Guess’, Inc. (NYSE:GES) Q3 2024 Earnings Call Transcript

Guess’, Inc. (NYSE:GES) Q3 2024 Earnings Call Transcript November 21, 2023

Guess’, Inc. misses on earnings expectations. Reported EPS is $0.49 EPS, expectations were $0.62.

Operator: 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.

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.

Carlos Alberini: 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.

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 US 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 continued 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 and want to thank everyone for their unwavering commitment and invaluable contributions, especially during these times of global uncertainty.

Net revenues for the third quarter grew 3% in US 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 one-time adjustment. Best performing product categories included fragrances, handbags, watches, eyewear, and footwear.

Turning to product performance, in line with trends observed during the previous two 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 jewellery 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 silhouettes, 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 continued 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 chart. 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 US 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 organization and 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 organization and 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 objectives. 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 a previous call, I mentioned the opportunity to internalize businesses that are being licensed, such as the current license that we have with G3 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 assortments, 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, multi-generational.

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 brand in 2024, focused on product innovation, a present day mindset centered 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 capitalize 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 a Chinese consulting company called [indiscernible] based in Shanghai. This firm has significant capabilities in design, merchandizing, 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 efficiently 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 focus 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 markdown 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 faced 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 firm 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 and 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 US 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.

Markus Neubrand: 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 $154 million, and we are on track to achieve our fiscal year 2024 target of $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 enter 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 US 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 US 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 US 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 US 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 US 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 US dollars and decreased 1% in constant currency. Higher shipments in Mexico were offset by lower deliveries in the US 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 US 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 three quarters of fiscal 2024 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 US dollars and constant currency. Fragrances, handbags, watches, eyewear, and footwear had a very strong performance during the quarter. Excluding a positive one-time adjustment in the third quarter, our licensed 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 low inbound rate, and a favorable segment mix, especially driven by our licensing segment, were partially offset by a negative currency impact on our product margin. 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 2024. 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 non-operating 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 US dollars, and the net charges to mark our deferred compensation plan and SERP plan assets to market.

And we recorded an adjusted effective tax rate of 31%. The adjusted tax rate excludes a discrete tax benefit of $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 non-operating net charges of $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 four quarters include $154 million of free cash flow, offset by $59 million in dividends and $16 million lower borrowings on our credit facilities.

We ended the quarter with a total of $315 million of borrowing capacity on our various global facilities. So, roughly $560 million of available liquidity. We continued managing our inventories well. We ended the quarter with $562 million, down 2% in US 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 $341 million, a 7% increase versus last year’s $319 million. On a constant currency basis, receivables increased by 3%. For the first three quarters, capital expenditures were $52 million, mainly driven by investments in store remodels and technology.

This compared to $72 million in the same period last year. In the first three quarters, we consumed $16 million of free cash flow, an improvement of $82 million compared with the cash consumption of $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 2024 collection is roughly flat in constant currencies. 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 US dollars and in constant currency. This includes the benefit of the fourth quarter’s extra week, which we estimate to be about $30 million. For the fourth quarter, we expect adjusted operating margins to expand to 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 US dollars and in constant currency. We expect adjusted operating margin between 8.9% and 9.1%, with a higher expense rate more than offsetting standard 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.

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Q&A Session

Operator: Thank you. [Operator Instructions] One moment for our first question. Our first question comes from the line of Eric Beder. Your line is — of Small Cap. Your line is open.

Eric Beder: Good afternoon.

Carlos Alberini: Hi, how are you, Eric?

Eric Beder: I’m good. How are you?

Carlos Alberini: I’m very well. Thank you.

Eric Beder: 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 US 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?

Carlos Alberini: Yes, Eric, it’s a very good question. We are not prepared to formally provide any guidance today for next year. But 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. I’m talking about the internalization of our license with G3 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 brand, of the Guess? brand, we have created a pretty significant separation from that more dressy, more sophisticated look, more contemporary look, from that to what made Guess? 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’re doing some new events to really enhance UPTs and really entice the customer to really buy more pieces or just go for looks instead of just buying items. And when you go outside the US, 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 fall 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 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 of — with the size of that market, what that 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 that 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.

Eric Beder: 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? Thank you. Good luck for the holidays.

Carlos Alberini: 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’ll continue to support it. The marketing has been very strong. Georgina was featured with wearing and modeling Marciano product, and some of those products were the ones that had the best sell-throughs. So, we’ll continue pushing. With respect to men’s 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.

Operator: Thank you. One moment please. Our next question comes from the line of Corey Tarlowe of Jefferies. Your line is open.

Corey Tarlowe: Great. Thanks. 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? Would be great to get — just get some color on the behavior of your customer and how that is affecting the business overall in the Americas.

Carlos Alberini: Yes. Thank you, Corey, hi. 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 number one variable here is with customer traffic and we think that that is something that is obviously maybe 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 maximized, 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.