Days, one of the top movies of Netflix, currently streaming in 200 countries. He will be featured in our fall winter 2020 collection campaign. We intend to intensify our global efforts on digital media, including social media and have plans for direct mail, TV advertising, and outdoor media, including billboards, buses, and others. One very positive industry development relates to inventory ownership in our market, which seems to be already rebalanced and better aligned with current customer demand. This should result in a less promotional environment going forward, leading to improved product margins. We continue to make inventory management a key strategic initiative and made good progress this quarter as we experienced a product margin increase and our inventories are in a good place. At quarter end, inventories were down 13% and we owned less clearance inventory than a year ago. For the rest of the year, we continue to plan our inventory purchases based on expected demand and have built flexibility with fast track processes and basic product ownership to react to potential higher demand. We already see opportunities for increased business and believe, but we will be able to capitalize on this strategy. With respect to resource utilization and cost structure, I am very impressed by our team’s ability to do a lot more with less, achieving greater efficiencies and significant reductions in our cost structure both temporary and permanent. Katie will spend more time on this later on. Regarding things that have stayed the same, unfortunately, the pandemic is still with us and we have seen new outbreaks in multiple countries. People are still very uncomfortable socializing and leaving their homes, and for now tourism continues to be non-existent between countries as a result of restrictions and low willingness to travel. I recently read that in July, the amount of tourism spend in Europe was down 95%, with Chinese spend down 98%. For these reasons, we are approaching the second half of the year cautiously. We continue to make our priority the safety and well-being of our teams, our customers and the communities that we serve. We closed all California stores and enclosed malls after having them reopened and we are now reopening many of them again. We are happy to report that most of our stores worldwide are now reopened. Our headquarter buildings in North America and in Europe have been operating at 50% capacity and the remaining team members work remotely. As we closed our second quarter, we were pleased with how we manage the business in light of the circumstances presented by the pandemic. Our retail sales were better than originally anticipated and our wholesale businesses, which also performed better than expected benefited from some product shipments pull forward from the third quarter into the second quarter as many European customers requested products earlier than expected. Margins were better than planned as we managed inventories well and benefited from positive rent relief in Europe. We also manage costs effectively during the period. All-in-all, we reported a 41.7% revenue decline and we almost broke even at the operating level for the period on an adjusted basis. As we look into the second half of the year, we expect a slow recovery of our retail business driven by similar metrics to those that we have seen since we have reopened our stores, but with a gradual improvement in customer traffic. We believe that there is an opportunity to expand the holiday selling period and have worked on plans to begin the season earlier with direct mail, customer appointments, optimizing omni-channel capabilities, and focusing on other initiatives to avoid customer congestion during peak periods. Regarding our wholesale business, during the last week of June, we launched our spring summer sales campaign with a live event in Lugano, Switzerland, which was attended by over 200 people. Plus the event was live streamed and over 550 people participated. I believe this was unusual in our industry and was very well received by our customers. Paul, with the creative teams have done an incredible job with the collection. And I believe that the product line is the best that I have seen in all my years with Guess? The response to the line has been very positive and the customer’s interest in our brand is very strong. We are very excited about the opportunities that we see to gain market share even in the near-term. This year, we continue our strategic planning implementation work and are very pleased with our progress. We still believe that our company is in a strong position to capture the 500 basis points improvement in operating margins that we have targeted last year as most of the improvements are expected to be driven by operational efficiencies that we are confident remain available to us in the near future. Our brand positioning work is in full force. Our commitment is to elevate our Guess? and Marciano brands, focusing on high-quality materials, SKU rationalization and developing one global line for each brand, while addressing market needs with specific products by region. We continue to believe that our brand DNA and our obsession for inclusivity, sustainability and celebrating customer diversity represent a significant strength in today’s environment. Regarding our customer centricity initiatives, we implemented Salesforce for our Guess? website in North America and in two European countries, France and the UK. Tomorrow, we are launching 19 additional countries in Europe and 26 more will be rolled out through the rest of September and October. We also launched the Customer 360 project that I mentioned in our last call and we continue to upgrade our omni-channel capabilities. The entire plan should be fully implemented by the end of next year. We continue to believe that our e-commerce business penetration will grow as a result of this strategic initiative to represent over 23% of our direct-to-consumer business in 3 to 5 years, up from 13% last year. We plan to update our entire strategic business plan in the next few months and share it with you during the fourth quarter at an Investor and Analyst Meeting. In closing, while we are approaching the short-term cautiously, we are focused on the long-term and we see very bright days ahead. Our vision for our company and our brand remain intact. I strongly believe that the long-term impact of this crisis in our company will be extremely valuable as we reposition our brands and redesign our business model. The crisis inspired our team to think differently, to challenge every aspect of the business and to architect a simpler, more efficient and capital-light model. We are building a business that will be better positioned to compete in the future and gain market share globally. We have a true iconic global brand that has been relevant for consumers all over the world for 40 years. Guess? stay relevant by adapting its model time and time again. I believe that companies that adapt their business models to actively embrace new consumer preferences, placing the customer at the center of everything they do will gain share and overcome this crisis faster. We fully expect to be one of those companies. We have a strong team, which is even more excited about our future today than I have seen it since I came back to Guess? I strongly believe that in the next few years, we will deliver outsized returns to our shareholders, Paul and I and our entire leadership team couldn’t be more excited about our future. With that, let me pass it to Katie. Katie?

Thank you, Carlos. Good morning, everyone. This is our second quarter navigating the company through what is no doubt the most challenging period in our history. But while consumers remain cautious, we were pleasantly surprised with the initial level of productivity that we saw as our stores reopened across each region during the quarter. This is a sign not only of a macro recovery, but also the strength of our brand and the effectiveness of the business decisions that we have made over the last few months. Once again, this quarter, we have proven that we can successfully control the middle of the P&L with appropriate reaction to the current environment, all while maintaining an emphasis on the long-term health of our brands. We decreased operating expenses by $70 million, expanded product margins and maintained a very clean inventory position. And as a result, even with sales down over 40%, we were able to maintain almost breakeven adjusted net earnings and a solid balance sheet. I am happy to report that our liquidity position remains strong. I believe this is a competitive advantage for us, allowing us the flexibility to make appropriate investments to drive our long-term strategy as well as return value to shareholders. In the first quarter, at the beginning of the pandemic, we took strong actions to preserve our liquidity, not having a clear outlook into what the future held, given the uncertainty of the global crisis. We drew down on our credit facilities, extended our ABL and secured additional low interest term loans in Europe. As the situation began to stabilize during the second quarter, we paid back a significant portion of the borrowings on our drawn revolving lines and seized the opportunity to return incremental value to our shareholders with a $39 million repurchase of our shares. In addition, we announced today that our Board has decided not to declare any cash dividends from the prior two quarters and it has approved the resumption of our quarterly dividend program this quarter. Our long-term capital allocation policy has not changed. Now, let me take you through some of the details on our performance for the quarter. Let’s start with sales. Second quarter revenues were $399 million, down 42% in U.S. dollars and 41% in constant currency. Revenues were negatively impacted by store closures in all regions at the beginning of the quarter and lower productivity the prior year, as stores once open. Our stores were closed for approximately 30% of the days in the quarter and when they were open, traffic was roughly half of our customer flow in the prior year. Overall sales productivity for our retail stores since reopening for the quarter was down 21% in the U.S. and Canada, down 31% in Europe and down 26% in Asia. We have been seeing traffic declines partially offset by significantly higher conversion and our tourist centric locations have been experiencing a tougher recovery. Our e-commerce business in North America and Europe was up 9% for the quarter. Our wholesale and licensing partners were experiencing similar decreases in demand, resulting in lower sales in these areas in Q2 as well. Gross margin for the quarter was 36.9%, 2% lower than the prior year. Our product margin increased 210 basis points this quarter primarily as a result of higher IMU as well as lower promotions. However, this was more than offset by occupancy de-leverage of 410 basis points on lower sale. Regarding rent, we are still in negotiations with our landlords to appropriately adjust our rental expenses in line with the store closures and declines in traffic. As a reminder, in general, we suspended rent payments for April, May and June, but all rental expenses are accrued until final agreements are in place, at which time the adjustments are made. This quarter, we booked about $8 million in rent credits for fully negotiated rent relief deals, mostly in Europe.

We have also adjusted how we staff our source allowing for significant savings in labor, while maintaining the quality of our customer service and our selling culture on the floor. Right now, for the most part, we have more buyers than lookers relative to what we have historically seen in our stores. And these lower traffic levels help us optimize our labor spend while still capitalizing on demand. We have assessed and continue to assess all aspects of our business to reduce redundancies that we have across regions and are operating in a leaner and more agile model. Our eye will be on the middle of the P&L as we focus on maintaining a cost structure that makes sense for our organization in our new normal. Adjusted operating loss for the second quarter was $900,000 versus a profit of $48 million last year. Our second quarter adjusted tax rate was 156%, up from 28% last year. As the total company’s adjusted pre-tax earnings is roughly breakeven for the second quarter, the tax rate changes over prior year and from quarter-to-quarter are more pronounced than in the past due to the mix of tax jurisdiction. Inventories were $419 million, down 13% in U.S. dollars and 15% in constant currency versus last year. After paying back $185 million of borrowings on our committed credit facilities, we ended the second quarter with $328 million in cash and had an incremental $236 million in borrowing capacity. Capital expenditures for the first 6 months of the year were $10 million, less than one-third of what we spent in the same period of the prior year. As we have mentioned, we continue to invest in those initiatives that are mission-critical to our business plans, like our digital capabilities. Free cash flow for the first 6 months of the year was an inflow of $29 million, an increase of $87 million versus an outflow of $59 million last year. This improvement included the non-recurring payment of last year’s $46 million EU commission fines as well as the adjustments this year to our payment terms with our vendors and unpaid rent to landlords while we finalize negotiations. Given the continued level of uncertainty in the current environment, we are not going to provide formal guidance. However, let me walk you through some of our thoughts on how we are planning sales for the rest of the year. As discussed, we were encouraged by our initial reopening performance, which was stronger than expected. However, the continued recovery since opening is moving slower than we anticipated and in some cases like the Americas, deteriorating from reopening levels. Consumers remain cautious about shopping, which will most likely not change for the end of the year given the nature of this crisis. In August, we saw sales productivity at our retail locations of down 29% in the U.S. and Canada, down 13% in Europe and down 33% in Asia. E-commerce has picked up quite a bit driven by Europe and we are tracking up double-digits there. We see particular risk for the holiday shopping period, where social distancing and consumer caution could impact our high in-store volumes during that time. As Carlos mentioned, we are mitigating this risk by implementing strategies around elongating the holiday season and reducing congestion during peak time while still capitalizing on the demand. Our wholesale and licensing businesses pretty much follow our retail business as our partners are experiencing similar headwinds. As a result, we expect both Q3 and Q4 revenue performance to prior year to be in the negative mid-teens range. We are obviously hopeful that trends in the back half of the year will turn out better than that, but we are planning our business assuming they will not. We are confident in our product and our marketing strategy and have the flexibility in our inventory to meet the demand should it exceed our expectations. In closing, the work that has been done by our teams across the business and around the globe over the last few months has been grueling to say the least, but it’s so rewarding for a team to see the fruits of their labor and our performance. And we can see it in our clean inventories, our strong liquidity position, our well-managed expenses and the ongoing sales recovery across our segments. This fuels momentum and team work and we feel that right now at Guess?. With that, I will conclude the company’s remarks and let’s open up the call to your questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Susan Anderson from B. Riley FBR. Your line is now open.

Hi, good morning. Thanks for taking my question. Nice job on managing the quarter in a tough environment. And I was wondering if you could give a little bit more…

Hi, Susan.

Hi, Carlos. A little bit more color maybe on the wholesale environment, I guess in the Americas and then also globally? I guess what’s the trend that you have seen in orders as we go into the back half and obviously as stores started to reopen up until now?

Yes. So, Susan, I think that the behavior of the wholesale business for us has been somewhat different depending on the regions. In North America, what we saw was a pretty -- just big rate of cancellations of the orders that we had at the time that the pandemic broke, and we had to work with our vendors very closely to really redirect and cancel some of our purchase orders and work with them to adjust our purchases overall. In the case of Europe, we had a different type of behavior, where many of our retail partners, we worked very closely with them thinking about what was their appetite to continue to maintain those orders and the rate of cancellations were significantly lower. We worked with some of the bigger countries and bigger retail partners all over Europe, and we were able – and I think I mentioned during the last call that about 10 – the top 10 retailers represented about more than 50% of our business. So, I can imagine that was pretty significant, and they were very, very interested in keeping a lot of those orders. So, in that particular case, what we decided to do and someone in partnership was to skip one season, we decided to cancel development of what we call pre-spring summer, and by doing that we were able to elongate the fall winter season and gave our partners more time to be able to really move through the purchases that they have made. So overall, the results have been very, very strong and we even got some additional demand this quarter, in the second quarter that we did not expect, but because those retailers are selling the product better than they had anticipated, so we have to ship earlier. And with respect to North America going back there, they obviously – they still have the capacity to really sell more products. So, we purposely kept some product ownership and some flexibility to be able to react to the unexpected demand or expected in a way and that is happening, but slowly – but we have been able to fulfill some additional orders that came after those cancellations took place. Looking into the future, we are starting to feel better, because we see that there is strong interest in the brand, very strong, especially in Europe and people just love the line. You heard my opening comments, the event that we had in Lugano was very successful and we saw lot of enthusiasm about how the brand is elevating the product, the experience, the fabrications that we are using, the styling, everybody just really came out very, very excited about what this could be in the future and we believe that we can gain market share as a result of that. We have a big wholesale network here, and I think that there is a big opportunity, especially considering that some companies are not delivering on time or they are having bigger challenges, including financial challenges, we think that we can be one of those big brands that can really gain a lot of share as a result.

Great. That’s very helpful. Thanks for all the details. I guess, just as a follow-up, I think the product does look great and the website looks good too. I am curious if you have seen a bigger shift in sales to – of the millennial and then the Gen Z customers during the pandemic and then also as the new product has rolled out? And then are you seeing any changes or impact in purchases of the older consumers as you kind of mix in the new product? Thanks.

Yes. This – during the quarter, we had a couple of programs that our team and brand partnerships under Nicolai Marciano had produced and the one was with J Balvin. And there was a big campaign and the product has done very well. And obviously, we are talking to that younger audience with a lot of that assortment. And right now, there are a couple of capsules won under the Guess? USA brand, and the other one in Guess? Originals, and again we think that the product is amazing and it’s really resonating with that younger customer. With respect to our – what we call the heritage customer, we are seeing a similar type of behavior, we are seeing I think as Katie mentioned then during her prepared remarks that there is improved conversion. We are seeing that traffic has been slower, but when people come they are a lot more intentional and we feel that the product is definitely aligned with what they are looking for. What we saw especially in the second quarter was a lot of wear now purchases, a lot of shorts and T-shirts and a lot of the type of product that you would expect during summertime. We have done well with denim, more fashion denim than basic denim. But overall, we are seeing great response for the product, but what I was talking about this product that the ultimate customer hasn’t seen yet.

Great. That’s helpful. And then I guess just lastly, how are you thinking about the promotional environment in the back half, you guys were – you did a really good job in the second quarter pulling back, do you think you can continue to do that? It sounds like you feel good about your inventory levels. Thanks.

So, let me address the overall environment and then probably Katie, you can talk about margins. Just with respect to promotions, what we see is that people really control their inventories and they made a lot of changes to what they were buying, us included, of course. We were very early on with managing inventories. And I think that it’s paying off. And – but as a result of that, I think that there is a lot less inventory in the system based on what we are seeing and how people – how companies are responding to with their promotions. And as a result of that, we expect that margins will continue to get healthier. In our case, we made this a very high priority for us, we want to elevate the brand, we don’t want to be promotional, we want to be – put the brand in a completely different space. And we have bought inventories that are aligned with that strategy. And of course, we think that there is going to be an opportunity for those that have a flexible supply chain to be able to react to increase demand hopefully, we are going to have that opportunity and we are prepared for that. Now, that being said, we plan the second half cautiously, we don’t see total clarity that the crisis has been completely controlled with the virus and everything else. So, therefore we are being very careful. So, Katie, do you want to talk about gross margin?

Yes, sure. So in terms of gross margin, obviously, Q2 was better than Q1 for a couple of reasons. First, we took a relatively large inventory charge in Q1 and we also had lower sales, so obviously getting less de-leverage on the occupancy line. In Q2, we came in with a clean inventory position. We are seeing improving IMUs and we also have more sales to leverage margin – to leverage rent. And we also have had a $8 million one-time rent relief credit, most of that was in Europe, but that’s worth 2 points. So when we think about Q3 and Q4, we think as Carlos says, we are going maintain a clean inventory position. We are going to continue to benefit from improving IMUs, lower promotions, some pricing. And then as sales normalize, we will gain more leverage on the occupancy line there. We think we will have some rent relief going into the back half of the year, specifically in Q3, but it’s unknown how it’s going to compare to what we saw in Q2.

Great. That’s very helpful of you guys. Thanks so much. Good luck in the back half.

Thank you. Thank you, Susan.

Thanks.

Thank you. Our next question comes from Janine Stichter from Jefferies & Company. Your line is now open.

Hi, good morning, everyone and congrats on all the improvement.

Thank you, Janine. Good morning.

Good morning. I am just going to ask a little bit about e-commerce, the growth has been a little bit lower than what we are hearing from other companies. So maybe you could just talk about why you think that might be? And then maybe elaborate on some of the benefits you think you will get from the Salesforce implementation and then also a little bit more around your plans for marketing in the channel? Thank you.

Yes, sure. Let me start and I am sure Katie will add to my comments. We continue to support digital as you know we have been on this for since I came back and even before that, I think that the company considers this a very high priority and we see a big opportunity to continue to grow that channel and do even a better job in seamlessly responding to customer’s needs on this, but overall, Q2, the U.S. and Canada was up low-teens, traffic was down, but we were able to offset that with higher conversion. Europe was up mid single-digits and in the case of Europe especially we were very, very careful with not promoting. Also, we were going through the Salesforce implementation for those countries and because of how we are architecting the solution that really had some impact on – negative impact on traffic, on direct traffic, but that is about to be over once we complete the implementation. As I mentioned, we will be almost done by the end of October. But we were also very careful with not promoting. Last year, we were more promotional than we would like to be. And as a result, we were able to see a pretty significant increase in margins. I think I mentioned that our margins overall for e-com were over 20%. And we are happy with how we are running the business. That being said, we think that we would like to have more traffic coming into the sides and we were somewhat conservative with the way we were marketing, especially digitally and we are going to increase the level of spending in the second half that is already ongoing as we speak. And we see that the opportunity to really use all of our assets, I mentioned about the new campaigns I think that they look incredible. And I think that to really bring some of those assets into social, but also inside digital for our websites, I think that is going to have a pretty significant impact on traffic. We also saw that as we were reopening stores some of our e-commerce business somewhat decelerated. We think that because we have such a loyal group of customers that are really shopping in some cases both channels, some of those sales probably took away from the e-commerce business. With respect to our future, we have been working on this for some time with the Salesforce implementation in both North America and Europe, but also we do not have full omni-channel capabilities, especially in Europe and our plan is to really roll those out. Many of those are things that we do have in North America, but would be impacted by the conversion as well. And I think I mentioned the last time we talked – we are implementing an all solution from Salesforce called Customer 360 and the whole idea is to improve customer data integration, personalized marketing, journey engagement and data analysis and results. So, all that should happen next year. It’s a very long project, but we think that with everything that is happening and how the consumer is shopping today, we will benefit from accelerating that project. So, we are excited – we can’t wait to get all this done. The good thing is that the conversion which is the first big step on that foundation is going really well and we are seeing great results. We have seen the homepage loading time performing extremely better than we used to. We are seeing that the average page loading time is at least 2x faster, we are seeing a higher rate of conversion of 16% plus and we are seeing bounce rate down about 24%. So, we know that the platform is the right one and we are excited about that.

Great. Thanks for all the color. And I guess just as a follow-up if you think about the initiatives you laid out last year at the Investor Day, it sounds like e-commerce might be one that you are maybe slightly ahead of plan on. Is there anything else you feel like you have been able to accelerate? And then on the flipside, any initiatives where you feel like the pandemic has maybe put a delay on the implementation?

Yes, I think it’s a great question. And frankly, we are excited because we have been able to accelerate a lot of things, just one of the big things was logistics for us, especially in Europe and we have been able to renegotiate a lot of our contracts. We have closed one DC in the Netherlands. We are about to open one in Poland. And we think that all of this has a pretty significant impact to the bottom line at some point. We have done a lot of vendor consolidation work. I think that just our supply chain teams are almost fully integrated. We have reduced SKUs in a big way by pursuing this idea of developing one global line for each brand. This is something even in my years with the company, whatever 10 years ago, we tried to do and we could never get it done and now we are almost done completely. We are going to have a global line coming up in the next few months. So, it’s super excited about that. We are doing a lot of infrastructure work and we have identified great areas for efficiencies and eliminate redundancies. Some of it is coming from doing this running the business differently like the one global line, but many other things, we think that we will be able to eliminate redundancies and by doing that, cutting costs and running a simpler business. I mentioned everything about the brands I think that we are growing significantly faster. And Paul has been just a tremendous ambassador just leading on this and doing a great job and I think that we are going to be there very, very quickly, something that also was something what we wanted to do, but it was difficult then, it’s not just about the product. What we wanted is for the entire experience to be elevated. So, we are doing a lot of working with visual merchandising and redesigning how we are going to present the product in the stores, we are not going to have as much product as we used to have and it’s the feeling is going to be more of a boutique type of experience. And we feel that we can do both, create that elevation and the experience, but also sell more, so super excited about everything. We are going to share with you more specifically how we are planning to do things. And you are right customer centricity has been one of those initiatives where we are putting more money, we are spending a little bit more money than I think that we were thinking the last time that we met or talk, but we think it’s worth every penny, so – and we are talking about a couple of million dollars. So, it’s not a significant spend.

Great. Thanks for all the color.

Great. Thank you, Janine.

Thank you. Our next question comes from John Kernan from Cowen & Company. Your line is now open.

Good morning, Carlos, Katie, congrats on managing the business through this difficult time period. It’s great to see the balance sheet in great shape.

Thank you, John.

The confidence around the dividend and share buyback is – clearly stands out among others.

Thank you, John.

You bet. Maybe you could talk a little bit about the balance between retail and wholesale in Europe for the remainder of the year obviously, I think the P&L inflection year-over-year in the second quarter versus what happened in the first quarter was impressive. And I am just wondering how we should think about retail wholesale dynamic in Europe, how to think about that business as it fits into your sales guidance for the remainder of the year?

Yes. So, let me start and then Katie maybe you want to chime in as well. I think that obviously our wholesale business in Europe is super strong. And it’s a big part of our business and is a big part of our profitability. So, just every time that we can really support that business and really develop and expand it, the more we want to do. Also, our retail business has performed better than what we had anticipated in terms of productivity, the dynamics are very similar meaning okay, we still see lower customer traffic offset – partially offset by improved conversions and that is kind of like across the board. And we haven’t mentioned Asia, but we see that in addition to North America, we also see that in Asia. I think that our outlook is somewhat impacted by some of the strategic moves that we made, just we decided in order to really give enough time for the products that we work – we had in the pipeline for both our stores and also our partners retailers. In Europe, we tried to really give more time and that obviously is moving some of the revenues and shipments throughout the second 6 months and even into from the second quarter into third. So, it’s somewhat difficult to give you a very precise direction on this. For the wholesale business, we eliminated one season or pre-season. And with respect to the retail side, we expect somewhat similar performance than what we have been seeing. And we saw little bit of a reversal, where the North America stores were doing better early on and then their sales decelerated and then we saw that in Europe was a little bit the opposite. But there are some very unique circumstances that impacted the region, like the sales clearance was somewhat postponed by some of the countries. So there are different circumstances that impact both businesses. And I think that overall what we continue to expect is that the wholesale business will behave very similarly to what we have with our retail business, because they all kind of depend on the same things just it’s stores are closing for us that probably means that they are closing for them as well for our retail partners. So, we are trying to be very careful and with how we plan inventories and so forth, but overall, I think that so far we have done okay.

And I will just add in terms of retail in Europe, we started opening the stores in mid-April and for Q2, we were down 31% in productivity. But as Carlos said, we really did accelerate in August. Some of that is the promotional period swap. So, the promotions took place last year in Europe, more in July this year, more in August, but also some of it is just the environment, they are getting stronger and the health crisis a little more under control. So, we are happy about that progress that we are seeing. And in terms of wholesale, as Carlos said, it’s more of a timing shift from Q2 into Q3, Q4.

That’s really helpful. Thank you. And maybe Katie, one more question from me, just I know it’s tough to answer specific modeling questions given the environment, but the SG&A expense management in the first half of the year was pretty tremendous, down over 30% in the first half and down over 30% in each quarter. So, how do you manage SG&A in the back half and the revenue declines are clearly moderating significantly versus what we saw in the first half. Is there anything we should be mindful of as we think about overall SG&A dollars and how that’s going to trend versus your sales plan in the back half?

Sure. So obviously, expense reduction and management is a priority in this environment. So, we had $70 million less in SG&A this quarter, the quarter this year versus last year. So, as I said in the prepared remarks about over half of this is non-recurring. So, in the U.S., we have had furloughs both at a store level when the stores were closed and also at the corporate level in Europe – in the U.S. what we – the people go on furlough and the government gives assistance and in Europe, we pay the people and the government gives us assistance. So, we got some payroll stipends in Europe, but kind of similar to a furlough. We had salary reductions. Those are reinstated at the end of July. And we also had a big decrease in advertising this quarter. So Q1, we had some, but because there is a little bit of a lag to that, a bigger increase in Q2. And as Carlos said, we are going to be leaning more into advertising and marketing in Q3 and beyond. So I would say that pickup is more non-recurring. And then obviously, variable cost associated with closed doors and lower productivity distribution, supplies, agent commissions. So I would say that’s a little over half of the $70 million decrease. In terms of permanent and what we will see kind of going forward into Q3 and Q4, our stores back in model, I mentioned this, we have really – we have built up the store staffing model from the ground up and we have been able to achieve savings there and also traffic is lower, so we need less people on the floor to deliver the service that we like to give. So that’s the savings that we will see going forward. We took some headcount reductions at the corporate level here in North America and then obviously discretionary spending, travel professional fees, etcetera. So, when I am thinking about the rest of the year, I would say less than half of these – the savings we saw in Q3, you can think about going forward and then there is always fluctuations with costs depending on sales volumes, business mix, timing of other expenses that could trickle in.

Sure. That’s a lot of detail on. Appreciate that. Best of luck. We look forward to the updated Investor Day in Q4.

Thank you.

Thank you, John.

Thank you. [Operator Instructions] Our next question comes from Dana Telsey from Telsey Advisory. Your line is now open.

Good morning, everyone and nice to see the progress. As you think...

Thank you, Dana.

As you think about this upcoming holiday season, Carlos since the re-imagining of what holiday looks like globally, how are you thinking of the positioning of it? And lastly, how do you think on the merchandising side, you have introduced some athleisure, what’s happening with denim, how are you thinking about product and pricing? Thank you.

Thank you, Dana. Good morning. So with respect to holiday just I made the comment as we start thinking about the impact of what’s happening with the pandemic and how people are behaving and not being completely comfortable shopping and so forth during high peak periods, I think that we felt that we needed to rethink about the entire model and for that reason, we are planning and have a whole calendar to really start promotional efforts, not necessarily just discounting by promotional efforts and being more visible with customers and making customer connections much earlier during the season and we hope that that is going to give us more time to really work the entire process throughout those few weeks. With that said, the product I think looks great. We have been like you said, investing in active apparel and that whole category, I think that is growing as we speak and we feel especially as you go into next year that the line that I was mentioning is the first big effort that we have made in terms of extending the SKUs and having a broader assortment is not huge, but we are seeing tremendous response in our campaign right now for that line talking about like tripling our sales potentially. With respect to other products, I mean I think we have an incredible line of outerwear, we have a great assortment of denim now and I think that the assortment is very focused great denim fabrications. There is a lot of cohesiveness between in the line that is being offered in Europe and in North America and even in Asia. There is a lot more consistency on how the brand is represented and then going into other parts of the line in terms of accessories, our handbag collection I think is taken to none, there is nobody in the marketplace that has what we have with the perceived value of our product, the quality and price. And then you asked about pricing, we have been very strategic with our pricing and in some cases if we felt that the perceived value of the either the government or the accessory or any product that we maybe looking at if we felt that it deserved to be at a higher price, we increased prices. And same thing going the other way, but I have to tell you that we don’t find a lot of cases, where we think that considering the quality that we are offering and the styling that we should go down in price at all. So, if anything we have gone up most of the time, and frankly we haven’t seen deceleration in demand as we did this, some of these products are – products that have been part of the collection for a very long time. So, we have been – but we are being careful and it’s – it all starts with the perceived values not about okay, let’s go and try to get more margin, it’s not like that, it’s more about how much is this worth based on what we are doing and the quality and then based on that we set the price.

Thank you. Best of luck.

Thank you, Dana.

Thank you. Our next question comes from Janet Kloppenburg from JJK Research Associates Incorporated. Your line is now open.

Hi, everybody. Good morning.

Good morning, Janet.

It sounds like you are making good progress, Carlos and especially on the digital front. I was wondering if you could talk a little bit about the penetration or the growth of the North American digital business in the second quarter, because we heard great rates of increases for many, many of the companies that you compete against. And also I was wondering what the trend was quarter-to-date? And also, I am wondering what you are thinking on tourism, Carlos, it’s down a lot as you talked about and I am wondering what percentage of your business reflects tourist sales? And maybe Katie or Carlos what you are thinking about the tourist business for the rest of the year? And I have a couple of follow-ons. Thank you.

Yes, thank you, Janet. Well, let me start, our digital business, I think I mentioned U.S. and Canada, which is kind of like a run together for us is up low-teens for – or was up during the second quarter. We are looking at – we are making a lot of changes in terms of product there. Our assortment was had a lot of opportunity and we have made some changes in a Chief Merchandising Officer that has been with us for a very long time and now is overseeing that product assortment and the whole – and when we are making significant changes there and we are seeing good result as a result of that, but the product is going to be bought more intentionally for that part of the business and with a broader assortment and we think that that’s going to make a difference. I think I made the comment that our total e-commerce digital business last year represents about 13% of our direct-to-consumer business and we see a big opportunity to grow, obviously, with – we have a big wholesale business and that also impact – that’s not included in that direct-to-consumer business. So I am sure that if we were to include all that, just the business of Guess? product that is been done digitally is a pretty sizable business. So, I am not sure that you can compare just with everybody that is in our space, unless they have a similar business model. We also have licensees…

But you would expect – would you expect the penetration to be higher Carlos this year versus last?

Well, yes. Actually, if you look at how the e-commerce business performed, they perform better than the other channels. So definitely so we are growing that business even if it isn’t growing at a very huge pace is still growing, while the other ones are contracting. So definitely the penetration will go up, but we think – and we think – I think I mentioned, we think that the next 3 to 5 years, we see we have line of sight to an over 23% penetration, even when things are more normalized. So, we believe in this business in a big way. So – and that’s why we are making most of our investments other than related to stores we are making in digital or belting our digital capabilities.

Okay, great. And...

With respect to tourism.

Yes.

Yes, sorry, you mentioned tourism and obviously we have pockets of very significant businesses, that we have a brand that is a global brand. So, just when you have international tourism, everybody is very interested in coming and shopping and that happens in America, but it also happens in Europe, we have big business in Spain and big business in Italy. And these are all countries that have big businesses in tourism. So obviously, this hurts us in a significant way when tourism is stopped as it is now. We are not basing our numbers or our plans on tourism coming back, frankly, we – all what you are hearing today and what we put in our outlook is completely based on our current trends which do not benefit from tourism. So that’s kind of like the way we are looking at it. And if things get significantly better, of course, we will work on that and we feel that we have the inventory to be able to support and respond to that.

Okay. Just one last question, Carlos, I was encouraged by your discussion about the assortment shifts towards casual and active. And I was wondering when you had the wholesale event in Lugano, were those product adjustments or line adjustments made giving the wholesale accounts the assortment elevation as you go into next year, would – have those shifts been – are they reflective in your spring 2021 assortments?

Yes, yes, exactly. Exactly, and people were super excited about that, because they see that we move so quickly to really just address the new customer lifestyles, the new objective of looking for comfort and high-quality and buying things that last. And I think that again, Paul has led that effort in an incredible way and so yes, the line was already addressing all these things that I am talking about.

Okay. And just given the guidance from minus mid-teen revenue for the third and fourth quarter, I think that calls for some improvement of where you are today, does that just reflect improving economies globally or maybe some elongated back-to-school business, maybe you could talk me through that transition? Thank you.

Yes, yes. Janet back-to-school for us is not a huge season. So, it’s not now of course we are elongating the fall winter season, especially in Europe only because we have eliminated that pre-spring summer the – season that I mentioned before, but we are counting on a gradual improvement of customer traffic and then picture once you have settled that retail behavior, then picture that wholesale should follow. That’s kind of like the way we have been thinking. We are not anticipating here that all of a sudden, the virus goes away or that the U.S. gets tremendously better. We are seeing that every time that restrictions are released by governments or otherwise, our business seems to do better because customers are a little bit more open to shop, but the changes so far have been somewhat small and we are not counting on dramatic changes from here. It could be I think that Katie said it could be that we are being conservative, I think that the biggest risk for that is we are going to have inventory, if we are conservative and then all of a sudden there is increased demand. What we feel that we have built a system to be able to respond to that increased demand.

Okay. Well, lots of luck and thanks for all the detail today.

Yes, thank you. Thank you, Janet.

Thank you. We have no further questions in queue. At this time, I will turn the call back to Carlos for closing comments.

Yes, thank you. Well, I just want to say thank you again for participating in this call today. We look forward to updating you on our progress when we report our third quarter results. So until then, please stay safe and well and thank you again.

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