PVH Corp (PVH) 2017 Q3 法說會逐字稿

Good morning, everyone, and welcome to the PVH Corp.

Third Quarter 2017 Earnings Conference Call.

This webcast and conference call is being recorded on behalf of PVH and consists of copyrighted material.

It may not be recorded, rebroadcast or otherwise used without PVH's written permission.

Your participation in the question-and-answer session constitutes your consent to having anything you say appear on any transcript or replay of this call.

The information being made available includes forward-looking statements that reflect PVH's view as of November 29, 2017, of future events and financial performance.

These statements are subject to risks and uncertainties indicated in the company's SEC filings and the safe harbor statement included in the press release that is the subject of this call.

These risks and uncertainties include PVH's right to change its strategies, objectives, expectations and intentions and its need to use significant cash flow to service its debt obligations.

Therefore, the company's future results of operations could differ materially from historical results or current expectations.

PVH does not undertake any obligation to update publicly any forward-looking statement, including, without limitation, any estimate regarding revenue or earnings.

Generally, the financial information and guidance provided is on a non-GAAP basis, as defined under SEC rules.

Reconciliations to GAAP amounts are included in PVH's third quarter 2017 earnings release, which can be found on www.pvh.com and in the company's current report on Form 8-K furnished to the SEC in connection with the release.

At this time, I am pleased to turn the conference over to Mr. Manny Chirico, Chairman and CEO of PVH.

Thank you, Sophia.

Good morning, everyone.

Joining me on the call is Mike Shaffer, our Chief Financial Officer; Dana Perlman, our Treasurer and Head of Investor Relations; and Ken Duane, the CEO of our PVH Heritage businesses and our North America Wholesale businesses.

I'm quite pleased with our results for the third quarter, which exceeded our expectations.

We continue to overdeliver against our strategic and financial plans.

Overall, we saw third quarter revenues grow 5% and EPS increase 16%.

We saw a tremendous strength across all of our businesses, with our international businesses demonstrating outsized performance.

Europe, China and Japan continue to be our healthiest markets in the third quarter.

We saw improvements in our North America business, which performed in line with our plan despite multiple natural disasters, particularly in Puerto Rico, that impacted our retail businesses.

Business trends in North America have continued to significantly improve as we've moved through the fourth quarter.

Across channels, we continue to see outsized growth from the digital channel, consistent with our trends all year.

From a strategy perspective, we continue to invest in driving our brand relevance and our consumer reach through our increased marketing investments.

And given our strong results, we have decided to invest an additional $20 million in brand marketing in the fourth quarter.

Despite this $0.20 per share incremental expense, we are significantly increasing our earnings guidance for the year.

Moving to our third quarter results, let me begin with Tommy Hilfiger.

The Tommy Hilfiger brand continues to experience significant demand, and we are seeing broad-based strength across all the businesses.

The Tommy brand relevancy and momentum continues, leveraging our key influences from Gigi Hadid, our women's brand ambassador; to The Chainsmokers, our brand ambassador for all Tommy Hilfiger men's categories; and Shawn Yue, our local brand ambassador for China.

We believe that investing in the Tommy Hilfiger brand via these brand ambassadors will continue to drive performance in our global growth categories.

And additionally, by offering limited jeans capsules and unique collaborations, we are continuing to propel the brand forward, allowing us to engage with a new and younger consumer.

From a business perspective, Tommy revenues increased 10%, and earnings were up 35% for the quarter.

We continue to be extremely pleased with the response from consumers and are benefiting from the market share gains in all regional markets.

International revenues increased 16%, with retail comp sales up 7% for the third quarter.

This outstanding performance was driven by our Tommy European business, which continued to outperform.

And we continue see positive momentum across the business, and we see strong sell-throughs at retail.

As I previously mentioned, our spring/summer 2018 order book is up over 10%, and we are quite pleased with the broad-based strength across all of our product divisions and across all of our markets within Europe.

In addition, we continue to see strong momentum in early fall selling, and we anticipate the strong sell-in to continue in Europe throughout fiscal 2018.

Moving to Tommy Asia, led by our -- led by the China Tommy business.

It continues to perform very well as we've continued to build on the continued momentum in China, benefiting from the integration and investments that we've made in the Tommy Hilfiger China business.

Our Tommy Hilfiger Japan business also continues to overdeliver against its repositioning and turnaround plan.

Moving to North America.

I am happy with the inflection we have seen in the business.

We started to see a turn in our retail business in the second quarter, and we saw even stronger momentum during the third quarter as revenue increases, driven largely by the improvement in our retail business, which posted a 6% comp store increase and solid gross margin improvement.

We have also seen continued strength across our wholesale businesses, both men's and women's.

Our Macy's business, in particular, has been outstanding with strong sell-throughs at higher overall margins.

Moving to our Calvin Klein business and speaking about the brand.

We are pleased with the momentum around the Calvin Klein brand and have just announced several significant marketing initiatives.

We recently launched our Calvin Klein Jeans and Underwear campaign, which introduces an evolution in the #mycalvins to a call to action to Our Family, #MYCALVINS.

This features several personalities, including Solange Knowles, and some talent which will be announced at a later date as we head into spring 2018.

I cannot wait to share with you the incredible talent and amazing reach we have planned when we announce our latest talent in mid-January for our spring 2018 campaign.

Specifically, these jeans and underwear marketing initiatives are geared to an enhanced direct-to-consumer focus to drive our business.

We really feel that with the amazing talent we have planned, that I can't speak about now and that we will introduce, that these initiatives will fuel tremendous growth in 2018.

We also recently announced our CALVIN KLEIN X Amazon Fashion holiday retail experience, available for customers at pop-up shops in New York City and in Los Angeles as well as through our online brand store at amazon.com #mycalvins.

While these are just 2 recent examples of our consumer engagement marketing investments, we believe that these, together with our other upcoming and ongoing brand marketing initiatives, will continue to drive the brand momentum, fashion relevancy and allow us to capture growth opportunities for the business.

Moving on to the business, revenues increased 6% for the third quarter, reflecting strong global trends, with a 20% increase coming from our international business.

And overall earnings were slightly down in the quarter due to the planned $15 million increase in brand marketing investments.

Absent these brand investments, earnings would have been up 8% in the third quarter.

We continue to see strong top line growth out of Europe and China, with North America performing in line with plan.

International retail comp store sales increased 9% in the quarter.

Calvin Klein Europe continued to deliver terrific performance, both top line and bottom line, with strong sell-throughs across all channels.

As we discussed previously, Calvin continues to see market share gains across the European region, and the momentum continues into spring 2018, with our order book projected to be up over 25%.

The broad-based strength across the business highlights the evolution of the brand and the business into a true lifestyle business in Europe, in line with our strategic plan for the region.

We see these strong selling trends continuing into fall and would expect the strong sales trends to continue throughout 2018.

In Asia, Calvin Klein continues to perform well, with China outperforming our other markets across all product categories.

We continue to see softness in Korea, which has been pressured by the negative geopolitical news out of North Korea.

But overall, Asia business continues to post strong sales and earnings growth.

Calvin Klein North America saw healthy growth across all of our wholesale businesses, in line with our plans.

Our CK North America business saw an improvement in comp store sales trends versus the first half of the year, with comps down only 1% for the third quarter.

Finally, moving to our Heritage businesses, revenues for the quarter were down 7%, in line with our plans, due to some sales moving from the third quarter into the second quarter as compared to the prior year.

And therefore, earnings were down as a result of that planned sales shift.

As a reminder, year-to-date for the 9-month period, our Heritage Brands revenues are flat and earnings are up 9% over the prior year.

Retail comps were up 2% in our Heritage retail business in the third quarter.

Given the challenging overall North America market dynamics, we are quite pleased with the financial performance of our Heritage Brands divisions.

Looking to our full year guidance.

We have raised our full year earnings outlook and believe that our brands will continue to drive our fourth quarter performance.

In addition, as a result of the momentum in the business, we have increased our fourth quarter marketing spend by an incremental $20 million to capitalize on the opportunities we are seeing across our businesses.

Despite this incremental brand investment, we are planning fourth quarter earnings per share to grow 15% to 17% over the prior year.

We feel highly confident making this incremental investment in our brands given the momentum we see in our business.

In the fourth quarter, our early holiday sales and margin results are running well ahead of our financial plans.

Our international businesses continue to see nice momentum, with Calvin Klein International comps up high single digits and Tommy Hilfiger International comps up mid-single digits.

The big improvement we have seen has been in our U.S. business.

We have seen a strong start to the North American holiday season, with improvements in both traffic and sales trends.

Comps for Calvin Klein North America are trending up mid single digits, and Tommy Hilfiger North America comps are trending up high single digits quarter to date.

We also continue to see strong performance in our wholesale businesses in North America and Europe in the fourth quarter.

We are well positioned for the fourth quarter and the balance of the year and believe given our underlying brand momentum and the strength across our holiday -- our businesses, that we can continue to overdeliver against our financial plans.

And with that, I'll turn it over to Mike to quantify our third quarter results.

Thanks, Manny.

The comments I'm about to make are based on non-GAAP results and are reconciled in our press release.

Our revenues for the third quarter were up 5% to the prior year, including a positive impact of 2% for foreign currency and exceeded our guidance of up 4%.

Tommy Hilfiger revenues were ahead of guidance and up 10% over the prior year, including a positive impact of 3% for foreign currency.

The Tommy Hilfiger revenue increase was driven by strong international performance of plus 16% to the prior year, including a positive impact of 5% for foreign currency, with international comps up 7%.

Revenue growth was also positive in North America, where we saw a 2% increase over the prior year, including strong retail comps of 6%.

Negatively impacting the Tommy Hilfiger North America revenues was a decrease of approximately $20 million due to the transfer of the North America women's wholesale business to G-III in the fourth quarter of last year.

Our Calvin Klein revenues were ahead of guidance and up 6% to the prior year, including a positive impact of 2% for foreign currency.

Negatively impacting our Calvin Klein revenues versus the prior year was a deconsolidation of our Mexico business, which was worth approximately $20 million.

Calvin Klein International revenues increased 20%, including the positive impact of 4% for foreign currency with strong performance in Europe, and international comps up 9%.

Heritage revenues for the third quarter were down 7%, driven by a shift in the timing of shipments from the third quarter to the second quarter.

Our non-GAAP earnings per share of $3.02 represented growth of 16% over the prior year and included a planned increase of approximately $15 million of marketing compared to the prior year, related primarily to Calvin Klein.

The $3.02 was $0.10 better than the top end of our previous guidance, and the beat was driven by a $0.03 business beat, favorable FX of $0.03, and tax expense, which was favorable for $0.04.

For the full year, we are currently anticipating that we will be negatively impacted by $0.17 per share due to foreign exchange, an improvement of $0.03 when compared to our prior guidance.

For the full year, we are projecting non-GAAP earnings per share to be to $7.78 to $7.80 or 14% to 15% over the prior year, which is $0.10 higher at the top end of the range than our previous guidance.

And this reflects a tax beat of $0.04, a $0.03 increase due to favorable FX, a $0.23 increase due to stronger business, partially offset by the increase in Calvin Klein marketing of approximately $0.20.

Overall, we are projecting revenue to grow approximately 7%.

2017 revenues will be negatively impacted by approximately $70 million related to our Mexico deconsolidation and approximately $80 million related to the transfer of the Tommy Hilfiger North America wholesale women's business.

2017 revenues will also be positively impacted by an amount of approximately $50 million related to 2017 being a 53-week year, offset in part by the negative impact of the timing of Chinese New Year.

Overall, operating margins are expected to increase about 10 basis points on an as-reported basis and to increase approximately 30 basis points on a constant currency basis.

We project Calvin Klein revenues to grow 9%, with operating margins down about 130 to 140 basis points on an as-reported basis and to decrease about 90 to 100 basis points on a constant currency basis.

Our Calvin Klein earnings are negatively impacted in 2017 by about a $50 million increase related to advertising and the creative leadership changes.

Tommy Hilfiger revenues are planned to increase 8%, with operating margins planned to increase about 130 to 140 basis points on an as-reported basis and to increase about 160 to 170 basis points on a constant currency basis.

Our Heritage business is planned to have relatively flat revenues versus the prior year, with operating margins planned to increase about 30 to 40 basis points.

Our corporate segment expenses are planned to increase over 15%.

The increase reflects low single-digit growth in our overheads as well as start-up losses associated with new businesses.

Interest expense for the year is planned to be about $120 million compared to the prior year amount of $115 million.

The increase is primarily the result of the EUR 300 million bond issued last year.

Our tax rate for the year is planned at about 16.5% to 17%.

Fourth quarter non-GAAP earnings per share is planned at $1.42 to $1.44 or 15% to 17% over the prior year, and includes $0.02 of estimated impact from foreign currency.

Revenue in the quarter is projected to increase 11%, including a positive impact of 3% for foreign currency.

Revenue will be positively impacted by the 53rd week and negatively impacted by the Mexico deconsolidation, the transfer of the Tommy Hilfiger North America wholesale women's business and the timing of Chinese New Year.

Calvin Klein revenues are planned at a 16% increase, including a positive impact of 4% for currency.

Tommy Hilfiger revenues are at a 12% increase, including a positive impact of 5% for currency.

And Heritage Brands revenues are projected to decrease 1%.

Interest expense is projected to be about $30 million and taxes to be between 17% and 20% in the fourth quarter.

And with that, we'll open it up for questions.

(Operator Instructions) And we'll take our first question from Bob Drbul with Guggenheim Securities.

Manny, I was just wondering if you could maybe talk a little bit more around North America, especially November, the last 6 weeks, department stores.

Like, what do you think is going on in the market in this channel for your business generally?

I think in general, I guess there's 2 big items that are going on that I think are helping business overall.

Traffic has improved, and we're seeing business just, in general, improve.

And the other big benefit that I think everyone is seeing is inventories are under real tight control.

So I think it feels like we're -- again, we've got a month ahead of us of this holiday selling, but it feels like we're going into December with a lot of momentum, tighter inventories.

I think it'll be promotional, but probably not as promotional as last year.

There'll be less goods to clear come January if these trends continue.

So we are very positive in all that we're seeing throughout North America across all of our businesses and across the various different channels of distribution with our key customers.

Great.

And I was just wondering if you could comment a little bit.

I mean, on your inventories at the end of the quarter, just the content of those inventories, your comfort level with what's in there and sort of the expectation on moving those inventories forward.

Yes, I'm going to turn it over to Mike.

I would just say, qualitatively, that inventory is very strong and we're really trying to capture as much of the growth opportunities above plan that we see ahead of us.

I think that inventory's going to be a valuable asset for us, and I think Mike can give some details.

Yes, Bob, look, our inventory is up about 17%.

Our fourth quarter sales are planned up about 11%.

The content of that inventory, we are very clean on fashion across the globe.

A big piece of the investment that we made was in international inventories, and it is really core and basic.

So there's really no risk in terms of liquidation or becoming obsolete.

So it could fuel a good increase for the fourth quarter.

And I think -- yes.

I think Mike said it well.

I think the -- we have a bigger core replenishment business today than we had 12 months ago in our 2 big brands, and I think the opportunity to capture the momentum in those brands is in front of us with very little markdown risk given the composition of that inventory.

So we really see it working to our advantage.

And we'll hear next from Erinn Murphy with Piper Jaffray.

I guess I'd love to, Manny, hear you talk a little bit more about that Amazon Fashion holiday collaboration that you guys just announced a few weeks ago.

How has that been trending thus far?

Any kind of insights from what you're learning from consumers?

And then has that changed anything with your relationships with your kind of legacy department stores?

Well, I think it's -- on balance, I think the experience for us has been terrific.

We think it's great for the brand.

We've seen strong sales performance coming out of the 2 pop-up shops.

And more importantly, we've seen strong sales performance in the Calvin business with -- and our Amazon business with them as well online.

The interesting fact that we've seen is that we think it's really created a lot of momentum around the brand and more excitement around the brand.

And we've seen our Calvin Klein Underwear business -- and that's what this is really focused on -- we've seen our Calvin Klein Underwear business in all channels of business really accelerate through the month of November.

And in particular, that -- the Black Friday week through Cyber Monday across department store channel and distribution, we've had one of our strongest weeks on record with the Calvin Klein underwear business.

So I think it's really lifted all boats, and I think it's created a level of excitement around the brand.

And no, we haven't seen a lot of -- any kind of pushback from our accounts.

We have a strong relationship with all of our key customers, and we try to drive everybody's business.

That's good to hear.

And then, I guess my second question for you guys is just on the Tommy Hilfiger business.

I think it's the first time in a long time that North America is actually outperforming international.

Obviously, they're building off very different bases.

But just maybe bigger picture, how sustainable do you see the North American Tommy traction?

And how are you thinking about anniversary-ing the success you've had this year with Gigi?

Sure.

I think there's 2 specific questions there.

The North America business just continues to perform.

We think we have -- if you look at that business over the last 3 years, the Tommy North America business, we've really felt the pressure coming from currencies and the lack of international tourism.

As that starts to turn, and we're clearly seeing that start to turn, I think our Tommy retail business will be one of the biggest beneficiaries given the strong international presence that, that brand has.

So I think there's opportunities to continue to comp on top of these comps given the fact that we've really had 2.5 years of challenging business going into the second quarter of 2017.

So we really haven't seen an inflection point on that business until we got to that point in time.

So really can't -- don't see any negative downside.

I really can't talk about the new talent, but I can tell -- that's going to be happening at Tommy.

But I can tell you, there will be a significant spring 2018 marketing campaign with new talent.

And I think the focus will be a little different, in that Gigi was such a driver for the brand.

But it was really -- she was the women's ambassador.

I think our focus will shift a bit.

We'll continue to focus on women's.

But we'll really focus on our strength, which is our men's business as well.

And I think you'll see some exciting things come January/February of 2018 around the Tommy Hilfiger marketing campaigns, which will be a continuation of what you've seen for the last 18 months and I think has helped to really fuel the top line growth that we've seen in that business.

And our next question will come from Kate McShane with Citi Research.

My question is centered around the relationship with Amazon as well.

We've heard from some vendors that they're starting to have conversations with Amazon about markdown money and I wondered if you had any commentary with regards to that.

And then in regards to the pop-up shops, I wondered if the incremental $20 million that you're spending in the fourth quarter is being allocated to that initiative.

Sure.

Okay, a couple of things.

I think having discussions with retailers about markdown money is not very unusual.

And I think as Amazon becomes a bigger and bigger player, there'll be discussions about performance and markdown money as needed.

It continues to be a very profitable channel for us, and I think that -- I don't see any reason why that wouldn't continue.

The interesting thing about that business, it tends to be much more of a core-driven business.

And given our strength in that area of the business, particularly our Calvin Klein underwear business, our dress shirt business, I continue to think that our profitability will continue to be pretty high as we look at that business.

So we haven't seen anything that drastically changed.

We're taking some -- I guess, I think I would say, we're supporting them probably more so from an inventory point of view, backing up inventory, particularly in core programs, so we can maximize the business as opposed to really seeing any pressure on margins in any way.

So we're not seeing that at all.

Your second question on the marketing.

Yes, part of the investment that we're making on the Calvin Klein brand, that $20 million, a portion of that relates to the promotion, PR related to the Amazon pop-up shops and the Amazon relationship, which I think is helping all of our Calvin Klein businesses, not just Amazon.

And our next question will come from Matthew Boss with JPMorgan.

So as we think about improved inventories in the channel, I guess, what's the best way to think about near-term gross margin opportunity?

And then more so as we think beyond this year, what's the best way to rank the continued drivers of gross margin beyond?

I think for us, the -- with the outsized growth of the Calvin Klein and Tommy Hilfiger businesses in general and with the outsized growth that we're seeing internationally, both in Europe and Asia, the biggest opportunity for gross margin expansion is the continued growth of those businesses, which will continue to drive gross margin expansion as we go forward.

Great.

And just on the expense front, I guess what's the best way to think about the right mix of marketing dollars to sales?

And I guess on that line, how best to think about SG&A dollar growth versus sales as we move forward there as well?

Look, I think in general, in general, is we've tried to invest and continue to invest as a percentage of sales on the business.

However, in fairness, I can't say that's what we've always done.

When we see momentum in the business and outperformance in the business, we -- like we're doing in the fourth quarter of this year, we've made a determination to take a portion of that earnings growth and invest it back into the brands above the historic level of profitability.

So I think as we -- if we continue to outperform, we'll continue to spend more in the marketing area.

We'll make sure to deliver more on the bottom line as we're doing that.

But at the same time, in order to fuel the momentum of the brand, not to be a pig and have to throw everything onto the bottom line, I think the spend that we're doing in the fourth quarter of this year, this extra $20 million, I think is really going to set us up for spring/summer 2018 to go into that fiscal '18 with a lot of momentum.

And gives us the confidence that we can hit our financial goals as we move forward and continue to grow at this double-digit earnings growth, where I -- when I look at most of our competitor set, I don't see them growing at those same kind of levels.

So I think the marketing investments are clearly paying off.

And our next question will come from John Kernan with Cowen and Company.

Just how do we think about international growth for Tommy and Calvin into next year?

The run rates of wholesale order books and the comps for Tommy and Calvin are pretty robust.

I'm just wondering on how you're thinking about the sustainability of low double-digit top line growth ex FX for Tommy and Calvin into next year in international.

I guess I would say it this way.

We've got a metric that basically talks about overall delivering mid-single, read that as 4% to 6%, kind of top line growth.

That's our formula.

And I think clearly, we've said that the -- our international businesses will be in the high single-digit range, and our domestic businesses would continue to trend in the low single-digit range.

And blended would drive that 5% to 6% kind of top line growth.

That's the metrics that we have when we look out.

The reality of the situation is, and what's been happening the last 2 years and what appears to be happening for next year as we start to feel it, is our international growth has been more significant than that.

And the surprise has not been Calvin Klein, which we've anticipated that kind of double-digit growth with Calvin, given the momentum in the brand, the underdevelopment of the European business, and being able to put 25% top line growth in the wholesale side of that business, We think that will continue into 2018 based on our order books and early selling of fall.

The surprise, to be honest, has been the Tommy business.

That's a very big and what I would have described as a mature, highly profitable business with great market penetration.

And to be able to be growing that 10% in the first half of the year is somewhat surprising to us -- pleasantly surprising to us.

And I got to be honest.

What we're seeing initially, and we're not ready to quantify anything, but we're seeing initially in our early selling, is those trends in the high single-digit kind of growth in the European wholesale business feel like they should continue based on the momentum in the brand and the early selling of fall.

So it's -- we're optimistic as we look out into 2018.

Okay, that's helpful.

Just one follow-up.

I guess somewhat of a follow-up to the prior question.

As you exit transactional pressures from FX that you'd faced the prior 2 years, how do we think about operating margin expansion?

And not just for next year, but beyond that?

And your confidence in the portfolio's ability to grow double -- EPS double digits over a multiyear period.

So I think you always have to consider, when it comes to foreign currency, the margin benefit that will come over time, assuming that the euro and -- continues to strengthen and foreign currencies continues to strengthen, the U.S. dollar stays at this level or weakens further, if that trend were to continue, you would expect to get margin improvement coming from currency.

But given our hedging strategy and that we go out 12 to 18 months, that portion of the foreign currency benefit will probably be pushed out second half of '18 and -- but more significantly into '19 from a margin benefit.

The benefit we'll get next year is on the translation side of the business, which would -- which is really arithmetic.

Just converting our earnings at the average currency rates for next year, which, clearly, will be higher than this year.

So the big benefit is we've gone through 2 years of FX -- 2.5 years of FX pressure on our earnings, and we start to see that turn in the fourth quarter of this year into next year, it should become a tailwind for us.

So that's how I would think about it, John.

And we'll hear next from Ike Boruchow with Wells Fargo.

Manny, maybe -- I just wanted to go back to Tommy's international growth in Asia you talked about.

I think you took China in-house about a year ago, with revenues around $140 million with 2 cities.

I think Shanghai, Beijing.

Can you talk about the pace of expansion there in terms of new cities that you're looking at and what kind of sales you're expecting maybe this year and going forward in the region?

Sure.

I think just to be -- just to clarify, I would say, is we were much more exposed than just in 2 cities.

But we were directly operating 2 cities, meaning a direct-to-consumer model in Beijing and Shanghai.

Over the last 12 months, we've taken in 2 additional cities, where we're operating directly those businesses.

So that will drive some top line growth and some overall operating income improvement that you see going forward.

So we look at China as a market for Tommy to be able to grow high single digits, low double digits for the next 2 or 3 years.

To put it in perspective versus Calvin Klein, the Calvin Klein business in China is probably 3x the size of the Tommy business.

And I think over time, there's no reason that Tommy shouldn't approach the same size as the Calvin business.

So I think that opportunity in Asia will continue for Tommy as we go forward.

Got it.

And then just as a follow-up, maybe your current appetite around taking other Asian geographies in-house for Tommy.

There's still Southeast Asia and Korea, I believe.

Just how you're thinking about that in the near term to medium term.

Yes.

I think that's an opportunity for us.

I think the -- I think probably, if we were to prioritize it, we'd probably focus more on Southeast Asia first, meaning Hong Kong, Macau, Taiwan.

It's more aligned with the China business and the opportunities there.

Korea, we've got a great partner in Korea with Hyundai Department Stores as our operator and licensing partner in Korea for Tommy Hilfiger.

And I think we would be looking to really continue to grow that business with them as we move forward.

So I think clearly, Southeast Asia, Hong Kong, Taiwan and Macau would be the markets we'd be looking to expand into probably over the next 12 months.

And our next question will come from Omar Saad with Evercore ISI.

This is Westcott on for Omar.

Can I just follow up on how you're thinking about the online relationships outside of the U.S.?

You know, Zalando, Tmall, how those relationships are developing and how you contrast it with your relationship with Amazon and how you see that kind of moving forward?

Yes, look, I think the focus on this call has been Amazon because of the marketing initiatives that's going on in Calvin.

But the growth has been pretty explosive in Europe and Asia with the partners you described.

And we're seeing -- we had a great Cyber Monday.

We had a great Singles Day.

We continue to see very strong growth coming out of China.

Again, it's a little bit of a different business model in that in China, when you talk about Tmall, it's really a direct-to-consumer model, where you pay a commission, versus Amazon for us, which is really a wholesale model.

But both business models work really well for us.

They are very profitable for us.

And in Europe, our biggest online partner continues to be Zalando, and they do an excellent job presenting the brand.

They do an excellent job really selling fashion and not just core.

They're a strong partner, strategic for both Calvin and Tommy as we grow the business, and we'll be looking to continue to grow that business throughout Europe.

So we're seeing nice growth in all regions, as I said.

Our biggest growth channel continues to be digital and we define that as our own digital's businesses, our department store, customer businesses, macys.com and the like, and then, obviously, the 3 players you made, the pure plays, Amazon, Tmall and Zalando.

Those businesses, when we put that all together, by far our fastest growing channel of distribution.

And we'll hear next from Chethan Mallela with Barclays.

I want to ask about the Calvin Klein women's opportunity in Europe, which I think you've previously discussed as an initiative you'll be pushing in 2018.

Can you just provide an update on your efforts there and how you're thinking about that opportunity from a category and country perspective?

And then I think it's been cited as one of the main unlocks in getting that business to your $2 billion longer-term target for Europe, so are you seeing anything that makes you feel better or worse about that ultimate potential?

So we are launching that women's initiative in Fall 2018.

The market response and the receptivity to the brand in those categories has been very strong and very high.

We want to make sure we go into the market in the right way and not -- and hit it at the right -- at the appropriate price point.

Right now, that -- the focus is on a wholesale model as we start to roll that out, but we will be adding retail stores probably more so in 2019 than 2018 to really present the fullness -- a full lifestyle presentation for the brand as it goes forward.

So look, it is early.

But I -- it makes me feel -- I guess, the best signal we have is the performance of the Calvin Klein brand overall in jeans and underwear, particularly in the women's categories in jeans and underwear that we're seeing such strength.

And that's been a big part of -- I would say to you, we've always had strength in our men's underwear and our men's jeans business.

But as we look out internationally, the biggest growth that we've seen with the Calvin Klein brand has been in our women's intimates business and our women's jeans business to really see the growth there.

So I think, clearly, the brand has got a right to be in that sportswear category, similar to the strength that we're seeing in North America.

And I think given the strength of our European organization, we are very optimistic about able to keep that growing and that women's sportswear, ready-to-wear, including accessories and the related categories, will be one of the big drivers as we look at 2019 and beyond.

Great.

And then just as a quick follow-up, I think in North America wholesale, one of the reasons you've said is for your outperformance is just the square footage expansion that you're seeing there.

Can you just remind us of the key categories where you are gaining space?

And then just in terms of the runway, where we stand from an inning perspective with the distribution gains?

Okay.

So yes, so again, look, we're seeing door expansion.

We're seeing square footage growth within doors, and we're seeing growth with some key partners that were really not in the business in a big way.

So I think that it's coming from all different pieces, and I just feel that that's going to continue as we move forward.

And our next question will come from Heather Balsky with Bank of America.

I guess, first off, can you just remind us about your priorities in terms of excess cash?

And I think a couple calls ago, you talked about outside M&A being on hold just given the border tax risk.

And now that's off the table, does that change your view?

Sure.

Look, I think I'll make Mike and Dana speak about the -- about some of the uses of cash in the short term.

But just on the acquisition front, we would love to do an acquisition.

We would love to do something that fits in and -- besides just what we've been doing, which I think has been strategically strong for us, is adding our license businesses and taking more direct control of the Calvin and Tommy businesses globally.

But clearly, we'd be looking to take on, if we could find the right balance to fund a third brand, that we could put on our operating platforms, Europe, North America, Asia and then Brazil.

We think that's a competitive advantage for us.

And we really know how to attack those markets and do it in a very synergistic way.

So M&A, it happens when it happens when the opportunities present themselves.

But I'd -- clearly, with our balance sheet, some of the uncertainty has been lifted from the overall environment, and we're feeling more bullish about our own businesses.

So clearly, we're in a place where we'd love to do an acquisition if we could add it.

I guess in the short term, some of the uses -- the primary uses of cash, I'll turn it over to Dana.

It continues to be -- are focused around debt paydown and share repurchases, which we've executed to date this year.

Great.

And just actually, as a follow-up on M&A and adding a potential brand.

Are there things that you're looking for in a potential target?

And are there things that you'd like to avoid?

Would you want to do a more stable company or a turnaround?

Just how do you think about that?

Well, clearly, we would not be looking to do a turnaround of a brand.

To find a great brand that's got operating issues, that would be fantastic.

So we would be looking for an established brand that has credibility regionally and has the potential to have growth and opportunities globally.

And I think, be it on the fashion side or maybe moving a little bit more into some other areas, but I think that's where the focus would be on the business, is to find a third brand that we don't think would be overly cannibalistic to either Calvin or Tommy, that we can really fit into the portfolio.

And our next question will come from Eric Tracy with Buckingham Research.

Manny, I just wanted to follow up on the North America situation.

Obviously, you guys are taking share.

I appreciate that some year-over-year compares in terms of FX, tourism.

But is the strength that you're seeing and sort of the improvement in the market somewhat of a sign of a stabilization of kind of the disruption we've been seeing in brick-and-mortar retail sort of more broadly?

Or is it really just specific to what -- how you guys are executing?

No.

Look, I think we're executing at a very high level, and I think we're being able to take advantage of it.

I'm not ready to say that everything is great in North America retail overall.

I think we're going to continue to see downsizing of businesses and store closings.

But I think the -- our retail partners have done a terrific job of managing into the fourth quarter, really good control over their inventories.

And I think it will be a profitable quarter for us -- fourth quarter for us and in general, as we move forward.

But I -- that doesn't mean that the ills that are impacting retail in North America and the overbuild -- overstoring of North America is over.

I think those issues still linger, and we're going to have to deal and manage through that.

And I think we're going to have to deal and manage through some probably bankruptcy situations with some of our smaller accounts as we move forward.

But I think that's just the nature of the North America retail business.

Our final question will come from Lindsay Drucker Mann with Goldman Sachs.

I had -- I just had 2 -- I know that you guys are not ready, obviously, to give a full year guidance for 2018, but you have alluded to some of the drivers that would affect the business.

And Manny, I was just hoping maybe you could give us some more holistic view of some of the puts and takes as you think about 2018 relative to your kind of typical double-digit earnings algorithm view.

I think we continue to be -- looking at that algorithm, we don't see any reason why we shouldn't be able to grow next year in that mid-single-digit range for sales and that we can keep that double-digit earnings growth as we move forward.

Any more than that, it's just premature for us to really get into any more details.

But the thing I would -- the one thing I would add is, obviously, the momentum in the business, the strength of the business, gives us a great deal of confidence, particularly for the fourth quarter and then obviously, as we go into spring next year.

So I think we've got wind at our back.

Great.

And then just to clarify on something that was in your prepared remarks, where you talked about the spring campaign for Calvin and how you felt like these initiatives, in particular, were focused on driving the direct business.

Maybe you could just elaborate on what that means.

Well, I think it's really -- I mean, these are our energy campaigns that really, I think, drive sales and business.

And it's brand-building, but it's less about brand halo.

And the marketing and the collection initiatives that we have in place continue, but this incremental $20 million that we're spending is right at the heart of the business and right at driving what we think will not only be great for the brand, but really will drive top line growth in the -- not just in the long term, but in the short term as well.

So we think this is -- these campaigns will be seen in our retail stores.

And with product behind it to drive sales with our key retail partners around the world, this campaign will be aligned with them.

And I -- we think our key partners are taking positions in the goods with the anticipation that the campaign is going to drive top line growth.

So a little different than some of the first half initiatives that we have around -- had around the Calvin businesses, which is really lifting -- was really focused on a halo positioning and really driving our collection business and the fashion relevancy of the Calvin brand.

This is really driving traffic and sales, and we think it's going to pay big dividends for us in 2018.

And with that, I'm going to call an end to the call.

I'd like to wish everybody a happy holiday season.

Merry Christmas, Happy Hanukkah and a healthy and happy New Year.

And we look forward to speaking with you on our first quarter call in March.

So have a great day, and speak to you soon.

Thank you.

And ladies and gentlemen, this does conclude today's call.

Thank you all for your participation.

You may now disconnect.