Guess’, Inc. (NYSE:GES) Q2 2024 Earnings Call Transcript

Guess’, Inc. (NYSE:GES) Q2 2024 Earnings Call Transcript August 23, 2023

Operator: Good day, everyone, and welcome to the Guess’ Second 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.

Fabrice Benarouche: 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.

Floral Deco/Shutterstock.com

Carlos Alberini: Thank you, Fabrice. Good afternoon, everyone, and thank you for joining us today. We are extremely pleased to report our second quarter results with sales exceeding our growth expectations and the team delivering a significant beat in operating earnings and earnings per share. We achieved an almost 10% operating margin for the period ahead of both our guidance and last year’s results. All of our segments performed at or beyond what we had expected with solid revenue performance, strong gross margin results and effective cost management. During the quarter, we saw strong momentum with our global brands and managed the business well as we continue to leverage the power of our highly diversified business model.

Our teams across the world continue to control the controllable and adapt well to the changing consumer environment across geographies. Paul and I are very pleased with our performance. I want to thank our teams for their commitment and hard work. We greatly value your strong contributions. Our company’s revenues for the second quarter grew by 3% and adjusted earnings from operations reached $65 million, 17% ahead of last year. In Europe, we achieved a 9% increase in revenues higher than expected. This was partially driven by earlier than anticipated shipments to wholesale accounts that welcome our product to support good sales momentum in their businesses. Our direct-to-consumer business also performed very well with double-digit comp growth in our stores.

Our Europe segment reported a 37% operating earnings increase, well ahead of our expectations. We are very happy with our momentum and have a robust outlook for the second half of the year in this region. Our Americas Retail business reported an 8% revenue decrease and solid gross margins both in line with our expectations. With our team’s effective cost management, however, we were able to drive operating results that were stronger than we had anticipated. Our Americas Wholesale business reported a better-than-expected 13% revenue decrease and also beat our operating earnings expectations with improved gross margins and good expense management. In Asia, we grew revenues by 19% and improved operating earnings in the period, both in line with our expectations.

And our licensing business had a terrific quarter, increasing revenues by 13% and earnings from operations by 24%, both well ahead of plan. This business was driven by strong performance of fragrances, handbags, footwear and watches. Turning to our product performance, which again differed by region consistent with what we saw in the first quarter. In Europe, women’s, men’s and accessories all posted healthy sales growth. The best-performing products included outerwear, knit tops, woven shirts, including denim, sweaters, dresses and shorts. Accessories were particularly strong in Europe, with the best performance recorded by handbags, travel products, small leather goods, jewelry, belts, watches and eyewear. Marciano, kids and footwear were also strong.

In Americas Retail, sales were down across women’s, men’s and accessories. While we experienced reduced customer traffic, we improved conversion on a sequential basis compared to the first quarter results. Our top-performing categories included sweaters, activewear, certain denim products like overall and gem suits, presses, woven shirts for women and knit tops for men. In accessories, handbags, travel products and watches outperformed the overall category. Marciano had a challenging quarter as we were up against very strong sales from a year ago and footwear and kids recorded better trends than the overall business. In Asia, we had success with women’s and men’s products and a very strong performance in accessories, driven by handbags, small leather goods and watches.

We also saw strength in sales of footwear and kids products. Right now, there is a lot weighing on the global consumer. Despite tighter labor markets and rising wages, higher interest rates and inflation are impacting consumer confidence, and we expect that this will continue for some time. Despite those challenges, we are confident in our business and our brand momentum, and we are very pleased with how our products are resonating with our customers. Our approach to our business remains consistent with the strategies that we shared with you in the past. Our teams continue to focus relentlessly on those areas that we can control, and we have initiatives in place to further improve on our planning and execution to optimize our results. We see the biggest opportunities in four key areas of our business to create value, brand innovation, inventory management, efficiencies and cost control and growth.

Let me address each one. Starting with our ambitious brand elevation initiative, as I have discussed in the past, Paul has led our team to reinvent our brand and influence virtually every facet of our global business. The results have been extraordinary. Now with a global line of products, we represent our brand consistently across all of our global distribution and across all of our 25 product categories. This initiative has driven significant efficiencies in global design, product development and sourcing and enabled us to massively consolidate our vendor base despite adding proximity vendors to enhance speed to market. Most importantly, Paul, in collaboration with our internal product teams and licensee partners, has led a major effort to improve product quality, taste and styling and to increase our focus on sustainability.

Paul has also led our teams in driving strong alignment and coordination between the product launches and the marketing campaigns featuring those products. A good example is our most recent campaign introducing Georgina Rodriguez as the face of Guess? and Marciano for fall 2023. Georgina is a Spanish-Argentine model and influencer with more than 50 million Instagram followers. She’s also the wife of Soccer Star Cristiano Ronaldo, who has 600 million followers, so she gets tremendous exposure through him as well. All of the products modeled by Georgina are available around the world in stores on our website in wholesale distribution and featured in magazines, social media and catalogs and the initial sell-throughs for these products have been very strong.

Also related to our brand elevation strategy is our focus to price all our products based on the customers’ perceived value. We are also buying products strictly based on expected customer demand, not more, not less. Our goal is to sell more at full price, minimize promotions and avoid creating excess inventory. Lastly, we have remodeled hundreds of stores in the last three years, and we opened many new stores as well. Over 80% of our store fleet has now been refreshed to improve brand representation and the customer experience. Moving to inventory management, we have been executing well on our commitment to reduce our inventory investment and increase free cash flow. We have implemented several new systems applications to automate multiple functions for inventory planning and allocation and use data for better decision-making.

These solutions are also helping us to improve assortment planning and execute better buys to maximize sales and enhance margins. And our results have been very strong. We have already taken out about one month of inventory from the product cycle without impacting sales negatively, and we closed the second quarter with only 4% more inventory than last year. Today, we are very confident in our goal to close the year with a 10% reduction in inventory compared to last year. In connection with cost controls and efficiencies, we are focusing on three key areas: first, we have integrated several functions at a global level to improve accountability and eliminate organizational redundancies, most recently completing the integration of our financial systems between North America and Europe; second, we are looking at ways to streamline operations across the world where we can do more with less.

As an example, we are currently in the process of closing our hub in Hong Kong, which serviced many Asian countries for years. These businesses will now be serviced by our teams in Singapore, and the retail stores in the market will be integrated into our China operation; and third, we continue to see opportunities to reduce variable expenses, including inbound freight and store payroll, which are large line items in our operations. We are pleased with our progress and today’s results are a testament to our success. Lastly, as I mentioned in previous calls, we see significant opportunities for growth: first, driving greater sales productivity in our existing network; second, growing organically in existing and new markets; third, exploring further brand extensions, including new product categories; and fourth, considering opportunities that leverage our global infrastructure and our network of licensees and wholesale partners.

As our leadership team builds out our long-term plan, we look forward to sharing more with you on all of these areas of growth at an Investor Day to be scheduled before year-end. I also want to call out the release of our fifth Guess? ESG report which you can access at sustainability.guess.com. This comprehensive report highlights the outcomes of our first-ever double materiality assessment and our many initiatives, including our dedication to fair treatment and gender pay parity, which we have just achieved in our major markets. KPMG has examined the report’s key metrics and disclosures and we have become one of the first in the fashion industry to obtain reasonable assurance. And now to our outlook. Our business has shown tremendous resilience so far.

Our first half results give us confidence in our teams and our ability to execute well. I feel strongly about our plans for the fall and holiday seasons and our early sell-throughs of the new products are very encouraging. For those reasons, we are raising our adjusted operating margin expectations for the year to a range of 9% to 9.4% and our EPS outlook to a range of $2.88 to $3.08 per share. Accordingly, we now expect to deliver year-over-year EPS growth despite significant headwinds. Markus will share more about that in a moment. And speaking of Markus, I’m excited to welcome him to our company as our new Chief Financial Officer. Markus brings a strong background to this role and great relevant experience from his 17-year career with Hugo Boss, where he had multiple responsibilities in financial, operational and even commercial roles.

I’m confident that he will make strong contributions to our company. Before I pass it over to Markus, I want to share with you why I’m so excited to be here at Guess? and so optimistic about our future. I’m sure you could all list companies with amazing brands or others with particularly strong business models and still others with reputations as great places to work. I could do the same, but I would have three separate lists. What I believe makes Guess? special, what makes us unique, is that this is a place where I believe all of those factors come together to create a powerful platform to drive long-term sustainable value for all of our stakeholders, and it hasn’t been by accident. The unique position that we have staked out for ourselves came with 42 years of extraordinary vision and focused execution.

First, there is the brand. The Guess? brand today is truly a lifestyle brand. Thanks to the most iconic and aspirational marketing campaigns that Paul created over the last four decades. That strong lifestyle image was developed early on and our founders had not only the ability, but the courage to pursue multiple categories quickly and effectively well beyond Denim. Product excellence has always been king at Guess?. And today, we offer amazing products across more than 25 categories for women, men and kids. Second is our powerful and diverse business model. Guess? leverages a strong licensing model. This business delivers $100 million in royalties a year and does so without deploying significant capital, so it delivers high returns, but it also aligns capabilities with mission to ensure the best execution.

Our core products, mainly apparel, are all managed internally. We know this category is better than anyone. However, special products that require expertise for design, manufacturing and distribution such as watches, handbags and footwear have always been licensed out to the best partners that truly understand both the product and the brand. Similarly, we have a license or franchise model in certain markets to leverage experts in those regions, Middle East and Mexico are good examples of this. Our business model also reflects a true world vision, almost from its inception, Guess? pursued an international expansion strategy and today’s presence in 100 countries and global brand awareness are a direct consequence of that strategy. The business also benefits from significant synergies resulting from a global network with omni-channel and multichannel capabilities, providing a highly diversified and balanced model.

And third, we have a culture here that makes Guess? a great place to work and build a professional life inside a family. From its inception, the Guess? culture has been highly entrepreneurial and adaptable, where our long-term focus drives all important decisions and where our teams work as a family and are supported and responsible to deliver results in their businesses. This culture of accountability and empowerment allow us to attract and retain top talent all over the world. The convergence of all these attributes on to one powerful platform, create a unique strength and potential of our company. Paul has been our chief visionary and architect and we couldn’t be more grateful and excited to work with him every single day to make it bigger, better and more successful.

We are well positioned to grow our business and deliver strong value creation for our shareholders for years to come. I look forward to reporting on our progress this year and in the future. And with that, let me pass the call to Markus. Welcome, Markus.

Markus Neubrand: Thank you, Carlos, and good afternoon, everyone. Before I take you through the numbers, I want to tell you how excited I am to be a part of the Guess? family and help the team grow the business long term. I’d like to thank Paul and Carlos for their confidence in me and the opportunity to be a part of this incredible company. The Guess? and Marciano brands are reknown globally, and we have a strong platform for sustainable and profitable growth. I’m looking forward to engaging with you and continuing to support the Company’s goal to deliver outstanding value to our shareholders. With that, let’s take a look at the quarter. We delivered better-than-expected revenues, operating profit and earnings per share. This quarter’s performance demonstrates the strength of our diversified business model, with all our segments delivering results in line with or beyond our expectations.

We expanded gross margin, maintained clean inventories and carefully manage costs, all of which enabled us to deliver an adjusted operating margin of 9.8%, an outstanding performance in a dynamic environment. Let me take you through our results in more detail. Total company revenues were $665 million in the quarter, a 3% increase from last year’s second quarter and a 3% constant dollar increase. The better-than-expected performance reflects positive retail comp sales, improved licensing revenues and earlier-than-anticipated wholesale deliveries in Europe. Turning to our regional performance for the quarter. Starting with Europe where we posted an 8% constant currency revenue increase and a 9% increase in U.S. dollars. The revenue growth was mainly driven by strong retail store comps and higher wholesale ship.

Our stores in the region posted a 13% constant currency comp increase in the quarter, driven by continued store traffic increases and strong AUR growth, more than offsetting a modest conversion decline. As in the past few quarters, Turkey hyperinflation had an outsized impact on the comps and excluding Turkey, that comp increase would have been 10%. In European wholesale, we returned to normal shipping patterns in line with the previous year. Compared with our initial expectations, we experienced a roughly $10 million timing shift of whole winter ’23 wholesale shipments from Q3 into Q2. The Spring/Summer ’24 collection campaign is almost completed. Orders are expected to increase low single digits compared to the prior year spring summer campaign aligned with our initial expectations.

Operating margin in our European business increased by 260 basis points to 12.9%. The expansion was driven by higher IMU, strong comp sales and lower markdowns, partially offset by currency headwinds, negatively impacting our product margins. In Americas Retail, revenues decreased 8%, both in U.S. dollars and in constant currency. While traffic remains under pressure in our North American stores, conversion drove a sequential improvement in stock comp, which declined 7% in Q2 following a Q1 comp decline of 12%. AURs were stable compared to last year’s Q2. Our North American e-com business performed better than stores and increased low single digits. Americas Retail posted a 9.1% operating margin compared to 13.2% operating margin a year earlier.

The 410 basis point decrease in operating margin was mainly driven by higher expenses, the deleveraging of expenses given the sales decline and a lower mix of full price selling partially offset by a higher IMU. Our product margins were flat with the higher initial markup offset by a lower mix of full price selling. As we move through the second half of this year, we expect the expense deleverage to begin to moderate, primarily in the fourth quarter, given our expectations for revenue. In Americas Wholesale, revenues declined by 13% in U.S. dollars and 16% in constant currency. The decrease was driven by lower shipments in Mexico and the U.S. Operating margin reached 25.3%, an improvement of 250 basis points from last year, driven by gross margin expansion, partially offset by higher expenses.

In Asia, revenue grew 19% in U.S. dollars and 22% in constant currency. The growth was driven primarily by the recently acquired stores in Korea. Stock comp sales for the region increased 3% in constant currency. Operating margin improved 580 basis points to negative 0.9%. This improvement was driven by the direct operation of those new Korean stores as well as leverage our expense structure. And finally, our licensing segment. Royalty revenues increased 13% in U.S. dollars and constant currency. Segment operating margin was 94.1% and operating profit increased by 24%. In the quarter, total company’s gross margin was 44.3%, an improvement of 220 basis points. Improved IMUs, favorable segment mix and lower markdowns were partially offset by a negative currency impact on our product margin.

Adjusted SG&A for the quarter increased 7% to $229 million. 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. Our expenses were also impacted by the unfavorable impact from currency. For the quarter, our adjusted SG&A rate increased 110 basis points to 34.5%. Our second quarter adjusted operating profit increased to $65 million. This represented an increase of $9 million or 17% compared to last year. Adjusted operating margin was 9.8%, 110 basis points better than last year’s Q2, driven primarily by a higher initial markup and favorable business mix, partially offset by the negative currency impact and higher expenses.

Currencies negatively affected adjusted operating profit by $8 million and adjusted operating margin by 130 basis points. We recorded non-operating net expense of $5 million versus a $9 million charge in last year’s second quarter. The change was primarily due to lower net unrealized and realized losses from foreign currency exposures. And we recorded an adjusted effective tax rate of 26%. Adjusted Q2 diluted EPS was $0.72 compared to $0.39 of earnings per share in last year’s second quarter, an 85% increase in adjusted earnings per share. Moving to the balance sheet. We ended the quarter with $303 million in cash compared to $174 million a year ago. The most significant drivers of that $129 million cash build over the last four quarters include $135 million of free cash flow and net draws on our credit facilities of $51 million, partially offset by $55 million in dividends and a $9 million payment to purchase our Russia joint venture partners’ 30% minority interest.

We ended the quarter with a total of $299 million of borrowing capacity on our various global facilities, so roughly $600 million of available liquidity. Inventories were $554 million, up 4% in U.S. dollars and flat in constant currency versus last year. Regionally, our inventory growth comes from our international markets with our North American inventory levels being down against last Q2. Our overall inventory levels are in line with our plan and as we return to a more traditional timing of receipts this year, our plan is to further reduce our inventory levels. Overall, we are pleased with our inventory composition and forward orders and feel we are very well positioned to support our business moving forward. Our receivables were $318 million, a 6% increase versus last year’s $302 million.

On a constant currency basis, receivables increased about 1%. For the first half, capital expenditures were $35 million, mainly driven by investments in store remodels and technology. This compared to $51 million in the first half of the prior year. Free cash flow for the first half was positive $9 million, an improvement of $63 million compared with the cash consumption of $54 million for the prior year first half. The improved free cash flow resulted from favorable changes in working capital including a substantial reduction in inventories and lower capital expenditures, partially offset by lower net income. So now let’s talk about our outlook for fiscal ’24 and the third quarter. With the second quarter now behind us and as we consider our business for the second half of the year, we are raising our earnings outlook for the fiscal year with an expectation of stronger operating margins, on a similar level of revenues compared to our prior guidance.

Our improved outlook on earnings is primarily driven by our strong Q2 performance, some of which were presented to timing shift with the third quarter. We expect the strong momentum of our brand to continue in Europe, where revenues should reach nearly $1.5 billion this year. In North America, we continue to anticipate traffic headwinds and customers who are prudent in their spending. We are very pleased with our inventory levels and composition that is well aligned with our sales expectations. With normal fluctuations from other parts of our business, and the prevailing currency environment, we expect full year revenues to grow in the range of 2.5% to 4%, both in U.S. dollars and in local currency. Moving down the P&L. Just as we saw in the second quarter for the balance of the year, we anticipate expanding gross margins on a year-over-year basis despite some lingering currency headwinds.

That expansion should be fueled mainly by the cost improvements we’re enjoying as the supply chain and shipping environment have returned to normal. On expenses, both inflation and currencies will negatively affect this year’s expense structure and rates. Let me remind you that by the time we get to the fourth quarter, however, some of that rate pressure should abate or even turn favorable, given that the fourth quarter will include an extra selling week this year. With our strong results in the first half of this year, we are confident about our plans for the second half of the year. Today, we are raising our adjusted operating margin outlook to a range of 9.0% and 9.4% for fiscal year ’24. At the high end of our guidance, the adjusted operating profit is expected to be on the same level as in fiscal ’23.

For some additional perspective on that, if we were to adjust for the headwinds caused by currencies, last year’s COVID relief benefit, a change in performance-based comp expense and factor out the extra selling week, our outlook would represent an underlying operating income growth rate in the low teens at the midpoint of our guidance. We are also raising our adjusted diluted EPS outlook for the year to a range of $2.88 and $3.08 per share, which is net of the effect of the second quarter non-operating charges. In the third quarter, we expect U.S. dollar revenues to increase in the range of 2.5% to 4.5% versus last year’s third quarter based on current prevailing exchange rates. Currency impacts should represent a roughly two-point tailwind for revenue growth.

We expect third quarter adjusted operating margin between 7.5% and 8.3% and adjusted EPS in the range of $0.55 to $0.64 per share. Lastly, on capital allocation. We are on track with our plan to improve our inventory turns with supply chain now functioning more normally. Coupled with our outlook and this year’s lower CapEx plans, we are well positioned to generate free cash flow of roughly $160 million. Our outlook is based on our best assessment of the current macroeconomic environment, including inflationary pressures and the consumers’ willingness to spend. As always, we will manage the business prudently taking advantage of the power of our diversified business model, which allows us to leverage areas of strength to mitigate risks that may arise in other parts of our business.

In closing, I want to reiterate that we are very pleased with the execution of our team, and we are confident to deliver the results I just outlined. Further, we have a strong balance sheet and are in an excellent financial position to invest in the growth of our business and continue to return capital to our shareholders. And with that, we can now open the call up for questions.

See also 15 States with the Highest College Tuition and Fees and 17 Highest Paying Countries for Accountants.

Q&A Session

Operator: [Operator Instructions] One moment for our first question. It comes from Corey Tarlowe with Jefferies. Please proceed.

Corey Tarlowe: Carlos, it seems like you’ve had some really strong momentum in Europe. So I’m wondering if you could just maybe unpack that for us a little bit and maybe just talk a little bit more broadly about the momentum of the brand. It seems like you have some really great partnerships that are really helping to fuel that growth. So just curious there, it would be great to get some color.

Carlos Alberini: Yes. Let me start, and then I’m sure Markus will chime in here. Yes, we are very, very pleased with our performance across the Company. As we said, during our prepared remarks, just every business did as we expected or better. And Europe was leading the charge there. We had a great quarter. Some of it was that shift of shipments into the second quarter from the third quarter. But frankly, that is a small part of the bid and the better performance that we experienced. What we saw was very strong comps in Europe and these strong comps have been driven by a very healthy customer traffic into our stores. We are seeing just healthy metrics also inside the stores. Of course, we are benefiting from the price changes that we took over the last couple of years.

And the margins have been very much under control and also benefiting from what we’re seeing with inbound freight and everything that is impacting that part of the business. We are very pleased with how the customer is responding to our assortments and we feel that, that is also carrying through our demand for wholesale. With respect to what we see with wholesale is still a very healthy business in terms of how our current seasons continue to perform. And this is in spite of the big change that we have been able to deliver over the last four — three years, pre-pandemic to now, we are talking about an increase in that wholesale business in Europe from about €480 million to about €630 million currently. That’s over 30% growth for the entire business.

That’s very big. It was driven by new categories and some just very ongoing strong momentum with the accounts that we have. So, very pleased. Maybe Markus, you want to talk about the operating margin in Europe.

Markus Neubrand: Thank you, Carlos. We are very pleased with the operating margin development in our European business in the second quarter. We’re up 260 basis points. I think I shared in the prepared remarks, the higher international markups, I think where we see the benefits from — especially no inbound freight, driving our initial markups. And as Carlos mentioned, the strong comp sales helped us to drive more bottom line. What is also very positive to see is lower markdowns also contributed positively to our performance — operating margin performance in the second quarter. And what we still continue to see is the currency headwind from transactions in our margins. I think I shared also previously. I think this was a headwind that we had in our margins. But overall, I think we are very pleased and are very happy with the performance and with the strength of our brand in the European segment.

Carlos Alberini: Yes. And I think just you mentioned about the partnerships, and I think that is a big point. We have very strong country management teams. And obviously, that is driving a lot of the business in each of those markets. And they own the businesses and we have been very pleased with what they have been able to do in each and every one of those markets. And then just the accounts, the partnerships that we have at wholesale. We are talking about thousands of accounts, thousands of relationships, agent relationships. And all this, I think, is very unique and very powerful. And I think it has a lot to do with the success that we have been able to experience for now several years consecutively.

Corey Tarlowe: That’s great. And then just on inventory, it was up a little bit in the quarter, but it sounds like you’re making progress to get it to a point where it’s likely to be down by the end of the year. What does that look like on a regional basis? How do you think that you get there? And then ultimately, what do you think that means for the potential for driving even better margins over time as inventory levels become even more under control.

Carlos Alberini: So let me start also. And again, I’m sure Markus will address the regional inventory levels. But overall, we came into the year knowing that last year, we made a very significant effort to really secure our business. So we were really ordering product to arrive to our distribution centers earlier. So then we could be there to service the business in spite of all the supply chain disruptions that we were experiencing together with the rest of the industry. And this year, as we saw that the supply chain was normalizing and that we could rely on a much tighter delivery time line, we made the plan to really reduce the inventory investment that we had in the business. I mean, obviously, it’s one of the major sources of cash flow.

So we put in place a plan to really extract from that inventory investment, a significant amount of inventories, and we have been able to take about one month out of the investments that we were running with last year. And we feel that by the end of this year, we should be with — we closed with an inventory of about 10% less than what we closed the year last year with and we are very confident about that because just we work with a very clear time line and ordering system that gives us a lot of visibility now to know that we will be able to make those numbers. Of course, we are buying very diligently on with a lot of discipline. We are not buying any more or less than what we think is going to be demanded by our customers in every one of our channels.

And this formula has worked well for us. And we are very pleased. The increase in inventory, that 4% that you were referring to is primarily due to increase in average unit cost and this is all driven intentionally and strategically by our product strategies. I’m talking about higher quality business product mix and things that are completely in our control, and we are very pleased with it.

Markus Neubrand: Corey, adding to what Carlos just explained, our inventories stay up 4% in U.S. dollars, the constant — in flat in constant currency. If we look at — and I think we’re very pleased with development over the last few quarters. If you look at the sequential improvement, if we can look back at the first quarter, we’ve been up 9% in U.S. dollars. Our inventory is 8% in constant dollars at the end of Q1. So we’re very pleased, I think, to see this progress. Overall, I think to your question, I think, regarding also the regional mix, the inventory position at the end of the second quarter is in line with our sales expectations for the third quarter. We are pleased to see that the inventories are up in Europe and in Asia, also where we see growth of the business, and it’s down in the Americas, very much aligned also with the sales expectations that we have, I think then also for the next upcoming quarters and we are very pleased.