Operator: Good day, everyone, and welcome to the Guess? First Quarter Fiscal 2014 Earnings Conference Call. On the call are Paul Marciano, Chief Executive Officer; Nigel Kershaw, Interim Chief Financial Officer; and Russell Bowers, Chief Financial Officer of North America Retail.
During today's call, the Company will be making forward-looking statements, including statements 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.
Now, I would like to turn the call over to Paul Marciano.
Paul Marciano - CEO, Vice Chairman and Creative Director: Thank you. Good afternoon and thank you for joining us today. In the first quarter, we delivered adjusted earnings per share of $0.14, which exceeded our earning expectation. This performance is encouraging considering that we continue to operate in a very fragile economic environment in Europe and a challenging North American retail market. But first I would like to update you on our progress on some of the key strategies that I shared with you during our last earning call in March.
Let me start with management in North America. Two new top executive are joining our management team. One to head our design, and one to head our retail merchandizing in North America.
Hillary Super had joined us as a Senior Vice President GMM for Guess? North America. Hillary had the senior merchant role at American Eagle and the Gap. This Monday Sharleen Lazear is joining Guess? as a Chief Design Officer, overseeing all product categories. She has a successful track record on designing brand product that captures the emotions of the consumers, as iconic brands. Her previous role was Executive Vice President of Design and Merchandizing at Victoria's Secret for the last 13 years.
We're now focused on filings of COO and CFO positions. We have made great progress and made – and met solid candidates and I will expect to have similar announcement in our next conference call.
With respect to product, I feel good today about what I see and what's coming in the stores in the four to six months. As I mentioned in our last call, I took step to address this and with the design team, we created a return to the iconic jeans roots of Guess? that we will see first in our full product line and our ad campaigns. As part of the strategy we are also increasing our denim offering, an iconic style at entry price points.
About organization, in the first quarter we executed on our plan to streamline our cost structure in both Europe North America. We made some meaningful change by streamlining processes and aligning department that will allow us to (indiscernible) better efficiency and more flexibility.
Moving now to a business update about our first quarter. Our comp sales for North America Retail was down 9%. February and March were challenging due to weather again. But we started to see improvement in the traffic and comps since Easter, and ultimately exceeded our revenue expectation that was tempered by a soft start for the quarter. Improvement to the product assortment, especially related to our Speed to Market initiative and wonder whether those contributed to this trend. I am also encouraged by the stronger sales that we have seen so far in May as the weather continue to improve and the customers respond probably to our product assortment.
Turning to Europe, in the first quarter the macroeconomic condition of Southern Europe continue to impact our business. The fiscal issues along with extremely cold weather negatively impacted sales on the spring (product set) of our retail stores. While we have seen some improvement in retail performance in recent weeks, it is difficult to build on this momentum as bad weather condition continue to impact stores traffic dramatically across Europe.
Looking forward our Fall/Winter wholesale order campaign was slightly lower than expected. We continue to make progress in growing outside of Southern Europe with double-digit increase in Russia, Germany and Middle East. However, overall trend continue to decline mostly impacted by the multi-brand wholesale in Italy and France that are struggling due to the lack of financial liquidity and weak credits.
About Asia; for Asia the Guess? brand is well known now throughout the region and we are very proud of what we have accomplished so far. In a short-term, we expect to see volatility with the recent political issues in South Korea as well as a slow economy in China, that is impacting consumer spending, but we are managing for these external factor with our long-term strategy in mind.
Moving to Latin America, the brand also enjoy a premium positioning in Mexico. And in the first quarter, the business continued its strong performance posting a 30% sales increase. Guess? is very well positioned with the stronger retail and wholesale presents for us key markets in Mexico. We closed the quarter with 31 retail stores and 381 wholesale doors in department stores.
Also Brazil represents a good opportunity for our business in Latin America for both retail and wholesale. We will open our first retail stores in Sao Paulo before Christmas.
E-commerce; integrating our e-commerce business, we lost stores in U.S. and Canada is also very important to us. We will continue to focus on delivering a seamless experience for customers who shop across the retail and online channel. (Indiscernible) starting to pay dividend with another strong quarterly performance, which is our sixth consecutive quarter of double-digit growth and room for even stronger growth as we introduced further system enhancements such as an order fulfillment in our stores.
In closing, I would like to recap key points. As we consider the current environment, macroeconomic issues are likely to dominate consumer spending for sometimes. (Leasing) through the potential for a longer recovery time in Southern Europe, and that is what we are most concerned about. While Europe was soft in first quarter, we are very comfortable with our position internationally as we continue to enter new market and expand our reach globally.
Next, SSG pricing and positioning of our product is key. We anticipate our effort to position the brand where we offer both value and aspirational product to our customers. Finally, profit margin, which we are not good in Q1, will be addressed with a strong control of allocation and productivity in North America retail stores. That is our focus at all level in our Company.
I strongly believe that product and design have the right direction today. I also believe that executive management team will be complete in the next 60 days. I see some clear and positive economic sign in U.S. that should continue going forward and because of that we are clear and compelling long-term growth opportunities and I remain very confident in the strength of our brand.
With that, I will hand over to Nigel to discuss the financial performance of the first quarter.
Nigel Kershaw - Vice President of Finance & Accounting, and Treasurer and Interim CFO: Thank you, Paul, and good afternoon. During this conference call, all of our comments for the first quarter are on an adjusted basis, which excludes the impact of certain restructuring charges incurred during the quarter. You can find more details of these charges and a reconciliation to our GAAP in today's earning release.
Moving on to the results. First quarter adjusted net earnings declined 56% to $12 million and adjusted diluted earnings per share were $0.14, down 53% compared to $0.30 per share in last year's first quarter. First quarter revenues decreased 5% in both U.S dollars and local currency to $549 million.
Total Company gross profit for the first quarter declined 16% to $197 million and gross margin declined 460 basis points to 36%, which was below our expectations. SG&A excluding restructuring charges decreased 6% to $184 million, primarily due to lower corporate expenses. As a result we were able to leverage our expenses with a lower SG&A rate decreased by 30 basis points to 33.5%.
Adjusted operating profit for the first quarter decreased $25 million to $14 million. Our adjusted operating margin declined 430 basis points to 2.5%, which was higher than we expected due to the leveraging of expenses. Our effective first quarter GAAP tax rate was 33% compared to 32% in the prior year quarter.
Now, I will review our statement starting with North America. In North America Retail, first quarter revenues decreased 5% to $238 million. The slightly higher square footage was more than offset by the 9% decline in local currency comp store sales in the U.S. and Canada.
Operating income declined $21 million to a loss of $4 million and operating margin declined 850 basis points to negative 1.8%, which is below our expectations. The deleveraging of occupancy and SG&A expense is resulting from the negative comp store sales throughout the majority of the decline in the operating margin in the quarter. Product margins are also lower as we were to clear inventories that are built up earlier in the quarter. In Europe, first quarter revenues decreased $165 million, representing 13% decrease in U.S. dollars and 12% in local currency. The decline was driven by lower wholesale shipments as well as negative comp store sales that were down in the high single digit.
As Paul mentioned earlier, Italy and France continue to be our most challenging market with shipments into the wholesale channel continue to decline, partially offset by growth in euro markets such as Germany and Russia. In addition, (indiscernible) timing of shipments that unfavorably impacted the first quarter this year than mostly benefit last year's fourth quarter.
Operating income decreased by $18 million to a loss of $5 million and operating margin declined 980 basis points to negative 3%. The higher occupancy rate was the biggest driver of the lower gross margin due to lower sales in our wholesale business and retail expansion. Our SG&A rate also increased due to the lower sales in the wholesale business and negative comp store sales. In Asia, revenues in the first quarter grew by 10% to $71 million with South Korea continued to post double digit top line increases.
Operating profit increased 19% to $7 million and operating margin increased 70 basis points to 9.8%. Improvements in our SG&A rate in the quarter drove the higher operating margin, partially offset by lower gross margin from retail expansion in Greater China.
In North America wholesale, first quarter revenues were roughly flat to last year at $44 million. Operating profit decreased by 7% to $9 million and operating margin declined a 160 basis points, 19.7%.
Royalties generated from sales by our licensee partners were in line with our expectations at $30 million, which represented a 5% increase from the prior year. Operating profit increased 7% to $26 million.
Now, turning our attention to the balance sheet. We ended the quarter with cash and short-term investments of $330 million compared to $490 million a year ago. This comparison includes the impact of $22 million of repurchases of our stock in the first quarter, a $140 million of repurchase of our stock in the second quarter of last year and a special dividend of $102 million in the fourth quarter of last year. Excluding this cumulative return to shareholders of $264 million over the last year, our cash position would have been up by $90 million from a year ago.
The cash receivable decreased 23% to $251 million and overall DSOs improved compared to last year. European DSOs remained flat despite the continuing slow payments in Italy, which we continue to manage carefully. It increased by $376 million, an increase of 13% in both dollars and finished goods units compared to last year.
The softer sales, sales in the first quarter in Europe and North America retail both contributed to the increase. In North America, in the back half of the first quarter we were able to work through most of our carryover inventory, which has put us in a better position going into the second quarter.
So, now (Russ) will give us an overview of our recent business trends and provide our outlook for the second quarter of fiscal 2014 and the full year.
Russell Bowers - CFO, North America Retail Business: Thank you, Nigel and good afternoon. Overall, our expectations on earnings per share for the year have not changed. We have incorporated some of the cost savings in the first quarter into our full-year assumptions. However, we have also tempered our expectations for top line performance for Europe and Asia for the rest of the year based on the finalization of the fall, winter orders in Europe and economic conditions we are seeing presently in Asia.
Looking at North America retail so far in the second quarter, comp store sales have been down in the low single digits and we are planning the second quarter, assuming comps decline in the low to mid-single digit. This would translate into a revenue decrease in the low-single digit to flat range. For the full year, we are now expecting comp store sales to decrease in the mid-single digits and for revenues to decrease in the low single to mid-single digits.
So far in the second quarter, comp store sales in Europe have improved and are roughly flat for quarter to date. For the full quarter, we expect the comps to decline in the low to mid-single digits as the comparisons get more difficult in the second half quarter. For the year, we are planning comp store sales to decrease in the mid-to-high single digits.
In Europe, we recently completed the sales order campaign for our fall, winter season and now have more visibility into expected wholesale trends over the next few months. The fall, winter wholesale orders are down in the low double digits and we are not planning for any notable improvement in the back half of the year. Considering these factors as well as the largest store base, we expect total Europe second quarter revenues to decline in the mid-single digits in local currency. Assuming the euro remains at prevailing rates, this would result in U.S. dollar revenues that decrease in the low-single digits in U.S. dollars. For the full year, we expect revenues to decline in the mid-single digits both in local currency and U.S. dollars.
In Asia, while revenues were up 10% for the first quarter, economic conditions are not as strong as we had hoped and our sales trended below expectations in the first quarter. For the second quarter we expect revenues to grow in the flat to low-single digits. For the full year, we now expect revenues to grow in the mid-single digits.
In our North American wholesale business, we expect revenues to decrease in the low-single digits for the second quarter and decline in the mid-single digits for the full year.
In our licensing business, for the second quarter we expect royalties to be flat. For the full year, we now expect royalties will grow at a slightly slower pace in the low-single digits as our licensees navigate the weak global macroenvironment.
For the both the second quarter and full year, we expect overall gross margins to decline as the expectation of negative comp store sales in North America and Europe continues to put pressure on our occupancy rate. However, we do expect the decline to be as much as the first quarter.
With respect to operating expenses, we expect a slightly lower SG&A rate for the second quarter driven by expectations of lower overall expenses partially offset by the impact of negative comp store sales.
For the full year, we expect SG&A rate to be flat to slightly lower as some of our restructuring initiatives start to impact the cost structure and we anniversary some one-time costs not expected to reoccur. We are planning the full year with a 33% tax rate and our guidance assume foreign currencies remain roughly at prevailing rate
Considering all of these factors for the second quarter we expect consolidated revenues in the range of $620 million and $635 million. We are planning an operating margin between 7% and 8% and for adjusted EPS in the range of $0.34 and $0.38 per share, excluding any restructuring charges. These expectations would result in full-year consolidated revenues between $2.57 billion and $2.61 billion, operating margin between 8.5% and 9.5% and adjusted EPS in the range of $1.70 and $1.90 per share excluding any restructuring charges.
Lastly, in the first quarter, capital expenditures totaled $20 million. For the full year, we plan to invest between $80 million and $100 in capital, net of tenant allowances, primarily for our new stores and remodels.
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 follow-up question. Operator?
Operator: Erinn Murphy, Piper Jaffray.
Erinn Murphy - Piper Jaffray: Nice to see some of the top line improvements in North America. I guess, I wanted to focus a little bit more on that segment specifically just kind of pacing out both the top line kind of recent improvement and then coupling that with kind of the profitability in the quarter. I guess the first part of this is how should we think about the conversion rate in the first quarter as you did start to kind of test some of the product, kind of, sharper price points in the product categories as $79 denim. Did that actually help improve conversion? Then what kind of products have you been seeing standout in the second quarter to date?
Russell Bowers - CFO, North America Retail Business: So to follow-up on that. Yes, we did see trends get a lot better during the quarter. With the first half we were down in the teens and the second half we were down mid-singles. In May so far we've improved even more and just as importantly, we haven't given up as much in product margin as we did in the first quarter, it's down, but it's only down about a third of what we lost in Q1, so trends are really looking better across the board. In regards to the conversion rate, yes conversion has improved for us. It was up over last year during the first quarter and it's still up so far in the second quarter. So we are encouraged by that. In relation to the pricing, it's still early to draw a lot of conclusions based on that because we haven't done it in a big way yet. I mean we've really just added $179 style to the denim wall and there was another style that we repriced that wasn't as significant. But we have seen some positive results with the lower price denim so far and a lot of the entry-level price point glasses have also done well. Of course the overall numbers are better too. So we are encouraged.
Operator: Betty Chen, Wedbush Morgan Securities.
Betty Chen - Wedbush Morgan Securities Inc.: Congratulations on managing well and the nice improvement in the business. I was wondering if you can talk a little bit about Europe, it feels like while Southern Europe remains weak, I think you mentioned that comps have also improved in the second quarter. How should we think about that and whether you believe that the consumer appetite has improved a little bit and that we might be set up for multiple quarters of them finally feeling comfortable to buy. And in terms of the new market are there any other new markets that you are thinking about going into besides Russia, Germany that have done so well?
Paul Marciano - CEO, Vice Chairman and Creative Director: This is Paul. There are few factors here, Betty, we should address; one is the continued pressure in France and Italy and it is no secret for anybody that they are much more challenging even than Spain; also for us because we are so largely present in these two countries. But by expending North Europe and Eastern Europe we have been able to really manage to have that percentage of presence reduce slowly to more comfortable numbers. What we have not expected has been as of today, as of last weekend, as of last week is a drastic weather condition will continue to be like beating Europe like we have not seen for – some time (indiscernible). To give you just some color some ski station are reopening this weekend in June. I have never heard that in my life that people will be going skiing in June. So, it is happening right now in France. So, the weather has been a big factor. Today, the French government got some relief from the European community to release some rules and I think that will help the austerity to hit so hard the consumers in France. So, I am getting much more hopeful than where we the last quarter and the last three quarters in France and in Italy. Italy, we should see also some move little bit, but we try to be – because I go there a lot and the sense of the Street continue to be cautious, the sense of the Street is nervous, apprehensive and we don't see the consumer rushing to the stores and say oh, wow, I want to shop today. It's much more controlled. I'm on my way next week to Europe again, and I think we will evaluate that. But you talk about new markets and new markets like we're pushing right now has been the Middle East which has been really strong we are there for 20 year but we continue to expand very strongly in Middle East, which we have no issue of credit or austerity or whatsoever. In Eastern Europe like Poland, we just opened a brand new showroom a few months ago. We are opening seven stores now. I am on my way to visit (indiscernible) and I'm very hopeful about all these countries along that and Turkey of course. So, I'll give you the best color I can right now. Europe is a very large market for us and we are monitoring very closely and we believe that things should turnaround on Q3.
Operator: Eric Beder, Brean Capital.
Eric Beder - Brean Capital: Could you talk a little bit about I know we've had – weather has kind of messed up kind of trying to figure out the trends in PCs here. What are the trends you are seeing and as we go into fall, what kind of do you think was going to happen with the (indiscernible) – I know quarter has not been as strong going forward?
Paul Marciano - CEO, Vice Chairman and Creative Director: I'm sorry I did not understand the question. I'm really sorry.
Eric Beder - Brean Capital: I'm sorry. I'll rephrase it. In terms of what you're seeing, in terms of what's working, in terms of fashion trends being in North America and Europe, specifically denim. What has been the key denim look that's has been working for your group and where are you focusing your denim looks going forward?
Russell Bowers - CFO, North America Retail Business: So really going forward with the denim looks, we're really looking at the destroyed look, which is doing really well right now in the stores. Really more of your authentic heritage type of denim is really the look that we are going for back in the fall. We still feel good about in the fall about coated denim this year as well.
Operator: John Kernan, Cowen and Company.
John Kernan - Cowen and Company: Why don't you talk about the assumption that product margin and gross margin gets better as the year goes on? Are you worried that your inventory is a little bit, you are a little bit over inventory right if you just optically look at inventory growth relative to sales growth, it seems like there is a pretty delta between that. Is there a specific region that's accounting for what? And what gives you confidence that the gross margin line is going to get better as the year goes on, particularly on the product margin side?
Nigel Kershaw - Vice President of Finance & Accounting, and Treasurer and Interim CFO: So when you look at inventory the first quarter, we're up 13% and that's largely due to the softer demand that we saw both in Europe and in North America in the first quarter. The good news is that in North America after Easter when we started to get more traffic we are able to work through a lot of that carryover inventory and so for the most part that's allowed us to enter second quarter in a better position and as Russ mentioned earlier we don't expect to have the same product margin declines in the second that we saw in the second quarter that we saw in the first quarter, so that's good for us. In Europe, there is a business model there doesn't allow us to clear inventory within the quarter. But we do have a very profitable liquidation model that we can liquidate product through our outlet. The situation is just that we have to hold on to inventory for a longer period, but we do believe that by the end of the year we will have aligned inventories and sales in Europe.
Russell Bowers - CFO, North America Retail Business: John, this is Russ. Just to give a little more color on North America. After we normalized further weak shift in the calendar our inventory was down 1% per square foot at the end of the quarter. So, we are currently fairly clean, but we do think at the end of the quarter there could be some liability with some of the seasonal (goods) because the season started very late this year. And as you look through the back half of the year the team is planning the markdown levels very tightly, but we also have some easier comparison last year to look forward to as well.
John Kernan - Cowen and Company: Any thoughts about how much the clearance of the carryover inventory may have benefited your comp in North America in the quarter?
Russell Bowers - CFO, North America Retail Business: It wasn't a big impact on it. In a lot of cases it hurt us because it lowered our (ADS), which is one of the things that hurt us in the quarter. So, you are talking maybe 1%, 2% and you look at May where we haven't had the same levels of markdowns, the comps have been even better than the back half of Q1. So, I don't think it helped our comp much at all.
Operator: Omar Saad, ISI Group.
Omar Saad - ISI Group: Could you guys talk about the accessories business. I know it has been little bit disappointing last couple of years handbags, watches. I know you've got some new initiatives going on there. Some new kind of materials and looks and give us an update on the progress of getting that business which historically has been a really important contributor where you want it to be?
Paul Marciano - CEO, Vice Chairman and Creative Director: Well, I think that I would start with handbags, which is the largest category I believe to me and the last two years you are absolutely correct were challenging and now last few months we have seen some positive all on a (indiscernible) stores specifically turn around and positive comp for the bags. Watches has been stabilized and shoes has been challenging for the simple reason that I mentioned at the beginning of call, which basically we are in May now, June in few days and there have been really no spring summer weather conditions anywhere, especially the East Coast only just the last few days I think you'll be experiencing some good days. But that has been the picture. The eyewear has been good. Jewelry in U.S has been good. The handbag which sold out around the world is the main driver and it looks like we are really turning the point there and in fact, the line review will be tomorrow for holiday and I'm really excited because I saw the preview already and I'm very happy with it.
Operator: Jeff Black, Avondale Partners.
Jeff Black - Avondale Partners: A couple of questions. On a cost initiatives what falls in the bucket of efficiencies that we carry forward? What falls in the bucket of one-time compensation marketing adjustments that we made, how do we look at that picture? And then Paul on Asia, what's driving your thinking there, is it the same kind of issue in Europe, is it weather or is it product, is it consumer spend? On the SG&A side, we look like we're starting to leverage that business like we all thought we would is that where we are here in the investment cycle is behind us and we can now get better leverage on that top line?
Nigel Kershaw - Vice President of Finance & Accounting, and Treasurer and Interim CFO: So, on the SG&A initiative side, we've been very careful to focus mainly on the back office functions in the underperforming markets. We haven't touched store selling and we haven't made big changes to marketing to advertising. So, when you look at the changes that we've made, we're really focused on delivering those restructuring initiatives that we implemented in the first quarter. So when you look at the full year we believe that there is actually an opportunity for the full year to leverage our SG&A rate versus last year. That's a combination of the restructuring initiatives that we've implemented, there are some one-time costs in there, but also if you look at our first quarter results we actually delivered better on the cost plan than we had expected and you're now seeing that in the full year guidance. Then to your point on Asia, on SG&A yes, that's – we've been very focused on building the infrastructure there and this was the first quarter where we were able to really look at those expense and leverage there. So, we're very happy about that. As we said last quarter, the operating margin we expect that to be accretive for the year when you back out Japan where we're making some investments in there.
Operator: Jeffrey Van Sinderen, B. Riley & Co.
Jeffrey Van Sinderen - B. Riley & Co: I think in your prepared or in one of your question answers you mentioned that you thought Europe would turn around in Q3. If I heard you right. I'm just wondering what gives you confidence in that, how you are figuring that what will happen.
Paul Marciano - CEO, Vice Chairman and Creative Director: This is Paul. That's my personal opinion for that of what time I see happening of new merger but the austerity plan we are changing right now in France and Italy, which have been guided by the European community to say that we got to correct that as soon as better because it becomes interest (indiscernible). I believe that we are going to see the consumers coming back to better level of comfort. What is the most stressful in Europe right now is worriness of the consumers, the concern of their job, the concern of the weather, of course, which I mentioned many times. But I am a very helpful person about that and Europe is extreme large, large business was and I see that we are putting things in place that if the weather corporate little bit, we should have very good Q3 and Q4. That's my goal, that's the entire company goal.
Operator: Susan Sansbury, Miller Tabak.
Susan Sansbury - Miller Tabak: Could you specify what the cost savings were in the first quarter and if there are specific buckets, could you explain what they were and what type of annual cost saving are you striving for the year?
Paul Marciano - CEO, Vice Chairman and Creative Director: So, when you look at the savings versus our expectations in the first quarter, none of that was related to the cost restructuring. We expect to get the cost restructuring benefits in the back half of the year. So, there was those savings in the first quarter, there was no one single large bucket that was spread across the entire organization in all regions. So, we are happy about that. It's definitely a focus on extent -- on expense discipline in the Company throughout the Company. When you look at the full year as I mentioned earlier, we expect there is an opportunity to leverage SG&A rate for the full year. If you look at based on those expectations is roughly about $25 million of cost savings initiatives and other cost savings that are built into that model, so that's not the annualized number, but that is what we expect to benefit from in this year and so that's what we're focused on at the moment.
Operator: Dana Telsey, Telsey Advisory Group.
Dana Telsey - Telsey Advisory Group: As you think about going forward now that we've gotten through the first quarter, you've hired new people, how do you see the design change is evolving? How do you see it evolving in terms of price point? Then when you think about the gross margin and the different buckets of gross margin and what happened with occupancy and then what's happening also as you're thinking about store -- how you are looking at the store base, where should we see the change in operating margin over time? and is it going to happen first in Europe -- happen first in North America, how do you look at it?
Nigel Kershaw - Vice President of Finance & Accounting, and Treasurer and Interim CFO: Hi, Dana. It's Nigel. I'll deal with the gross margin question first. So, when you look at that -- what you look at the first quarter, it's our smallest revenue quarter of the year. So, any changes in revenues have a significant impact on operating margins whether that's an increase in revenues or decrease, so that's what you're seeing here. When you look out at the profitability over the rest of the year, the two big drivers and why we wouldn't expect to have the same margin decline that we saw in the first quarter, the biggest one is the positive comps, another positive comps. The improvement in the comp trend over the rest of the year. That assumption drives an improvement in the profitability. As earlier on I was talking about the SG&A improvement, that's also going to help us, so those are the two biggest single drivers that improve the operating margin.
Paul Marciano - CEO, Vice Chairman and Creative Director: For design of course starting Monday and we have not started. What we put as we explain to you is the denim has taken front stage in all areas of the Company and we lost a little bit of that in the last few years by focusing so much on accessories, accessories, and fashion trends. But our heritage, our roots, our business for the years has been denim. You will see that with the pictures of my new campaign, which should be in the magazine in five weeks, maybe six weeks for fall and you will see that in windows also for fall at the same time. Denim will be completely a priority on every front, that's one; two is I think we diversified ourselves too much. We are going to be much more focused on the categories, much more focused on volume drivers and without forgetting that we are a sexy company. We started as a sexy jeans company and we have not changed that. And we will make sure that we mind the customers who have been loyal to us for so many years. That we still exist after 33 years because of that. So, you will see the message I think better than anything would be to visit the stores and talk to the customers or the managers and see what you see in changing the product, but expect to see a big, big change in the next six weeks windows in magazine and everywhere.
Russell Bowers - CFO, North America Retail Business: And then, Dana, the price point evolution goes and (lock step) Paul was just talking about in regards to deeper buys because a lot of these deeper buys are going to be at the lower price points and you are going to see the biggest changes in denim, you are going to see the changes in knits as well as handbags. And I think of really good example of where we are going to be once we get to the fall is that as half of our denim vol is going to be at $79 price points and then we will have $89 and $98 on top of that which is little sharper than where we were right now and where we were last year.
Operator: There are no additional audio questions at this time. I would now like to turn the call back over to Mr. Paul Marciano for closing remarks.
Paul Marciano - CEO, Vice Chairman and Creative Director: Thank you, everyone to participating in the Q1. I think we will have next conference call on August for Q2 and I believe that we will have a much more news to share about our key question which will be Europe and giving much more detail about the rest of the year at that point, but also about product category with four months later about design and product development. Thank you very and we will talk to you in August. Thank you.
Operator: Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.