PVH Corp (PVH) 2003 Q3 法說會逐字稿

Good morning, and welcome, ladies and gentlemen, to the Phillips-Van Heusen Third-quarter Results Conference Call.

At this time I would like to inform you that this conference is being recorded and all participants are in a listen-only mode.

At the request of the company, we will open the conference up for questions and answers after the presentation.

This webcasting conference is being recorded on behalf of PVH and consist of copyrighted material.

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

Your participation in the Q&A portion constitutes your consent to have any comments or statements you may appear on any transcript for this call.

The information made available on this webcasting conference contains forward-looking statements which reflect PVH's view of future events and financial performance as of November 20, 2003.

Any such forward-looking statements are subject to risks and uncertainties indicated from time to time in our SEC filings.

Therefore, the company's future results of operations could differ materially from historical results or current expectations as more fully discussed in our SEC filings.

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

The information made available also includes certain non-GAAP financial measures under defined under SEC rules.

A reconciliation of these measures is included in the company's earnings release, which can be found on the website and the company's current report on on 8K furnished to the SEC on November 19, 2003.

I will now turn the conference to Mr. Bruce clatsski.

Please go ahead, sir.

Good morning, everyone.

Thank you for joining us.

I'm joined here in New York, as usual, with Manny Chirico, our Chief Financial Officer and Pam Hootkin, our Treasurer and point person on Investor Relations.

Mark Weber is on the call, but he is in Hong Kong having just arrived from Shanghai.

Mark is over there reviewing the opportunities and assessing the -- scope of the opportunity for our recently announced launch of IZOD retail stores in China and also concluded a meeting with the Century 21, Yon the family concerning the opportunities that exists for us in the relaunch of our bridge sportswear, both retail and wholesale in southern Asia, and going on to Japan to review our important Japanese businesses in CK and other PVH businesses in Asia.

So Mark is listening in to the call and if technology works I think we can reach out to him to answer any relevant questions keeping in mind that it's midnight his time over there.

With that, let me say to you that the information I have to share with you today other than the actual results of the third quarter, my comments are consistent with what I shared with you at the end of the second quarter.

That is to say, our large wholesale businesses in apparel to outperform, in fact, our outlook for them and their performance to date has continued to exceed our expectations and projections.

We feel very strong about those businesses and the way they are moving forward.

The CK transition as we indicated to you last quarter is now largely complete.

We're quite pleased with how that's gone.

The last end of that is the official turnover although the majority of the work there is done, of the collection to Vestimenta will occur the first of the year and that's going quite well.

We feel good about that.

We are particularly pleased, staying on the Calvin Klein subject, with the reception both our men's and women's sportswear lines have received.

The women's most particularly which will launch a few months earlier than the men's, we'll ship product the end of March, has been very well received.

The shop design for both men's and women's has been also well-received.

We're on plan to be in in excess of 150 doors for each.

We feel good about the real estate we're going to get and good about the product we've seen to date.

So that's all moving fine.

On the not so positive side, as we shared with you at the end of the second quarter, our concern about retail continues to exist.

We were pleased with our September performance in our retail stores as back to school, so to speak, and cool weather kick in and our stores did quite well in September.

But then we again had a difficult October.

So we aren't feeling wonderful about that and as we've said in the release we need those retail businesses to replicate their September performance or we would think we would perform at the lower range of our earnings guidance.

Other than that, we feel quite good.

And I'll turn it over to Manny to put more flesh on those thoughts.

As Bruce said, we're quite pleased with our third-quarter results.

Total revenues were $453 million, 11% increase over the prior year.

The increase was due to the royalty revenues generated by the new Calvin Klein licensing business, as well as a 7% increase in our wholesale apparel businesses.

Particularly strong were Arrow, Van Heusen and IZOD.

These increases were partially offset by a 4% sales decline in our retail businesses.

EBIT in the quarter, before the Calvin Klein integration cost, improved to $41.7 million from last year's $32.2 million.

This improvement was due to the addition of approximately $11 million of earnings associated with Calvin Klein licensing segment.

In our apparel and footwear segment the strong sales and profit performance of our wholesale apparel businesses were not sufficient to offset the earnings decline in our retail businesses which experienced a comp store sales decline of minus 4% and higher promotional selling in the quarter.

Overall, this resulted in a $1.4 million earnings decline in the apparel and footwear segment.

Our third quarter net income was also impacted by the financing cost associated with the Calvin Klein acquisition resulting in a $3.5 million increase in interest expense.

Overall, diluted earnings per share in the third quarter excluding the Calvin Klein integration cost were 43 cents per share, which is in line with our previously announced earnings guidance.

This compares with diluted earnings-per-share of 63 cents per share last year.

Our third quarter net income for diluted share was down compared to the prior year due to the assumed conversion of the convertible preferred stock and additional common stock issued in connection with the Calvin Klein acquisition.

These two items resulted in an increase of over 21 million common shares outstanding for earnings per share calculations in the third quarter.

From a balance-sheet perspective, inventories and receivables were right on plan.

At the end of this year's third quarter, excluding the impact of the new Calvin Klein businesses, inventories were down slightly compared with the prior year.

Receivables were up about 4% which is in line with the increase in our wholesale sales increase for the quarter.

Looking out to the balance of the year, we are cautiously projecting earnings for the fourth quarter.

Our retail business during the third quarter was inconsistent, with the best performance occurring in September as back to school and cooler weather spurred spending on seasonal merchandise.

Overall, however, third quarter retail performance was below plan.

And without an improvement in this trend, the full-year earnings are projected to be at the low end of our previous guidance of 95 cents to a dollar per share.

And with that, we'll open it to any questions you might have.

The question-and-answer session will begin at this time.

If you are using a speaker phone, please pick up the handset before pressing any numbers.

Should you have a question please press star 1 on your push-button telephone.

If you wish to withdraw your question, please press star two.

Your questions will be taken in the order they are received.

Please stand by for your first question Our first question comes from Bob Drbul from Lehman Brothers.

Please state your first question.

Good morning.

Good morning.

Good evening to Mark.

Bruce and Mark, as you look through to 2004 with the Calvin Klein launches next year, can you give us an idea around the marketing plans and the advertising plans that you guys are undertaking as well as many of the licensees?

Well, I think we're in the process of developing them right now you.

As you know, CRK will handle that, the Calvin Klein in-house advertising agency will handle that, Bob.

It is, of course, funded largely by the licensees contribution pursuant to their license agreements.

It'll be a combination of national press, in-store promotional activity and local ROP in local newspapers.

It'll be fairly comprehensive with a whole variety of promotional events.

I think it's premature to talk with greater specificity that have.

We're significantly down on the road for the plan for women's, of course, which will be March and developing conceptually which will be with men's in the August and September period.

And then question for Manny.

Can you talk more specifically about the inventory levels in the retail stores, you know, just sorts of where they are versus plan and how you're really planning Q4 inventories, you know, in the outlet business?

Sure, inventories in our outlet chain are down year-over-year about 2% which puts us in a real fine position as we go into the fourth quarter.

We're planning our business to be flat to down slightly in the fourth quarter.

At retails, our inventories are in clean position.

We're trying to manage that business and manage the gross margin in that channel.

The -- from a qualitative point of view, we are coming into the fourth quarter very clean on -- with hardly any summer product left over so we're clean coming into the season.

And we feel that inventories going to be an asset for us as we go into the holiday season, and we don't see any real issues from an inventory point of view.

The pressure on margin if there is any in the fourth quarter will really come from promotion.

It won't come from clearance or excess inventory.

It'll come from just being promotional and to move the goods in the Thanksgiving period and the to Christmas period.

So we feel strong about the way the inventory is positioned right now.

Okay.

And Bruce, I have a question for you.

Is department stores are talking about more differentiation, can you talk about any specific initiatives that you guys have done with your brand portfolio, you know, specifically with Mayer Federated?

We have, we have a strong -- let me take a step back.

I gave a speech last Friday to a womenswear daily seminar and I believe the point of differentiation between department stores and the rest of the retailing landscape be it mass merchants on the one hand, or the specialty niche players on the other hand is the presence of, a strong presence of true national brand which is what our business is all about.

That's the point of differentiation and -- number one and I think demographics between department store groups is not all that dissimilar.

We very carefully have a strategy that only puts some of our brands in the department store channel venues, Van Heusen and IZOD and other private labels in other sectors.

And that's what we've done, the Calvin Klein is, of course, a department store brand and a department store brand indoors where the demographic says it can sell higher income, higher revenue doors for those retailers so that's what we've done.

Okay.

Thank you.

Okay.

Thank you.

Our next question comes from Jennifer Black from Jennifer Black Associates.

Good morning.

Hi, Jennifer.

Hey.

I wondered if you could talk, I know somebody's going to ask this about the Warner Co. situation, and then I have a follow-up question.

I presume you mean the resignation of John [Caurracous]?

I spoke to Joe Gromack yesterday, and in fact I spoke to John yesterday.

We think John's a terrific guy and clearly our sorry to lose him as a business partner.

He work very well with us and he worked with mark and I at PVH almost 25, 30 years ago so it was a nice relationship.

Having said that Warner Co. is institution, a business and put in place under first Tony Alvarez's leadership and now Joe's, some clear disciplines and some thoughts as to how they're going to move the business forward.

The underwear business is on fire.

It's doing exceedingly well.

The jeans business has been contracted prior to our ownership and subsequent to our ownership distribution that's more in sync with the Calvin Klein brand.

There's been major improvement in the product development areas.

Retailers have told us they're excited about the new junior range of merchandise that's coming on, the men's and women's jeans are all starting to perform much better at retail.

So I think that, I think that while we're sorry to see John go.

I think the things that he and Joe and he did to get the business running, the designers and advertising and marketing people they hired are now taking the business to the next level.

And Joe has shared with me, I'm not at liberty to disclose it right now, a number of potential successors to John all of whom are powerful people and I'm sure will end up just fine.

Okay.

Thank you.

A follow-up question would be, did you talk about your operating margins on it's footwear side of the business?

No, but the operating margins on the footwear side of the business did contract as part of the apparel segment.

Our gross margin is down about 40 basis points that's really being driven by the retail gross margins of which Bass is a substantial portion of our business.

So we're seeing a promotional environment there.

So overall we're down about 40 basis points and it's consistent between footwear and apparel.

Thank you.

I think that's it for me.

Thank you.

Thank you.

Our next question comes from Tom Lewis from Risk/Reward Advisory.

Please state your question.

Good morning.

Hi, Tom.

First question, with respect to your, the performance of the retail outlet, can you speak to the extent to which the decline is about traffic into the outlet center as opposed to traffic into your stores as opposed to, you know, size of ticket that each average ticket size?

Yeah.

One, I think I need to have a qualifier upfront.

The data that's available from the factory outlet industry is weak.

And as you can imagine, we try very hard to get as much as data as we can, both from the industry, the real estate developers and general consumer purchase panels et cetera.

Clearly the purchases and factory outlets are down in general.

That's fact one.

We're developing's perspective that fringe centers are driving that trend.

There is a core group of centers, maybe larger than a core group of centers, that continue to do very well, that we do consistent with what other tenants do and what we've historically done in those centers and they do well, but there is a contraction in the industry going on and as often happens, it's the weak sisters that are driving the numbers down.

And we're in the midst of looking at that and trying to understand it.

Where the centers are good, all of our stores perform similarly with themselves and the other centers and the business is quite good.

It's again, as I said, the centers that seem to be weakening that that weakening is accelerating.

And our average tickets across the chains are flat.

But, you know, when you drill down they're lower in some of the weak centers.

My only other question I guess, would be you didn't mention the IZOD women's line specifically.

Have you got that far enough along that there's any customer feedback you can speak to?

Yeah, thank you for raising that issue, Tom.

Our initial reaction sell-throughs have been very strong, we feel very good about that.

They seem to be satisfied our expectations, it's a little bit to sure for me say that a little more aggressively although that's a pretty good statement.

We're very pleased with what's going on there.

Okay.

Thanks.

Thank you, Tom.

Just reminder if you do have a question please press star 1 at this time on your push-button telephone.

As a final reminder if you do have a question please express star one at this time.

Okay.

Everybody.

Thank you very much for joining us, we look forward to seeing you at the end of the fourth quarter.

And as Huntley Brinkly used to say, good night Mark.

Good night, guys.

Bye-bye, everybody