PVH Corp (PVH) 2018 Q1 法說會逐字稿

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

First Quarter 2018 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 May 30, 2018, of future events and financial performance.

These statements are subject to risk 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 first quarter 2018 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.

Please go ahead.

Thank you, Ashley.

Good morning.

Joining me on the call this morning is Mike Shaffer, our Chief Financial Officer; Dana Perlman, our Treasurer and Senior Vice President of Business Development and Investor Relations; and Ken Duane, our CEO for PVH Heritage Brands.

I'm very pleased with the report this -- in the first quarter.

We posted a real strong start to the year.

Our first quarter results exceeded our expectations with broad-based strength across all our businesses globally.

Our EPS increased 43% to $2.36, which was $0.11 above our previous guidance.

Our revenues grew 16%, which was also above our plans and reflected momentum across all of our businesses globally.

There are a few highlights that I'd like to share with you before going into our brand-specific performance.

First, our international businesses continued to experience great momentum, and we are enthusiastic about the growth ahead of us in our Calvin Klein and Tommy Hilfiger businesses.

Additionally, our increasing use of global and regional ambassadors and influences -- or influencers are -- is allowing us to reach new consumers and build our share of voice globally, resulting in global market share gains.

I am also pleased to report that our North America businesses performed very well during the first quarter, both at wholesale and retail.

We saw growth in our international tourist business in the United States and saw healthy demand from our domestic consumer during the first quarter, resulting in strong sell-throughs across all of our North America businesses.

Broad-based strength was also seen across all distribution channels: wholesale, retail and digital.

And digital remained our fastest-growing channel with revenues growing over 20% across our third-party and owned and operated sites.

We raised our earnings guidance by $0.05 for the year.

This is despite the negative impact of the strengthening U.S. dollar and its significant impact on foreign currency translation, which negatively impacted our earnings forecast for the year.

We more than offset this negative hit by significantly raising our underlying business forecast for the second quarter only based on the momentum we are seeing in the business.

Our new earnings per share guidance range implies earnings per share growth year-over-year of 14% to 15%, and we continue to conservatively forecast our second half sales and earnings trends versus the current business trends we're seeing in the business.

Mike will fully quantify these amounts in his comments.

Now moving on to the brand results.

I'll begin with Tommy Hilfiger.

Our Tommy Hilfiger business posted robust results and notably beat our first quarter plan across all regions.

We attribute the strength to our consumer-centric focus, which has shaped the way we engage with our consumers, develop our marketing plans and connect with consumers in-store and online.

As a reminder, we announced a few new exciting partnerships this spring.

Tommy announced a multiyear strategic partnership with Formula 1 World Champions Mercedes-AMG Petronas Motorsports.

And Tommy Hilfiger is now the official apparel sponsor partner of Mercedes, building on the sports sponsorship heritage that Tommy has embraced since its founding as a brand.

We also announced that Formula 1 World Champion, Lewis Hamilton, is now the Tommy Hilfiger global men's ambassador.

As we continue to focus on our women's business, we just announced that model Hailey Baldwin and model and activist Winnie Harlow are the new global brand ambassadors for Tommy Hilfiger women's for the fall 2018 season, following our successful multi-season relationship with Gigi Hadid.

They will appear as the face of the fall 2018 Tommy Icons capsule collections for women.

Moving to the business.

Tommy's revenue increased 21% in the quarter with earnings up 37%, driven by the strong revenue growth and gross margin expansion that we've seen across all businesses.

Internationally, revenues increased 25% in the first quarter, and retail comp store sales rose 9% with continued strength in Europe and Asia.

Tommy Europe had another stellar quarter of outperformance.

We continue to be quite pleased with the brand health and positioning of the Tommy Hilfiger brand in Europe, which is allowing us to connect with new consumers and enabling us to gain more market share.

Our wholesale business continues to experience strong sell-throughs and overall stellar results.

As we look further into 2018, as we previously announced, our fall holiday 2018 order book is up over 10%.

In our retail business, comps were extremely healthy across all major markets in Europe with strong sell-throughs at retail and lower year-over-year promotions.

Tommy Asia also continues to perform very well, and we see great strength in our Tommy Hilfiger Japan business, particularly at retail and in digital e-commerce.

Following our efforts to successfully reposition the brand, we are seeing strong results across Japan.

Additionally, Tommy China continues to see a strong trajectory of growth as we continue to build out our operations and invest in the business, including leveraging our local brand ambassador, Shawn Yue.

Moving to North America.

Our overall revenues were up 10% in North America.

As we moved through the quarter, we saw great performance in our retail business where comps rose 9%, due in part to improving international tourist traffic as well as healthy sales from our domestic shopper.

We saw strength across all categories, which we attribute to our assortments and the impact of our consumer engagement activities.

And we continue to see strong sell-throughs on the wholesale side of the business with a very strong Macy's business in first quarter across all major product categories.

On the licensing side, we continue to be extremely happy with the performance of our women's sportswear business under G-III, which is experiencing strong growth and excellent sell-throughs and higher average unit retails.

The brand continues to gain market share in North America across all channels.

Moving to Calvin Klein.

The momentum around the CK brand has intensified with its cultural relevancy resonating and consumer interest in our evolving campaigns and engagement efforts to connect with a younger and wider audience.

From the Kardashian/Jenners to A$AP Rocky, Paris Jackson, Millie Bobby Brown and other influences, including our local brand ambassadors in key markets, our voice continues to be heard and our #mycalvins continues to perform well.

From a business perspective, revenues increased 18% for the first quarter, reflecting strong brand global trends with a 25% increase coming from our international business in the first quarter.

Total earnings were up 16% during the quarter.

We continue to see strong top line growth out of Europe and China, with North America experiencing improving trends across all channels.

North America comps were up 5% in the first quarter, and our international comp store sales increased 9% in the quarter.

On a regional basis, in Asia, Calvin Klein continues to perform well with improving trends across the region as well as the benefit of Chinese New Year in the first quarter.

This strength builds upon the improved strength we saw in our Central and South Asia markets as well as our China business.

China, which represents over half of the business, continues to outperform our other markets across all product categories.

The Korea business posted another quarter of stabilization, which we are pleased with, given the geopolitical and economic issues that have impacted that region for some time now.

Overall, this broad-based strength gives us confidence in the long-term trajectory of this business in the Asia market.

Calvin Klein Europe continues to build upon the momentum delivered in 2017.

As we previously mentioned, our fall 2018 order book is projected to be up again over 25%.

May year-to-date, we are pleased with the strength across the business as we continue to see healthy sell-throughs at retail.

Moving to North America.

Revenues were up 10% in North America.

Calvin Klein North America had a strong quarter overall with outperformance at both wholesale and retail.

In our owned and operated retail business, we are pleased to see the continued progression in our comp trajectory and saw international tourists shopping our stores and nice performance out of all our 4 categories.

At wholesale, we were pleased with the performance across our businesses, including underwear, sportswear and our men's jeans business.

Average unit retails rose across most of the key categories of Calvin Klein.

Additionally, digital was the healthiest channel, both with our department store customers and the pure-play digital retailers.

Looking ahead, we are excited about the upcoming brand initiatives for Calvin Klein, including our denim relaunch for the fall season.

Finally, in our Heritage business, revenues for the quarter rose 5%, well above our plan and included a positive impact from a wholesale timing shift as a result of certain shipments falling in the first quarter versus the second quarter as previously planned.

In general, we saw nice performance across our wholesale business with continued share gains.

And our retail business posted a 1% comp store sale increase.

We are pleased with the performance of this business with earnings up over 30% over the prior year, particularly given some of the challenges that the U.S. department store landscape has faced and felt, including the Bon-Ton bankruptcy.

Lastly, in an effort to further adapt this business to the changing consumer landscape, we are excited to launch our Heritage digital e-commerce site this summer, which will offer customers the option of buying our Heritage Brands on one site.

Looking to the -- to our outlook for the second quarter.

Overall, very pleased with the first quarter performance, and I'm proud of the progress that our teams are executing against our strategic plan in the face of the changing dynamics in the industry.

Looking at the second quarter to date trends, we are off to a strong start in the quarter.

From a regional basis perspective, our international businesses continue to see great momentum with quarter-to-date comps at Tommy Hilfiger and Calvin Klein up high single digits.

In North America, we continue to see healthy trends despite the unseasonably cool spring weather in May, with our own North America comps up low single digits with very healthy margins as we are significantly less promotional than compared to last year.

In our wholesale businesses, we are seeing very strong sell-throughs across all of our North America customers.

We believe that the incredible brand power behind Calvin Klein and Tommy Hilfiger continues to position us well in the marketplace against our competition and will drive continued momentum for the full year.

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

Thanks, Manny.

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

In addition, due to the 53rd week in 2017, comp store sales for 2018 are more appropriately compared on a 1-week-shifted basis.

Comp store sales discussed for the first quarter are compared with the 13 weeks ended May 7, 2017, instead of the 13 weeks ended April 30, 2017, which was the end of the prior year's first quarter.

Our reported revenues for the first quarter were up 16%, which exceeded our guidance and was inclusive of a 6% benefit from FX.

Tommy Hilfiger revenues were very strong, up 21%, inclusive of a 10% benefit from FX.

The Tommy Hilfiger revenue increase was driven by strong performance in all regions and channels.

Both our Tommy Hilfiger international and North America comps were up 9%.

Our Calvin Klein revenues were up 18%, inclusive of a 6% benefit from FX in the quarter.

Calvin Klein international revenues increased 25%, inclusive of an 11% benefit from FX, driven by outstanding Europe and Asia performance.

Our international comp store sales were up 9%.

Calvin Klein North America revenues increased 10%.

Strong wholesale performance across all categories and retail comps of 5% drove the increase.

Heritage revenues were up 5% to the prior year as a result of the timing of shipments, which moved from quarter 2 to quarter 1. Our Heritage retail business comp store sales were up 1%.

Our non-GAAP earnings per share of $2.36 was 43% higher than the previous year and $0.11 better than the top end of our previous guidance.

The EPS beat versus the previous guidance was driven by strong business across all of our brands and regions.

Interest expense was favorable by $0.01 but offset by an unfavorable tax expense due to timing for $0.01.

We ended the quarter with inventories up 22% versus the prior year due to a shift in the timing of inventory receipts as a result of the 53rd week in 2017 and our projected sales increase for the second quarter.

We've also made a decision to invest -- continue to invest in our basic and core products and to hopefully continue to capitalize on opportunities that we see for the balance of the year.

For the full year 2018, we are projecting non-GAAP earnings per share to be $9.05 to $9.15, 14% to 15% growth over the prior year and a $0.05 increase compared to our previous guidance despite a significantly reduced foreign currency benefit over the full year.

Now included in our earnings per share guidance is the reduced positive impact of foreign currency translation of $0.12, which is a $0.23 benefit reduction compared to our previous guidance of $0.35.

Our new guidance when compared to our prior guidance reflects $0.28 of business improvement, offset in part by $0.23 of unfavorable currency.

Overall, we are projecting revenues to grow approximately 6%, including the positive impact of 1% related to foreign currency.

Our updated revenue guidance includes a 1% increase related to underlying stronger business in local currency, offset by a 2% reduction related to foreign currency translation.

Overall, operating margins are expected to increase approximately 30 basis points for the company.

Tommy Hilfiger revenues are planned to increase 7%, inclusive of the positive impact of 1% related to foreign currency.

Tommy Hilfiger operating margins are planned to increase about 70 basis points.

We project Calvin Klein revenues to grow 8%, including the positive impact of 1% of foreign currency.

We are also planning Calvin Klein operating margins to be down about 20 basis points due to our highest operating margin business, licensing, which will be down as a result of the impact of the Bon-Ton bankruptcy.

In spite of the headwind created by the Bon-Ton bankruptcy filing, our -- in our licensing business, we are still planning Calvin Klein earnings to grow -- growth to be in the high single digits.

Our Heritage business is planned to have relatively flat revenues and flat operating margins and is negatively impacted as well by the Bon-Ton bankruptcy.

Interest expense for the year is planned to be about $120 million compared to the prior year at $122 million.

This decrease is the result of the lower interest EUR 600 million bonds issued in December of 2017, partially offset by higher interest rates on some of our variable debt.

In 2018, we are planning to pay down at least $250 million of our debt.

Stock repurchases in 2018 are planned to be between $200 million and $250 million.

Our tax rate for the year is estimated at 14% to 15%, as IRS regulations are expected to be issued later in 2018.

Related to the recent tax reform act, our current estimates could be subject to change if the regulations differ from our current interpretation.

Second quarter non-GAAP earnings per share is planned at $2.05 to $2.10 and includes approximately $0.03 of estimated positive impact for foreign currency translation.

Revenue in the second quarter is projected to increase 10%, including the positive impact of 1% related to foreign currency.

Tommy Hilfiger revenues are planned at a 13% increase, including the positive impact of 1% on foreign currency.

Calvin Klein revenues are planned at a 15% increase, including the positive impact of 1% related to foreign currency, and Heritage Brands are projected down 4% as shipments move from quarter 1-- into quarter 1 from quarter 2.

Interest expense is projected to be about $30 million and taxes to be in 19% to 20% in the second quarter.

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

(Operator Instructions) We will start with our first question from Erinn Murphy from Piper Jaffray.

I guess my first question was just on the Tommy Hilfiger brand.

It was -- what was impressive, it's your fastest-growing brand and your largest brand, so would love to hear a little bit more about how you're thinking about the sustainability of this growth.

And then perhaps relatedly, if you could just speak to your current appetite of bringing in some of the indirectly operated regions for this brand.

Sure.

I think on the first part, the momentum seems to be really strong for the brand as we look at the second half.

We've continued to -- given the strength that we've seen in that business, we've continued to project conservatively.

But given the trends in the business, it would seem like that there's potential in the second half of significantly more upside, both in Europe and in Asia as well as the momentum we're seeing here in North America, given the comp store performance that's been high single digits and much higher operating margin.

So that strength just continues.

So we don't see that really abating as we move into the second half of the year or beyond.

In addition, the possibility for bringing in other licensed business, I think the one that makes the most sense to us is our Central Southeast Asia business, which includes Hong Kong, Macau, what might be described as Greater China and then beyond that.

So from that perspective, that's a healthy business that, I think, given licensing terms and where we are within the next 12 months, is something we'd like to see brought into the business.

The other area we'd like to see brought into the business from a regional perspective is Brazil.

There, we have a longer-term license, but have constantly discussed the opportunity with our joint venture partner there.

So that's an opportunity we look at given the strength of the Calvin brand in that region, even though the region there is under pressure.

We think as you look out 6 to 18 months, that region, I think, will start to see some -- hopefully, some positive growth.

Okay.

That's helpful.

And then just on Calvin.

Would love if you could speak to more about the performance of the newer categories in Europe like men's sportswear.

And then how should we think about the rollout of further categories for this brand across Europe over the next 12 to 24 months?

Sure.

In Europe, the brand continues to be, from a volume point of view, really focused on jeans, underwear, and to some degree, accessories and seeing very strong growth in those categories.

Men's sportswear is still a relatively small business, growing at a significantly high percentage.

But on a relatively small business, it really gives us opportunity for growth there.

The big opportunity obviously is the whole women's category, both sportswear, the performance area, both for men's and women's as we look out and growing that accessory component of the business to a greater extent, including footwear as we look at it.

So that's really how we see the brand rounding out.

If you think about the size of the Calvin business, I think I always say, this is about 40% the size of the Tommy business.

That's the -- that would be our goal to more or less double the business today, which we think will cross $1 billion this year or close to it.

So that really gives us that ability as we move forward.

And those are categories that globally have been very successful for us.

Men's and women's sportswear are the biggest categories for us here in North America.

We have a very healthy footwear and accessory business here in North America.

Taking those to Europe seem like the -- clearly, the brand -- those categories are brand-appropriate and give us the ability to really enhance the growth as we move out.

So that whitespace opportunity seems like it's all in front of us.

We'll go to our next question from Bob Drbul from Guggenheim.

Manny, I was wondering on both, in the U.S. and I guess on the international side, can you just talk about what you're seeing from a tourism perspective and how that's impacting your business?

And the second question that I have is, can you just talk to your decision just in terms of mark-to-market on the foreign exchange?

Really how you're approaching it as you think about investments in the business and sort of the ongoing earnings power of the company?

Okay.

So on the first part of the question, of international tourism.

Here in North America, we've clearly seen a pop there.

I would say the key regions where we're seeing growth are China, first and foremost, that consumer, both in Calvin and Tommy, and we're seeing the Brazilian consumer come back to the United States in a more meaningful way.

And that's a big driver of our retail businesses, in particular.

The European consumer is healthy, and we see that happening in our business as well.

In Europe, the biggest driver from an international point of view is China.

That part of the business is very healthy, and we seem to be doing very well in our European business with the tourism component.

And then even in Asia, when you look at that Chinese consumer shopping outside of China is becoming more and more meaningful.

Clearly, our business in Japan is benefiting from that.

We believe as the situation in Korea starts to stabilize, we'll really see a pop of business there.

And we're really hoping for that, to see that in the second half of this fiscal year as the -- hopefully, the relationships there settle down.

That could be very meaningful for that business that's been under pressure.

So I think that answers it.

On the currency side, I'm going to turn it over to Mike to talk about it.

Yes, Bob.

So look, in terms of investment, we look at the long term.

So short-term blips on currency, we just wouldn't pull back or maneuver.

We do look at our hedging policies.

We operate in ranges there.

So if we feel there's a tremendous amount of volatility, we may go more towards the high end of our range.

And if they feel the world is a more stable place, we could be more towards the low end.

But for the most part, we tend to not place bets and tend to be more consistent in our approach in hedging.

And like I said, investments is really about looking at the long term.

Bob, I think it's -- obviously given the strengthening dollar, buying international assets like taking back licensing businesses internationally or taking back our -- or looking at potential brand acquisition outside the United States, it becomes -- given the strengthening dollar compared to where it was 2 or 3 years ago, it becomes more attractive on that level.

So we look at all those things, and we try to factor in.

But we don't try to play the currency game.

(Operator Instructions) We will go to our next question from Matthew Boss from JPMorgan.

This is Grace Smalley on for Matt.

Can you just comment on whether you still expect gross margins up 90 basis points for the full year?

And if so, what you expect to drive that?

And then how do you see the gross margin opportunity as you look further out beyond this year?

Mike?

So we do see the gross margin opportunity for this year remaining at about 90 basis points.

First quarter, we were up about 150 basis points.

A lot of that was driven by mix, but we also had a significant amount of performance as well.

The Chinese New Year falling into the first quarter this year moved some of that business to a very high gross margin, high operating margin business.

And the currency, the FX piece, the higher exchanges in the first quarter also played a component on the mix.

As we look to the second, third and fourth quarter, we will see gross margin improvement, but it'll be at a more moderated pace.

And a lot of that improvement will come from both the Calvin and Tommy opportunities as those businesses just continue to outperform.

We'll go to our next question from Michael Binetti from Crédit Suisse.

Can I just ask about CK?

The -- for Calvin, the order books continue to point to big growth rates in the parts of the business that you do comment on that people in our seat always look to for leading indicators.

Those have been really strong for some time.

And as you get steeper and steeper into the multiyear compares here lapping your own successes there, can you just comment on the longer term how you think about what we're going to hear about order books as we roll forward through the back half of this year?

And into next year, how much that brand can keep putting up those growth rates in places like Europe, with 20% numbers in front of it?

How durable are those rates to you and any comment on why?

I think -- it's a great question.

It's like anything else, you become a victim of your own success as you continue to grow.

The numbers get bigger.

But I think as I really mentioned is the ability to continue to put up double-digit growth in Europe seems to be right ahead of us given just the market opportunity that's available to us as we expand into some of these newer categories.

So I think we'd be disappointed if in the foreseeable future, the next 24 months, we didn't continue to see high double-digit kind of top line growth in Europe and continue to feed that as we go forward.

That seems to be there for us to really capture and grow as we move forward.

And then if I could just continue that on the margins.

You've commented on the margins being a little lower this year.

Bon-Ton seems to be the big call-out, the licensing business there, which we know is a high flow-through.

But excluding that, it seemed like you were heading towards positive margin expansion for CK for the first time in several years.

And I know there's a lot of moving parts that caused that on the mix for CK, but can you just help us think a little bit longer term about the margin rates for that business?

I know for one thing, you're very happy with the marketing program over there, and that spending is landing on great revenues obviously.

But is there a leverage point on the horizon for Calvin?

Yes, Mike, I think you hit it.

The -- we've made a conscious effort to invest behind the brand and to build from a long-term perspective, the fashion relevancy of that brand, particularly with the investments we've made on the design side, bringing Raf Simons and Peter Mueller into the business.

And their teams that they've brought that we think is really going to enhance the long-term growth of the brand and positioning of the brand as a premium label.

So there's clearly, I think I've said this before, 200 basis points of margin opportunity in the Calvin Klein business that I think over the next 3 to 4 years, we should begin to capture.

There's no reason why the Tommy business should be operating at a higher margin than the Calvin business, except that we've made the decision to make some of these investments in the most premium portion of the business to enhance the brand position that we think will pay off for us long term over the next 3 to 4 years.

So I mean, that's been the strategy.

It continues to be the strategy, and that continues to be the opportunity to add a couple hundred basis points to the Calvin business.

We will go to our next question from John Kernan from Cowen and Company.

Manny, can you talk a little bit about Tommy Hilfiger in North America?

You did a 10 comp in the fourth quarter.

You did a 9 in the first quarter.

The operating margin expansion in that business for the past 12 months has been very significant.

How do we think about the margin profile on that part of the business?

I think it's 300 basis points below your peak several years back.

But there seems to be a lot of momentum not just on the top line, but also on the profitability side of things for Tommy within North America.

John, I couldn't agree more.

I think we are being conservative on our projections on that portion of the business when we look at it, both from a sales perspective, where we're targeting low single digit kind of comp store growth for the balance of the year.

We're targeting minimal margin expansion in that business as we move forward coming off of a strong second half of last year.

But all indicators are that the opportunity is far greater than that this year given the momentum in the brand overall and the momentum in the business that we're seeing.

I think, clearly, that business was the business that was most impacted by the currency strengthening of the U.S. dollar against the foreign currencies in the major areas.

And as that consumer starts to come back and international consumer and tourist comes back to the United States, the brand that benefits the most from that is our Tommy Hilfiger brand given the strength of the Tommy Hilfiger brand globally.

So that really puts a lot of opportunity on the pace that's not factored into our numbers and our projections.

So getting back to that peak performance of 300 basis points, I think that would require the euro to move closer back to those $1.30 ranges and where you had that -- such a significant change.

But clearly, to get back half of that I think is well within our sights as we move forward.

And that's the way the team's managing it.

I think you see it in our inventory position.

We've been a little bit more aggressive, especially in core categories to go after the inventory and have it on hand in order to fulfill and try to satisfy that potential opportunity.

Our inventory growth has exceeded our sales expectations that we put on paper, but it gives us the opportunity to really drive that business.

And we feel there's much more opportunity than risk given that equation.

And we're thoughtfully thinking about that to try to capture that opportunity in the second half of the year.

That's exciting.

Just one more follow-up.

You've done some big M&A transactions over time.

You've used your balance sheet very effectively.

It sounds like you're focused right now on bringing licenses back in-house.

You talked about Central and Southeast Asia and Brazil.

Just wondering how you're thinking about the balance sheet, the M&A environment, the opportunity to bring another powerhouse-type brand into the portfolio or maybe smaller niche brands that seem to be popping up everywhere.

So just on M&A.

Sure.

So on the first part about bringing licenses back in, it's a lot easier to talk about those because we've been talking about them.

It's pretty clear given the licensing renewal dates and where things sit, what's ahead of us.

So you can talk about those things much more.

Obviously, whatever we might be looking at from an additional brand, be it a global brand or a niche brand, I'm not going to talk about at all.

So that's point one.

Point two is the balance sheet is really -- is very strong.

We were just upgraded at the rating agencies to investment grade and really put us in a strong position there from a balance sheet point of view to take advantage of any opportunities that present itself.

We'd love to do a deal.

We'll do it when it's right.

I think we've demonstrated that in the past.

And we're not going to overpay, and we're not going to pay crazy multiples.

But we will definitely look to find the right kind of brand that could fit into the portfolio.

And given the operating platforms we have around the world, I think we're uniquely qualified to take a brand that has global opportunity and quickly grow it.

So that would be our hope as we move forward.

And we'll go to our next question from Ike Boruchow from Wells Fargo.

This is Nancy on for Ike.

I wanted to just touch on -- obviously, your comps and the performance was outstanding.

But can you just talk a little bit about the health of the broader retail market.

Obviously, tourism has helped at outlets, but can you just talk about your view on that going forward and the health of the department stores more broadly like after Bon-Ton and everything?

And then just a follow-up on guidance.

If you could just touch on the SG&A implications for the rest of the year and any planned investments in marketing or otherwise.

Sure.

I think on the broad retail market, I guess, I'm not going to speak about specific retailers.

But I think I would say is every indication -- indicating here in North America is that the consumer is very healthy.

And I don't see everyone's business.

I see our business at every one and couldn't be happier with how we're performing at wholesale here in North America.

Calvin, Tommy and our Heritage Brands, the business is just very healthy.

And what's really nice about the business is inventories in the department store pipeline seem to be lower -- are lower, very much under control and give the opportunity for margin expansion for both the department stores and for us as we move forward.

And that's a real win.

So I really commend the way the industry has really managed their inventory levels.

And if you walk into a store, so much cleaner today than it was this time last year for Father's Day as starting to set up.

You just see a better assortment of merchandise across the board.

And that's from Macy's, the Kohl's that we see it with our big accounts.

The other -- from a marketing point of view, I think our plans are pretty clear.

We've increased the marketing again for this year.

I think as we outperform, we could, again, increase those budgets.

But clearly, we'll be looking to increase our earnings by a greater amount.

But taking that incremental benefits that would come from better business and investing back into the brands.

That would be our plans.

And I think given some of the platforms that we have going forward with our brand ambassadors in Calvin and Tommy and some of the real interesting things we're doing with our Heritage Brands, there's plenty of opportunity for us to make some wise investments going forward.

And our next question comes from Heather Balsky from Bank of America Merrill Lynch.

What I wanted to ask is that some of your brand competitors are looking to take back share.

When you look across the strategies you have in place and the investments you've made, what kind of stands out in terms of maintaining your momentum and keeping your competitive edge going forward?

I think the key -- we talked about marketing.

And what we're not talking -- what we're not doing in marketing is what was done in the past, which was spreads in magazines and whatever.

What we're really trying to do is enhance the consumer experience, and we're doing that online and we're doing that in store and trying to really bring assets to the store, both our wholesale partners and in our own retail stores to bring them assets that really at point of sale in the hot zone where the consumer is making decisions to really have an impact at retail with that consumer.

At the same time, we want to make sure that our marketing in store connects back to what we're doing online, outdoor, print, television, across the board.

And I think the teams have done an amazing job of really making the connection back throughout the marketing cycle, be it in store or be it in print or on television that whatever we're doing, it is seamless and connects back and forth.

What we're really trying to do when you cut through it all is bring the consumer into the brand experience, make them part of the brand experience, engage them.

And what it's really done for us is it's opened up a new consumer that's much younger.

We're introducing to the -- we're introducing both the Calvin Klein and the Tommy Hilfiger brand to a much younger consumer, engaging with them and transacting with them, both in store and online.

So that's been the focal point, and that will continue to be the focal point.

Great.

And then just a follow-up on, I guess, the wholesale channel.

Inventories have been very lean.

You spoke about inventories looking good into 2Q.

Just curious with trends faring better, comps improving, how is inventory being managed into the back half?

Do you expect things to remain lean?

Or could we see, I guess, inventory start to pick up?

Every indicator that I see is that retailers continue to be disciplined and are continuing to buy tightly and trying to push more of the burden onto the brands to back up inventory, particularly in core replenishment.

And we're doing that where it makes sense for us and for them to try and capture that business.

But the best I can tell, again, from everything that I'm seeing in the market talking to our teams is that the open-to-buy dollars have really been shrunk and tighter.

And we've all, and us in particular, have made significant investment in our product cycle and in our speed-to-market initiatives.

So the supply chain has just gotten quicker.

We've been able to react much faster, particularly on key core replenishment products that need to get back into quickly, being able to move color faster and be able to react to what's happening with the consumer and doing more testing of styles and colors ahead of season to really get better insights as we move forward.

So I think there's been a significant benefit that's coming to us from the investments we've made in our supply chain.

And our next question comes from Tiffany Kanaga from Deutsche Bank.

I wanted to circle back to your May commentary where you've talked about some good momentum in trends quarter to date, especially in the international business.

Is the low single-digit North America comp that you're seeing so far in line with or different from your initial plan?

As I compare it to your first quarter performance, which was a bit higher, but I know compares were tougher and you just talked about targeting low single digits for the balance of the year.

And how would you rank the impact of cooler weather versus less promotional activity?

And additionally, given your statements around promotions and what John asked earlier, would it be accurate to say you might be shifting some focus away from sales growth and towards margin?

I guess, 2 things I would say is, look, May has been a really funny month here in North America.

I mean, just look outside the window today, it just doesn't feel -- it hasn't really felt like spring.

And I just feel like, especially for parts -- as we went into the middle of May, there was a bit of softness in the business, which has clearly just turned around.

There's significantly less promotions going on in all channels of the distribution and with our products, so we're seeing very healthy margin growth.

That doesn't mean we're not focused on the top line growth as you could see from the inventory investments that we're making.

But in a 2-, 3-week period to just see that kind -- to see that kind of weather impact and continuing to meet or exceed our sales plans just gives us great confidence as we go forward.

So it really feels very strong as we're setting up for Father's Day.

As the weather starts to get warmer and more seasonal, I think that'll just play into our strength as we move forward.

So we're very optimistic about the North America retail business and the related -- and our related wholesale businesses as well.

And I don't -- the fact that inventories are tighter and it's creating margin is great, and I think that, that'll continue to be a message.

But I think we're also trying to position ourselves to capture the sales growth that we see in the second quarter and beyond for the year given the inventory investments we're making in our core replenishment products.

So I think we feel really enthusiastic about it.

I know sequentially that it looks like it dropped off a couple of basis points, a couple of hundred basis points from a comp point of view.

But I could tell you the margin expansion has just been more than offset that.

And I think that was a healthy way to play the whole Memorial Day weekend.

Our last question comes from Omar Saad from Evercore ISI.

Manny, I wanted to follow up on a question a little bit earlier.

You sounded -- around social media and digital marketing it really seemed like kind of almost a tone change out of you, your confidence in that marketing strategy paying dividends.

Is there something that's changed in the last couple quarters giving you that confidence around that digital marketing strategy that you've been employing for a few years now?

No.

Maybe I wouldn't read too much into the tone of my voice.

We are very enthusiastic about that.

We've been enthusiastic, continue to be enthusiastic.

I think the results speak for themselves, 16% top line growth.

It's happening because there's great product, but it's also happening because we're connecting with the consumer.

And I think from a competitive point of view, what I would say is, as I look out, to be fair, as a lot of our competitors have had some more challenging times, I've noticed that it seems like the marketing has also pulled back.

So I think we've just been gaining a greater share of voice over the last 6 and 9 months as we've gone forward.

And the 2 brands, we're in a cycle right now given the momentum with those 2 brands, it's a bit of a '90s renaissance that's gone on as well.

We've been able to really take advantage of that and really drive the business, and I think we'll continue to do that.

So I -- the confidence you're hearing in my voice has more to do with our performance than just our marketing, which I think is part of the performance.

Got it.

That's helpful.

And then maybe any update on 205 West 39th?

What's happening with that business and Raf's role in the brand, and how you're trying to activate some of those kind of more premium elements globally?

Sure.

Look, I think we -- it's relatively speaking a small business when you just look at the massive size of the $9 billion Calvin Klein business.

But it's so important to the brand and the success that we're seeing with that line at retail and in -- and sell into our key retail accounts and getting the kind of positioning in the major doors like Barneys and Neiman's here in North America.

And if you go overseas, the Harrods and Lane Crawford.

To really get that kind of presence and to see that brand position so well there I think just creates the halo that we're looking for from that component of the business.

And I -- it's working exactly as we thought.

We couldn't be happier with Raf's contributions to the brand and how it's really benefited not just the 205 business, but clearly has benefited what's gone on in our jeans and underwear business, in particular, where we've put a real focus on the marketing investment.

And you clearly, I think, as you go into spring, but really into fall 2018, you're going to see that black thread that starts with the 205 collection.

You're really going to see that carry through our jeans, our sportswear and even our underwear business.

You're going to see that really carry through.

And I think that just has to be an enhancement for the brand, and will just hopefully propel us as we move forward.

And then one last one, if it's okay.

Any update on Amazon?

The longer you kind of have had that relationship under your belt, what you're learning?

And maybe how you think about it relative to your other more traditional channels?

Well, look, I don't like to speak about one customer.

I'll speak about our pure play and our dotcom Macy's business.

It's -- I think what's really been fascinating is how we've been connecting the business, both in store and online, how we've been able to really have consistent messages and how we've been able to increase the businesses in both categories, but clearly, the percentage growth has been dramatically higher in the online business.

And our penetration continues to grow there.

So I think it's critical because it's very hard to determine where the sale is being generated.

It might actually transact in store, but was that -- so much of that is being driven on the online investigation that the consumer is doing as she explores our brands online.

Those investments really pay dividends for us in store with our Macy's business, which couldn't be healthier.

But at the same time, I think our online business with pure plays like Amazon, Alibaba continue to grow significantly because we're connecting with that consumer, and we're connecting with a younger consumer who is more and more comfortable shopping in that channel.

So that's really worked exceedingly well for us.

And with that, we're going to close the conference for today.

I want to thank everyone for joining us.

Have a great weekend, and we look forward to speaking to you in August on our second quarter call.

Have a great day.

That concludes today's conference.

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