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Guess?, Inc. (NYSE:GES)
Q2 2019 Earnings Conference Call
Aug. 29, 2018, 4:45 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello, and good day, everyone. Welcome to the Guess second quarter fiscal 2019 earnings conference call. On the call are Victor Herrero, Chief Executive Officer and Sandeep Reddy, Chief Financial Officer. During today's call, the company will be making forward-looking statements, including comments regarding future plans, strategic initiatives, capital allocations, and short- and long-term financial outlook. The company's actual results may differ materially from the current expectations based on risk factors included in today's press release and the company's quarterly and annual reports filed with the SEC.

Now, I would like to turn the call over to Mr. Victor Herrero.

Victor Herrero -- Chief Executive Officer

Good afternoon, everyone. This call marks my third anniversary as the CEO of Guess. The first two years of my tenure was a period of investing and positioning Guess globally. I will characterize the third year as the turn-around year for the company, as we start reaping the b of our capital investments while staying laser-focused on executing our strategic initiatives. I feel confident that the turn around has only just begun. We are well positioned to exit this fiscal year with every business segment profitable and the company firmly on the path of our 7.5% operating margin goal. We will get there through continued revenue growth and operating cost improvement.

Today, we reported that our adjusted operating profit margin and our adjusted earnings per share for the second quarter finished above the high end of our guidance, driven by double-digit revenue growth and as Sandeep will detail later, we are increasing our full-year guidance for the current fiscal year again.

Let's start in Europe. European revenues for the quarter grew 22% in U.S. dollars and 19% in constant currency, continuing the momentum from the successful implementation of our significance initiative to elevate the quality of our sales and merchandising organization. The growth was driven by new store openings, an increase in wholesale revenues, and positive comps including e-commerce up 5% in U.S. dollars and up 2% in constant currency. The comp increase marked the 12th consecutive quarter of positive comps for the European region, every quarter since I joined the company.

During the quarter, we opened 33 directly operated stores in Europe, including 16 stores that we acquired from our partners. We opened stores in Switzerland, France, Belgium, Spain, Turkey, Cyprus, Austria, Germany, U.K., Czech Republic, Russia, and Poland. The stores in Cyprus and Czech Republic were our first directly operated stores in those markets.

Our European wholesale business continues to be very strong. After logging our third consecutive season of double-digit growth in full winter 2019, we are expecting the fourth consecutive season of double-digit growth in spring/summer 2019, extending our progress on the significance initiatives to revitalize the wholesale channel. European segment margin contracted by 200 basis points, primarily due to the expected pressure from incremental distribution costs related to the move to our distribution center. The pressure from this distribution cost on segment margin is expected to moderate in the back half of the year.

Moving to Asia, the second quarter revenues were up 32% in U.S. dollars and 29% in constant currency. Revenue growth in the region was driven by positive comps, including e-commerce up 17% in U.S. dollars and up 14% in constant currency. And by new store openings, performance in the quarter was particularly strong in greater China and Japan similar to the first quarter.

During the quarter, we opened 12 directly operated stores in Asia on a net basis, including 7 stores in China. Within China, we opened stores in Dalian in the Northeast, Guiyang in Southwest, and Shanghai, Suzhou, Foshan, Shenzhen, and Fuzhou in the Southeast. Operating margins in the Asian segment contracted 190 basis points in the quarter, driven by the investments in Australia and Singapore.

The pressure on operating margin for the segment is expected to decrease in the back half of the year. We are on track to expand margins for the year and have a clear path to our margin goal of low double digits in the region. As you can see, we are executing very well on our significance initiatives to build a measured business in Asia.

Turning to Americas retail, we are really pleased with the turnaround in this business. Revenues for the quarter decreased 2% in U.S. dollars and in constant currency. Comp sales including e-commerce for the quarter were up 3% in U.S. dollars and in constant currency. This was a sequential improvement from the first quarter and against sequentially tougher comps from the last year in the second quarter. We are significantly less promotional than last year, with higher AURs driving the comp.

Operating margin in the quarter expanded 460 basis points, marking our fourth consecutive quarter of operating margin expansion. This was achieved through lower markdowns, better IMUs, negotiated rent reductions, and store closures. As I told you on previous calls, we are focused on elevating our brand presence through collaboration with influencers and celebrities. We expected this partnership to have a powerful impact on our existing customer demographic, as well as attract new customers to the brand going forward.

In line with our digital first initiative, we are further building brand engagement through our investments in social media. For example, we are investing in video and live video, the performed method of communication for the millennial and Gen Z demographics. We are delivering that content through key social media platforms like YouTube and Instagram. Our engagement strategies are gaining real traction as evidenced by the significant 1.2 million Instagram follower increase Guess has experienced thus far this year, reaching 4 million followers globally.

I am also very excited with our new partnership with TicToc, the video sharing application with 500 million users, as we will be the first brand to partner with them. As you can see, we remain very active on the digital front and constantly innovate. So, in summary, we just reported our eighth consecutive quarter for revenue growth. Europe and Asia revenues are both expected to grow in double digits this year. We are expecting American retail comps for the year to be positive for the first time in eight years. We are excluding the old business segments this year to be profitable. We are raising the adjusted guidance for the current fiscal year.

We expect to continue growing our revenue next year and beyond by tapping into available global white space and executing our significance initiative to elevate the quality of our sales and merchandising organizations. We are on track to achieve our operating margin goal of 7.5% for the company. This is an exciting time for Guess and for me as I start my fourth year with the company. A year ago, our turnaround had started powered by growth in sales and profit in Europe and in Asia. But today, I see Americas retail joining the turnaround and return it to return to profitability this year after two consecutive years of losses. This serves to accelerate the turnaround and shorten the path to our 7.5% margin goal. Sandeep?

Sandeep Reddy -- Chief Financial Officer

Thank you, Victor, and good afternoon. During this conference call, our comment reference certain non-GAAP or adjusted measures. Please refer to today's earnings release for GAAP reconciliations or descriptions of such measures.

Second quarter revenues were $646 million, up 14% in U.S. dollars and 12% in constant currency versus the prior year quarter. I would like to highlight that this was our eighth consecutive quarter of revenue growth. More importantly, this was the first time in 7 years that we grew sales by double digits in the second quarter. Total company gross margin increased 230 basis points to 37.1%, driven by higher IMUs, less markdowns, and lower rents, partially offset by the negative impact of occupancy deleverage from high European logistic scores related to the start-up of our new distribution center.

This was our fifth consecutive quarter of gross margin expansion for the company. Adjusted SG&A as a percentage of sales increased by 100 basis points, mainly driven by investments in advertising and pressure from distribution expenses in Europe. Adjusted operating earnings for the second quarter was $37 million, an improvement of 47% versus adjusted operating earnings last year, primarily driven by sales growth and gross margin expansion, offset by the aforementioned increase in SG&A.

Adjusted operating margin finished 130 basis points better than last year at 5.7%, including the favorable impact of foreign currency of roughly 10 basis points. This marks the third consecutive quarter where we've expanded the adjusted operating margins for the company. Please refer to our press release from today for additional information on operating margins by segment. Our second quarter adjusted tax rate was 23%, down from 29% last year.

Adjusted diluted earnings per share finished better than the high end of our guidance at $0.36. This represents an 89% improvement compared to adjusted diluted earnings per share of $0.19 in last year's second quarter. The favorable impact of currency on earnings per share in the quarter was roughly $0.05. Moving on to the balance sheet, accounts receivable was $283 million, up 21% in U.S. dollars and 24% in constant currency, including the impact from the adoption of ASC 606 revenue recognition standard.

Inventories were $465 million, up 7% in U.S. dollars and 9% in constant currency versus last year, including the impact from the adoption of the ASC 606 revenue recognition standard. We are very pleased with the quality of our inventory as we enter the back half of the year. Free cash flow was -$68 million, a reduction of $19 million versus -$49 million in the prior year, driven by changes in working capital and increase in capital expenditures.

We entered the quarter with cash and cash equivalents of $219 million, compared to last year's $317 million. Cash less debt at the end of the second quarter was $179 million, compared to $275 million last year. This is after having returned $75 million in dividends and $56 million in cash paid for share repurchases to shareholders in the last 12 months. Since the start of our dividend program in 2007, we have returned $1.5 billion to our shareholders in the form of dividends and share buy-backs.

Moving into the guidance, I should point out that our outlook for the third quarter and full year of fiscal 2019 does not assume any asset impairment charges. The outlook includes the adoption of ASC 606 revenue recognition standard, which became effective in the first quarter. Also, guidance for revenues and comp sales for the total company and by segment is included in the supplemental table attached to our earnings release.

For the third quarter of fiscal 2019, we expense revenues for the quarter to be up 10.5% to 11.5% in constant currency, driven by expected strong growth in Europe and Asia. At prevailing exchange rates, we estimate that currency will be roughly a 1.5 percentage point headwind on consolidated revenue growth for the quarter. Our gross margin is expected to be up due to IMU improvement from our supply chain initiatives, lower markdowns, and lower rents.

The SG&A rate is expected to be up compared to last year, primarily due to an increase in investment in digital marketing and advertising. We are planning an operating margin for the quarter between 2.5% and 3% with a 30 basis point tailwind from currency. Earnings per share is planned in the range of $0.12 per share to $0.15 per share and does not assume any further share buy-backs. Excluding currency, this represents an 8% increase in adjusted EPS and a 30 basis point improvement in adjusted operating margin for the quarter at the high end of guidance.

Our tax rate for the third quarter is estimated to be 25%. We expect consolidated revenues for the year to be up between 8% and 8.5% in constant currency. It should be noted that we expect an increase in revenues in and after closing stores in the Americas and after taking into account the comparative negative impact from the 53rd week in the prior year. At prevailing exchange rates, we estimate that currency will be a 100 basis points tailwind on consolidated revenue growth for the year.

For the full year, we expense gross margins to be up due to improved IMUs in both the Americas and Europe, lower markdowns, and lower rents. The segment rate is expected to be up for the year, due to increase in investment of digital marketing and advertising, as well as European distribution costs. Our tax rate for the year is estimated to be 25%. This includes the benefits to our effective tax rate resulting from the tax reform.

We are planning an adjusted operating margin between 4.4% and 4.7%, with a minimal currency impact on operating margin and our guidance toward foreign currencies remain roughly at prevailing rates. We are raising our adjusted earnings per share guidance for the year to a range of $0.94 to $1.03 per share. The earnings per share guidance includes a currency tailwind of roughly $0.06 per share. This compares to our prior guidance of $0.88 to $0.99, which included $0.10 currency tailwind.

In other words, we have effectively increased our guidance by $0.08 at the top end, excluding the impact of currency. The high end of our new guidance represents a 47% increase over last year's adjusted EPS. Excluding currency impacts, the high end of our guidance represents a 39% increase in adjusted EPS and represents an adjusted operating margin improvement of 100 basis points. Capex for the year is expected to range from $90 million to $95 million as we continue to invest in our retail expansion in Europe and Asia, and in our technology infrastructure to support that long-term growth.

The Board of Directors has approved a quarterly dividend of $0.225 per share payable to shareholders of record at the close of business on September 12, 2018. With that, I will conclude the company's remarks and open the call up for your questions.

Questions and Answers:

Operator

Thank you, sir. We will now begin the question-and-answer session. If you have a question, please press * then 1 on your touchtone phone. If you wish to be removed from the queue, you may press the # key or the # sign. If you're using a speakerphone, you may need to pick up on your handset first before pressing the numbers. Once again, if you have a question, please press * then 1 on your touchtone phone.

The first question in the queue comes from Susan Anderson. Your line is open.

Susan Anderson

Hi, good evening. Very nice job on the quarter. Good to see the improved performance in the Americas and great performance across all the regions, really. I guess I wanted to dig in a little bit on Europe. Nice to see that getting a little bit better on the op margin front. How should we think about that pressure abating there from the DC as we go into the back half and then potentially shutting down the old DC? If you have any thoughts around the timing there, that would be helpful. Thanks.

Sandeep Reddy -- Chief Financial Officer

Hi, Susan. This is Sandeep. As you noted, I think compared to Q1 where we had a 910 basis point I think contraction in off margins. Sequentially, we actually did a lot better in the second quarter and margins were contained to a 200 basis point decline. But as we said in the prepared remarks, we expect this pressure to really moderate even further in the back half. We expect that as time goes on, we should be able to get much more productivity and efficiencies that actually drive that improvement in operating margin. We remain committed to our double-digit margin goal for the European region.

I think when we think about it, I want to go back to something we said on the last call, where essentially the volume that have been coming out of the European distribution center are significantly ahead of initial plans. And so we started making some investments to actually adapt our capacity to the growing needs of our business. It's actually a good problem to have from our perspective. We just needed some extra investments. Those have been happening. We are beginning to see that the profitability impact of that is beginning to moderate already and we expect that to continue to moderate as we move through the back half of the year.

Susan Anderson

Great. That sounds good. Just one follow-up on the Americas retail. Nice to see that comp momentum continue it sounds into third quarter. It sounds like now you feel pretty confident about being profitable in Americas retail. So, maybe if you could just talk a little bit about the momentum that you have there and the expectation as we go out into the back half?

Sandeep Reddy -- Chief Financial Officer

We're thrilled about the Americas retail comp benefit. I think if you look at our performance, we are +1 in constant currency in Q1. It's accelerated to +3. The really good thing about this, Susan, is it's coming with really high quality sales. There is significantly less promotional. We're in a very good position from an inventory standpoint. The product is resonating and so we're actually seeing a lot of traction from the consumers. We've seen the consistency in execution of our significance initiatives over multiple seasons and that's beginning to roll through.

More importantly, I think all the work that we've been doing in the last 2-3 years from a profitability improvement perspective is now beginning to show through and I think whatever it was, whether it was IMU improvement, which was what was felt right from the beginning. We've really taken a lot of work on the rent renegotiations and have been very aggressive to bring those rents down to make stores more profitable or close them if they didn't work out. Then, from an inventory standpoint, we are in a very good position right now because we have been very disciplined about driving that. So all that put together is getting us to a place where we seem like we're on track for profitability in the current year. Not only that, we feel confident enough with the acceleration and stabilization of trend to see that from a further out perspective, we see a margin goal for the Americas retail segment of low singles to mid-single digits. I think that brings the entire portfolio to profitability.

Like we said, this year we all expect to be there but if we take the three big segments together, the European segment we expect to be in low double digits; the Asian segment we expect to be in low double digits, the Americas retail segment we expect to be in low single digits to mid single digits. And then you have the icing on the cake from the Americas wholesale business and the licensing businesses, which are both very profitable businesses. That's why we feel really comfortable that we're on the path to that 7.5% margin goal.

Victor Herrero -- Chief Executive Officer

Hi, Susan. This is Victor. I would like to add something to Sandeep. We are very pleased, because I've been three years in the company and I've been waiting for this moment for a long time. And basically, what we are seeing, the big improvement in Asia and in Europe from almost the beginning of my tenure here at Guess, I think right now we are seeing in Americas basically with all the actions that Sandeep just explained. So, we are very pleased and hopefully we can maintain this trend for several quarters.

Susan Anderson

Great. Well, very nice job on the quarter. Thanks for all the details and good luck next quarter.

Sandeep Reddy -- Chief Financial Officer

Thanks, Susan.

Victor Herrero -- Chief Executive Officer

Thank you.

Operator

Thank you. The next question in the queue comes from Omar Saad from Evercore ISI.

Francesco Marmo -- Evercore ISI -- Analyst

Hi, this is actually Francesco speaking in for Omar. Hey, guys. Just one follow-up I guess again on the U.S. It's great to see trends improving and you guys sound more upbeat on the region. I want to know, how do you see the brand perception evolving and broadly speaking, how do you see your customer base in the U.S. evolving? Then related to that, beyond your own retail channel, I was wondering if you could give us an idea of how the relationships with the wholesale partners are evolving in the region? Thank you.

Victor Herrero -- Chief Executive Officer

I'm going to answer the relevancy at the beginning of your question. Francesco, I think the relevancy of the brand has been always there and will be always there. I think at this moment, all these strategies that we put in place several or a couple of years ago about the endorsement of celebrities and also all the digital efforts that we are doing, basically as well, the social media effort that we've been doing for the last couple of years are really paying off. I think that right now our customer is a more -- we have several types of customers. We have Gen Z. We have millennials. We have all the people that believe that we are a fashion option for then. All people that want to be sexy and cool.

I think it's very good news for us because whenever we go and visit the stores, whenever we go and see the people that are really visiting our e-commerce, it's everywhere. It's everyone. We cannot say that we have only one particular generation shopping in our stores or on our e-commerce or any other distribution channel like wholesale. So, I think everyone is really up feeling with our products. I think one important thing that helps us a lot has been the product consistency that we've been having for the last few years. I think this is going to continue this way.

Sandeep Reddy -- Chief Financial Officer

Just a follow-up on your question about our wholesale partners in the U.S. I think I'm just going to step back a little bit to the Americas wholesale segment, because that's something that we're really pleased with. I think the front half itself was a pretty good result in the mid-single digits of growth in the top line. But I think if you look into our guidance for the third quarter, you see that we're guiding in the high teens on the top line. There's a bit of timing there, but overall for the year, we're expecting to be up in the high single digits.

I can tell you that what's driving this outperformance relative to what we started the year at is our U.S. wholesale business. We are extremely pleased with the progress we're making over there with our partners across the board. I think we are finding that, exactly what Victor was talking about from a brand perspective and the product consistency perspective, that's showing through in all channels, including the wholesale channels. Our partners are actually seeing that sell through and therefore placing incremental orders with us and that's why our sales projections are going up based on the orders that we have in house.

So, we're really thrilled about the improvements that we're seeing in the U.S. after a pretty tough time last year. I think we're coming back quite well for all the reasons we just talked about.

Omar Saad -- Evercore ISI -- Analyst

Okay. That's great. Thank you very much. If I make just one quick follow-up on China. Considering your very important and strategic partnership with Tmall, I was wondering if you could give us some color around the upcoming single day and broadly speaking how that partnership is growing? Thank you.

Victor Herrero -- Chief Executive Officer

Well, for us, it's very important our partnership with Tmall. We are trying to have a strong partnerships with them. I think we are building already the assortment for the 11/11 because it's an important date. I think that we continue experiencing solid growth in that particular channel. But as I mentioned before, I think China is basically an omnichannel market. We have very a strong e-commerce presence and right now we are starting to have as well a retail presence, which is an important thing for us. I think in China we are building a very strong relevancy and we will continue hopefully over the next coming years in doing so.

Francesco Marmo -- Evercore ISI -- Analyst

Great. Thank you very much and congratulations on the quarter.

Victor Herrero -- Chief Executive Officer

Thank you.

Operator

Thank you. Our next question in the queue comes from John Kernan from Cowen.

John Kernan -- Cowen & Company -- Analyst

Good afternoon, Sandeep and Victor. Congrats on all the momentum.

Sandeep Reddy -- Chief Financial Officer

Thank you, John.

Victor Herrero -- Chief Executive Officer

Thank you.

John Kernan -- Cowen & Company -- Analyst

Sandeep, just wondering, it looks like the gross margin guidance is fairly consecutive as implied in the back half, given how clean inventories are and how confident you are in the direction of [inaudible] in a lot of the key regions. Just wondering, is there anything we should be thinking about from a gross margin perspective that would maybe restrict some of the momentum that you have from a gross margin perspective in the first half? Then I have a follow-up, thanks.

Sandeep Reddy -- Chief Financial Officer

First off, let's just put it this way. We're guiding for gross margins to be up both in the quarter, as well. We're not really necessarily implying that gross margins are not going to expand. But what I would say is you should keep in mind that we started our profit improvement initiatives early in the year last year and we generated significant rent reductions as we got into the back half of the year last year. So, we're beginning to come up against that in the back half of the year. So, there's still enough things that are basically fueling our gross margin improvement and I think that should get us to improved gross margins, but we're up against tougher compares in the back half than we were in the first half.

John Kernan -- Cowen & Company -- Analyst

Okay, that makes sense. My follow-up is just on Asia. Obviously, the top line momentum is very improvement on a comp store basis and total comp line is very improvement on a comp store basis and total top line. Victor, what do you think the catalyst is for margin improvement? I know you're spending a lot to grow the store base, but what do you think the catalyst ultimately is to start moving toward that double-digit operating margin?

Victor Herrero -- Chief Executive Officer

Well, basically, this quarter is a quarter where we are in the process of having investment in Australia and Singapore because we took over the stores from our partners. This is basically what is a little bit affecting our margins at this moment. But definitely we are one a path to have a low double-digit margins as I mentioned in my call. We will continue, as you saw, the comps are very healthy, double digits. Especially I think we are performing very well in China and in Japan and I think we will continue doing this.

I think what is very important in Asia is that we are perceived as a company which is Guess and I think we have the right products in every single part of Asia. We project a similar image everywhere in Asia. This is something that I think we were not having in the past and we are achieving step by step in Asia and we will continue to try to give or deliver the same product consistency that we are doing in other parts of the world like Europe and Americas.

Sandeep Reddy -- Chief Financial Officer

John, just to add one thing on the operating margin trajectory. Asia is like a collection of markets. We've actually been through different investment phases. The path is going to be a little bit uneven because each market has its own characteristics. So, we saw that in the case of Japan and we had it in the case of China. Now, we're doing Australia and Singapore. So, we've demonstrated that when we make investments, maybe initially there's a bit of pressure on margins, but then it comes back very nicely after that.

So, that's the cycle I would actually keep in mind. It's going to be a little bit uneven because it's multiple markets, but we're very comfortable with a double-digit opportunity that we have. We said in the prepared remarks also that we expect the pressure to basically ease in the back half anyway compared to what in on Q2. We're on track to expand margins for the year. So, it's a little bit of what I would say noise relative to where we expect to be for the year.

John Kernan -- Cowen & Company -- Analyst

Got it. Final question. Bit of a follow-up to prior question and a longer term thematic question. Victor, you've made a lot of positive changes in terms of merchandising, in-store execution, certainly marketing there's been a big change. Do you feel like with the marketing message you're bringing now that you're acquiring new customers. I mean, you talked about generations in a prior question, but do you feel like you're bringing in new customers to the brand and that part of the comp stores sales increase you're seeing in North America are from new customers.

Victor Herrero -- Chief Executive Officer

Very good question. I think also all the marketing activities hat we are doing at this moment. Also, the empowerment of the people in our field, organization, we are getting really a lot of customer feedback from them what type of things do they want, what are their motivations in fashion? So, all these kinds of things are helping us as well to attract new people. Like, for example, the collaboration we did with Generation. We did a farmers' market this year as well. So, there are plenty of things that right now like with TicToc, all of these kind of things is in order to attract more and more the millennials, the Gen Zs. I think we are seeing, I'm going a lot to the stores. Every time I go to the store, I really look at what type of customer do we have. And definitely, we have Gen Zs, we have the millennials.

A majority of those people, particularly in young areas or young demographics, are really these people. Are really the new generation that are really interested in our brand. Whatever we are doing in terms of marketing activities, all these celebrity endorsements that are kind of a -- we had Jennifer Lopez, but also we had A$AP Rocky. All these kinds of things are helping us as well to attract new people, but not only those generations. As well older generations. So, we are very happy in the way that we are performing in terms of attracting new customers to our stores or to our different distribution channels.

John Kernan -- Cowen & Company -- Analyst

That's excellent, guys. Best of luck.

Sandeep Reddy -- Chief Financial Officer

Thank you, John.

Operator

The next question in the queue comes from Janine Stichter from Jefferies. Your line is open.

Janine Stichter -- Jefferies -- Analyst

Hi, everyone. Congrats on the progress.

Sandeep Reddy -- Chief Financial Officer

Thank you, Janine.

Janine Stichter -- Jefferies -- Analyst

I just wanted to dive into Europe a little bit. You had some nice performance there in the second quarter and it looks like you're actually looking for an acceleration in the comp trend in the third quarter. Can you comment how you're feeling about the environment and then maybe any regional variances you're seeing? Then on the North America business or just the Americas business more broadly, understanding that the biggest driver of comps has been AUR. Can you comment on what you're seeing with traffic and just if there's been any progress in getting some of that traffic back toward positive? Thank you.

Sandeep Reddy -- Chief Financial Officer

Janine, I think on Europe you're right. We're pleased at the sequential progress that we're seeing in the European business. Things are looking pretty good in the third quarter, just like we're pleased with the second quarter. Clearly, the environment is still a pretty good one in Europe. That's why it's broad-based strength that we're seeing and we're very encouraged by that. The thing about Europe is great, fine. The comps are expected to be up in the mid single digits, which is reflecting of our underlying health, but I think the wholesale business has also been doing extremely well.

It's really about the strategic initiative that we outlined three years ago being executed very consistently between the retail and wholesale channels. Our wholesale customers are beginning to see the kinds of sell-through that they were looking for and therefore the same door buys have been going up, which is the equivalent of comps. So, all channels really are driving in a very healthy direction in Europe. So, super pleased about where things are going on that.

And then turning to the Americas, I think you mentioned AUR being a driver of the comp. Yes, it is. I think traffic has actually sequentially improved over the last four quarters. I think it's much less of a headwind than the early part of last year, but it's still a little bit of a drag. But all the things that Victor just talked about in terms of the marketing message and making sure that we're getting partnerships going with celebrities and with influencers and really the digital first approach that we're taking are all things that are expected to contribute toward that traffic improvement.

We're seeing an improvement, as I said, but in addition, I think all initiatives from a visual merchandising perspective that you see outside in the windows of the stores and even inside, once people come in. I think the appeal of the product is much less cluttered, potentially, than what it was about three years ago. Anybody going into our stores, and I invite all of you to go into our stores, you can just get into and you can see all the way to the back. I think that's the whole idea. We just wanted to be a simple, seamless shopping experience for the consumer and that's what's beginning to make incrementally more and more of an impact and the slow ball is the comp trend that you're seeing.

We expect the first positive comps in eight years. That's really taken a long time to come, but it took a couple of years of hard work to make it get to this point.

Janine Stichter -- Jefferies -- Analyst

Thank you.

Operator

The last question in the queue comes from Dana Telsey with Telsey Advisory Group.

Dana Telsey -- Telsey Advisory Group -- Analyst

Good afternoon, everyone, and congratulations on the progress. As you think of product in terms of what's driving the business, can you take us through into the different regions, whether it's what's happening on the bottom side with denim and also the licensed product categories and any plans for the back half of the year that we should look to in continuing to drive sales. Thank you.

Victor Herrero -- Chief Executive Officer

Thank you. In terms of product trends, I think that print mixing is very important. Bold and bright colors are important. The feminine dressing is still continuing very strongly. '90s influence and prints and silhouettes are also very important. We continue with the importance of the logos as well. Regard denim, still destroyed denim is very important. Also, the embellishment in the denim. Also what is important in denim is kind of special washes. I think we are working a lot in terms of what type of washes are appealing to our customer, to new customers. I think it's very important as well, a new fabric wash on denim. Like, for example, an eco-friendly fabric that we are going to develop for this season. There are plenty of things right now.

I think one important thing as well that I think I should mention is denim is important, but activewear as well is also an important part of the trends at this moment.

Dana Telsey -- Telsey Advisory Group -- Analyst

And on the license side, anything to note there?

Victor Herrero -- Chief Executive Officer

Well, the license, as you know from the last three years, we've been doing a total outfit, where basically across a few categories. I think this is working very well because at the end of the day, what we want is that the people shopping in our stores or any of our distribution channels, that they don't only buy apparel. So, we are trying to locate everything on a very thoughtful way. People are attracted to watches and are attracted to handbags. I think handbags is performing very well in terms of sales. Also, all the license are very important. All across the board, they are performing better than in the past.

Dana Telsey -- Telsey Advisory Group -- Analyst

Thank you.

Operator

Thank you. Once again, if you do have a question at this time, please press *1 on your touchtone phone. Okay. We have no further questions. Thank you, ladies and gentlemen. This concludes today's teleconference. Thank you for participating. You may now disconnect.

Duration: 44 minutes

Call participants:

Victor Herrero -- Chief Executive Officer

Sandeep Reddy -- Chief Financial Officer

Susan Anderson

Francesco Marmo -- Evercore ISI -- Analyst

John Kernan -- Cowen & Company -- Analyst

Janine Stichter -- Jefferies -- Analyst

Dana Telsey -- Telsey Advisory Group -- Analyst

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