Guess CEO Outlines Strategic Plan to Expand Brand Loyalty

Victor Herrero has been CEO for Guess for the past nine months and he outlined some strategic plans to expand the brand’s customer loyalty in the next three years.

Herrero’s plans came during last month’s fourth-quarter earnings call. Herrero replaced co-founder Paul Marciano as CEO of the apparel company. Herrero previously worked for retailer Inditex Group, which includes brands Zara, Massimo Dutti, and Stradivarius.

“And to further reinforce a culture of accountability, I’m in the process of designing a long-term stock bonus plan for the management of our company in order to more directly link rewards with performance,” Herrero said, according to Seeking Alpha. “A direct link between rewards and performance is very important to me. Bureaucracy is my enemy and I am determined to defeat it.”

Herrero said he’s prepared to quantify the financial impact of the company’s strategic initiatives during the next three years.

“Assuming currency remains constant, we are planning for our annual revenue to grow from the current level of $2.2 billion to $3 billion in three years, which is a compound annual growth rate of 11%,” he explained. “This $800 million growth in revenues will be fueled by ecommerce, new store openings, and comp growth across all concepts. We expect licensing revenue on our wholesale business to remain flat.”

Geographically, the $800 million growth in revenue will come from the following areas, he noted:

Approximately $300 million from the Americas, with a particular focus on ecommerce, factory stores, and G by GUESS

Guess plans a net increase of 60 stores in the Americas over the three-year period

Approximately $300 million from Europe, including a new joint venture in Russia

A net increase of 140 stores in Europe over the three-year period

Approximately $200 million from Asia where we expect to generate more than two-thirds of sales growth from Greater China; plan a net increase of 200 stores in Asia over the three-year period

As a result of this growth in revenue, Herrero expects operating margins to increase by 200 basis points, to 7.5% over the three-year period; and earnings per share to increase at a compound annual growth rate of 20%
“Capital allocation is the most fundamental responsibility of management, because cash has an opportunity cost, which is a value of the next best alternative,” Herrero said. “So unless capital is being allocated to the highest and best used, it is underperforming relative to its opportunity cost. In order to drive this growth, we expect to allocate $250 million to $300 million for capital expenditures over the three-year timeframe.”
Herrero noted that the next six months represent a transition period for the implementation of the three-year plan, which will include one-time changes and other anomalies.

“As I truly believe in the potential of the Guess brand ever since I started working at Guess, I have reinvested 100% of my dividends to purchase more stock in our company and I intend to continue doing so for the foreseeable future,” he said.

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