Good day, everyone, and welcome to the Guess? Third Quarter Fiscal 2024 Earnings Conference Call. I would like to turn the call over to Fabrice Benarouche, Senior Vice President of Finance, Investor Relations and Chief Accounting Officer.

Thank you, operator. Good afternoon, everyone, and thank you for joining us today. On the call today with me are Carlos Alberini, Chief Executive Officer; and Markus Neubrand, 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 outlooks. 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 will turn it over to Carlos.

Thank you, Fabrice. Good afternoon, everyone, and thank you for joining us today. Our performance this quarter is once again the result of three key factors working harmoniously together: first, our strong global brand awareness and continued momentum; second, the power of our highly diversified business model across product categories, geographies and channels of distribution; and third, our highly entrepreneurial and unique culture that makes Guess? a great place to work and where our long-term focus drives all important decisions and people feel accountable and empowered. And consistent with these three factors, we are very pleased to report our third quarter results with revenue growth in line with our expectations and adjusted operating profit performance beating the high end of our guidance range which was in line with last year's. We achieved an almost 9% adjusted operating margin for the quarter, exceeding our expectations and also consistent with last year's performance. All but one of our business segments delivered revenue increases in U.S. dollars with our Licensing, Europe and Americas Wholesale segments reporting higher revenue growth for the period at 19%, 6% and 4%, respectively. As expected, amidst a dynamic macroeconomic environment, our Americas Retail segment posted a decline in revenues. During the period, our teams continue to run the business well, delivering strong gross margin performance and effective cost management. Their ability to navigate and manage the factors that we can control has been exemplary. Paul and I are very pleased with our team's performance. I want to thank everyone for their unwavering commitment and invaluable contributions, especially during this time of global uncertainty. Net revenues for the third quarter grew 3% in U.S. dollars and adjusted earnings from operations reached $58 million, consistent with Q3 of last year. Briefly touching on segment results. Our business in Europe delivered a revenue increase of 6% with solid performance in our Wholesale business, but a softer-than-expected direct-to-consumer comp growth, which posted an increase of 8%, primarily driven by growth in average unit retail value, partially offset by a deceleration of customer traffic into our stores from the second quarter trends. Our Europe segment reported a 2% decrease in operating earnings from last year. As expected, our Americas Retail business segment posted a 7% decline in revenues due to slow customer traffic. However, with our team's effective cost management and improved gross margin performance, we are pleased to have delivered better-than-expected operating earnings. Our Americas Wholesale business had a good quarter reporting a better-than-planned revenue increase of 4% and an outstanding 29.1% operating margin. Operating earnings for this segment grew by 57% versus last year's Q3, well ahead of our expectations, powered by strong gross margin performance and cost leveraging. Our Asia business reported a 2% increase in revenues and posted a profit in the period, better than expected and benefited from improved performance in China and Hong Kong. And lastly, our Licensing business delivered an exceptional quarter with revenues increasing 19% in the period and operating profit growing by 24%, exceeding our expectations for both, partially impacted by a onetime adjustment. Best-performing product categories included fragrances, handbags, watches, eyewear and footwear. Turning to product performance. In line with trends observed during the previous 2 quarters, we continue to see regional variations in our results. In Europe, we observed growth in sales across women's and men's apparel, Marciano and accessories, with Marciano and accessories leading the way and expanding their contribution to our overall business. Notably, the best-performing product categories included knit tops, woven shirts, shorts, dresses and men's activewear. It's worth noting that weather conditions played a significant role with a warmer climate contributing to stronger sales of shorts and a dip in outerwear sales, despite promising initial sell-through rates for outerwear products in both genders. In the realm of accessories, women's handbags and men's bags, women's travel items and small leather goods, belts, footwear, watches and jewelry, all showed strong performances. In our Americas Retail business, we observed contractions in all major categories, including women's and men's apparel and accessories. This was primarily attributed to reduced customer traffic. However, we did see pockets of success with growth in shorts, sweaters, wovens and knit tops, activewear, men's pants and children's apparel. Additionally, several denim products performed well, driven by new fashion styles such as straight leg jeans, cargo silhouette, jumpsuits and overalls. Similar to Europe, the weather played a role in the product performance during the quarter. In accessories, handbags remained a driving force and delivered a solid quarter. Across the Asian market, we continue to see strong performance in accessories followed by men's and women's apparel. In accessories, women's handbags, watches, small leather goods and men's belts, led the charge. Among apparel categories, women's and men's sweaters, skirts and shorts achieved strong performance. Our children's apparel segment also performed well during the period. During the third quarter, we benefited from Paul's efforts and our investments in advertising and marketing, including our recent campaign with Georgina Rodriguez as the face of Guess? and Marciano for Fall 2023. All the products modeled by Georgina had strong sell-through. Based on this success, Paul and the team are currently shooting next year's campaign and once again featuring Georgina. In addition, we just announced that Italian singer and rising international star Matteo Bocelli, son of the world renowned sensation, Andrea Bocelli, is being featured in our 2023 holiday campaign. As we look towards the holiday season, we are confident in our plans and very pleased with our inventory position. We believe that consumers will be looking for value in the offers and have been sensitive to this with our product assortment plan and our promotional cadence and calendar. We closed the third quarter period with inventories 2% lower than a year ago and in line with our plan. We are very pleased with the composition of our inventory and believe that we are well positioned to respond to customer demand during the holidays and into the new year. We still expect to close the year with inventories 10% below last year's levels. Regarding our outlook for the fourth quarter, we have taken a close look at our recent customer traffic and sales trends for our direct-to-consumer business in each region of the world. We have also updated our other business expectations and are assessing the state of the consumer across markets, including the impact current geopolitical factors are having on the consumers' mindset. Based on this, we have taken a more cautious view of our outlook and tempered our top and bottom line expectations for the fourth quarter and the fiscal year. All said, we now expect revenue growth for the fiscal year between 1.8% and 2.4% in U.S. dollars and an adjusted operating margin for the year between 8.9% and 9.1%. Regarding earnings per share, which Markus will discuss further, mark-to-market adjustments resulting from foreign currency and bond and equity market exposures, mostly unrealized negatively impacted our EPS results. Inclusive of this charge, we now expect adjusted EPS for the fiscal year to reach between $2.67 and $2.74 per share. As we look ahead, we are invigorated by the multitude of opportunities that await our company. We have been diligently engaged in our strategic planning process, and we are executing against six critical objectives. These objectives relate to organizational talent; growth; brand relevancy; customer-centricity and digital expansion; product excellence; and last, optimization, efficiency, profitability and return on invested capital. These serve as the cornerstones of our strategic plan which I look forward to sharing in more detail at a later date. At a high level, starting with the organizational talent, our goal is to have a best-in-class team of highly engaged and strongly committed individuals capable to lead and take this company to the next level of growth and value creation. We are currently working with an international consulting company to conduct an assessment of our global organization to benchmark our talent and improve lines of reporting and accountability to ensure we are well positioned to grow. Regarding our culture and our work environment, we are very proud to share with you our first place ranking in the recent list of the top 25 companies in Los Angeles by the Business Report. Next, I will focus on our growth objective. Our goal is to accelerate our revenue growth rate for the company and deliver a faster growth rate of our operating earnings, which will result in the consistent expansion of our operating margins. In our previous call, I mentioned the opportunity to internalize businesses that are being licensed such as the current license that we have with G-III for the design, development and distribution of dresses and outerwear in North America. These businesses represented $50 million per year at wholesale, and we are now in the process of transitioning them to our internal organization. Our teams have already developed the product for both categories and have presented the collections to our wholesale customers at market recently. While it is early in the cycle, customers reacted well to the assortment, and we are optimistic about the potential of this change to drive both top and bottom line growth. Building on our growth opportunities, I'm very excited to share with you today the expansion of our brand portfolio with the launch of our new Guess? Jeans brand. With Guess? Jeans, we will be addressing the casual business head on. And while the brand is targeting the younger Gen Z and millennial audience, the assortment is truly for everyone, multigenerational. Nicolai Marciano is leading this expansion, and we are very excited with this opportunity. As you well know, during the last few years, we executed a significant elevation of our Guess? brand. As a result of this transformation, we created great separation between our current very sophisticated, more dressy assortment and the more casual product assortment that was part of our brand's DNA since the inception of Guess? in the world of denim. We now see tremendous opportunity in this casual lifestyle space, and we plan to reclaim our denim legacy with the launch of the new brands in 2024, focused on product innovation, a present day mindset center around sustainable manufacturing and supported by a robust celebrity marketing strategy embodying the American West Coast Denim brand. The plan will also include a new visual identity and the unveiling of a new retail concept. We expect to capture a wide audience with the Guess? Jeans offering, primarily the men's customer. The new brand is poised to establish a new benchmark in denim practices and innovation, reaffirming our dominance and our roots in the denim category. The brand will be distributed globally in the wholesale market and through the company's direct-to-consumer channels in company's own stores and websites. Price points are very competitive and the product quality and design capitalized on our rich archives which contain over 40 years of amazing design, styling and creativity. My last point on growth relates to a new project that we are working on in China. We have engaged the Chinese consulting company called Shunxi based in Shanghai. This firm has significant capabilities in design, merchandising and managing retail and e-commerce businesses. They also have strong relationships in the entertainment and celebrity networks. They have helped many brands succeed in the local marketplace and are developing a plan to help us achieve continued success. We are excited about the opportunities here and plan to begin execution of this plan in the new year. The Guess? brand is well known in China, and we believe we have a good chance to expand our business there and improve profitability. The next objective that I'd like to address today is optimization efficiency, profitability and return on invested capital. We are really proud of our accomplishments to date on this front. During the last few years, we used our capital efficiency and rewarded shareholders handsomely with significant share repurchases and generous dividends. We almost doubled our operating margins and we achieved significant improvements in return on invested capital. Nevertheless, we see significant opportunities for further optimization and profitability growth. We strongly believe that the use of technology and innovation can unlock significant value creation across the businesses. In the last few years, we have implemented several new applications to improve data analysis and decision making. The new applications focused on customer analytics, primarily the Salesforce solution called Customer 360, inventory planning, allocation and store transfers and we are now in the process of implementing a new PLM system called Centric 8 and a new market optimization solution, both of which should be completed by next year. I am confident that our success in managing inventories well through the very challenging times that we face due to the pandemic and supply chain disruptions was driven by great teams that were enabled with these new tools. Last, to support our strategic planning process, we have been working together with a consulting firms to analyze, assess and make recommendations regarding every aspect of our business based on data analytics and peer industry benchmarking. This work should be finalized by February of 2024 and will help inform our long-term plan development. As we have previously mentioned, we anticipate sharing our strategic plan at an Investor Day event, which we now plan to schedule in the upcoming year. As I close my remarks today, I want to share with you why I believe that Guess? is in a very special time of its history and at an inflection point of its development. Our Guess? brand and company are celebrating 42 years of business success and a history of global growth. Today, we see a unique list of accomplishments built over the years. We have built brand awareness all over the world. Our internal teams and licensee partners have developed amazing relevant products that represent an entire lifestyle our customers love and embrace. We have created a distribution network, which combines different channels that optimize distribution models by market with local organizations to support each business. We assembled an efficient infrastructure that services and supports each area of our business, including design, product development, sourcing and distribution, image production and marketing and many more functions. We have built a strong capital structure that has capacity to grow, deliver high returns on invested capital and create significant shareholder value. And lastly, we have a world-class global team of leaders and associates that have done a fantastic job getting the business here. And looking ahead, can meaningfully contribute to its further expansion on profitability growth. What we have at Guess? today is an incredible platform that up to now has only serviced one brand and model. The opportunity is clear. This platform can power a bigger business, one that can better generate margin expansion, synergistic growth and significant value creation over time. Our recent initiatives, including the internalization of existing licenses, and the launch of Guess? Jeans to target the young consumer, are good examples of growth that leverage our infrastructure. I want to take a moment to acknowledge that these exciting opportunities build upon the strong foundation that was established over 42 years ago when Guess? was created. It was then when the four Marciano brothers came to the U.S. from France to pursue their own American dream. That dream has been converted into a legacy, and Paul continues to carry the torch every day with his unwavering commitment, passion, vision and leadership. As previously announced, Maurice, after 42 years of amazing vision and hard work helping oversee Guess'? evolution from a small family business and denim pioneer into a global lifestyle brand has decided to retire and focus on his health and family. From our entire Guess? family, we thank Maurice for all his extraordinary contributions to this company and to this team and wish him the very best. Looking ahead, our key strategic focus will be on growth, and I couldn't be more excited to leverage our amazing infrastructure built over the last 42 years to capture our extraordinary opportunity to develop multiple businesses. With that, I would like to pass the call to Markus. Markus, please go ahead.

Thank you, Carlos, and good afternoon, everyone. We are pleased with our performance this quarter. Revenue growth was in line with our expectations, driven primarily by our strong Licensing business, which offset lower-than-expected revenues in our direct-to-consumer channels in Europe and Asia. Adjusted operating earnings exceeded our expectations for the quarter, driven by better-than-expected performance of our Licensing business and strong cost controls, enabling us to deliver an adjusted operating margin of 8.9%, exceeding our guidance. As Carlos alluded in his opening remarks, yet again, we demonstrated the power of our diversified business model to lean on areas of strength in our business to mitigate pockets of weakness and deliver our operating results in a dynamic environment. Our last 12-month free cash flow reached USD 154 million, and we are on track to achieve our fiscal year '24 target of USD 160 million. We are proud of our strong balance sheet that enables us to invest in the growth of our business and build on our commitment to returning capital to our shareholders. With this discipline, we entered the holiday season with clean and healthy inventories. Let me take you through our third quarter results in more detail. Total company revenues in the third quarter were $651 million, an increase of 3% in U.S. dollars from last year's third quarter and 1% in constant currency, which reflects the strong growth performance from our Europe and Licensing segment. Turning to our segment performance, starting with Europe. In the third quarter, strong retail comparable sales drove our continued European business growth with revenues increasing 6% in U.S. dollars and 5% in constant currency. Third quarter retail comps, including e-commerce, increased 7% in constant currency. However, we did observe a deceleration in traffic into our stores and our website. As a result, our omni comp growth decelerated from 11% in the second quarter to 7% in the third quarter. Our stores delivered an 8% constant currency comp increase in Q3, driven by continued strong AUR growth, more than offsetting a modest conversion decline. As in the past few quarters, Turkey's hyperinflation had a meaningful impact on the comps, and excluding Turkey, that comp increase would have been 6%. In European Wholesale, our revenues increased 1% in constant currency. The operating margin in our European business decreased by 90 basis points to 10.3%. Currency headwinds and higher expenses were partially offset by higher initial markups and strong comp sales. In Americas Retail, revenues decreased 7% in U.S. dollars and 8% in constant currency. North American Retail comps, including e-commerce, declined 5% in constant currency. As Carlos shared, traffic remains under pressure in our North American stores and our store comps decreased 6% in constant currency in the quarter. The decrease was driven by the U.S. stores, while our stores in Canada achieved a low single-digit store comp increase in the quarter. We anticipate these underlying trends will continue throughout the fourth quarter. Our U.S. and Canada e-com business performance was flat compared to Q3 of last year, with a higher average order value offsetting lower traffic to our website. Americas Retail posted a 5.3% operating margin compared to a 6.9% operating margin a year earlier. The 160 basis points decrease in operating margin was mainly driven by unfavorable impact from lower revenues and higher expenses partially offset by a higher IMU. In American Wholesale, revenues increased by 4% in U.S. dollars and decreased 1% in constant currency. Higher shipments in Mexico were offset by lower deliveries in the U.S. and Canada. Operating margin reached 29.1%, a meaningful improvement of 9.9 points from Q3 of last year, mainly driven by improved product margins. In Asia, revenue grew 2% in U.S. dollars and remained flat in constant currency. Retail comps, including e-commerce, for the region decreased 9% in constant currency, mainly offset by growth in net new stores in Korea. Operating margin improved 100 basis points to 1%, driven by the performance of these new stores and partially offset by higher expenses. We are very pleased with the progress in the first 3 quarters of fiscal '24 as we improved the earnings from operations by $11 million from negative $7 million to positive $4 million, mainly driven by Korea and Greater China. And finally, our Licensing segment had a strong quarter and exceeded our expectations with revenues increasing 19% in both U.S. dollars and constant currency. Fragrances, handbags, watches, eyewear and footwear had a very strong performance during the quarter. Excluding a positive onetime adjustment in the third quarter, our license business increased revenues in the low teens. Segment operating margin was 93.1%, and operating profit increased by 24%. Total company gross margin was 44.7% in Q3, an improvement of 220 basis points from last year, improved IMUs, mainly from lower inbound freight and the favorable second mix, especially driven by our Licensing segment, were partially offset by a negative currency impact on our product margins. Adjusted SG&A for the quarter increased 10% to $233 million. Performance-based compensation in the third quarter increased $9 million versus last year as we are lapping a reversal adjustment. This represented roughly 40% of this year's SG&A expense increase. Currency headwinds accounted for another 30% of the expense increase in the third quarter of fiscal '24. Further, we experienced inflationary pressures on our cost structure, including higher selling expenses in our retail stores. And we made investments in our infrastructure, most notably in Europe. For the quarter, our adjusted SG&A rate increased 240 basis points to 35.8%. Adjusted operating profit reached $58 million on par with last year. Our better-than-expected adjusted operating margin was 8.9%, 20 basis points below last year's Q3, driven primarily by a higher initial markup, favorable business mix, offset by the negative currency impact and higher expenses, including higher performance-based compensation. Currency headwinds negatively affected adjusted operating profit by $7 million and adjusted operating margin by 120 basis points. In the quarter, we recorded nonoperating net charges of $11 million. These charges, most of which are unrealized, relate to the revaluation of certain of our foreign subsidiaries, net assets and liabilities into U.S. dollars and the net charges to mark our deferred compensation plan and serve plan assets to market. And we recorded an adjusted effective tax rate of 31%. The adjusted tax rate excludes a discrete tax benefit of USD 31 million, which is recorded in our GAAP results related primarily to our Swiss subsidiary. Adjusted Q3 diluted earnings per share was $0.49 compared to $0.44 of earnings per share in last year's third quarter. Excluding the negative impact of the nonoperating net charges of USD 11 million, our earnings per share would be close to the high end of our Q3 EPS guidance. Moving to the balance sheet. We ended the quarter with $244 million in cash compared to $174 million a year ago. The most significant drivers of that $70 million cash build over the last 4 quarters include $154 million of free cash flow, offset by $59 million in dividends and $16 million lower borrowings on our credit facility. We ended the quarter with a total of $315 million of borrowing capacity on our various global facilities. So roughly USD 560 million of available liquidity. We continued managing our inventories well. We ended the quarter with $562 million, down 2% in U.S. dollars and 4% in constant currency versus last year. Overall, we are very pleased with our inventory composition and forward orders and feel we are well positioned to support our business during the holiday season and beyond. Our receivables were USD 341 million, a 7% increase versus last year's USD 319 million. On a constant currency basis, receivables increased by 3%. For the first 3 quarters, capital expenditures were $52 million, mainly driven by investments in store remodels and technology. This compared to USD 72 million in the same period last year. In the first 3 quarters, we consumed $16 million of free cash flow an improvement of $82 million compared with the cash consumption of USD 98 million for the same period last year. The improved free cash flow resulted from favorable changes in working capital, including a substantial reduction in inventories and lower capital expenditures. Turning now to our outlook for the rest of the year. As we assess the fourth quarter, we do expect some of the softening consumer trends prevalent in the third quarter to continue into the fourth. Looking ahead, our outlook is based on our best assessment of the current geopolitical backdrop as well as the overall macroeconomic environment. This includes inflationary pressures and other consumer spending related headwinds and foreign currency volatility among others. In Europe, while we do expect to continue to see productivity improvements in our stores in the fourth quarter. we are planning the business with lower traffic trends to both our stores and websites similar to Q3. Our European Wholesale order book for the Spring/Summer '24 collection is roughly flat in constant currency. In North America, also in our direct-to-consumer businesses, our traffic headwinds persist. We are taking a more cautious view on our sales expectations for the fourth quarter. Therefore, for the fourth quarter, we expect revenues will increase in the range of 4% to 6%, both in U.S. dollars and in constant currency. This includes the benefit of the fourth quarter's extra week, which we estimate to be about USD 30 million. For the fourth quarter, we expect adjusted operating margins to expand to a range between 14.1% and 14.4%, up from 13.1% last year as higher product margins fueled mainly by lower freight costs will be partially offset by higher expenses supporting our revenue growth. For the fourth quarter, we expect adjusted earnings per share in the range of $1.53 to $1.60. For the full year, we expect revenues will grow in the range between 1.8% and 2.4%, both in U.S. dollars and in constant currency. We expect adjusted operating margin between 8.9% and 9.1% with a higher expense rate, more than offsetting expanded gross margin. For the full year, we expect adjusted earnings per share in the range of $2.67 and $2.74. And with that, we can now open the call up for questions.

[Operator Instructions] Our first question comes from the line of Eric Beder of Small Cap.

Okay. So when we look at growth in the ramp-up next year, how should we be thinking about the drivers here? You've talked about the wholesale. How should we be thinking about when the U.S. business on the retail side will start to once again generate positive comps again? I know you've done a tremendous job with the product. But how do you get the consumer, I guess, to come in more often and shop with it?

Yes, Eric, it's a very good question. We are not prepared to formally provide any guidance today for next year. But -- and maybe we can help you with some of the key levers here. Just as I mentioned during my prepared remarks, we are working on our strategic plan, and we are focusing on those six key strategic objectives. I don't think we need to repeat those, but one of those is growth. And we are looking at this with a very keen focus on the many opportunities that we have to really bring growth into the organization. And of course, the two examples that I mentioned are going to impact next year. That's some of them, and I'm talking about the internalization of our license with G-III that we are doing now direct and the introduction, the launch of our new brand, Guess? Jeans. And we are very excited about Guess? Jeans. Obviously, this is going to take some time for us to really build the business, but we feel that this is a very natural space for us. We think that with the elevation of the brands, of the Guess? brands, we have created a pretty significant separation from that more dressy, more sophisticated look, more contemporary look, from that to what may get us as a very significant dominant player in denim and in the casual world. So we see a big opportunity here to really go after that. When you think about the more specifics on when are we going to see comps in the different stores and so forth, that is very difficult question to answer. What we are doing is trying to really concentrate on improving conversion rates. We have seen that customer traffic has really slowed down, and we don't think that we are alone, especially in our space. We think that our product assortments are really compelling and strong. And we see that when the customer is inside the store. We are doing what we can to really enhance our marketing. I'm talking about more of the direct marketing. We are doing some new events to really enhance UPTs and really entice the customer to really buy more pieces or just go for look instead of just buying items. And when you go outside the U.S., just we had a very healthy business in Canada during the third quarter, too. So just these were two very different performances and they were primarily related to customer traffic. When you go to Europe, we were having a very strong comeback from the pandemic days, and we have rebuilt that customer traffic very nicely. We saw a deceleration in the third quarter. And we are -- we think that a lot of this had to do with some of the geopolitical situations that we are facing there, combined with the fact that weather was kind of challenging, especially for our products. So overall, I think that we have a good plan. We are looking at next year as an opportunity to see growth again. We're going to come back to you with some more specifics. We have some markets where we think that we can develop further. A good example is India. We're going to end this year with 25 stores in India. This is up from nothing a couple of years ago. We have great partners there, and every store is profitable. So that gives you an idea with the size of that market what the opportunity could be. We could be talking about over 100 stores in a few years. And then just there are some specifics that I think you have to keep in mind when you think about next year, obviously, we are not going to anniversary the 53rd week that we have this year that represents some growth. And we think that there are just very good comparisons when it comes to margin and expenses. We think that we will be able to control the business well. We are not expecting to have, again, a significant increase in margins because we are now normalizing most of the costs, including inbound freight. But overall, we think that the margin structure of the business should be preserved and protected.

One more. Marciano, you've done a great job with it. We've seen the expansion of Marciano into men's for Q4. Where does that play in terms of raising the overall impact and potentially driving profits going forward as a potential growth vehicle? Good luck with holidays.

Yes. Thank you, Eric. Well, so Marciano is a brand that we continue to invest in. We are expanding that business. Marciano had a very good quarter in Europe. And we think that there is a place in the marketplace. We think that the product looks beautiful, and we have invested in additional quality. We are doing a lot to really be sustainability friendly. And the -- what we have been doing is building some other product classifications with success. We think that there is opportunity for this brand, and we will continue to support it. The marketing has been very strong. Georgina was featured with wearing and modeling Marciano products and some of those products were the ones that had the best sell-throughs. So we'll continue pushing. With respect to men's, just that is a very, very small part of the collection and a very small part of the business. Our focus is primarily on the women's side.

Our next question comes from the line of Corey Tarlowe of Jefferies.

Carlos, as you assess the health of your customer and the trajectory for the Americas business, what do you think is due to -- as you look -- pick apart the performance in the Americas, how do you parse out what's just some general weakness in the consumer versus just taking time for some of your initiatives to take hold and gain traction among the consumer? It would be great to just get some color on the behavior of your customer and how that is affecting the business overall in the Americas?

Yes. Thank you, Corey. Just when we see the way the consumer is behaving once they are in our stores, we don't see significant differences from how the consumer was behaving in the past. Really, the #1 variable here is with customer traffic. And we think that, that is something that is obviously may be reflective of what the consumer is going through. I mean we all read the same papers, inflation, high interest rates, fears of recession, high consumer debt, just credit card maximize and so forth. I mean, obviously, all those things are impacting the consumer, and our consumer is in the middle of that. So for sure, there must be some type of impact. But what we believe is that having the right product, pricing it well, which is something that we have been spending a lot of time and effort on is key to be able to win in this market. We said it during our prepared remarks, we think that the consumer is going to be looking for value. And that's because they are very sensitive to price. We are making a huge effort to, number one, put the right products into our assortments. We revisited some of the pricing structure that we have in all brands. And we were able to make changes to really make sure that we had the right just offering in front of the customer. But in addition to that, to having the right product at the right price, it's important that we are careful with how much we buy. And in order not to create excess inventory, I think that this is something that we pride ourselves on for now many years. I think we have done a good job in managing inventories. And the key was to not buy in excess. And just also really monitoring how the competition is performing and how aggressive they are, we -- so far, we have been able to stay in our lane on this, and we have been able to really manage to our elevation of the brand strategy that we have, which has been very, very critical for our success in repositioning the brand in the minds of the consumer. Just it's very difficult to really try to anticipate where the customer is going to be just a few months from now. I mean, there is a lot of uncertainty. And this is one of the main reasons why we have been more cautious in the way we looked at the -- our outlook for fourth quarter. So just we will give more color when we are ready to provide guidance for next year. But just our plan has been, and our strategy has been to continue to really watch how the consumers are responding and navigating through the current times and then acting accordingly in terms of how we position our business plans.

Corey, this is Markus. Adding to what Carlos just explained for Americas Retail, what we've seen in the third quarter, as shared, Canada performed better than the U.S. I think we've been up with positive store comps, low single digits. I think I shared for U.S. traffic was the key thing, driver for the negative store comps. In addition, I think to share, I think what we've seen in our more tourist stores, we've seen a relatively better performance compared to our non-tourist ones. And adding to what Carlos also just said, nothing if you see -- if you look at our inventories, we are down in U.S. dollars, 4% in constant currency. If you look at the regional breakdown, we have been down in the Americas and in Europe. I think then also just confirming thing then also in line with our plans, I think, as Carlos shared, and we are on track also to end the year with 10% lower inventories compared to last year.

Lower.

Lower, yes, lower.

That's great. And then just shifting gears a little bit. The gross margin performance has been very, very strong. Is there a way to parse out for us within that gross margin line, what you believe is sustainable going forward? And maybe qualitatively, some of the puts and takes that are associated with the gross margin as we look ahead?

Corey, I'm just going to make a very general statement here. But just I think that we saw a lot of change in our margin structure during the last few years and some of it were things that we drove just the elevation of the brand being one of them just being very, very disciplined with the way we were buying inventory, another one, increases in prices. They were pretty significant when you compare our average unit retail today to what they were pre-pandemic. I mean you're talking about increases over 20%. And that is -- that has been kind of like a very big catalyst to -- for margin expansion in our business. This past year or the current year, we benefited from inbound freight reductions in cost. I mean I think this has happened in the industry. So everybody is flowing the same boat, but we feel that now we are in a much more stable place. And we are not expecting that we will increase prices significantly. We are not expecting that there are going to be significant cost increases, because since we are working with our vendors across the board and I think that we are seeing that there is a stability in cost. So overall, I don't think you should expect other than for mix that there will be a significant change in our gross margin structure of the business.

Adding to what Carlos just said, from a product margin point of view, we do not expect material headwinds or tailwinds. I think going into, I think, the new year, a lot of the improvements that we've had now in the initial markup mainly driven by the inbound freight, I think they've already been executed and are realized this year. And also in addition to it, at the prevailing exchange rates, we do not anticipate meaningful upside or downside from currencies on our product margin.

And I would add one more thing. Just I talked quite a bit about our platform, and the opportunities to really do a lot more with the infrastructure that we have. We have a phenomenal sourcing and production team and a set of vendors. We have contracted the vendor base tremendously during the last few years. And I'm talking about going from 535 vendors, I think we had 4 or 5 years ago to slightly over 120, 130 now. So big, big concentration of vendors, which means that each vendor gets a pretty sizable business with us. And as a result of that, we can really get a lot of efficiency here and optimization of costs. So when you think about an initiative like the Guess? Jeans initiative, where we want to be very competitive with pricing, and that's how the entire collection is priced just very competitively. But in spite of that, we have been able to really lock in a very attractive initial market as a result of the sourcing of this product. So just when you think about even the new ideas and the new initiatives, we think that we can continue to protect a great margin for our business. And then when you think about some of the growth that we are experiencing, like Licensing, as you know, that Licensing business generates an operating margin in excess of 90%. So the more we grow that, the more margin expansion we can see for the overall company.

[Operator Instructions] Our next question comes from the line of Mauricio Serna of UBS.

I guess just wanted to elaborate a little bit -- ask if you could elaborate a little bit more on what you were seeing in Europe. I guess, is it fair to assume that the kind of growth you saw in Q3 continues in Q4? Maybe we just add the benefit of the additional week on the retail business? And kind of curious overall, like in Europe and Americas, what are you hearing from the wholesale partners, especially just interested in hearing more about the sequential improvement in Americas? And then lastly, on the Q4 margin guidance, I think it implies 100 basis points roughly -- 100 to 130 basis points margin expansion. Just wondering like if I look at what happened in Q3 and try to think about Q4, is it -- is that margin expansion more related to like stronger gross margin expansion or like moderation in the SG&A dollar growth? Just a bit of more help bridging that would be very helpful.

Okay. So let me start, and then I'm going to ask Markus to jump in here. But just, you talked about Europe. Just we have a huge business in Europe, as you all know. And we have had a great record of good performance there. As I mentioned before, just that consumer and the customer traffic was pretty solid, and we were seeing a very nice positive comp traffic for many, many months, many quarters actually. And now what we saw in the third quarter is that things decelerated. We don't know exactly to which degree this is a more significant or permanent change. But what we are doing now is looking at the fourth quarter and reducing our expectations for customer traffic, which in turn reduces expectation for sales. We see that AURs are still seeing a tailwind, and we saw that in the third quarter in a significant way. But we see that this tailwind is somewhat tempered from the first half of the year in terms of the trends that we're seeing. We think that Europe is still healthy for the brands. We don't know exactly what's happening with other brands. We see that our customers at wholesale continue to be very interested in the brands. And if anything, they are buying more, those customers that are investing in it. And we think that, that is a very healthy move. We have been shipping pretty much in line with the schedule. So we are not seeing that those customers are canceling any of the orders. Just the attitude has been very, very healthy and strong. With respect to the Americas, just with -- in wholesale, we had some strength coming from some of the other pieces that contribute to the Americas Wholesale business, and that is primarily Mexico. That is also being helped by currency trends. So the business there has been very strong for us. And across the board, I think that the brand is having a very strong momentum. And that is impacting how we do business, both direct-to-consumer, but also at wholesale. And we have some very strong partners there. And with respect to what we see here in the U.S., the business has been pretty much in line with what we saw before consistent, department stores, especially our customers at wholesale have been very careful with the way we are -- they are ordering inventory and buying and receiving those products. And as a result, just we are trying to be very careful in the way we manage our side of that equation to make sure that we are not left with excess inventory. The good thing is that I think our supply chain has become more dynamic. So in some cases, even if we don't have concrete orders from those customers, we have the opportunity to really reposition inventory or orders to be able to respond to their demand if that demand has not been preplanned. And we have been doing good business using this type of business model. And then just our business in Canada is relatively small at wholesale, but we're doing our pay there. And we feel that just we can continue to deliver a very nice margin. You saw the operating margin of that business this quarter was really extraordinary. And we think that we have a margin structure that can allow us to continue to deliver that kind of returns. So we are very happy with that.

So the question regarding the operating margin in the fourth quarter, we expect 14.1% to 14.4%, roughly up 100 basis points compared to last year. The main drivers for the improvement are the initial markup. I think as we expect to continue from lower inbound freights, I think, with your assumption, you were right. But clearly, the impact of the 53rd week, I think is another positive on the fourth quarter. Expense growth, I think, will moderate. I think that's also -- and in addition, the currency will still be a negative impact on the fourth quarter operating margin.

Our next question comes from the line of Jeff Lick of B. Riley.

So if I just look at your Q4 guidance as relative to the implied Q4 guidance you went into this quarter with, it looks like sales are down -- you took sales down 2%, operating margin down 9%. I'm just curious if you might want to highlight you where -- is it the place where you are seeing that variance come from the most? And then maybe this is for Markus. I'm just curious, given that you reversed bonus accruals, is there a level now where you could actually reverse it back, meaning that it would be difficult not to hit your Q4 operating guidance because there's almost like a shock absorbers with performance accruals?

So Jeff, let me just start and then Markus can address your question on the bonus. But I want to say that what we have done for the fourth quarter is primarily just mirroring some of the trends that we saw in the third quarter that were not in line with what we had originally expected when we provided guidance for the third quarter and the year. So -- and it's primarily the impact that we saw in some of the business didn't perform as well, and is primarily Europe. And within Europe, just our wholesale business did pretty much -- had a performance that was pretty much consistent with what we had anticipated. But our direct-to-consumer business was the one that slowed down. And this has two parts, in our stores that were impacted by customer traffic deceleration and also our e-commerce business, which was also impacted by traffic. And as a result, we ended up with a lower number than what we had anticipated on top line, which drove bottom line just a reduction as well. We -- that's all we have done. Just we took a look at that. We looked at how the month of November has been going, and we are seeing a similar type of behavior. And as a result of that, we brought that -- those new expectations into the guidance. And of course, in the fourth quarter, additional volume has a major impact on profitability. So when you take some volume away, it's very difficult to really protect the flow-through because all that additional volume normally is very profitable compared to the base. So -- and that's why you see what may seem as a more significant drop in operating margin or an operating profit than the drop in sales.

Regarding your question regarding the -- let me start a bit broader with the SG&A development for the third quarter. Overall, we've been up 10% or $22 million in the third quarter compared to last year. If you look at the two, I think, distinctive impact that I also called out in the prepared remarks, one is the performance-based compensation that is $9 million higher compared to last year as well as currency. I think if there is a tailwind on the revenues, but a headwind on the expenses. Those two effects account for 70% of the expense decrease in the third quarter. If you look at the third quarter, and I was sharing this, we were lapping a reversal of the performance-based compensation adjustment from last year. As we were trending in the third quarter of last year, we are trending below, I think, then also the targets also for the full year. There was a reversal in those performance-based compensation adjustments that we are now lapping. So nothing that's there now in comparison. I think with Q3 of this year compared to last year, that's $9 million as well. Yes, but so your question is, can you reverse that? The key issue here is that the company is performing in line with expectations and target plan. So as a result, we're doing for the accounting, what needs to be done, just assuming that we deliver on the numbers that we have shared with you that would mean that the company would meet its financial targets. And as a result, the bonus will be paid.

Yes. The point of the question was if for some reason, revenue was well below what you guided, it would seem like it wouldn't -- operating income would not go down at least for the first tranche of that miss maybe as much...

Yes, yes. I mean, all this works together. Just so to your point, if the company is less profitable, obviously, that will have an impact on variable compensation as well.

And then another question, just I'm just curious if you could maybe highlight or speak to any lessons or observations with the Georgina Rodriguez partnership, if there's anything that you've learned that you would apply maybe even with the Guess? Jeans U.S. doing social influencing there with someone in the U.S.? I think you did make reference to celebrity marketing. I'm just kind of curious what you're learning there, given your heritage of successfully using collaborators and spokes models.

Yes. Well, let me start by saying we are thrilled with the performance of that collaboration and relationship. I mean, to the point that I think I mentioned in my prepared remarks that just we are just doing another campaign with Georgina. I mean, all the products that she modeled had a great sell-throughs, and we saw a lot of opportunity even for the future with the type of activities that we engage them with her. She has been a terrific ambassador of the brand. Now what I mentioned is that when you look at Guess? Jeans, this is a brand that is targeting a much younger consumer, just that Gen Z consumer primarily, but also millennials. And we are building the plan, the strategy to launch this brand to the market with a very strong, robust marketing campaign that involves celebrities and a lot of just meaningful effective collaborations that, that consumer will be open to. So we are in the process of working on that. But definitely, we feel that this type of marketing can be very powerful for us. And you're right, Jeff, we do have a long legacy with this type of collaborations. And I think that we are going to take the opportunity to really invest on this again.

That does conclude our questions for today. I'd like to turn the call back over to Carlos for any closing remarks.

Yes. Thank you. Well, first of all, thank you all for participating today. We know that everybody is very busy. And there are multiple calls. So I'm sure that this takes a special effort. We are in front of the most significant period of the year, and we believe that we are well positioned, and we believe that we have a very good plan to win here. I just wanted to just invite you guys, if you are interested, anybody listening here to, if you want to let us know if you would like to attend a Guess? Jeans event that is going to take place in Pitti Uomo, this is in Florence, and this is going to happen in January of 2024. This is a part of our launch. We are going to have some experiential presentation there. I think it will be very interesting for people to see. So if you are interested, let us know, this will be, I think it's a week of the 8th, 9th, 10th of January. So let us know. So we want to wish you all a very happy Thanksgiving with your families, friends and so forth, and we look forward to updating you on our progress in the future. Thank you so much for your time.

Ladies and gentlemen, this does conclude today's conference. Thank you all participating. You may now disconnect. Have a great day.