Good day, everyone, and welcome to the Guess? Fourth Quarter Fiscal 2014 Earnings Conference Call. On the call are Paul Marciano, Chief Executive Officer; Michael Relich, Chief Operating Officer; and Sandeep Reddy, Chief Financial Officer.

During today’s call, the Company will be making forward-looking statements, including comments regarding future plans and financial outlook. The Company’s actual results may differ materially from current expectations based on risk factors included in the Company’s quarterly and annual reports filed with the SEC.

Please note that this conference is being recorded. Now I would like to turn the call over to Mr. Paul Marciano..

Thank you. Good afternoon and thank you for joining us today. We reported overall fourth quarter results consistent with our expectation. We posted adjusted earnings per share of $0.83, which was near the high end of expectation despite very promotional retail environment in North America.

This quarter was closed a challenging year impacted by the continued softness in the economies of Southern Europe as well, but I’m encouraged by the progress we made in 2013 and I want to highlight some of these before getting into the business performance.

We completed our executive team in North America, we strongly improved our product and retail stores we showed as and three most importantly we’re rapidly growing our Omni-channel presence. During 2013, we rounded out our top executive team with a combination of new and existing talent.

With this leadership position now here I’m very confident that we are in our trajectory to our long-term strategy policies. Now about the product, everything starts and ends with the product as we always say. On the first day of marking [indiscernible] jeans in 1981 to the curvy and skinny jeans today, our brand heritage is rooted in Denim.

We returned to our Denim roots in 2013, we improved our Denim design, increase our Denim offering including the curvy fit and our newest highlight Heritage collection. But speak to market plays an increasing role in our retail stores where up to 35% of the buy now are left open for the latest fashion both in U.S. and in Europe.

In addition to Denim, dresses have developed extremely well over the last two years and getting stronger as well as mix [ph] of assortment which fit in perfectly with our customer personal -- look to us for iconic and fashionable size.

Accessories like handbag and shoes remain challenging during that year but we’re driving increased growth in retail and consistency between apparel and licensed product, which I’m confident will benefit the assortment.

Also we're seeing strong momentum in the supply chain initiative that will allow us to achieve this goal, which Mike will cover later on. Omni-channel was our commitment a key priority on our last year March 2013 call.

We grew our North America e-com business by 28% in 2013 but the momentum we repeated beginning of the third quarter and in the second half of the year, we grew 34%. So far this fiscal year e-commerce continues the strong growth with significant increase from every brand.

Mike in his previous role as a CIO has put into place and an industry-leading set of technology that links the brick and mortar stores, e-com and mobile in one, that tends to have much stronger business than the one we have right now. We have big growth for omni-channel for the next three years. Now North America on the business update.

As I mentioned earlier, 2013 was a challenging year and I was especially disappointed in the performance of North American Retail business outside of e-com.

In the fourth quarter due to adverse weather condition and shortened holiday period that negatively affected many of our retailers, we were not able to sustain the strong momentum of Black Friday weekend into Christmas and after. We have also faced highly promotional competition and on the top of that more had negative traffic.

Finally, we missed product opportunities. And like Underbox [ph], outerwear and sweaters which impacted the performance in our retail stores, we have come down 4% in the U.S. dollar and 3% in constant currency for the quarter.

The bright spot was our e-com business, as I mentioned before which once again delivered very strong growth of 35% in the quarter. Europe, I’m encouraged with the performance of our European business.

It showed sign of improvement in the fourth quarter as our property retail stores in that region posted positive count for the first time after 10 consecutive quarters of count decline. Within southern Europe, Spain continued to come positively up in a high single digit. France was also up in the low-single digit.

Italy however remained negative, with come down in the low-single digits. So far in the first quarter, we’re seeing positive count in all these three countries, including Italy. One of our lead focus this coming year would be direct marketing.

We have a lot of customers who are passionate about Guess? and while digital communication like email, mobile and social media allow us to expose our brands to millions of customers around the world, I believe the best way here the customer connected to a product is to put catalog and mailer directly into their hand, which is all-time to e-com one way another.

Above all, as of closing, it is our Guess brand, that is represented through an amazing lifestyle line of products from denim and apparels to handbags, watch and footwear, that reasonably can inspire customers. We have a strong management team now and an outstanding network of partners, licensees and suppliers.

We are backed by a strong financial position and capital structure to take advantage of new opportunities. Our strategy will remain consistent with our long-term view, never compromising our quality or our brand entity. Our goal is to leverage our presence globally and execute on our strategies in each region of the world.

As always we remain focused on the things that we can control and adapt into the new normal. Thank you. Sandeep will discuss now the financials..

Thank you, Paul and good afternoon. During this conference call, all of our comments for both the fourth quarter and full fiscal year are on an adjusted basis, which excludes the impact of certain restructuring charges in fiscal ’14, and certain tax charges in fiscal ’13.

You can find more details on the current and prior year charges and a full GAAP reconciliation to these and other non-GAAP measures in today's earnings release.

Moving on to the results, fourth quarter adjusted net earnings declined 13% to $71 million, and adjusted diluted earnings per share was $0.83, down 13% compared to $0.95 adjusted diluted earnings per share in last year's fourth quarter.

Fourth quarter revenues was $768 million, 6% lower than the prior year and down 7% in constant dollars it includes the impact of a tax dilute [ph] in the prior fiscal year. Total company gross profit for the fourth quarter was down 9% at $302 million, and gross margin declined 150 basis points to 39.3% within the range of our expectations.

The gross margin was driven by a reduction in product margin, due to increased markdowns and the deleveraged impact from negative comparable store sales on occupancy. We leveraged our operating expenses for the fourth consecutive quarter this year, posting an SG&A rate of 25.7%,an improvement of 40 basis points over last year's fourth quarter.

Overall, SG&A decreased 7% to $197 million. The production of SG&A was driven by lower store selling expense, lower selling and merchandising cost and lower advertising. Operating profit for the fourth quarter decreased 13% to $105 million. Our operating margin declined by 110 basis points to 13.6%, within the range of our expectations.

We recorded restructuring charges of $2 million in the fourth quarter, primarily related to the consolidation and streamlining of our European operation. These consisted mainly of severance and lease termination charges. Other net income was $1 million and mostly consisted of un-realized gains from non-operating assets and foreign currency contracts.

Our adjusted effective fourth quarter tax rate was 31.4%, roughly flat with the adjusted tax rate of 31.1% in the prior year fourth-quarter. Moving to segment performance; in North America retail, fourth quarter revenues dropped 6% to $329 million.

The main drivers were the impact of last year’s 53rd week and a 4% decline in comp store sales in the U.S. and Canada, which include the unfavorable impact of the weakening Canadian dollar. This was partially offset by a 35% revenue increase in e-commerce, driven by the success of our omni-channel initiatives.

Operating income declined 24% to $27 million and operating margin declined 190 basis points to 8.3%. Compared to last year, gross margins were lower due to higher markdowns and a higher occupancy rate as a result of negative comp store sales. Our SG&A rate decreased mainly due to a reduction in our store payroll rate.

In Europe, fourth quarter revenues decreased to $287 million, representing a 4% decrease in the U.S. dollars and an 8% decrease in local currency. The decline was mostly driven by wholesale, reflecting in a mid-teens decline in the Spring/Summer '14 order book that we communicated on the last call.

In contrast, the retail channel trend in Europe was encouraging. For the quarter, overall comp store sales increased in the low-single digits, marking the first positive quarter of the 10th consecutive quarters of cost declines across the region.

This is a continuation of the improvement in trend we have been seeing in the European retail channel in the second half of the year, especially in Southern Europe. Operating income decreased by 5% to $50 million and operating margin decreased 10 basis points to 17.3%.

In Asia, revenues in the fourth quarter were better than our expectations, declining 1% to $83 million. South Korea grew the top line in the mid-single digits, driven by positive comp store sales growth.

This was more than offset by the performance in Greater China where revenues were down, mainly driven by lower shipments to our licensing partners, partially offset by positive comps. Operating earnings were 13% to $8 million and operating margins up 120 basis points to 9.3% but was slightly above our expectations.

In North America Wholesale, fourth quarter revenues decreased 20% to $41 million, which includes the negative impact of timing of shipments in the previous fiscal year due to the extra week. Operating profit decreased by 27% to $10 million and operating margin decreased 230 basis points to 23.4%.

Royalties generated from sales by our licensing partners were better than we expected at $28 million, which represented a 5% decline in the prior year. To summarize for the full fiscal year, consolidated revenues were down 3% at $2.57 million and down 4% in constant currency.

The decline in sales reflects lower European wholesale shipments, negative comparable store sales in North America and Europe and the impact of the prior year’s 53rd week. Adjusted operating earnings were $235 million, down 14%.

Overall, our operating margin of 9.1% was down 120 basis points from last year’s adjusted operating margin, driven by the impact of negative comp store sales in our fixed cost structure, the lower mix of Europe -- of wholesale in Europe and higher markdowns in North America.

This was partially offset by lower selling and merchandising expenses in Europe, resulting from productivity improvements and lower marketing spend which improved the SG&A rate by 90 basis points versus the prior year. For the fiscal year, adjusted earnings per share decreased by 11% to $1.91.

Moving on to the balance sheet; accounts receivable was 13% lower at $277 million and overall DSOs improved compared to last year. European DSOs were down to last year as slower payments typically were offset by other regions. Inventories were down 5% versus last year at $351 million.

We are very pleased with the sequential improvement of inventory every quarter over the course of the year. We ended the quarter with cash and short term investments of $508 million, compared to last year’s $336 million.

During the year, we’ve returned $90 million to our shareholders, comprised of a share repurchase of $22 million in the first quarter and $68 million in quarterly dividends. A key strategic focus of ours is free cash flow generation.

We are pleased that through strong management of working capital and disciplined deployment of capital expenditures in fiscal ’14, we generated free cash flow of $253 million versus $169 million in the prior year.

It is important to note however that we had one time cash inflows of roughly $57 million in fiscal ’14 relating to a refund of multi-year VAP credits and a key money payment from one of our licensing partners.

With that I will pass the call over to Mike, who will talk about our key strategic and operational initiatives and their impact on our financial outlook..

Thank you, Sandeep and good afternoon. I would like to now take the opportunity to address several of our major strategic initiatives that we’ll be focusing on in fiscal year ’15.

There are three major initiatives I would like to cover; expanding omni-channel, improving supply chain efficiencies, including speed to market and optimizing global planning and allocation.

First omni-channel, as Paul mentioned earlier, we have a made a major inroad in this area this year with our North American e-commerce business being fastest channel of growth. Since a year ago, our customers have been able to reserve merchandise online and pick up in-store.

More recently, in the last year’s third quarter, we rolled out in-store fulfillment capabilities that optimize the inventories we have sitting in most of our Guess stores and Marciano stores in the U.S.

We are now fully deploying these technologies across all of our stores in North America and just as importantly continue to align our organization behind this key initiative.

Omni-channel strategy is not limited to North America as we are leveraging the platform in Eastern Europe where customers in 33 European countries can purchase directly from us online. This business is under penetrated and we intend to roll up similar omni-channel initiatives there.

Both in North America and Europe, we expect to continue to see strong double-digit increases in e-commerce revenues and these assumptions are included in the guidance we are providing for the coming fiscal year. Second, supply chain. Supply chain has been my top priority since I took up new role last August.

Our goal here continues to be building a world class supply chain organization centered on efficient processes.

We are focused on driving efficiencies through optimizing our internal processes, further consolidating on supplier base and building partnerships with key strategic vendors, optimizing our currency mix through reduced duties and improved transit times, driving competitive bidding and counter sourcing to capture further cost savings and further reducing the cycle time to react to market fashion changes while delivering the Guess quality that our customers have come through expect globally.

While we are still in our early stages of executing to these initiatives, we have already made encouraging progress so far. We were able to capture significant IMU savings for several of our North American businesses for the second and third quarter deliveries.

Overall, we believe there was a cost opportunity from sourcing that can accretive to the tune of 30 to 40 basis points in product merchant this year for the Company and that is included in the guidance we are providing for the coming fiscal year. Third, planning and allocation.

We're a fashion company and our goal is to develop the most accurate plans and allocate products to stores that can maximize their sell through potential in the sales window.

I see a great opportunity to improve the process in North America through better processes and the use of advanced analytics and to export the expertise to our European retail organization to drive globally consistent processes. The success we had in e-com order store highlights the opportunities we have with omni-channel.

But at the same time it speaks to the vast room for improvement and how we plan and allocate to our stores in the first place. Our goal to ultimately minimize order in store, which would mean we are doing a better job with additional allocation.

Finally, the brand has such great potential worldwide and we continue to grow our business in under penetrated new markets. This includes many markets in Northern and Eastern Europe such as Russia and Germany, South America where we have established a new venture with a partner in Brazil and Asia we have entered Japan with direct operations.

We are committed to transform our operations by truly leveraging our investments in world class technology to move quicker, reduce cost and accentuate our competitive edge in this fast changing industry.

The brand has such great potential worldwide that we are convinced that we have tremendous opportunity to take advantage of this in a strategic and disciplined way to drive long term profitability and deliver shareholder value. So, moving on to guidance for fiscal year 2015.

Overall for next year, we are planning for modest top line growth at the top end of our guidance, driven by e-commerce and expansion in Japan and Brazil. Our cost structure will be impacted by the investments in infrastructure to support our businesses in these new markets as will higher spend in average marketing.

Considering these factors, as well as the anniversary of non-operating income in fiscal 2014, we expect the decline in EPS in fiscal 2015. In North America retail, we’ll be opportunistic with our store openings and plan to open between 10 and 15 stores in the U.S. and Canada during the year.

In parallel, we plan to close between 25 and 30 underperforming stores in the U.S. and Canada as leases expire. We expect that sales will benefit from our initiatives of optimizing our store portfolio by closing underperforming stores and replacing them with more productive stores.

Our omni-channel strategy takes shape and the shopping experience between online and brick and mortar stores become more seamless, we'll be including e-commerce sales in the reported same-store sale comps and outlook for North America going forward.

So far in the first quarter comp store sales, including e-commerce have been way own in the mid-single digits and we expect comps to be down in the mid to low single digits for the quarter. We expect revenues to be down in the low single digits.

The second half of his year, when we will see the full impact of the line directed by our new Chief Design Officer and partnership with our head merchant for North America full priced stores. We believe that changes to the line and product assortment will drive improvements in trend in the back half of the year.

As result, we are planning for comps within e-commerce to be down in the low single digits for the full year. Considering these factors we expect revenue to be down in the low single digits to up in the low single digits for the year. In Europe, we are planning to continue to grow in Northern and Eastern Europe.

So far in the first quarter, retail stores in our owned property stores in Europe are up in the mid-single digits with encouraging trends especially in Southern Europe where we are seeing positive comps in Italy, Spain and France. We expect comp sales to be up to the low single-digits for the first quarter and the full year.

In Europe wholesale, we're planning the orders for our fall/winter selection to be down to the low-teens. Currently with we have on hand, we are seeing an improvement in trend in Southern Europe with a slowdown in Russian growth due to the softening economic environment there.

We are not planning for any notable improvement in the back half of the year. Considering these factors, we expect first quarter Europe revenues to decline in the mid to low single-digits in local currency and decline in the low single-digits to flat in U.S. dollars.

For the full year, we expect revenues to decline in the low single-digits in local currency and range from a decline in the low single-digits to an increase in low single-digits in U.S. dollars. In Asia, we are excited about the launch of our business in Japan. Our first property retail store was opened a few weeks ago in Tokyo.

In Greater China, we are expecting to start returning to stability once we get past the first half of this year and anniversary the softness in consumption we saw starting at the end of the first half of last year. We are planning our Southeast Asian distribution down compared to last year based on order projections from our licensing partners.

Finally, we continue to see opportunity in South Korea which is our largest market in the Asian region. We plan to open more doors, including our G by GUESS brand totaling another 30 to 40 new doors during fiscal 2015. However cultures in South Korea have been negative so far in the first quarter driven by soft traffic.

We are assuming that the environment will be soft for the first quarter as well as the full year. For the first quarter, we expect Asia revenues to decline in the mid to high single-digits. For the full year, we expect revenues to decline in the low to mid-single digits.

The revenue guidance includes the impact of our Japan operation where we plan to continue to invest in infrastructure to support our expansion. In our North America wholesale business, we expect revenues to be down in the low-single digits in the first quarter and flat for the full year.

This revenue guidance includes the impact of our Brazilian operations where we do not expect to see significant top-line contributions in fiscal 2015. In our licensing business, we are expecting royalties to decline in the low-teens in the first quarter and we expect to decline in the mid-single digits for the full year.

For the first quarter, we expect overall gross margins to decline as the expectation of negative comp store sales in North America continues to put pressure on occupancy rate.

For the full year, we expect gross margins to be roughly flat to slightly up as we start realizing some sourcing efficiency cost savings and manage markdowns more tightly to offset negative impact from the occupancy of declining comp store sales.

With respect to operating expenses, we expect a higher SG&A rate for the first quarter, mainly driven by the deleveraged impact of expected sales decline and investments in marketing. For full year, we expect the SG&A rate to increase, mainly driven by investments in marketing, as well as higher compensation expenses.

We are planning the full year with a 32% tax rate and our guidance assumes foreign currencies remain roughly at the daily rates. Given our currency assumptions, we are expecting a net mark-to-market loss in the first quarter of roughly $0.02 of EPS.

Considering all these factors for the first quarter of fiscal 2015, we expect consolidated revenues in the range of $520 million and $535 million. We are planning an operating margin between minus 1.5% and minus 0.5% for a net loss per share in the range of $0.09 per share and $0.05 per share.

These expectations would result in full year consolidated revenues between $2.53 billion and $2.58 billion, operating margin between 7% and 8% and earnings per share in the range of $1.40 and a $1.60 per share.

For the full year, we plan to manage our CapEx carefully and opportunistically by investing between $75 million and $85 million in capital expenditures net of tenant allowances, primarily for remodel and new stores.

And finally today, we are announcing that our Board of Directors has approved an increase of our quarterly cash dividend to $0.225 per share on the Company’s common stock, a 12.5% increase over the most recent quarterly dividend.

Again we are pleased with the strength of our balance sheet and our ability to generate strong free cash flows and wanted to reward our shareholders with an increase in our quarterly cash dividend. With that I will conclude the Company’s remarks and open the call up for your questions.

Before doing so let me remind everyone to please limit themselves to one single part question. If time permits we will allow people to ask a second follow up question.

Operator?.

Thank you. We will now begin the question-and-answer question. (Operator Instructions). And then our first question comes from Eric Beder of Brean Capital..

Could you talk a little bit about Europe? I know that you -- what is it going to take to -- it sounds like you guys make a lot of progress in Europe as your own stores.

What is kind of the lag we should think about with the distributors and are we seeing kind of the bottom in terms of the distribution channel driving business and when can we kind of think about Europe really starting to turn?.

This is Sandeep. So I think you are exactly right. We’re seeing some very encouraging trends in our own property and retail stores, comps up last quarter up in the mid-single digits so far and the really encouraging part about that is it’s in Southern Europe and that’s why we’re seeing positive trends.

And I think how it translates into wholesale is when you look at our spring summer ‘14 order book, we were down in the mid-teens. About two-thirds of that came from door closures and about a third of that came from reduction in same-store volumes. As we look at the projection for fall/winter ‘14, the order book has not closed yet, it’s a 90% 95% done.

What we’re seeing is the rate of door closures are still continuing to be about the same rate but we are seeing a slight improvement in the trend in the same store buys which is accounting for the improvement from the mid-teens decline to the low-teens decline that we talked about earlier in our prepared remarks.

So coming back to your original question on when can we see the bottom? I think if we continue to see positive comp store sales in our retail stores, hopefully the same trends will be seen in our wholesale doors as well, which gets into a more healthy position and therefore that we should be getting more towards the bottom..

Great and just a quick question. How big was Italy for last year? I know one-time was up 55%.

What the percentage of Italy was last year for Europe?.

Yes. We don’t get into that specifically but rough math, it’s about a third..

Our next question comes from Erinn Murphy of Piper Jaffray..

I just wanted a little bit more clarity on the guidance, just tying some of the pieces together. So I mean there is some clear ongoing supply chain improvement that should mitigate some of the gross margin pressure from promotional environment. But it, Mike this is going to be a significant year of spending.

So maybe either Mike or Sandeep for you, could you just help us bucket some of SG&A dollar growth initiatives coming in this year? You referenced marketing, you referenced some of the compensation as well. But just help us appreciate how that the kind of broader bucket could look as we think about that dollar growth..

Erinn this is Sandeep. So let me try to help you with this. If you try to bridge the gap from our earnings per share of 191 last year to the 160 at the high end of our guidance, there are three major buckets in which we can describe it. The first one is what we talked about from a marketing investment perspective.

From the brand perspective we’re looking at it from a long-term value perspective. And a big fortune of our investment, about a third -- a little bit more than a third is driving the difference between EPS of last year to this year.

The second bucket maybe to think about is, we had a benefit from non-operating income which is gains are non-operating assets and on a foreign currency contracts was about $0.10 last year, which we’re not planning to repeat this year given where things are at.

And between these two elements, we only cover about two-thirds of the gap, or little bit more than two-thirds of the gap.

Then you move into the operating performance of the business and one of the things that Mike actually talked about in his prepared remarks was the royalty income is expected to be down in the mid-single digits and that’s pure profit. It goes straight to the bottom-line, and that’s an important impact.

And while we have green shoots of the European retail business, the wholesale business down mid-teens for the spring summer ‘14 campaign, expected to be down low-teens in the fall/winter ‘14 campaign. We don’t necessarily see an improvement in trend. That’s going to be a headwind from a revenue perspective.

So you take these three things together, that gets you somewhat to the 160 at the high end of the guidance..

And just a clarification then.

I guess at this point what do you need to lever comps -- excuse me, to leverage expenses from a comp perspective both in North America and Europe?.

Well I think in Europe it’s really about the wholesale business stabilizing. The moment the wholesale business starts stabilizing, I think you’re going to start seeing an improvement over there.

I think from a North American perspective there are comps I think up in the high single -- sorry the low single-digits will be where you start to see that leverage, given the rates..

Can I just ask a quick follow up; just in terms of the royalty revenue being down mid-single digits? Could you just clarify little bit what category that’s coming from? Is it mostly handbags or footwear? How should we be thinking about the accessory piece that’s in that royalty business?.

This is Paul. On the royalty business you have two side of that. One is pure revenues, which the lower income will be from footwear. We had some challenges last year and we see -- still some challenges this year on the footwear. And last year we experienced some income, a one-time payment of some consolidation of revenues from some licensees.

So it was one-time payment. Otherwise your handbag will be slightly down, maybe around 6% or 8%..

And our next question comes from Janet Kloppenburg of JJK Research..

First question is if you could talk a little bit about current trends in North America; Paul, how much of it is coming from bad weather? How much of it is coming from underperformance of certain categories that were performing well in the fourth quarter, including denim and mid tops? Also if you could spend some time on South Korea.

The performance of the region improved nicely in the fourth quarter, but it looks like it’s worsened again here in the first quarter. It’ll be interesting for us to learn what the dynamic would be behind that change.

And lastly on the door compression in Europe, is that coming because more and more wholesale accounts are no longer purchasing the Guess line? Are you making some of these decisions because you don’t want to deal with some of these stores? And how much more vulnerability is there on that side?.

Okay, let’s talk to -- I think we have like 15 questions here. Let’s try to remember the first one..

Well Paul, if you can talk about product performance, I think that’s a good idea..

I know, so I think what you mentioned what is the portion of content we allocate through the non-performance between the bad weather, the promotion and the products. I think the bad weather, we know that -- clearly that played a big role. Weather had a concentration of stores in the East coast.

We had an unusual winter in beginning of the year especially January. And that gives us a good portion. The second portion is that we had a shortened holiday and beside that there was massive promotion. I’m in this business for 42 years, I’ve never seen that.

And you heard that time, over and over by every company saying the promotion level is unheard and unseen and each time we said that, each time it gets on higher level. Then there is an issue of products and that is good news and bad news.

The good news of that is that we had a big demand, more than what we expected in certain categories in our stores and we did not have the product, we didn’t have enough of each product. And that was -- we’ve decided to wrap these facts. We were short in – after all we were short in sweaters, we were short in certain denim broken down in sizes.

So that means we did have the customers, we did have people came in the stores. And that means that's easily fixable to us. So I would say that if we had the products, maybe instead of minus 4% it could have been minus 1%, and maybe flat, that’s my speculation. But clearly we learned from that and one thing that which we cannot learn is weather.

We cannot control that. When you have 50, 60, 80 stores closed per bay and that happened three or four days, I mean that’s a huge number missing there. The West coast has been performing very well..

Could you talk about the spring product performance right now in North America?.

Yes, spring; definitely I can. For the Q1, so far; first of all as Mike says that, the e-com has been really strongly performing, even much better than holiday. We are much higher than where we reported this morning for Q4, across all brands. Then YCs or young contemporary is doing really strong especially in the dresses, in denim of course, and tops.

Tops has been really picking up speed across the board for us. Logos, dresses, logos – dresses on Bodycon dresses, body suite crop top, all of that have been performing really, really well. And this is where we are seeing; we think a good strength. But again, we have to mitigate what we have of performance depending to region. And -- so far working..

And Janet, with respect to Korea, Janet?.

Yes..

We were comping positive in mid-single digits in Q4 and then it swung to the negative high single digits in Q1, and it’s a very volatile market. And we’re seeing headwinds there, when consumer sentiment is quite low, we hit the highest emotional environment and the weather has been pretty cold in Korea and we’ve seen reductions in traffic.

And that does not apply just to us. But our competitors are facing a very similar situation. The one thing is the high end of our guidance assumes that the comps will improve later on through the year and we assume that it will be soft – it will remain soft..

Okay, thank you Mike.

And what about the European accounts?.

Yes. So Janet, on this one I think we have a combination of things going on with the door closures.

In many cases I think it’s really us cancelling the doors because we’ve not really got the right credit capacity to actually pay us, but in a few cases it’s the door themselves that are collapsing because they do not having liquidity over time to be able to survive. So a combination of both these factors are what's contributing to this.

As I mentioned to Eric in the earlier comment, I think we're closer to the bottom than not especially the retail comps that are newly approved..

Thank you. And our next question comes from Jeff Black of Avondale Partners..

Yes, just a couple of quick ones. Have you talked about what exactly your Russian exposure is and if you would just lay that out for us. And then secondly on the marketing spend, I had understood that you were getting more efficient in the marketing process but it sounds like you’re upping the dollars.

Is that catalogue spend? Is that ecommerce spend? What specifically is that going to Sandeep? Thanks..

Okay. So I'm going to start with Russia and then I’ll hand it over to Paul for the market expense. So on Russia specifically, we don’t really talk about the value of the Russian business. What I can say it’s been in the last year a very high growth engine for us. We’re just seeing a slowdown in trends and that’s really what it’s about.

Now we don’t get into specifics by country..

And for marketing, the reason you see a push of the cost is mainly what I said during the conference call is we do a lot of social media being the Twitter, Instagram and Facebook.

But that remains still we need more of branch for this even impact in the sales? We believe strongly that the catalogue and the product in hand of our customers will and does have an impact to actually in our e-commerce and in our stores having a constant rule of what is in the store and if it is in the new season for each brand.

So that’s why instead of two catalogues a year, we have to do four catalogues, four [indiscernible] catalogues a year. And of course the cost of doing that, printing that and mailing that is substantial when we go back hundreds and hundreds of thousands of customers. That is what we see as cost for the marketing and advertising..

And I guess top line remains to be seen..

Our next question comes from David Glick of Buckingham Research..

A quick question on the impact of ecommerce on your same-store sales. I'm wondering if you could help us understand the benefit to your comps so we can put your recent outlook in context. And then just a follow up on cash deployment. Obviously you’re sitting on a significant amount of cash.

You’re paying a very healthy dividend which you just increased today and not buying back a lot of stock. CapEx, you guys are managing carefully.

I'm just wondering why the company is not more aggressive buying back their shares?.

In terms of the impact of ecommerce on our comps, you can see in our press release that when we add ecommerce in, basically there is a significant impact on the comps of about 1% -- between 1% and 2.3%..

And moving on to the next question on cash flow, I think where we are is -- if you look at our balance sheet at the end of the year, we finished really strong on cash. We have about $5 million in cash and plus what we wanted to do was make sure that we return value to shareholders by increasing the dividend as we did.

What we have done in the past, we have done share repurchases, we have a share repurchase program open currently, almost $5 million worth of it available to us. We’ve done special dividends in the past.

So we keep ourselves flexible on how to return value to shareholders but we believe that with the strength of the existing balance sheet plus our confidence in our operating cash flows going forward, this was a sign that we would actually return more value to shareholders and that’s why we did in.

In terms of our capital expenditures, we continue to invest with return. So we have a fleet of stores which is maturing to great extent.

So we spend a lot more money on remodeling it and making sure that the customer gets the best quality experience when they come into those stores and with the shift in spend away from new stores because we have more mature portfolio to more of remodeling, and that’s the focus of our guidance for this year..

And then just in the last component of free cash flow, obviously in 2014 you've given us CapEx and your net income projection.

I'm just curious how you guys are looking at working capital going forward and whether that’s a source of cash this year?.

Well I think on working capital itself, I wouldn’t really think about it as much of a source of cash, because you really have a lot of improvements that we made on inventory and accounts receivable last year. So I don’t specifically guide on this but don’t expect the figure through..

Okay.

So, more of a neutral item?.

Yes..

And our next question comes from John Kernan of Cowen & Company..

Paul, you talked earlier about it all coming back to product and I know Hillary Super was a big hire for you guys. Can you talk about any initiatives she's put in place, any of the categories she feels she's really making an improvement in? And then Sandeep, just some quantitative questions on CapEx.

I think it’s running below depreciation at this point. How sustainable is CapEx at this level? And then finally just on the composition of the same-store sales increase in Europe, how much is traffic related, how much is related to ticket? Thanks..

Yes, thank you. About Hillary, definitely we see an impact now especially in a YC business, Young Contemporary. Denim is working across the board completely on all style that we have, especially the curvy, the high rise and also the style of the 90s that we invented now with a new fit of course and cross body has been good.

The dresses also -- dresses has been very strong, a double-digit increase for this current quarter. The mid top, also very strong overwhelming success in logo, lace and body suits and these are the three categories that we have seen really picking up enormously.

Then bottom euro-tight [ph] , accessories has been really not performing as we expected and it’s not only one category because the handbag has been the footwear and we expect a better and we are getting there but as soon as we have that balance between the accessories and apparel, definitely we will have a better number to report. That’s for sure.

The men has been overall doing very well generally in last year, across the year and men has been, you have the denim, the comps and also the shirts and that’s it, women shirts I am sorry..

So, I think on your follow-on questions on CapEx specifically John, you asked how sustainable the CapEx levels are. Quite sustainable actually because that’s exactly why we increased our dividends. We actually believe our operating cash flows, we have enough cash to be able to fund both CapEx and even return money to shareholders.

So we feel pretty confident on that. Then on your second question on the EU cost, Q4 actually saw an improvement in traffic in EU and that’s what helped the comp increase in the fourth quarter. In the first quarter, we have actually seen a slight decrease of traffic but the good news is our conversion has improved quite significantly.

So we have a positive swing over there in Europe and what’s really nice about this is our margins are holding up very well while all this is going on. So even though we are at the tail end of the markdown season, our margins are actually pretty strong compared to last year. So it’s good news..

(Operator Instructions). Our next question comes from Jeff VanSinderen of B. Riley & Company..

Hello. This is Richard Magnuson sitting in for Jeff VanSinderen.

My question is are were you more or less promotional overall and then again more specifically for denim this year versus last year during Q4 and are you expected to be more promotional in Q1, coming up versus Q1 this past year?.

We were more promotional in Q4. We took 40% up whole store and it was a very promotional environment overall, so we had to respond. But coming into Q1, we are not anymore promotional this year than versus Q1 of last year. We are changing the mix a little bit.

We're doing more target promotions that we think will be more effective but overall we're not more promotional in Q1..

Okay.

And then with the merchandise margin overall in Q4, were you up or down for Q4?.

The merchandised margins were down..

Down, okay.

And then again for denim this specifically looks the same thing?.

Yes, of course..

Our next question comes from Dorothy Lakner of Topeka Capital Markets..

A couple of questions here, I wondered -- last year you have taken some action in both denim and dresses and reduced pricing. It seems like if I'm understanding you correctly in both categories you feel like you've kind of gone where you want to go.

I just want to make sure that that’s correct because those categories seem to be pretty, still pretty good for you, even very strong.

But I know that earlier this year, I think Hillary talked about or you’ve talked about reducing SKU counts and I wondered where you are in that whole process and what kind of reduction are you actually looking to make in order to make the assortment -- kind of clarify the assortment if you will? Then also just wondered, I think for Sandeep, just in terms of remodels this year how many you did last year, how many you’re doing this year and then depreciation for this year?.

This is Paul. About what you mentioned about denim and dresses, definitely we did take action and that created much more traffic in our stores than what we had the year before. So the denim at 89, 98, so dresses that 79, 89, 98 or so had created big traffic.

Therefore, and by the way the average, see the average clients of denim out of the door on regular price is still around 105, 108, I believe. On the dresses, and you can see by [indiscernible]. On the dresses, basically the same, we went from 89 to 149 I believe and this bulk is pretty balanced.

The bulk if you say that's between the 89 and 108 would be like 60% and above that it’s 40%. And we have a huge, huge following by our customers in dresses being online or being in our stores and in fact that it seems like we are building names last two-three years as a destination for dresses.

The SKUs clearly -- involving that is has been a target to reduce and we did reduce the SKU plan.

If you go through any of the stores whatever states you are, in Connecticut or New Jersey or New York or anywhere, you will see much more clarity and distinction when you’re going a store than it used to be just a year and a half ago, two years ago, three years ago that we were saturated by SKUs.

We have too much products on too many categories everywhere. The message is much, much more clear. The windows are much more clear and the SKU plan has been reduced around 27% this year coming right now, Q1 to Q2 to Q3 of fiscal year ’15. Okay? But please visit our stores. You will see that definitely on your own..

No, they definitely look a lot better Paul. It’s very clear..

It takes time and as we’re seeing -it’s hard to do anything overnight.

It takes time and the only thing we need some is have some patience but we try really our best to recruit the best possible with the best message to our customers, and Sandeep?.

Yes. So Dorothy you’re asking about remodels and roughly how we did last year and what we expect this year. It is probably into 25 and 30 both years, probably going more on the higher side towards this year as we move more towards remodels versus new stores.

And on depreciation we should be roughly flat, not that different from last year as you had in the press release..

And at this time I’ll turn the call back to Paul Marciano for closing remarks..

Yes. Thank you everybody to be with us today.

If I would say like three four things that we will take away today will be to look at the product, if you have any chance to look at the product being in our stores or being in our website that will show you that definitely I strongly believe that we’re on a right direction because I love the product to be and much more clarity than we have for long time.

Two is also a fast track product. Definitely we are on that and we have been on that for last six months, seven months, eight months and that will have an impact. I’m convinced about that. Three years, planning and allocation if it’s -- we are executing better and better but as I just mentioned it takes time.

And also finally is e-com this is a big priority and the big trust we are seeing across the globe on every division, being the Guess stores or Marciano stores and the G by Guess all of that. And we are making huge, huge progress and we’re going to continue concentrate on that.

So we have high hope for this year but we still have to make a lot of investment, a lot of adjustment and patience. So thank you very much and we will talk to you in the month of May, two months for the Q1. Thank you..

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