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Article by DailyStocks_admin    (08-11-08 10:13 AM)

The Daily Magic Formula Stock for 08/11/2008 is Guess ? Inc. According to the Magic Formula Investing Web Site, the ebit yield is 11% and the EBIT ROIC is 50-75 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


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BUSINESS OVERVIEW

General

Unless the context indicates otherwise, the terms "we," "us" or the "Company" in this Form 10-K, are referring to Guess?, Inc. ("GUESS?") and its subsidiaries on a consolidated basis.

We design, market, distribute and license one of the world's leading lifestyle collections of contemporary apparel and accessories for men, women and children that reflect the American lifestyle and European fashion sensibilities. Our apparel is marketed under numerous trademarks including GUESS, GUESS?, GUESS U.S.A., GUESS Jeans, GUESS? and Triangle Design, Question Mark and Triangle Design, a stylized G, GUESS Kids, Baby GUESS, YES, G by GUESS, GUESS by MARCIANO and MARCIANO. The lines include full collections of denim and cotton clothing, including jeans, pants, overalls, skirts, dresses, shorts, blouses, shirts, jackets and knitwear. We also selectively grant licenses to manufacture and distribute a broad range of products that complement our apparel lines, including eyewear, watches, handbags, footwear, kids' and infants' apparel, leather apparel, swimwear, fragrance, jewelry and other fashion accessories.

Our products are sold through three primary distribution channels: in our own stores, to a network of wholesale accounts and through the Internet. GUESS? branded products, some of which are produced under license, are also sold internationally through a series of licensees and distributors. Our core customer is a style-conscious consumer primarily between the ages of 18 and 32. These consumers are part of a highly desirable demographic group that we believe has significant disposable income. We also appeal to customers outside this group through specialty product lines that include MARCIANO, a more sophisticated fashion line targeted to women, and GUESS Kids, targeted to boys and girls ages six to twelve.

We were founded in 1981 and currently operate as a Delaware corporation.

Business Segments

The business segments of the Company are retail, wholesale, European and licensing. The Company believes this segment reporting reflects how its four business segments are managed and each segment's performance is evaluated. The retail segment includes the Company's retail operations in North America. The wholesale segment includes the wholesale operations in North America and our Asian operations. The European segment includes both wholesale and retail operations in Europe. The licensing segment includes the worldwide licensing operations of the Company. The business segments' results exclude corporate overhead costs, which consist of shared costs of the organization. These costs are presented separately and generally include, among other things, the following corporate costs: information technology, human resources, accounting and finance, executive compensation, facilities and legal. Financial information about each segment, together with certain geographical information, for the fiscal years ended February 2, 2008, December 31, 2006 and December 31, 2005 and one month ended February 3, 2007 are included under Note 15 to the Consolidated Financial Statements contained herein.

In the fiscal year ended February 2, 2008, 49.3% of our net revenue was generated from retail operations, 14.8% from wholesale operations, 30.7% from European operations and 5.2% from licensing operations. Our total net revenue in fiscal 2008 was $1.75 billion and net earnings were $186.5 million.

Business Strengths

We believe we have several business strengths which help us to successfully execute our strategies. These business strengths include:

Brand Equity. We believe that our brand name is one of the most familiar in fashion and is one of our most valuable assets. We believe the enduring strength of the GUESS? brand name and image is due mainly to our consistent emphasis on innovative and distinctive product designs that stand for exceptional styling and quality. Our industry is highly competitive and subject to rapidly changing consumer preferences and tastes. The success of our brand depends on our ability to anticipate the fashion preferences of our customers. We have a team of designers who seek to identify global fashion trends and interpret them for the style-conscious consumer while retaining the distinctive GUESS? image.

Through our award-winning advertising, under the creative leadership and vision of Paul Marciano, our Chief Executive Officer, we have achieved worldwide recognition of the GUESS? brand name. We have developed the "GUESS? signature image" and "GUESS? lifestyle concept" through the use of our strong and distinctive images, merchandising display themes, logos and trademarks which are registered in approximately 170 countries.

Advertising and Marketing. We control all of our worldwide advertising, marketing activities and promotional materials from our headquarters in Los Angeles. GUESS by MARCIANO, GUESS? and Triangle Design and GUESS?, Inc. images have been showcased globally in dozens of major publications as well as in outdoor and broadcast media.

We communicate the GUESS? image through the use of our signature black and white print advertisements, as well as color print advertisements, designed by our in-house advertising department. We have maintained a high degree of consistency in our advertisements by using similar themes and images. We require our licensees and distributors to invest a percentage of their net sales of licensed products and net purchases of GUESS? products in Company-approved advertising, promotion and marketing.

Global Diversity. The global success of the brand has reduced the reliance on any particular region. This allows the Company to continue to grow during regional economic slowdowns. For the year ended February 2, 2008, roughly half of the revenues were generated outside of the U.S. Refer to Note 15 to the Consolidated Financial Statements contained herein for a geographical breakdown of worldwide revenues.

Multiple Distribution Channels. The Company utilizes retail, wholesale and licensing distribution channels to sell its products. The Company has retail and wholesale networks established in each major region in which we operate. This flexibility allows the Company to adapt more quickly to changes in the distribution environment in any particular region.

Retail Distribution. At February 2, 2008, we directly operated a total of 373 stores in the U.S. and Canada, consisting of 187 full-price retail stores, 97 factory outlet stores, 34 G by GUESS stores, 38 MARCIANO stores and 17 Guess Accessories stores. At year end, we also directly operated 40 stores in Europe, 76 stores in Asia and seven stores in Mexico. Our retail network creates an upscale and inviting shopping environment and enhances our image. Distribution through our retail stores allows us to influence the merchandising and presentation of our products, build brand equity and test market new product design concepts. Our GUESS? retail stores carry a full assortment of men's and women's merchandise, including most of the GUESS? licensed products. Our factory outlet stores are primarily located in outlet malls generally operating outside the shopping radius of our wholesale customers and our own full-price retail stores.

Licensee Stores. Outside of the U.S. and Canada, the Company primarily utilizes a licensed-retail store approach to distribute its products as opposed to a directly-operated approach. This allows the Company to expand its operations with a lower level of capital investment. Our international licensees and distributors operated roughly 90% of the 579 GUESS? stores located in approximately 65 countries outside the U.S. and Canada at February 2, 2008. This store count does not include 82 jean and accessory concessions located in South Korea and China because of their smaller store size in relation to our standard international store size. We plan to open approximately 185 new stores in fiscal 2009 primarily through our international licensees and distributors. These stores carry apparel and accessories that are similar to those sold in the U.S., including some that are tailored for local fashion sensibilities. We work closely with international licensees and distributors to ensure that their store designs and merchandise programs protect the reputation of the GUESS? trademarks. Our international licenses and distribution agreements also allow for the sale of GUESS? brand products in better department stores and upscale specialty retail stores.

Wholesale Distribution. We have both domestic and international wholesale distribution channels. U.S. wholesale customers consist primarily of better department stores and select specialty retailers and upscale boutiques, which have the image and merchandising expertise that we require for the effective presentation of our products. Leading U.S. wholesale customers include Macy's, Inc. and Dillard's, Inc. At February 2, 2008, our products were sold directly to consumers from approximately 1,006 major doors in the U.S. These locations include 398 shop-in-shops, an exclusive selling area within a department store that offers a wide array of our products and incorporates GUESS? signage and fixture designs. These shop-in-shops allow us to reinforce the GUESS? brand image with our customers. Many department stores have more than one shop-in-shop, with each one featuring women's or men's apparel. Our European wholesale business is more fragmented and we rely on a large number of smaller regional distributors and agents to distribute our products. Through our foreign subsidiaries and our network of international distributors, our products are also found in major cities throughout Africa, Asia, Australia, the Middle East, Mexico, the Caribbean and South America.

Licensing Operations. The desirability of the GUESS? brand name among consumers has allowed us to selectively expand our product offerings and global markets through trademark licensing arrangements, with minimal capital investment or on-going operating expenses. We carefully select our trademark licensees and approve in advance all product design, advertising and packaging materials of all licensed products in order to maintain a consistent GUESS? image. We currently have 23 domestic and international licenses that include eyewear, watches, handbags, footwear, kids' and infants' apparel, lingerie, leather outerwear, fragrance, jewelry and other fashion accessories. We have also granted licenses for the manufacture or sale of GUESS? branded products in markets which include Africa, Asia, Australia, Europe, the Middle East, Mexico, the Caribbean, North America and South America.

Business Growth Strategies

We regularly evaluate and implement initiatives that we believe will build brand equity, grow our business and enhance profitability. Our key growth strategies are as follows:

Leveraging the GUESS? Brand. We believe the GUESS? brand is an integral part of our business, a significant strategic asset and a primary source of sustainable competitive advantage. It communicates a distinctive image that is fun, fashionable and sexy. Brand loyalty, name awareness, perceived quality, strong brand images, public relations, publicity, promotional events and trademarks all contribute to brand integrity. Our design teams visit the world's premier fashion locations in order to identify important style trends and to discover new fabrics. We will continue this practice while promoting our innovative designs through stylish advertising campaigns that advance the GUESS? image. Our marketing programs are designed to convey a uniform style image for the brand and are aimed at increasing the desire of the target group to join our GUESS? customer group.

North American Retail Store Strategy and Expansion Plans. Our retail growth strategy is to increase retail sales and profitability by expanding our network of retail stores and improving the performance of existing stores. During fiscal 2008, we opened a total of 49 new stores in the U.S. and Canada consisting of 16 new full-price retail stores, five factory outlet stores, 14 G by GUESS stores, 13 MARCIANO stores and one GUESS Accessories store. We closed ten stores and converted 20 stores to G by GUESS stores.

Our retail locations build brand awareness and contribute to market penetration and growth of the brand. In fiscal 2008, we increased our retail average square footage by 5.3% to a total of 1,759,000 square feet in the U.S. and Canada. We continue to be very selective with new store locations and expect to open approximately 60 new stores in fiscal 2009, consisting of eleven full-price retail, six factory outlets, ten G by GUESS, 12 MARCIANO, 16 GUESS Accessories stores, and five footwear stores through our new joint venture with our footwear licensee. In addition, we plan to close approximately three stores in fiscal 2009.

In fiscal 2008, total sales in the U.S. and Canada at our stores open for at least one year increased by 14.6% from fiscal 2007 levels. We believe this increase is attributable to our commitment to several ongoing initiatives, including leadership in new product development, a more fashion-focused product mix, the introduction of new product categories, improvements in merchandising and visual presentation, the remodeling of select stores to promote a consistent brand image, an improved retail store inventory allocation system, the continued development of the MARCIANO and Accessories lines and the development of a motivated team of sales professionals to service our customers and provide a favorable shopping experience.

We continue to emphasize our Accessories line, our MARCIANO line and our G by GUESS line. This includes greater focus on our Accessories line in our existing stores as well as continuing to develop and open additional Accessories, MARCIANO and G by GUESS stores which exclusively feature these products. We shall continue to monitor the performance of these store concepts carefully.

During fiscal 2008, we opened 13 MARCIANO and one Guess Accessories stores. These store concepts leverage our brand recognition and the reputation we have for sexy, contemporary styling to extend the appeal of our brand. The MARCIANO brand is attracting a slightly older, more sophisticated customer, while the Accessories stores are enabling us to build a more meaningful presence in this product category. We are targeting customers who already shop GUESS? stores but are looking for an expanded accessories presentation, as well as new customers who did not shop at GUESS? in the past.

As part of our retail growth strategy, in fiscal 2008 we launched our new brand store concept, which we called G by GUESS. We currently have 34 G by GUESS stores in North America. G by GUESS is aimed to capture a market demographic that shops price points between factory and retail. The G by GUESS brand is distributed only in G by GUESS stores and carries apparel, accessories and footwear for both men and women that is aspirational, timeless and fun. The stores have a fresh feel, directed toward a full customer experience, with fashion-forward, but not cutting edge fashion. The stores have a slightly smaller footprint than Guess? stores.

International Expansion. We believe there are significant opportunities to continue our international growth, particularly in Europe and Asia, where the GUESS? brand is well recognized but under-penetrated. The Company has made several key acquisitions in Europe during the past few years, as discussed under "Acquisition Strategy" below. In South Korea at the end of fiscal 2008, our products were sold directly in approximately 98 stores, of which 52 are jeans concessions that are owned and operated by us through leased spaces in major department stores and 46 are free-standing licensed stores. We opened a showroom in Hong Kong in 2006 and opened approximately 21 free-standing stores in China during fiscal 2008, with flagship stores in Beijing and Shanghai, as well as free standing stores in Hong Kong and Macau. In addition, our joint venture in Mexico is currently distributing through three major department store chains, Liverpool, El Palacio de Hierro and Tiendas, with 56 shop-in-shop locations and seven GUESS? free-standing stores.

Our business will also grow as our partners open new licensed stores internationally. In fiscal 2008, we, along with our distributors and licensees, opened 184 stores in all concepts combined outside of the U.S.

and Canada, bringing the total number of such stores to 579 at year end. This store count does not include 82 jean and accessory concessions located in South Korea and China because of their smaller store size in relation to our standard international store size. We plan to open approximately 185 new retail stores in fiscal 2009 outside the U.S. and Canada primarily through our international licensees and distributors. We are working closely with our international distributors and licensees to develop these opportunities and to expand the availability of the GUESS? brand throughout the world.

Continue to Develop Licensee Portfolio. One of our primary objectives is to maintain the quality and reputation of the GUESS? brand. In order to accomplish this goal, we will continue to strategically reposition our licensing portfolio by constantly monitoring and evaluating the performance of our licensees worldwide and their strengths and capabilities to appropriately represent our brand. As part of this process, we will consider bringing apparel licenses in-house, where appropriate. If we determine that licensees are performing inadequately, we will, from time to time, discontinue the existing relationship and seek out a stronger replacement licensee.

In 2006, we entered into a joint venture with Adivina S.A. de. C.V. to oversee the revitalization and expansion of the GUESS? brand in Mexico. We also signed a new license with a European licensee to develop and manufacture lingerie and swimwear under the GUESS? trademark in Europe and certain other countries. In 2005, we successfully renegotiated license agreements with our existing licensees for watches, handbags and eyewear on terms that were significantly improved over our prior arrangements and began shipping our new fragrance line. In addition, in 2004, we signed a new shoe license with Marc Fisher LLC to develop, manufacture and distribute athletic and fashion footwear under the GUESS? trademark in the U.S. and several countries worldwide and began shipping footwear products in 2005. Recently, we also completed a joint venture arrangement with Marc Fisher LLC to open a small number of new footwear concept stores in North America. We believe these are important steps in expanding our presence both domestically and globally. We will continue to examine strategic opportunities to expand our licensee portfolio by developing new licensees that can expand our brand penetration and complement the GUESS? image.

Acquisition Strategy. We evaluate strategic acquisitions and alliances and pursue those that we believe will support and contribute to our overall growth initiatives. In January 2008, the Company finalized the acquisition of our former European licensee of children's apparel, BARN S.r.l. ("BARN"), an Italian corporation that was owned by two key employees of the Company's wholly-owned subsidiary, GUESS? Italia, S.r.l.

In December 2006, we acquired 75% of the outstanding shares of Focus Europe, S.r.l. ("Focus"), as well as the leases and assets of four retail stores in Italy. Focus, based in Italy, had served as the licensee, manufacturer, distributor and retailer of GUESS by MARCIANO contemporary apparel for men and women in Europe for 10 years. The agreement included the purchase of inventory, certain fixed assets and the transfer of leases for the retail locations.

In January 2005, we completed the acquisition of the remaining 90% of Maco Apparel, S.p.A. ("Maco"), the Italian licensee of GUESS jeanswear for men and women in Europe, that the Company did not already own from Fingen S.p.A. and Fingen Apparel N.V., as well as the assets and leases of ten retail stores in Europe. The agreement included the purchase of inventory and receivables, the assumption of certain liabilities and the transfer of leases for the GUESS retail locations. The stores are located in Rome, Milan, Paris, Amsterdam, London, and certain other European cities.

With the BARN, Focus and Maco acquisitions, we now directly manage our adult and children apparel businesses in Europe. We believe the combination of the manufacture and distribution of all our European apparel lines under the GUESS? umbrella allows us to take advantage of economies of scale and provides an opportunity to further expand our wholesale and retail operations in this region.

Improved Product Sourcing. In fiscal 2008 we continued to refine our worldwide Supply Chain processes in support of a more globalized product offering and a calendar that supports three major global markets a season.

We also continued to re-define calendars, streamline processes and build core competencies within our product areas as part of our Product Lifecycle Management system ("PLM"). These new processes are providing calendar alignment and timely delivery to our western hemisphere retail and wholesale divisions, while also incorporating the development calendars and market timing of our Asian and European businesses. This globalization of operations will enable us to begin integrating our European, North American and Asian-based supply chains. This, in turn, supports our long term strategy of developing a global core product assortment, through collaboration between our U.S. and Italian based design teams. To better support the design process, we formed new Global Markets and Product Development teams responsible for driving calendar deadlines, assortment plans and financial goals throughout the design process. In addition, the Product Development team is responsible for fabric research and development, working directly with global textile mills and suppliers, in order to drive innovation, ensure quality and increase value within our product lines.

We have also developed a Product Integrity group to better support our brand integrity worldwide. The team is headquartered in the U.S. and has presence in Asia and Italy. In fiscal 2008, the group was able to create standards around color, fabric testing, and quality control.

While we continue to expand our sourcing operations in Asia, we expect that Los Angeles will remain the hub of denim development, as well as speed-based development and wholesale replenishment program management.

e-Commerce. Our websites, www.guess.com, www.gbyguess.com, www.marciano.com and www.guess.ca are virtual storefronts that promote our brands. Designed as customer shopping centers, these sites showcase our products in an easy-to-navigate format, allowing customers to see and purchase our collections of casual apparel and accessories. Not only have these virtual stores become an additional retail distribution channel, but also they have improved customer service and are fun and entertaining alternative-shopping environments. These sites also provide fashion information and a mechanism for customer feedback and they promote customer loyalty and enhance our brand identity through interactive content. In fiscal 2008, www.gbyguess.com was launched to promote the new G by GUESS retail format. In fiscal 2008, these combined sites experienced continued growth and generated net sales in excess of the top retail GUESS? store in the chain.

Product Categories

Apparel Products. Our apparel products are organized into two primary categories: women's and men's apparel. To take advantage of contemporary trends, we complement our core basic styles with more fashion-oriented items. We add new styles, treatments and finishes to our denim assortment on a continuous basis.

These products are primarily sold under the GUESS? brand. However, our line of women's apparel also includes the MARCIANO product line, a full collection of better women's apparel incorporating a sophisticated, high fashion combination of colors and styles. In fiscal 2008, we also launched our G by GUESS line of women's and men's products to complement our GUESS? and MARCIANO brands.

Licensed Products. The high level of desirability of the GUESS? brand among consumers has allowed us to selectively expand our product categories into other lines that include handbags, watches, footwear, fragrance, eyewear, jewelry and swimwear. The design and manufacturing of our accessories and footwear lines are licensed to third parties who distribute these products under licensing arrangements with the Company. We recorded net royalties of $90.7 million in fiscal 2008.

Distribution Channels

We derive net revenue from the following primary sources:

•
The sale of our products through our network of directly operated retail and factory outlet stores in the U.S. and Canada and through our on-line stores

•
The sale of our products through our network of wholesale customers and distributors in the U.S., Canada and Asia and the sale of our products through our network of licensee operated stores and directly operated stores in Asia

•
The sale of our products through our network of distributors, agents, licensee operated stores and our directly operated stores in Europe, and

•
Royalties from worldwide licensing activities.


U.S. and Canada Retail Operations

At February 2, 2008, our U.S and Canada retail operations, which comprise directly operated stores in both the U.S. and Canada, consisted of 187 full-price retail, 97 factory outlet, 34 G by GUESS, 38

MANAGEMENT DISCUSSION FROM LATEST 10K

Summary

The business segments of the Company are retail, wholesale, European and licensing operations. Information relating to these segments is summarized in Note 15 to the Consolidated Financial Statements. The Company believes this segment reporting reflects how its four business segments are managed and each segment's performance is evaluated. The retail segment includes the Company's retail operations in North America. The wholesale segment includes the wholesale operations in North America and our Asian operations. The European segment includes both wholesale and retail operations in Europe. The licensing segment includes the worldwide licensing operations of the Company. The business segments operating results exclude corporate overhead costs, which consist of shared costs of the organization. These costs are presented separately and generally include, among other things, the following unallocated corporate costs: information technology, human resources, accounting and finance, executive compensation, facilities and legal.

We derive our net revenue from the sale of GUESS? men's and women's apparel, MARCIANO women's apparel, G by GUESS men's and women's apparel, GUESS by MARCIANO men's and women's apparel, and our licensees' products through our worldwide network of retail stores, wholesale customers and distributors, as well as our on-line stores. We also derive royalty revenues from worldwide licensing activities.

Unless the context indicates otherwise, when we refer to "we," "us" or the "Company" in this Form 10-K, we are referring to Guess?, Inc. and its subsidiaries on a consolidated basis.

On January 18, 2007, the Board of Directors of the Company approved a change in the Company's fiscal year end from December 31 to the Saturday nearest January 31 of each year. The change, which aligned the Company's reporting cycle with the National Retail Federation ("NRF") fiscal calendar and is expected to provide for more consistent year-to-year comparisons, is effective for the Company's 2008 fiscal year. The Company's 2008 fiscal year began on February 4, 2007 and ended on February 2, 2008, resulting in a one-month transition period that began January 1, 2007 and ended February 3, 2007. The audited results for the one month ended February 3, 2007 are included in ITEM 15. Exhibits and Financial Statements.

Unless specifically indicated otherwise, any reference to "fiscal 2008" relates to the twelve-months ended February 2, 2008 and any reference to "fiscal 2007" relates to the unaudited twelve months ended February 3, 2007.

For purposes of this MD&A, the Company has presented the financial performance comparison of the 2008 fiscal year versus the 2007 fiscal year. The Company has also presented the financial performance between the one-month audited transition period ended February 3, 2007 and the comparable one-month unaudited period ended January 28, 2006. Finally, the Company has presented the financial performance between the twelve-months ended December 31, 2006 and the twelve-months ended December 31, 2005.

Fiscal years 2008 and 2007 include 52 weeks and 53 weeks, respectively.

The Company reports NRF calendar comparable store sales on a quarterly basis for its full-price retail and factory outlet stores in the U.S. and Canada. A store is considered comparable after it has been open for 13 full months. If a store remodel results in a square footage change of more than 15%, or involves a relocation or a change in store concept, the store is removed from the comparable store base until it has been opened at its new size, in its new location or under its new concept for 13 full months.

The Company

The Company's operations generated net earnings of $186.5 million, or diluted earnings of $1.99 per share, for the year ended February 2, 2008, compared to net earnings of $131.2 million, or diluted earnings of $1.42 per share, for the year ended February 3, 2007.

Total net revenues increased 39.7% to $1,749.9 million for the year ended February 2, 2008, from $1,252.7 million for the year ended February 3, 2007. All of our business segments contributed to this growth. The European segment was the largest contributor to the growth in revenues representing roughly half of the consolidated revenue growth. The revenue growth also reflected higher comparable store sales and retail store expansion in the retail segment. In addition, our wholesale segment increased revenues, driven by our new South Korea operation and stronger product performance in our North American wholesale business, while our licensing business increased revenues across all key accessories categories and footwear.

Gross margin increased 120 basis points to 45.3% for the year ended February 2, 2008, compared to the same prior year period. The improvement in the overall gross margin was attributable to a higher mix of European net revenues, which generated a relatively higher gross margin than the other businesses, higher mark-ups in our wholesale segment, higher product margins in our retail segment and the recognition of gift card breakage. This improvement was partially offset by the lower product margin in Europe.

Selling, general and administrative ("SG&A") expenses increased 39.4% to $483.6 million for the year ended February 2, 2008 compared to $347.0 million for the year ended February 3, 2007. This increase in SG&A expenses was driven by investments in our new businesses, higher variable costs to support the higher sales in our existing businesses, higher performance-based expenses and investments in infrastructure in Europe. As a percentage of revenues, SG&A expense decreased 10 basis points to 27.6% for the year ended February 2, 2008, compared to the prior-year.

Overall, the higher gross margin and the decrease in SG&A spending as a percentage of net revenues, resulted in an increase in the Company's operating margin to 17.7% for the year ended February 2, 2008, up 130 basis points from 16.4% for the year ended February 3, 2007.

Net interest income increased $4.1 million for the year ended February 2, 2008 primarily due to the early redemption of the Company's 6.75% secured notes of $32.8 million at the end of 2006 and higher average invested cash balances. The Secured Notes were redeemed in December 2006 resulting in $1.9 million related to the write-off of debt issuance costs and payment of redemption premium, which are included in interest expense for the year ended February 3, 2007.

Other expense was $1.8 million for the year ended February 2, 2008, versus other income of $4.7 million for the year ended February 3, 2007. Other expense in the year ended February 2, 2008 was primarily due to net losses related to changes in foreign exchange rates on forward contracts and other foreign currency transactions. Other income in the prior year period comprised gains on sale of land and other long-term investments.

Our effective income tax rate increased 260 basis points to 39.8% for the year ended February 2, 2008 compared to 37.2% in the prior year primarily due to a higher mix of profits in higher tax jurisdictions and a change to the Italian tax rate effective in fiscal 2009 that unfavorably impacted our net deferred tax asset position at the end of fiscal 2008.

The Company had $275.6 million in cash and cash equivalents as of February 2, 2008, compared to $207.6 million as of February 3, 2007. Total debt, including capital lease obligations, as of February 2, 2008, was $54.0 million, up $15.9 million from $38.1 million as of February 3, 2007. The increase in debt was driven primarily by the increase in short-term borrowings from GUESS? Europe. Accounts receivable increased by $111.7 million, or 78.3%, to $254.4 million at February 2, 2008, compared to $142.7 million at February 3, 2007. The increase in accounts receivable primarily supported the revenue growth in Europe, South Korea and Greater China. Accounts receivable also increased due to the acquisition of BARN in January 2008. Currency translation fluctuations accounted for $24.3 million of the increase in accounts receivable. Inventory increased by $58.5 million, or 33.7%, to $232.2 million as of February 2, 2008, compared to $173.7 million as of February 3, 2007. Approximately $31.0 million of this increase was attributable to new businesses including Focus, BARN, our new South Korea operation, our Mexico and Greater China operations and our new G by GUESS store concept. The remaining inventory increase was related to anticipated sales growth in our existing European and North American operations. Currency fluctuations resulted in a higher translation impact on the current year's ending inventory of approximately $15.7 million compared to the year ago amount.

Retail

Our retail segment, comprising North American full-priced retail and factory outlet stores and e-commerce, generated net sales of $862.4 million during the year ended February 2, 2008, an increase of 16.4% from $741.1 million in the prior year period. This growth was driven by a comparable store sales increase of 14.6% and a larger store base, which represented a net 5.3% increase in average square footage compared to the year ended February 3, 2007. All of our product categories contributed to this growth. Retail earnings from operations increased by $23.0 million to $128.5 million for the year ended February 2, 2008, compared to $105.5 million for the year ended February 3, 2007. This increase was primarily driven by higher sales volume, higher product margin and occupancy leverage, partially offset by increased investments in infrastructure to support our new G by GUESS brand concept and higher advertising expense. Operating margin increased 70 basis points to 14.9% in the year ended February 2, 2008, compared to 14.2% in the year ended February 3, 2007.

In the year ended February 2, 2008, we opened 49 new stores and closed ten underperforming stores in the U.S. and Canada. At February 2, 2008, we operated 373 stores in the U.S. and Canada, comprised of 187 full-priced retail stores, 97 factory outlet stores, 38 Marciano stores, 17 GUESS? Accessories stores and 34 G by GUESS stores. This compares to 334 stores as of February 3, 2007. We have continued to develop our new concept stores, which includes our Marciano branded stores and our G by GUESS stores, and we believe that over time these concepts can grow to become significant chains in North America. The MARCIANO brand, a contemporary line that commands higher price points, is also available in approximately a quarter of our full-price GUESS? retail stores in the U.S. and Canada. G by GUESS, which launched in early 2007, is a new brand and store concept that offers a full line of apparel for women and men and a full line of accessories and footwear to support the lifestyle of this customer and is aimed to capture a market demographic that is younger and shops price points between our factory and full-priced retail stores.

Wholesale

Wholesale segment revenues increased by $105.8 million, or 69.3%, to $258.4 million for the year ended February 2, 2008, from $152.6 million for the year ended February 3, 2007. The increase in net revenues was primarily due to international expansion, including South Korea (which we began to operate directly in January 2007), coupled with growth in the North American wholesale business. Earnings from operations for the wholesale segment improved by $24.7 million, or 98.3%, to $49.9 million for the year ended February 2, 2008, from $25.2 million for the prior year period. This improvement was driven by increased sales in Asia and North America and higher gross margin as a result of higher mark-ups in the North American wholesale business, partially offset by increased spending on infrastructure to support the growth of the new businesses in Asia. Operating margin increased 280 basis points to 19.3% in the year ended February 2, 2008, compared to 16.5% for the year ended February 3, 2007.

Europe

In Europe, revenues increased by $246.6 million, or 84.5%, to $538.4 million for the year ended February 2, 2008, compared to $291.8 million for the year ended February 3, 2007. The majority of the revenue growth was generated by the European wholesale business, driven by growth in both our existing accessories and apparel businesses and our acquisition of a 75% equity interest in Focus on December 31, 2006, the Company's licensee for GUESS by MARCIANO contemporary apparel for women and men in Europe, the Middle East and Asia. In addition, at February 2, 2008, we directly operated 40 stores in Europe, which includes the four stores acquired as part of the Focus acquisition, compared to 24 stores in the prior year. Earnings from operations from our European segment increased by $47.6 million, or 65.1%, to $120.8 million for the year ended February 2, 2008, from $73.2 million for the year ended February 3, 2007. Operating margin decreased 270 basis points to 22.4% in the year ended February 2, 2008, compared to 25.1% for the year ended February 3, 2007 due to lower product margin and increased spending to support the growth of our infrastructure in the European region, including our investment in the new European headquarters based in Lugano, Switzerland.

Licensing

Our licensing business revenues increased by $23.6 million, or 35.1%, to $90.7 million for the year ended February 2, 2008, from $67.1 million for the year ended February 3, 2007. This increase was driven by growth in sales of several product categories, especially handbags, footwear and watches, and the increased recognition of licensing revenues as a result of the amortization of fixed cash rights payments received from licensees in connection with previously renegotiated contracts based on the periods these contracts represent. The increase in net royalties was partially offset by the loss of royalty revenue from our GUESS by MARCIANO and South Korean licensees, both of which we now operate directly and are, therefore, no longer a part of the licensing segment. Licensing segment earnings from operations increased $19.3 million, or 32.9%, to $77.9 million for the year ended February 2, 2008, from $58.7 million for the year ended February 3, 2007. Operating margin decreased 150 basis points to 85.9% for the year ended February 2, 2008 compared to 87.4% for the year ended February 3, 2007 due to higher spending in advertising and higher performance based compensation expense for the year compared to the prior year period.

Outside of the U.S. and Canada, in the year ended February 2, 2008, together with our partners we opened 184 new stores, including 83 in Europe, 93 in Asia and eight stores in Mexico, Central and South America. We ended the year with 579 stores outside of the U.S. and Canada, of which 421 were GUESS? stores, 36 were GUESS by MARCIANO stores, and 122 were GUESS? Accessories stores. Of the 579 stores, 60 were operated by the Company and 519 were operated by licensees or distributors. This store count does not include 82 jean and accessory concessions located in South Korea and China because of their smaller store size in relation to our standard international store size.

Corporate Overhead

Corporate overhead increased by $11.0 million, or 19.3%, to $68.0 million in the year ended February 2, 2008, from $57.0 million for the year ended February 3, 2007. This increase was primarily due to increased performance-based compensation costs, including share based payment expense.

Application of Critical Accounting Policies

The Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the U.S., which require management to make estimates and assumptions that affect the reported amounts of the assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates and judgments on its historical experience and other relevant factors, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management evaluates its estimates and judgments on an ongoing basis including those related to the valuation of inventories, accounts receivable allowances, sales return allowances, the useful life of assets for depreciation, restructuring expense and accruals, evaluation of impairment, recoverability of deferred taxes, workers compensation accruals, litigation accruals, pension obligations and stock-based compensation.

The Company believes that the following significant accounting policies involve a higher degree of judgment and complexity. In addition to the accounting policies mentioned below, see Note 1 to the Consolidated Financial Statements for other significant accounting policies.

RESULTS OF OPERATIONS

Year Ended February 2, 2008 Compared to Year Ended February 3, 2007.

NET REVENUE. Net revenue for the year ended February 2, 2008 increased by $497.2 million, or 39.7%, to $1,749.9 million, from $1,252.7 million for the year ended February 3, 2007. All segments contributed to this revenue growth with double-digit percentage increases. The largest contribution to this revenue growth was generated by our European segment.

Net revenue from retail operations increased by $121.3 million, or 16.4%, to $862.4 million for the year ended February 2, 2008, from $741.1 million for the year ended February 3, 2007. The increase was driven by a comparable store sales growth of 14.6% and an average of 26 net additional stores during the year ended February 2, 2008 resulting in a 5.3% increase in average square footage compared to the prior year period. Currency translation fluctuations accounted for $14.3 million of the increase in net revenue relating to our Canadian retail stores.

Net revenue from wholesale operations increased by $105.8 million, or 69.3%, to $258.4 million for the year ended February 2, 2008, from $152.6 million for the year ended February 3, 2007. Approximately 80.0% of this revenue growth was generated outside of the U.S., primarily in Asia. Our North American wholesale net revenue growth was primarily attributable to strong product performance. Our products were sold in the U.S. in approximately 1,006 major doors as of February 2, 2008, compared to 961 major doors at the end of the prior year period. Currency translation fluctuations accounted for $2.8 million of the increase in net revenue relating to our Canadian wholesale business.

Net revenue from European operations increased by $246.6 million, or 84.5%, to $538.4 million for the year ended February 2, 2008, from $291.8 million for the year ended February 3, 2007. The majority of the revenue growth was generated by the European wholesale business, driven by our continued growth in both our existing accessories and apparel businesses and our acquisition of a 75% equity interest in Focus on December 31, 2006. The growth is also attributable to same store sales growth in our existing retail stores and the addition of new retail stores. Currency translation fluctuations accounted for $48.1 million of the increase in net revenue relating to our European operations.

Net royalty revenue from licensing operations increased by $23.6 million, or 35.1%, to $90.7 million for the year ended February 2, 2008, from $67.1 million for the year ended February 3, 2007. The increase was the result of the strength of the accessories business, particularly handbags, footwear and watches, and the increased recognition of licensing revenues as a result of the amortization of fixed cash rights payments received from licensees in connection with previously renegotiated contracts based on the periods these contracts represent. Licensing revenues in the current year did not include any royalty revenue from our GUESS by MARCIANO and South Korean licensees, both of which we now operate directly, as the associated sales are now reported as revenue in the European and wholesale segments, respectively.

GROSS PROFIT. Gross profit increased by $240.3 million, or 43.5%, to $792.8 million for the year ended February 2, 2008, from $552.5 million in the prior period. The increase in gross profit primarily resulted from sales growth in all segments.

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Gross profit for the retail segment increased by $50.2 million, or 17.9%, to $330.1 million for the year ended February 2, 2008, from $279.9 million in the prior period, primarily due to higher sales volume and higher average selling prices, partially offset by higher occupancy costs.

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Gross profit for the wholesale segment increased by $44.1 million, or 79.6%, to $99.4 million for the year ended February 2, 2008, from $55.3 million in the prior year period, primarily due to the increase in sales volume in Asia, and increased sales and higher mark-ups in North America driven by stronger product performance.

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Gross profit for the European operations increased by $122.4 million, or 81.5%, to $272.6 million for the year ended February 2, 2008, from $150.2 million in the prior year period. The European gross profit increase resulted from higher sales volumes in the existing European operations and the acquisition of a 75% equity interest in Focus at the end of 2006.

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Gross profit for the licensing segment increased by $23.6 million, or 35.1%, to $90.7 million for the year ended February 2, 2008, from $67.1 million in the prior year period. The licensing gross profit improvement was primarily the result of the strong sales performance of accessories, especially handbags, footwear and watches.

Gross margin (gross profit as a percentage of total net revenues) increased 120 basis points to 45.3% for the year ended February 2, 2008, from 44.1% for the year ended February 3, 2007. The improvement in the overall gross margin was attributable to a higher mix of European net revenues, which generated a relatively higher gross margin than the other businesses, higher mark-ups in our wholesale segment, and higher product margins in our retail segment due to higher mark-ups and gift card breakage income. This improvement was partially offset by the lower product margin in Europe compared to the prior year.

The Company's gross margin may not be comparable to other entities since some entities include all of the costs related to their distribution in cost of product sales and others, like the Company, exclude the wholesale related distribution costs from gross margin, including them instead in selling, general and administrative expenses.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased by $136.6 million, or 39.4%, to $483.6 million for the year ended February 2, 2008, from $347.0 million for the year ended February 3, 2007. Approximately $68.0 million of the increase was attributable to incremental spending required to support new businesses including Focus, our new European headquarters in Lugano, Switzerland, the new G by GUESS brand initiative, the South Korea operation, expansion in Greater China and Mexico, and BARN in Europe. In addition, the increase was also attributable to growth in store selling, merchandising and distribution costs of $41.8 million, incremental compensation expenses (primarily performance-based) of $12.5 million, and additional advertising and marketing spending in our existing businesses of $8.3 million. As a percentage of net revenue, SG&A expenses improved to 27.6% for the year ended February 2, 2008, compared to 27.7% for the prior year period.

EARNINGS FROM OPERATIONS. Earnings from operations increased by $103.6 million, or 50.4%, to $309.1 million for the year ended February 2, 2008, compared with earnings from operations of $205.5 million for the year ended February 3, 2007.

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Earnings from operations for the retail segment were $128.5 million for the year ended February 2, 2008, compared to earnings from operations of $105.5 million for the year ended February 3, 2007. The increase in earnings from operations for the retail segment was driven by the higher sales volume, higher product margin and occupancy leverage, partially offset by increased investments in infrastructure to support our new G by GUESS brand concept and higher advertising expense. Currency translation fluctuations accounted for $3.5 million of the increase in earnings from operations for our Canadian retail stores.

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Earnings from operations for the wholesale segment were $49.9 million for the year ended February 2, 2008, compared to earnings from operations of $25.2 million for the year ended February 3, 2007. This increase was principally due to incremental sales and gross profit from our new South Korea operation and higher sales and improved gross profit in North America, partially offset by additional SG&A expenses in Asia, including South Korea, to build infrastructure in this region and support the increased sales. Currency translation fluctuations accounted for $0.8 million of the increase in earnings from operations for our Canadian wholesale business.

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Earnings from operations for the European segment were $120.8 million for the year ended February 2, 2008, compared to $73.2 million for the year ended February 3, 2007. The increase was primarily due to higher sales and gross profit in the existing accessories and apparel wholesale businesses combined with the sales and gross profit resulting from our acquisition of a 75% equity interest in Focus in late 2006. In addition, our existing Company-owned retail business in Europe continued to improve, generating strong sales growth and increasing profits. The growth in sales and gross profit was partially offset by higher volume related and infrastructure expansion expenses. Currency translation fluctuations accounted for $10.4 million of the increase in earnings from operations for our European operations.

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Earnings from operations for the licensing segment were $77.9 million for the year ended February 2, 2008, compared to $58.7 million for the year ended February 3, 2007. The improvement was the result of higher revenues generated by our accessories product licensees and the recognition of additional licensing revenues relating to the amortization of fixed cash rights payments received from licensees in connection with previously renegotiated contracts. These increases were partially offset by the loss of royalty revenue from the GUESS by MARCIANO and South Korean licensees in the period compared to the prior year period.

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Unallocated corporate overhead was $68.0 million for the year ended February 2, 2008, compared to $57.0 million for the year ended February 3, 2007, mainly due to higher performance-based compensation costs, including share based payment expense.

The higher gross margin and lower SG&A spending as a percentage of net revenues resulted in an increase in operating margin of 130 basis points to 17.7% for the year ended February 2, 2008 from 16.4% for the prior year period.

INTEREST EXPENSE AND INTEREST INCOME. Interest expense decreased to $3.4 million for the year ended February 2, 2008, compared to $7.7 million for the year ended February 3, 2007, primarily due to the early redemption of the Company's 6.75% secured notes of $32.8 million at the end of 2006. The Secured Notes were redeemed in December 2006 resulting in a $1.4 million write-off of debt issuance costs and a $0.5 million redemption premium, which are included in interest expense for the year ended February 3, 2007. On a comparable basis, the average debt balance for the year ended February 2, 2008 was $48.6 million versus an average debt balance of $79.4 million, for the year ended February 3, 2007. Interest income increased to $7.5 million for the year ended February 2, 2008, compared to $6.2 million for the year ended February 3, 2007, due to higher average invested cash balances.

OTHER INCOME, NET. Other expense was $1.8 million for the year ended February 2, 2008, versus income of $4.7 million for the year ended February 3, 2007. Other expense in the year ended February 2, 2008 was primarily due to net losses related to changes in foreign exchange rates on forward contracts and other foreign currency transactions. Other income in the prior year period comprised gains on sale of land and other long-term investments.

INCOME TAXES. Income tax expense for the year ended February 2, 2008 was $124.1 million, or a 39.8% effective tax rate, compared to income tax expense of $77.6 million, or a 37.2% effective tax rate, for the year ended February 3, 2007. This year's higher tax rate was due to a higher mix of profits in higher tax jurisdictions, the utilization of capital loss carryforwards in the prior year, favorable tax audit settlements last year and a recent decline in the Italian statutory tax rate, effective in fiscal 2009, that resulted in a devaluation of deferred tax assets in the current year.

MINORITY INTEREST. The minority interest expense of $0.9 million, net of taxes, primarily represents the portion of earnings of Focus for the year ended February 2, 2008 allocated to the minority interest shareholders. The Company acquired a 75% interest in Focus on December 31, 2006.

NET EARNINGS. Net earnings increased by $55.3 million, or 42.2%, to $186.5 million for the year ended February 2, 2008, from $131.2 million for the year ended February 3, 2007. Diluted earnings per share increased to $1.99 per share for the year ended February 2, 2008 compared to $1.42 per share for the year ended February 3, 2007.

One-Month Audited Transition Period Ended February 3, 2007 ("January 2007") Compared to the One-Month Unaudited Period Ended January 28, 2006 ("January 2006").

The Company reported net earnings of $8.0 million, or diluted earnings of $0.09 per share, for January 2007 (which included 34 days), compared to $0.00 per share for January 2006 (which included 28 days). Net revenue for January 2007 increased by $67.5 million, or 98.6%, to $136.0 million, from $68.5 million for January 2006. Gross profit increased by $33.1 million, or 146.6%, to $55.7 million for January 2007, from $22.6 million for January 2006. SG&A expenses increased by $20.6 million, or 91.2%, to $43.3 million for January 2007, from $22.6 million for January 2006. Earnings from operations increased by $12.5 million to $12.5 million for January 2007, compared to the approximately break-even results from operations for January 2006. These results reflect the impact of the significant growth in our existing European operations, the comparable store sales growth of 12.7% in our retail store operations in North America for January 2007 compared to the prior-year period, the greater number of days in the one month ended January 2007 compared to the prior-year period and the acquisition of a 75% majority interest in Focus, our European GUESS by MARCIANO licensee, in late 2006.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

RESULTS OF OPERATIONS



Three months ended May 3, 2008 and May 5, 2007.



NET REVENUE. Net revenue for the quarter ended May 3, 2008 increased by $111.3 million, or 29.4%, to $489.2 million, from $377.9 million for the quarter ended May 5, 2007. All segments contributed to this revenue growth with double-digit percentage increases.



Net revenue from retail operations increased by $32.4 million, or 18.1%, to $211.9 million for the quarter ended May 3, 2008, from $179.5 million for the quarter ended May 5, 2007. The increase was driven by a comparable store sales growth of 7.0% and an average of 47 net additional stores during the quarter ended May 3, 2008 resulting in a net 11.4% increase in average square footage compared to the prior year period. Currency translation fluctuations accounted for $5.6 million of the increase in net revenue relating to our Canadian retail stores.



Net revenue from wholesale operations increased by $15.9 million, or 26.9%, to $75.1 million for the quarter ended May 3, 2008, from $59.2 million for the quarter ended May 5, 2007. Most of this revenue growth was generated from our expanding Asia operations, primarily in South Korea as well as in Greater China, while revenue from our North American wholesale business remained essentially flat this quarter versus the comparable prior-year period. Our products were sold in the U.S. in approximately 1,045 doors at the end of the quarter compared to 953 doors at the end of the prior year quarter. Currency translation fluctuations accounted for $1.1 million of the increase in net revenue relating to our Canadian wholesale business.



Net revenue from European operations increased by $59.8 million, or 50.2%, to $178.7 million for the quarter ended May 3, 2008, from $118.9 million for the quarter ended May 5, 2007. All of our existing businesses in Europe contributed to this growth, including Barn, which we acquired in January 2008. As of May 3, 2008, the Company directly operated 40 stores in Europe compared to 25 stores as of May 5, 2007. Currency translation fluctuations accounted for $22.6 million of the increase in net revenue relating to our European operations.



Net royalty revenue from licensing operations increased by $3.2 million, or 15.7%, to $23.5 million for the quarter ended May 3, 2008, from $20.3 million for the quarter ended May 5, 2007. Our accessories and footwear lines of business continue to drive the royalty revenue growth of our licensing segment which was partially offset by the loss of royalties from Barn, which we now operate directly and report as part of our European operations.



GROSS PROFIT. Gross profit increased by $53.6 million, or 32.0%, to $221.2 million for the quarter ended May 3, 2008, from $167.6 million for the quarter ended May 5, 2007. The increase in gross profit primarily resulted from the following:



• Gross profit for the retail segment increased by $10.7 million, or 16.4%, to $75.4 million for the quarter ended May 3, 2008, from $64.7 million in the prior year period, primarily due to higher sales volume and higher average selling prices, partially offset by higher product and occupancy costs.



• Gross profit for the wholesale segment increased by $2.9 million, or 12.1%, to $26.5 million for the quarter ended May 3, 2008, from $23.6 million in the prior year period, primarily due to our Asian businesses, partially offset by the impact of higher occupancy costs in Asia to support such growth.



• Gross profit for the European segment increased by $37.0 million, or 62.8%, to $95.9 million for the quarter ended May 3, 2008, from $58.9 million in the prior year period. The increase in our European gross profit was primarily attributable to higher sales volume in the existing European operations combined with a higher product gross margin and the acquisition of Barn in January 2008.



• Gross profit for the licensing segment increased by $3.2 million, or 15.7%, to $23.5 million for the quarter ended May 3, 2008, from $20.3 million in the prior year period. The licensing gross profit improvement resulted from higher sales of accessory products, especially watches, and footwear by our licensees.



Gross margin (gross profit as a percentage of total net revenues) increased 90 basis points to 45.2% for the quarter ended May 3, 2008, from 44.3% for the quarter ended May 5, 2007. The increase in gross margin was driven by the higher product margins in our European segment, an overall sales mix shift toward our higher margin European business and occupancy leverage in the retail segment partially offset by lower retail product margins in our retail segment.



The Company’s gross margin may not be comparable to other entities since some entities include all of the costs related to their distribution in cost of product sales and others, like the Company, exclude the wholesale related distribution costs from gross margin, including them instead in selling, general and administrative expenses.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased by $35.7 million, or 32.5%, to $145.3 million for the quarter ended May 3, 2008, from $109.6 million for the quarter ended May 5, 2007. About $19.6 million of the increase was attributable to higher store selling, merchandising and distribution costs due to the higher sales volumes. Approximately $12.1 million of the increase was attributable to spending to support new businesses, including Barn, our G by GUESS brand, and Greater China, as well as spending to support our new European headquarters in Lugano, Switzerland.



As a percentage of net revenue, SG&A expense increased to 29.7% for the quarter ended May 3, 2008, compared to 29.0% for the quarter ended May 5, 2007, driven by infrastructure investments and new businesses in Europe, partially offset by corporate overhead leverage, and spending leverage in Asia.



EARNINGS FROM OPERATIONS. Earnings from operations increased by $18.0 million, or 31.1%, to $75.9 million for the quarter ended May 3, 2008, compared with earnings from operations of $57.9 million for the quarter ended May 5, 2007.



• Earnings from operations for the retail segment were $22.8 million for the quarter ended May 3, 2008, compared to $19.9 million for the quarter ended May 5, 2007. The increase was driven by the higher sales and resulting gross profit which included the impact of lower product margins and increased occupancy costs to support the larger store base. This growth was partially offset by higher selling and administrative expenses to support such higher sales, as well as investments in infrastructure for our G by GUESS and MARCIANO brand concepts, net of lower advertising and marketing costs. Currency translation accounted for $0.9 million of the increase in earnings from operations for our Canadian retail stores.



• Earnings from operations for the wholesale segment were $12.6 million for the quarter ended May 3, 2008, compared to $10.7 million for the quarter ended May 5, 2007. This increase was driven by higher sales in our Asian businesses, and the resulting gross profit, partially offset by additional occupancy and SG&A expenses in Asia due to new retail stores and to build infrastructure in this region and support the increased sales. Currency translation fluctuations accounted for $0.3 million of the increase in earnings from operations for our Canadian wholesale business.



• Earnings from operations for the European segment were $40.0 million for the quarter ended May 3, 2008, compared to $27.7 million for the quarter ended May 5, 2007. The increase was primarily due to the higher sales and gross profit resulting from growth in our existing European wholesale businesses and our Company-owned retail business, and our acquisition of Barn, partially offset by higher volume related operating costs and infrastructure investments; and higher advertising and marketing costs in the current quarter. Currency translation fluctuations accounted for $4.7 million of the increase in earnings from operations for our European operations.



• Earnings from operations for the licensing segment were $20.2 million for the quarter ended May 3, 2008, compared to $17.4 million for the quarter ended May 5, 2007. The improvement was the result of higher revenues generated by our licensees as a result of increased sales of accessories and footwear products. This increase was partially offset by the loss of royalty revenue from Barn, the former kids licensee, in the period compared to the prior year period.



• Unallocated corporate overhead increased to $19.7 million for the quarter ended May 3, 2008, compared to $17.7 million for the quarter ended May 5, 2007. This increase was primarily due to global advertising and marketing spending and performance-based compensation costs.



The increase in gross margin partially offset by higher SG&A spending as a percentage of net revenues resulted in an increase in operating margin of 20 basis points to 15.5% for the quarter ended May 3, 2008 from 15.3% for the prior year quarter.



INTEREST EXPENSE AND INTEREST INCOME. Interest expense increased slightly to $1.0 million for the quarter ended May 3, 2008, compared to $0.9 million for the quarter ended May 5, 2007. Total debt at May 3, 2008 was $66.0 million, and was comprised of $45.4 million of short-term bank debt from our European operations and $20.6 million of capital lease obligations relating to one of our Italian facilities. The average debt balance for the quarter ended May 3, 2008 was $61.7 million, versus an average debt balance of $54.1 million for the quarter ended May 5, 2007. Almost all of the increase was due to currency translation. Interest income decreased to $1.5 million for the quarter ended May 3, 2008, compared to $1.7 million for the quarter ended May 5, 2007, due to lower interest rates on the invested cash, partially offset by higher average invested cash balances.



OTHER EXPENSE, NET. Other expense was $0.9 million for both the quarter ended May 3, 2008 and the quarter ended May 5, 2007. Other expense in both the quarters ended May 3, 2008 and May 5, 2007 consisted of losses related to changes in foreign exchange rates on forward contracts and other foreign currency transactions, partially offset by favorable changes in value of insurance policy investments.

INCOME TAXES. Income tax expense for the quarter ended May 3, 2008 was $27.2 million, or a 36.0% effective tax rate, compared to income tax expense of $22.4 million, or a 38.7% effective tax rate, for the quarter ended May 5, 2007. Generally, income taxes for the interim periods are computed using the effective tax rate estimated to be applicable for the full fiscal year, which is subject to ongoing review and evaluation by management. The lower tax rate in the current quarter was due to higher earnings in lower tax jurisdictions.



MINORITY INTERESTS. The minority interest expense of $0.5 million, net of taxes, compared to a minority interest income of $0.1 million in the prior year quarter primarily represents the stronger performance of Focus and our Mexican joint venture, which were profitable during the period.



NET EARNINGS. Net earnings increased by $12.3 million, or 34.5%, to $47.8 million for the quarter ended May 3, 2008, from $35.5 million for the quarter ended May 5, 2007. Diluted earnings per share increased to $0.51 per share for the quarter ended May 3, 2008 compared to $0.38 per share for the quarter ended May 5, 2007.



LIQUIDITY AND CAPITAL RESOURCES



We need liquidity primarily to fund our working capital in Europe, the expansion and remodeling of our retail stores, shop-in-shop programs, systems, infrastructure, other existing operations, international growth, potential acquisitions, potential share repurchases and payment of dividends to our shareholders. During the three months ended May 3, 2008, we relied on trade credit, available cash, short-term borrowings from our European bank facilities, real estate leases, and internally generated funds to finance our operations and expansion. We anticipate that we will be able to satisfy our ongoing cash requirements during the next twelve months for working capital, capital expenditures, interest and principal payments on our debt, potential acquisitions, potential share repurchases and dividend payments to shareholders, primarily with cash flow from operations supplemented by borrowings, if necessary, under the Credit Facility and bank facilities in Europe. Excess cash and cash equivalents, which represent the majority of our outstanding cash and cash equivalents balance, are held primarily in two diversified municipal money market funds. The funds, which are both AAA rated, are comprised of high-quality, liquid investments. As of May 3, 2008, we do not have any exposure to auction-rate security investments in these funds. Please see “Important Notice Regarding Forward-Looking Statements” for a discussion of risk factors which could reasonably be likely to result in a decrease of internally generated funds available to finance capital expenditures and working capital requirements.



Operating Activities



Net cash used in operating activities was $0.2 million for the three months ended May 3, 2008, compared to $11.4 million for the three months ended May 5, 2007, or an improvement of $11.2 million. The change was driven by a $12.3 million growth in net income for the three months ended May 3, 2008 versus the prior year period. The growth in accounts receivable for the quarter ended May 3, 2008, primarily to support growth in Europe, was comparable with the growth in the prior year quarter. Additional investments in inventory were more than offset by growth in accounts payable.



At May 3, 2008, the Company had working capital (including cash and cash equivalents) of $474.3 million compared to $426.4 million at February 2, 2008 and $308.9 million at May 5, 2007. The Company’s primary working capital needs are for inventory and accounts receivable. Accounts receivable at May 3, 2008 amounted to $315.6 million, up $109.2 million, compared to $206.4 million at May 5, 2007. Approximately $56.3 million of the increase resulted from the growth in accounts receivable related to our existing European business, which totaled $183.0 million at May 3, 2008, versus $126.7 million at May 5, 2007. Our Focus, Barn, South Korea, Greater China and Mexico operations accounted for approximately $34.4 million of the remaining growth in receivables. Approximately $141.3 million of the $315.6 million in accounts receivable at May 3, 2008 were insured for collection purposes or subject to certain bank guarantees. Currency translation fluctuations accounted for $28.4 million of the increase in accounts receivable. Inventory at May 3, 2008 amounted to $202.8 million, up $38.3 million compared to $164.5 million at May 5, 2007. Approximately $19.2 million of this increase was attributed to the Company’s newer businesses, including Barn, South Korea, Greater China, Mexico, and our G by GUESS store concept, with the remaining increase driven by our existing North American retail and European operations to support anticipated sales in these businesses.



Investing Activities



Net cash used in investing activities decreased to $23.8 million for the three months ended May 3, 2008, compared to $24.9 million for the three months ended May 5, 2007. Cash used in investing activities relates to capital expenditures incurred on new store openings and existing store remodeling programs in the U.S. and Canada, expansion in Europe and Asia, investments in information systems and other enhancements. During the first quarter this year, the Company opened 19 new stores in the U.S. and Canada compared to eight new stores that were opened and 15 existing stores that were converted to the G by GUESS concept in the comparable prior year period.



Financing Activities



Net cash provided by financing activities decreased to $7.6 million for the three months ended May 3, 2008, compared to $16.4 million for the three months ended May 5, 2007. The decrease in net cash provided by financing activities was primarily due to a lower level of borrowings growth in the current period compared to the growth in the prior year period.

Dividend Policy



On March 19, 2008, the Company announced a quarterly cash dividend of $0.08 per share on the Company’s common stock. The cash dividend was paid on April 18, 2008 to shareholders of record as of the close of business on April 2, 2008.



On June 3, 2008, the Company announced a quarterly cash dividend of $0.08 per share on the Company’s common stock. The cash dividend will be payable on July 3, 2008 to shareholders of record at the close of business on June 18, 2008.



Capital Expenditures



Gross capital expenditures totaled $20.3 million, before deducting lease incentives of $2.0 million, for the three months ended May 3, 2008. This compares to gross capital expenditures of $21.5 million, before deducting lease incentives of $2.8 million, for the three months ended May 5, 2007. The Company’s capital expenditures for the full fiscal year 2009 are planned at approximately $134.4 million (before deducting estimated lease incentives of approximately $7.3 million) primarily for retail store expansion of approximately 60 stores in the U.S. and Canada, store remodeling programs, expansion in Europe and Asia, investments in information systems and other infrastructure upgrades. In addition, we periodically evaluate strategic acquisitions and alliances and pursue those that we believe will support and contribute to our overall growth initiatives.



Credit Facilities



On September 19, 2006, the Company and certain of its subsidiaries entered into a credit facility led by Bank of America, N.A., as administrative agent for the lenders (the “Credit Facility”). The Credit Facility provides for an $85 million revolving multicurrency line of credit and is available for direct borrowings and the issuance of letters of credit, subject to certain letters of credit sublimits. The Credit Facility is scheduled to mature on September 30, 2011. At May 3, 2008, the Company had $12.2 million in outstanding standby letters of credit, $24.2 million in outstanding documentary letters of credit and no outstanding borrowings under the Credit Facility.



The Company, through its European subsidiaries, maintains short-term borrowing agreements, primarily for working capital purposes, with various banks in Europe. Under these agreements, which are generally secured by specific accounts receivable balances, the Company can borrow up to $237.4 million, limited primarily by accounts receivable balances at the time of borrowing, except for one borrowing agreement which is partially secured by a $15.0 million standby letter of credit issued under the Company’s Credit Facility. Based on the applicable accounts receivable balances at May 3, 2008, the Company could have borrowed up to approximately $219.0 million under these agreements. However, the Company’s ability to borrow through foreign subsidiaries is generally limited to $185.0 million under the terms of the Credit Facility. At May 3, 2008, the Company had $45.4 million of outstanding borrowings and $4.5 million in outstanding documentary letters of credit under these agreements. The agreements are denominated in Euros, have no financial ratio covenants and provide for annual interest rates ranging from 4.3% to 6.1%. The maturities of the short-term borrowings are generally linked to the credit terms of the underlying accounts receivable that secure the borrowings.



The Company entered into a capital lease of approximately $16.0 million in December 2005 for a new building in Florence, Italy, with subsequent build-outs which were completed in 2006. At May 3, 2008, the capital lease obligation was $20.6 million. The Company entered into a separate interest rate swap agreement designated as a non-hedging instrument resulting in a fixed rate of 3.55%. This interest rate swap agreement matures in 2016 and converts the nature of the capital lease obligation from Euribor floating rate debt to fixed rate debt. The fair value of the interest rate swap asset as of May 3, 2008 was approximately $0.7 million.



From time-to-time the Company will obtain other short term financing in foreign countries for working capital to finance its local operations.



Share Repurchases



In March 2008, the Company’s Board of Directors terminated the previously authorized 2001 share repurchase program and authorized the new 2008 Share Repurchase Program to repurchase, from time-to-time and as market and business conditions warrant, up to $200 million of the Company’s common stock. Repurchases may be made on the open market or in privately negotiated transactions, pursuant to Rule 10b5-1 trading plans or other available means. There is no minimum or maximum number of shares to be repurchased under the program and the program may be discontinued at any time, without prior notice. No share repurchases have been made under the 2008 Share Repurchase Program.



SEASONALITY



The Company’s business is impacted by the general seasonal trends characteristic of the apparel and retail industries. U.S. retail operations are generally stronger from July through December, and U.S. wholesale operations generally experience stronger performance from July through November. The European operations are largely wholesale driven and operate with two primary selling seasons. Spring/Summer primarily ships in January, February and March and Fall/Winter primarily ships in July, August and September. The remaining months of the year are relatively smaller shipping months in Europe. Due to the seasonality of the business, the results for any particular quarter may not be indicative of results for the full year.

CONF CALL

Paul Marciano

Thank you. Good afternoon and thank you for joining us today to discuss Guess' financial results for the first quarter of fiscal year 2009. Also joining me are Maurice Marciano, Carlos Alberini, and Dennis Secor.

The company performance in the first quarter delivered strong financial results even with a challenging domestic environment. Our ability to deliver these results validates our strategy and its execution, which was set five years ago, but validates even more our global brand recognition.

This quarter delivered record revenue and earning performance -- double-digit revenue growth in all of our segments resulted in a consolidated revenue increase of 29% to $489 million. Operating earnings also increased double-digits in all our businesses, resulting in a growth company wide of 31% to $76 million.

We reported net earnings of $48 million, 35% above last year’s quarter and diluted earnings per share of $0.51 versus $0.38 last year, a 34 increase as well. We view this result as very significant, as we follow last year’s first quarter when we delivered revenue growth of 42% and net earnings increase of 72%. This is also our 19th consecutive quarter of earning growth. This period of strong performance started in mid-2003, a year when Europe generated only 4% of our revenues and Asia was less than 1%.

As you know, it has been a [key priority] of the long-term strategy to expand the brand’s presence in these international territories and we are proceeding well ahead of our plans. In the current quarter, Europe and Asia accounted for over two-thirds of our revenue growth. Europe alone accounted 50% of the net of the revenue increase and 68% of operating earnings growth.

Our plan to expand in international continued to be the right strategy more than ever.

For the first quarter, our earnings were divided with North American retail and wholesale 37% of the total, Europe 42%, and licensing at 21%.

Starting with Europe, revenue in Europe increased by 50% to $179 million in the quarter, with each one of our four businesses increasing revenues. Both apparel and accessories businesses contributed a similar amount to this substantial revenue growth. Sell-through in our denim business was very positive and customers responded very well to our knit-wear assortments.

Accessories business also performed very well in our own stores, as well as major department stores in France where Guess watches and bags are number one performers in [their categories].

Even with our current presence in Europe, this region continued to represent a substantial growth opportunity with our strong management team and [a process] in place now, we are poised to grow across all Europe.

In the quarter, we opened 10 new stores in Europe with eight of these outside of Italy. France is one of the key markets that we are targeting for expansion this year with Spain and the U.K. We plan to open a total of 86 stores in Europe and the Middle East by the end of fiscal ’09.

In the quarter also, we began the integration of our kids business licensing for Europe, which we just acquired at the end of last year, into existing operations.

Retail -- regarding our North American retail business, we are extremely pleased with our result, especially considering the state of the U.S. consumer and economic environment. We generated same-store sales growth of 7% in the quarter, which now represents 21 consecutive quarters of comp increase. This was up against 13.6% comp in the first quarter a year ago. Total revenues on retail increased 18% in the period.

We were especially pleased with the progress we made with the Marciano stores, which improved comp store sale performance for the quarter, ending the period on a strong note both in the U.S. and Canada. We now have 47 Marciano stores in North America and we plan to open eight more stores in the next 12 months.

A footnote a bit on G by Guess; we opened our first G by Guess stores just a year ago. We currently have 37 stores open in the U.S. and we plan to end the year with 45 stores. For the first quarter, G by Guess nearly achieved profit forecasts. May was the first month of comp sales and we achieved a double-digit performance. You can visit our website to find a location nearest you.

Our U.S. retail business continued to benefit from tourists coming to the country with strong currencies. This is one of the greatest benefits of having a true global brand, where Guess has invested in marketing and advertising around the world for the past 25 years. A business in tourist destination as New York, Florida, Las Vegas, Texas, has been very strong and are well-positioned to continue this trend, since 80% of our U.S. stores are located along the coast and in key tourist cities.

In the quarter, we opened 19 new stores in the U.S. and Canada and [launched] our first footwear store at Americana in Glendale, California. We will open four more footwear stores in the U.S. by year-end.

In total, we expect to open 60 stores in the U.S. and Canada by the end of this year across all our retail concepts, representing 12% in average square footage growth.

Our wholesale segment performed very well during this quarter, growing revenue by 27%. Most of the growth in this segment was produced in Asia, where Korea continued strong performance from last year. In the first quarter, Korea nearly doubled its revenues from the first quarter of last year.

In licensing, we had a very good quarter with a 16% increase over last year. The strong performance once again exceeded our expectation even with the integration of several licensing categories in the last 18 months. Globally, our watches were the best performers among our licensed products with a 38% increase in sales over last year.

Now some updates about the initiatives we discussed in the last call. The first one is international retail expansion. We believe strongly that the best investment in protecting our brand integrity and visibility is in our retail stores. We are fully committed to the goal of having 1,200 retail stores around the world by the end of this year.

With the help of our excellent partners and executives in each region of the world, in Q1 alone we opened 34 stores outside the U.S. and Canada. We are right on track to open 185 international stores this year.

Our plans for Europe this year is to open 26 owned stores in strategic cities in France, Spain, U.K., and Italy, and we plan to open an additional 60 stores throughout European countries, including Russia, Turkey, Poland, Ukraine, Holland, Switzerland, and the Middle East.

Latin America is a new region of focus for Guess this year and we continue to build our existing business and increase our retail penetration in Central and South American countries. By the end of fiscal year, we plan to open a minimum of 12 stores in countries such as Mexico, Brazil, Panama, Venezuela, and Dominican Republic, bringing our total store count to 48 in that region.

The next initiative related to Asia -- as I mentioned, Korea has been instrumental in building our business model and brand awareness in Asia. Guess Korea opened seven freestanding stores, including the first footwear store and ended the quarter with 111 stores in concession in that country. We plan to open an additional 17 stores by year-end.

In China, for the quarter we opened three new Guess Jean stores outside of major tier cities. At quarter end, we had 35 stores in concession in China, Hong Kong, and Macau. It was exactly a year ago that we launched the brand in China.

By the end of fiscal year, Guess China will open another 43 stores in concession, bringing our total count to 78.

Finally, e-commerce -- we continue to actively develop Guess.com and Marciano.com and gbyguess.com as a key destination for our current and future customers in conveying the Guess lifestyle today and how diversified we have become compared to when we started with just jeans and t-shirts in 1981.

In the last nine months, we have significantly invested in online advertising, as well as [including an e-com team], which increased our business by 52% this quarter. We are absolutely committed to triple this business in the next three years and we will work relentlessly to make the shopping experience as seamless as possible, because clearly it is all what online shopping is about.

Now Dennis will take you through the numbers. I will close the call before the Q&A. Thank you.

Dennis Secor

Thank you, Paul and good afternoon. Let me now share with you the key financial highlights that drove our solid performance for the first quarter. Total first quarter net revenue increased 29.4% to $489.2 million. Europe drove 54% of the increase, North America retail accounted for 29% of the increase, with our wholesale segment, which includes Asia, and our licensing segment contributing the balance of 17%.

Gross profit increased by 32% to $221.2 million, as the company’s gross margin expanded by 90 basis points in the period. Gross margin was favorably impacted by higher European product margins, an increase of Europe as a percentage of the total mix, and improved occupancy leverage, partially offset by lower product margins in our retail segment.

In the quarter, SG&A expenses increased 32.5% to $145.3 million. The majority of the increase supported the higher sales volume with most of the balance relating to new businesses and new European infrastructure.

Our SG&A rate increased 70 basis points to 29.7%, driven mainly by spending for our new European headquarters, as well as new businesses in Europe, partially offset by expense leverage in both our wholesale segment and in our corporate overhead.

For the full year, we are expecting to improve our consolidated SG&A rate versus last year.

For the quarter, the company’s operating profit increased by 31.1% to $75.9 million, which includes a $5.9 million favorable currency translation impact. Operating margin increased 20 basis points to 15.5%.

Among the non-operating components of our income statement, interest income was $200,000 lower, given declining U.S. interest rates. We’ve recorded a net charge of $1.6 million for foreign currency related revaluations, an amount similar to last year’s quarter.

We also recorded $500,000 in minority interest charges this quarter versus a $100,000 benefit last quarter, given the stronger performance [and focus of] Europe and our Mexican joint venture, both profitable operations this period.

Our effective tax rate for the first quarter was 36% compared to 38.7% in the prior year quarter. This reflects a shift of profitability into lower tax jurisdictions. We are continuing to plan the remainder of this year at the 36% rate.

We increased net income by 34.5% to $47.8 million, and increased diluted earnings per share by 34% to $0.51.

Next I’d like to quickly review our revenues and earnings by business segment. Our North American retail sales increased 18.1% to $211.9 million, driven by our 7% comp sales increase and an 11.4% increase in average square footage for the period.

For the quarter, operating profit increased to $22.8 million from $19.9 million, and operating margin was 10.8% versus 11.1% in the prior year quarter. Product margins were lower in the period and this was partially offset by an improvement in our store occupancy rate.

We leveraged operating expenses by 20 basis points for the quarter.

In our wholesale segment, revenues increased 26.9% to $75.1 million, with a vast majority of the increase coming from our Asia business. Operating margin for the segment was 16.7% versus 18.1% last year. The relative growth of our Asia business, where operating margins are lower than our North American wholesale business, was the main driver of the operating margin change.

Asia leveraged its operating expenses so our retail expansion investments in China are impacting our occupancy rates negatively during this start-up phase as we originally planned.

The North American wholesale business increased revenues and profits modestly.

Revenue for the Europe segment increased 50.2% to $178.7 million, with all of our businesses in that region growing significantly. Growth in our existing apparel business was the strongest.

Operating earnings increased 44.2% in the period and our operating margin decreased by 90 basis points to 22.4% due to the annualization of infrastructure spending in the period. Gross margins were stronger in the quarter for Europe but the SG&A rate increased primarily due to costs incurred in our new European headquarters in Lugano, Switzerland, which began operations during the second quarter last year.

Licensing revenue increased 15.7% to $23.5 million. This growth was remarkable, especially considering that we no longer receive royalties from our European kids business since we acquired that business at the end of last fiscal year.

Now I’ll turn our attention to the balance sheet. We ended the quarter with $260.4 million in cash, up $71 million from last year’s $189.4 million. Accounts receivable increased by $109.2 million to $315.6 million compared to the prior year. About 80% of the increase supports the growth in Europe, which now includes our new kids business, along with Asia.

The substantial majority of our total receivables relates to our European business and our Europe DSOs improved compared to a year ago. The impact of currency translation, mostly related to the strong Euro but also the Canadian dollar, increased receivables by about $28.4 million over last year’s levels, and $141 million, or 45% of our total accounts receivables were insured.

Inventory reached $202.8 million, an increase of $38.3 million, or 23.3% from the prior year quarter. Similar to last quarter, about half of the increase will support new businesses, including Asia, G by Guess and our new kids business in Europe. The balance of our inventory increase supports anticipated growth in North America and in our core European businesses.

Currency translation increased ending inventory by $8.4 million, or 5.1% compared to the prior year.

Our inventories are clean and our position aligns well with our sales plan. We are making inventory investments to support key growth opportunities, such as Korea, China, Mexico, Marciano, denim, and G by Guess, to deliver an adequate supply and product flow to these businesses to maximize sales growth and market penetration.

In the quarter we invested $18.3 million in capital expenditures net of tenant allowances, primarily to support our retail expansion in North America.

Our board of directors has approved a quarterly cash dividend of $0.08 per share payable on July 3, 2008, to shareholders of record at the close of business on June 18, 2008.

And now I will turn the call over to Carlos.

Carlos Alberini

Thank you, Dennis and good afternoon. Today I will give you an update on our expectations for each of our business segments and our outlook for the second quarter and the full fiscal year. I will first address our retail business in North America.

In the first quarter, we were pleased with our performance in retail overall, particularly considering the economic environment in the United States. We generated positive comps in each month during the period and our comp performance improved during the quarter with April being the strongest month for most of our retail concepts.

In May, the entire chain posted a mid- to high-single-digit comp. For the second quarter, we are planning this business with a comp in the low-single-digits, which should contribute to an overall sales increase in the low- to mid-teens for the period. For the full year, we are now planning retail performance for a sales increase in the low- to mid-teens range, comps in the low-single-digit range, and an operating margin of about 14.5%.

In Europe this year, we are planning that the timing of profits will be different from last year’s, given the annualization of infrastructure investments, changes in the flow of shipments, primarily from Guess by Marciano and our accessories business, and a higher mix of retail business in the fourth quarter, as a result of the many new store openings that we have this year. These changes will shift profits from the third quarter into both the second and fourth quarters, resulting in flat operating profit in Europe in the third quarter, and increases of about 50% and 75% in operating earnings in the second and fourth quarters respectively. These changes naturally will have an impact on the consolidated results of the company in the respective quarters.

In the second quarter, we are planning for our European revenues to increase in the range of 30% to 35%, and we continue to plan for full year revenue growth between 25% and 30%. We now expect our annual operating margin to reach about 23% for Europe.

In our wholesale segment, Asia will continue to be the main driver for revenue growth. We are planning for second quarter revenues to grow in the low-teens in this business. For the full year, we expect revenues to increase in the mid-teens and operating margin to reach about 17%.

In licensing, we are planning second quarter and full-year revenue growth in the low- to mid-single-digit range. We expect this business to yield an operating margin of about 86% this year.

So in summary, for the second quarter on a consolidated basis we are planning for total revenues between $445 million and $465 million, consolidated operating margin of about 15.5%, and for diluted EPS in the range of $0.47 to $0.49 per share. For the full year, we now expect total company revenues between $2.030 billion and $2.080 billion. We also expect to deliver an operating margin of about 17.7% this year and we have raised our diluted EPS guidance to a range of $2.40 to $2.48 per share.

Lastly, regarding quarterly earnings, with the profit shifts in Europe and other key initiatives, we expect the company’s third quarter operating earnings this year to be similar to last year’s.

These expectations continue to assume full year capital expenditures net of tenant allowances of about $126 million, and do not assume the repurchase of any of our shares.

Now I would like to turn the call back to Paul.

Paul Marciano

Thank you. We have said time after time and year after year that Guess has a complex but very unique business model. Balance across all regions of the world in different product categories and very diversified among distribution channels. From four different retail concepts and a fifth just starting to worldwide licensing in all the accessory businesses, to wholesale in Europe, in U.S., Canada, and Asia, to partnerships with top retail operators in remote areas where U.S. based companies are challenged to operate, from South Africa to the Philippines, or Indonesia or the Middle East, as an example where we have today 80 stores.

Then you step back and look at the world map and realize how much work can be done in each continent, each country where we have barely started, such as Europe, Latin America, China, or India.

The passion, talent, and obsession of our team and associates to execute our strategy are what makes Guess unique 27 years after we started the company right here in Los Angeles. But we are also aware of our surroundings and always [inaudible] to be more aggressive or cautious when and where needed to be.

We try every day to stay true to ourselves, never forgetting that ultimately we want to be here 10, 20, 30 years from now. That’s our dream every day.

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