PVH Corp (PVH) 2006 Q3 法說會逐字稿

Good day, everyone, and welcome to today's Phillips-Van Heusen Corporation's third quarter 2006 earnings release conference call. Today's call is being recorded. This webcast and conference call is being recorded on behalf of PVH and consists of copyrighted material. It may not be recorded, reproduced, retransmitted, rebroadcast, downloaded, or otherwise used without PVH's express written permission. Your participation in the Q&A portion constitutes your consent to having any comment or statements you make appear on any transcript or broadcast of this call.

The information made available on this webcast and conference call contains certain forward-looking statements which reflect PVH's view of future events and financial performances as of November 21, 2006. Any such forward-looking statements are subject to risks and uncertainties indicated from time to time in the Company's 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 statements, including without limitation any estimate regarding revenues or earnings. The information made available also includes certain non-GAAP financial measures, as defined under SEC rules. A reconciliation of these measures is included in the Company's earnings release, which can be found on the Company's web site at www.pvh.com, and in the Company's current report on form 8-K furnished on the SEC in advance of this webcast and call.

At this time I'd like to turn the conference over to Manuel Chirico, Chief Executive Officer. Please, go ahead, sir.

Thank you. I'd like to say good morning to everyone and thank you all for joining us. Joining me on the call is Allen Sirkin, our President and Chief Operating Officer, also Mike Shaffer, our Chief Financial Officer is here, and Pam Hootkin, our Treasurer and Vice President in charge of Investor Relations.

We had an outstanding quarter. All four of our business units performed well ahead of plan. I'm going to start out with our Calvin Klein licensing segment, which posted an 11% increase in royalty and a 30+% increase in operating income. We posted increases with all our major licensees and in most product categories. I'm going to touch on a few of the highlights that's going on in Calvin Klein.

In our fragrance business with Coty, I'd just like to remind everyone, this time last year we were launching Euphoria Women's in the third quarter, and had a significant [in-stock] position being built at department stores. And in spite of that, being up against those strong sales from last year, we put on sales increases this year, as well. Euphoria Women's continued it's very strong performance at retail. That was coupled with the launch in September of Euphoria, the Men's Euphoria, which has gotten off to a very strong start both in the United States and internationally.

In addition to the strong performance of our Euphoria franchise, our CK1 and CK Electric business-- businesses and fragrance, also very strong, particularly internationally where we've been putting on strong sales increases.

Our Underwear business at Calvin Klein was up about 10% this quarter. That's really been driven by our Perfectly Fit Bra business, that's operated by Warner Co. We had growth both in the U.S. and internationally. The other strong piece of our Underwear business for Calvin Klein was our 365 for Men's program, which began its rollout in the second quarter this year internationally. So very strong performance in Calvin Kline underwear, which was up about 10%.

Our Calvin Klein Jeans business internationally continues its strong performance, particularly in Asia where we're seeing double-digit revenue growth in that market, as well as in Europe where we're seeing strong sales performance there.

On the women's side of the business, our women's suit and dress businesses, which are operated by G-3 Apparel, those businesses both launched this year. Women's suits launched in spring and continued to experience strong sales and excellent sell-throughs at retail. Our Calvin Klein Dress business launched in October, and our initial selling has been very strong and the initial sell-throughs have been very strong. So we're very positive about that business, and G3 has been doing an outstanding job for us.

Moving on to our retail business. We again posted excellent comp store sales increases. Third-quarter comps were plus 11%. Our margins were also significantly higher due to less promotion and clearance activity. This-- our retail business really benefited significantly from cooler weather trends experienced in September and early October. Comp performance in late November -- in late October and early November have continued to be good but at a more realistic trend of mid single-digit positive comp stores. So we're very pleased with the business there.

On the wholesale side of the business, our Sportswear business continued its strong performance. Our legacy business, Van Heusen, IZOD, and Arrow continued to post strong sales increases and solid margin performance. Our Calvin Klein Men's Sportswear business continued its excellent performance at retail. This business continues to record double-digit sales increases and strong retail sell-throughs. On the dress shirt side of the business we had a strong quarter. We were on plan. We delivered our financials ahead of where we thought we would be.

Overall, when we look at our wholesale business -- businesses, our inventory position at retail is in excellent shape across all of our wholesale businesses, and given our strong order book for holiday, and the excellent EDI reorder activity we are currently experiencing, we are projecting fourth-quarter sales increases for both dress shirts and sportswear at about 20%. The current trends in our retail business and our Calvin Klein licensing businesses are also very positive. And we are projecting strong fourth-quarter sales and operating income increases for these businesses, as well.

Given the strong trends in all of our businesses, we have decided to intensify the investments we are making in marketing our brands. During the fourth quarter, we will be increasing our national advertising spending by about 80% or $20 million to support the growth of our Calvin Klein, Van Heusen, IZOD, and Arrow brands.

The retail landscape is changing dramatically. Our retail partners are placing significant emphasis on differentiated merchandise, changing assortments, and the marketing of their store name plant-- place. In this light we believe it is critical to communicate directly to our consumers to keep our brands top of mind and to help drive sales through all channels of distribution. We believe that this continued commitment to the long-term strength of our brands will pay dividends long into the future.

And with that I'm going to turn it over to Mike Shaffer to quantify some of what I talked about.

Thanks, Manny. As Manny said, we're very pleased with our third-quarter results. Total revenues grew 7% in the third quarter to 568 million. Our retail business had a great quarter with comp increases of 11%. EBIT for the third quarter increased 18% over the prior year to 84.6 million, while EBIT margin improved 150 basis points in the quarter to 14.9%. This increase was driven by strong revenue growth and a 260 basis point improvement in gross margin. Our gross margin improvement was driven by strong sale-throughs at retail, leading to more full-priced selling.

Our expenses for the quarter increased 110 basis points to the prior year. This was primarily the result of an increase in national advertising expense versus the prior year, adding the expensing of stock options as a result of adoption of 123-R. Earnings per share increased 25% to $0.89 per share, almost $0.06 ahead of the consensus estimates and $0.07 ahead of the top end of our previous guidance.

From a balance sheet perspective we ended the quarter with 359 million in cash. Our net debt position improved $188 million against the previous year. Our inventories are very clean and on plan with a 7% increase over last year. And this increase in inventories will support the planned sales increase for the fourth quarter of approximately 16%. We are projecting fourth-quarter earnings of $0.43 per share, which is $0.02 better than our previous guidance, and 19% greater than the prior year EPS.

Included in our fourth-quarter guidance is a $20 million increase in our marketing expense for the fourth quarter. Our revenues for the fourth quarter will be 528 to 532 million or an increase of approximately 16% over the prior year. Our fourth-quarter revenue growth will be fueled by strong wholesale sales in dress shirts and sportswear as well as continued strength in our Calvin Klein licensing and our retail outlet businesses.

Also in the fourth quarter is the 53rd week of operations. We are expecting the 53rd week to represent approximately 12 million in revenues, which is 2 percentage points of the 16% revenue increase planned for the fourth quarter.

For the year, given our strong results for the first nine months, we're raising our 2006 earnings per share guidance to $2.59, which is $0.09 ahead of the top end of our previous guidance, and represents an increase of about 38% over the prior year. Current [inaudible] revenues are estimated to be about 2.07 billion or an increase of approximately 8%. Looking out beyond this year to 2007 we are projecting our earnings to grow 15 to 18% to a range of $2.97 to $3.05, with corresponding revenue increases of 5 to 7%.

With that we will open it up to questions.

Thank you. [OPERATOR INSTRUCTIONS] We'll go first to Jeff Klinefelter with Piper Jaffray.

Yes, congratulations to everyone on another great quarter.

Thanks, Jeff.

In light of the advertising dollars that you're stepping up, Manny, maybe we could talk a little about this. Given this advertising plan, does this mean that there's any change in terms of the sort of markdown support that you're expected to give your retail partners? Is it maybe shifting some money out of the less productive or less profitable markdown cycle, and more into kind of proactive advertising as a practice? And then also, how should we think about the advertising dollars going into next year? Is this maybe a new stepped up level overall, and kind of what percent would that indicate in terms of overall revenue? And then lastly, just on advertising, would be the type of advertising vehicles. Is there any change in terms of the mediums that you're using?

Okay. Let me take that in pieces, Jeff. To start with, the advertising is a very diverse mix of what we're spending in the fourth quarter. We are spending a combination of national television, it's a significant print campaign, a significant outdoor campaign, and we'll be in two of our brands, Van Heusen and IZOD will be in movie theaters and cinema throughout. So it's a very diverse mix to really target and go after our customer. We're very excited about it.

As far as the level of spend, we've really -- we've stepped up the spending in the fourth quarter this year. We would not expect to see any -- a significant increase over this level next year as we go forward. We believe that where our brands are spending, as our brands grow as a percentage of sales, we'll continue to move the marketing along with it, but at this point in time we wouldn't see any more ramping up above these levels at this point. It's fairly significant with Calvin Klein, on a worldwide basis we're spending well over $230 million between ourselves and our licensing partners marketing that brand. We're spending significant dollars on our legacy brands, IZOD, Van Heusen and Arrow. We really feel we're reaching the consumer very effectively.

The last part of your question is, I guess when you talk about advertising in general, what the benefits will be. Some of those are hard to quantify. We believe this will improve our performance at retail. But to say to you, and try to quantify it, we think it's going to stay a certain number of basis points on our gross margin from a proposal point of view, I don't think would be fair or as easily quantifiable at this point. But we feel it's from a competitive point of view, it gives us a competitive advantage over most of our competition not spending at this level, and will keep our brands top of the line with the consumer as the routes shopping in the important fourth quarter, and we believe there will be significant carryover as we go into 2007 as we continue marketing of our brands into 2007.

Okay. Great. And then just one follow-up on the Calvin Klein International business. Sounds like you're very pleased with the progress so far. Could you give us an update on sort of what you're expecting from overall from kind of international growth of the CK brand, more on the apparel side, over the next couple of years?

Well, I guess in that way, from an international point of view, from an overall point of view, we've talked about growing the Calvin Klein business in the area on an annual basis, top line 9 to 11%, royalty growth. Which we feel will drive bottom line growth in that segment of about 20%. That's pretty consistent. The growth is pretty much equally balanced between domestic growth and international growth. So both portions of the business are growing new product introductions. We are expecting to see our CK brand internationally grow significantly. So I would expect it to be, over the next two to three years, for that business to grow 10 to 15%. I think there's been -- it's growing off a relatively smaller base, and there's more opportunity for that brand, particularly in Europe from a sportswear point of view. So we're excited about the opportunities there. We're making a lot of investments in our infrastructure to go forward in support of that. So we feel good about where that's going.

Yes. Good luck with the holidays.

Thank you.

We'll move next to Bob Drbul with Lehman Brothers.

Hi, good morning. Congratulations.

Thank you, Bob.

Two questions. On the wholesale business, you talked about the 20% growth in both sportswear and dress shirts. Can you just dig down a little bit deeper in terms of what you think is driving such a strong growth rate for these categories? And the second question that I have for you, Manny, is the 11% comp number during the quarter, are there any trends that were discernible in traffic or by the name plates that really drove that strong number?

Allen's going to take the wholesale question. I'll take the retail question.

Our plans for the fourth quarter are very strong in both the dress and the sport category and it's driven by two things. One, of course, was our conservativeness last year in the fourth quarter as we planned our inventories into the new merger of May Company into Macy's. We were preparing for assortment adjustments and door closures. So there was a little bit of conservativeness in last year's number.

Having said that, this year we have the Macy's consolidation is behind us. Our brands are well positioned, and business is good. So from that context alone we're in a positive go mode. In the moderate brand strategies that we've employed, the mid channel initiatives are all working well, and in the regional department stores, Belks, Bon-Ton's, Boscov's, those moderate strategies are working extremely well also. If you take that and add the last piece, which is our Calvin Klein Sportswear rollout, we continue to have a very high productivity in the existing doors, and in the fourth quarter this year we're adding 30 new shops and 30 new doors, which will all be incremental volume to this year's performance.

Last but not least, there's the 53rd week, which is a difference between this year and last year, which is a small percentage of our increase. But overall, we feel good about our brands, our placements, and our strategies. And feel that that number is very deliverable.

You know, Bob, on the retail side, geographically we really didn't see anything significant across the country in any way. From our nameplate's point of view, our strongest comp store performance was in our Calvin Klein businesses. Overall we were about 11%, and the Calvin Klein business was probably about 400 basis point higher than that. So just to put that into perspective. And then the only other point I'd make -- I made it in my opening comments, is the early part of the third quarter was particularly strong. September, early October, the weather was very cool. We really benefited from that and put on some real strong performance there. But the trends right now are also very strong. We're back to our mid single-digit comp store increase performance, and it feels very good to us right now as we go into the holiday season. Very [good] inventory and margins are very strong.

Great. Thank you very much.

We'll hear now from Jennifer Black with Jennifer Black Associates.

Good morning, and let me add my congratulations, as well.

Thanks, Jennifer.

I wondered if you could talk about two different things. I don't think you went over -- in looking at the additional 20 million, did you talk about what would be print versus, say, what kind of a -- what are you going to use, is it going to be billboards, print, is it all print?

I guess it's -- no, it's not all. It's a combination of national television. We'll be spending somewhere in the neighborhood of 30% of the money on national television. The increase coupled with what we spent last year. So it's a significant portion will go toward national television. We'll be on the -- we'll have eight spots on the Macy's Thanksgiving Day Parade. Calvin Klein will be in primetime beginning tonight through mid December right before Christmas. IZOD will be really focused on television, the focus will be focused on sports. You'll see us on the Thanksgiving football games. On Sunday night's football throughout the month of December. And you'll see us on ESPN and on sports.

The Van Heusen focus on television will be really focused on news programs, on FOX, and CNN, as well as the Tonight Show on NBC and the Today Show on NBC. Arrow's got a tremendous campaign. The focus of which is really outdoor advertising. We'll be, in the fourth quarter, we'll be on 550 billboards in 21 key markets that really tie into our most important customers in that channel of distribution, mainly Kohl's will be a long side them in that channel of distribution, marketing to their customer.

And then, finally, beside our normal heavy up that we always do in print, newspaper, and in magazines, we'll be in the cinema. In the month of November and December, we'll be in -- on 12,000 screens, reaching up over 50 million movie-goers with our IZOD and Van Heusen commercials, targeting toward those. So we really believe, with the research we've done, we've targeted our marketing to where we think our consumer is looking, where our consumer spends their time, and really trying to make it as efficient as possible to hit that spot target customer, as we go forward in the most important selling season of the year.

That was a very thorough answer. Thank you. And I just have one follow-up. And that is, do you have any new line extensions on the Women's Calvin Klein? It looked great when I saw it at Magic. And anything new?

Well, I touched on the -- we had two launches this year, both women's dresses and women's suits, performing very well. The Kellwood business has been expanded from about 125 doors. They are currently in about 300 doors. The business continues to improve. And our retail partners continue to support it -- significantly support the business as we go forward. So we're seeing continual improvement in that business as we go forward.

Great. Thank you, and good luck.

Thank you. Next we go to Brad Stevens with Morgan Keegan.

Congratulations, as well on another fantastic quarter.

Thanks, Brad.

Could you touch -- first question, could you touch on Superba and IZOD, with the long-term potential as both from the top line and margin? And then, my second question is, do you have any update on finding a new Bass, Wiseman and partner?

I guess let me -- I'll take it backwards. We have a new partner for Bass, it's a company called Harvard. They're a major vendor for us, providing resource of product for the Bass product. They'll be launching for fall 2007, a new product line. So that works in conjunction with where we are as we transition the Brown groups. So that's working very well. And that's -- and we're very pleased with that.

On the Superba side, we haven't closed that. We're still waiting for finalization of some of the approvals, but we've talked about overall sales of about 140 million to $150 million in the neckwear component of the business. We've talked about in the first year of operations, 2007, that it'd be modestly accretive, somewhere around $0.03 a share, that's after all the integration costs and merger related costs associated with the business. On an ongoing business-- basis, we think it's a 10 to 11% EBIT margin business, and would contribute somewhere around net of interest expense $0.10 to $0.12 a share in 2008. So we think it's a very strategic acquisition as we go forward.

If I could just remind everybody, Superba's results, Superba's numbers are not reflected in our guidance.

Thanks. And then on IZOD, and bringing that back in house, maybe where that business stands today versus where your men's business stands, and can it be as large as your men's business over time?

The IZOD women's business today is about a 40, $45 million women's business. Our men's business is three to four times that size. That's at wholesale. Again, we are not -- we're not projecting it to be in the near future as large as our men's business, but there's no reason why it shouldn't be. You would expect a women's business to be at least twice as large as what a men's sportswear business would be. So we think there's tremendous opportunity for us. We'll be taking over a 40 to $50 million business in 2007. Next year it will only be a half a year's worth of our business. So we think there's real opportunity for us to take that business and grow it. Also for us to really get into the women's wholesale business with a brand that we're very comfortable with. That we really believe we understand what makes it work and to make it grow.

And I guess our General Counsel, Mark Fischer, just handed me a note that basically said, although we have an agreement in principle with Harvard, we haven't finalized and signed the agreement yet. At this point time we don't have a signed, final agreement, but we're pretty far along and done with the agreement.

Great. One last follow-up. What is the -- if you look out three years and you look at the Calvin Klein licensing portion of the business, what type of operating margin can it run?

I think today, I think right about now we're projecting this year in round numbers to be about 45%. And we believe over the next three years that that approach is 50% operating margin.

All right. Thanks. Congratulations, again.

We'll hear next from Melissa Otto with WR Hambrecht.

Congratulations on a great quarter. Just a couple of questions to add. Could you give us some metrics around the performance in the retail business? What specifically, what products were doing really well in the stores? Was there anything in terms of merchandising that has changed?

No, I think it's -- we just all looked at -- there's really no significant shift in merchandise. I think cold weather apparel was very strong, particularly in September early October. Early reads on boots has been very good at our Bass retail stores. Our brands have -- we have predictable trends and were able to get behind the inventory and back it up and stay in position. So our trends in the business is very strong. We think our value equation to the consumer really is working very strongly at retail. And the message we're delivering to the consumer there is working very well. And that's how we think we're getting a larger piece of the pie as we go forward. But from a product category point of view, there's nothing dramatically shifting in retail right now.

Melissa, what we can also tell in the -- as we compare ourselves to some of the limited data that's out there, we are doing better than the market in general.

Okay. Great. That's very helpful. Then I wanted to ask a follow-up question on the Calvin Klein Jeans business in Asia. You said that that was up double digit. Would you give a little bit more color around that, what countries are seeing particularly good performance, and is that from increased distribution, is it demand from the current stores, could you give a little more color around that?

I think it's a combination of things. It's -- it's basically, it's the strongest countries are Korea, China, our Japan businesses is very good. So it's in the markets that you would expect. It's not in necessarily new markets, but we continue to open up retail -- there's a continuation of opening freestanding, specialty retail stores by our licensing partner and franchise partners of Calvin Klein product. And that continues to work very well. And the -- and the continued rollout of -- and the -- and Warner Co.'s continued involvement in the business continues to be very good. So they're doing an excellent job with the distribution network, maximizing and doing a terrific job with it. I think that about says it.

Great. That's good to hear. Then just one final question about the wholesale business. In terms of your relationship with Federated and May, to what extent are you seeing just a better performance in that channel affecting your business? So, health in general, improved conditions in the overall Federated stores, trickling back into better performance for you guys?

We're real pleased that the naming of the stores is complete, and that Macy's is now aggressively attacking their new agenda. They're a very important strategic partner to us in both the sportswear categories and in the dress shirt categories, as well. We are running up double-digit, year-to-date in our core brands, IZOD and Calvin Klein.

We have some new initiatives that are taking hold, the Donald Trump signature collection has been launched the year. And there's an intensification of Geoffrey Beene. And we feel up to this point as though they've managed their new agenda concentrating on the store naming. There's a little less couponing and discounting. We hope that that trend continues through the holiday season. And overall, we are pleased with our new positioning. We think we're well represented in their assortments and we're rooting for them.

Great. Thank you very much. And congratulations once again.

Thank you.

We'll go next to Robby Holmes with Banc of America.

Thanks a lot. Just two quick questions. Manny, I was hoping -- I know you've got a lot going on in the licensing side at Calvin Klein. Could you just remind us what the two or three '07 things are that we should focus on that will keep driving that double-digit Calvin Klein? And you may have said it already with the international stores. But just remind us the other things that may be rolling in.

And the second question is, could you also remind us just how you're thinking about the spring '07 business for IZOD, Arrow, and Van Heusen? I think you have some different types of tough comparisons by each of those brands. I think IZOD had some nice gains in Federated last year. I think you did some rollouts at Dillard's that were launched last year in spring. Can you just walk us through how you're thinking about anniversarying the first half of '07? Thanks.

Okay. I'll start with the Calvin Klein initiative. Internationally the biggest opportunity for us continues to be our CK apparel rollout both in Europe and in Asia. And that continues to be from sportswear, footwear, and accessories point of view, our biggest opportunity. That business really launched in Europe this year. In Asia we have about 30 stores, and we're looking to add more stores as we go forward. That business continues to be very strong.

We believe the Jeans business internationally also has the significant upside. As Warner Co. continues to integrate the business, put the product categories on their distribution network. We think they have a better reach into some countries that Calvin Klein wasn't well represented in, particularly in northern Europe and in the UK where they have a very, very strong Calvin Klein Underwear business. So we really think there's opportunity there for the brand.

Domestically, women's continues to be a big opportunity for us. We'll have the first full year for women's suits and dresses next year. We'll also have the continued improvement that we're seeing in the Calvin Klein White Label Women's Sportswear business continues to roll out. And we'll roll out our Cosmetics business next year. So from that point of view, we think the initiatives continue. I mean, to put it in perspective, we believe, we see over the next three to four years top-line growth in the neighborhood of 9 to 11%. That's the target we've set for ourselves. That will grow bottom line operating income margins in that business about 20% -- to about 20% because the leverage we get on the operating model. So we feel that it -- it's -- those all are within our grasp and attainable as we go forward given the strength of the Calvin Klein brand.

On the second question of how we feel about where we are up against business for next year. You'll always have some concerns when you've come up against strong comp store performance. But we don't see any reason for any slowdown in momentum that we've had, both in our own retail stores and in the wholesale channel and distribution. The IZOD business continues to be very strong. And we feel that, given the order book and the plans that we sat with our retail partners, we don't see any reasons why we should see any kind of slowdown next year. We're up against very strong performance in the first and second quarter of this year. But we have been up against that for the last 12 quarters. So, we continue to be very positive about how we see the business rolling out.

Are you getting any visibility on square footage gains in some of those legacy brands for spring versus what you were doing in the first half of last year?

On Calvin Klein -- on the Calvin Klein base business, we continue to see door growth, and we continue to see expansion of shops within the doors that we're existing in, and that for us continues to drive our growth on that piece of the business. The IZOD, Van Heusen business, we continue to see growth, particularly with some -- with JCPenney and some of our other department stores, Belks, Bon-Ton, Carson's, those retail partners continue to really intensify the presentation of those brands, Van Heusen and IZOD. We don't see any slow-up there, as well.

Terrific, thanks a lot.

We'll go to Susan Sansbury with Miller Tabak.

Hi, Manny. Happy Thanksgiving, in case I forget.

Same to you.

My question, I guess has been answered but I just want to phrase it a little bit differently. When you look forward, the question relates to Calvin Klein and the rollout of the new initiatives. You said the international business was going to grow at 10 to 15%. But you didn't change the business model top-line growth of 9 to 11. What is that -- what does that mean for the U.S. business?

Well we are -- when we plan the business, when we project the business, we always try to project the business in a way that we will deliver. I don't want to call anything conservative. But, when we plan the existing businesses, are what we call our comp licensing business, to grow in the low single digits, 3%, somewhere in that range. It varies by group. But we don't plan it for huge growth. We're not in control of those businesses that we're operating those businesses to really project greater growth in that. And a lot of those businesses are driven by reorder and trends of business that are going on at that moment in time. Particularly our fragrance business, significant reorder. The jeans business to a great extent. So we plan those businesses out of the box on a relatively conservative basis and then we build up again.

So it's always been when we looked at our businesses, the mix of business as we've rolled forward. We've, for the last number of years, we've really looked at our growth to be driven 60, 65% by new initiatives and 30-- 35, to 40% with the existing businesses that are in our portfolio for Calvin Klein. We've exceeded the 9 to 11% targets for the last three years, and as we deliver against those results, we've been able to drop a disproportionate amount of that gain to the bottom line. And that's the way we choose to manage and project the business going forward. It's not a signal that anything in and of itself is slowing down. It's just the nature by the way we project our business.

Okay. I would have thought with a global rollout of Euphoria men's and women's, the cosmetics launch, the initiatives underway at -- now I guess they call it Calvin Klein J-E-A, that the target growth rate would be higher than the 9 to 11%. But you don't anticipate changing that?

I don't think that's really a fair way to look at it. I think the way to look at it is, we're dealing with a $4 billion business globally from a retail point of view, worldwide with numerous moving parts. And when you launch a product category like cosmetics, which will be second half of 2007, no matter what great success they might have in 2007 it can't drive a $4 billion market to any great extent. When we launch product categories, our strategy usually is to open up in a limited number of doors, create great success in those doors, and then begin a rollout that gets us to the level. And that rollout is anywhere from a three to a five-year rollout to get the door count that we think is appropriate in the United States.

And that's the formula we've used to grow each of our businesses and the success we've had in growing the business. So we don't get 900 Federated doors out of the box. We really start out in eight doors, understand the business, and roll those businesses out as we have success and continue to add doors throughout the department store channel in the United States. So I think part of that is the way we choose to roll it out, and not all in one shot but to do it in a very disciplined, programmed way.

Okay. That's very helpful. Thanks ever so much.

You're welcome.

We'll hear now from Elizabeth Montgomery with Cowen.

Hi, all my questions have been answered, actually. Thanks, though.

Next to David Glick with Buckingham Research.

Good morning and congratulations. Manny, just a quick question; if you could update us with the thoughts on the timeframe on developing a specialty retail strategy for the Calvin Klein brand in the U.S.?

Well that's always been a question that's come up about is there an opportunity for regular, full-priced retail strategy for Calvin Klein. We are-- we will continue to explore that. We think it will create a great brand halo for our department store business. We would price it at or above department store pricing, and we really keep it at a very high level to create a showcase for the Calvin Klein business. Any kind of a rollout would be very-- we would do it in a very disciplined manner. We would do it in a very programmed manner, as well.

So, if anything we were to do would be a couple of stores at the beginning, really understanding what the impact would be, understanding the consumer and that channel of distribution. And then gradually rolling out a number of stores that would get us to a point that we really would have showcases throughout the United States presenting the Calvin Klein product at the best malls and street level to present the product. So at this point in time, it's really-- we're really exploring it and doing some due diligence to understand.

So the earliest might be 2008?

Of any significance. We could have a store or two open fourth quarter of next year, but it would really just be at that point totally an experiment at this point.

Great. Thanks, and congratulations again. Enjoy the holiday.

We'll take our next question from Jeff Mintz with Wedbush Morgan Securities.

Good morning, and I'll add my congratulations on a great quarter as well.

Thank you.

Just a couple of quick follow-up questions. Most of my questions have been answered. With regard to comps, you indicated that you've seen comps kind of slow down in your own stores back to the mid single-digit level. Are you still seeing stronger comps than that from Calvin Klein? Is that kind of still leading of your brands?

Yes. Our comps continue to run in the mid single digits, we're very happy with that. It's running ahead of plan right now. Our Calvin Klein business continues to perform at the high end of that mid single-digit range. So we're planning our business for the fourth quarter right now at about +3%. We're running slightly ahead of that right now. So we feel good about our business and the trends in the business. Clearly know we don't project our business or estimate our business anywhere near the 11% we ran for the third quarter. We wouldn't have the inventory in place to sustain that kind of a comp store growth for an extended period of time. So all that being considered business is good across the board. And our retail divisions, we're very happy.

And then kind of looking ahead in terms of retails, what -- have you set out any store opening plans for 2007, in the retails-- the outlet stores?

The only chain that's really considering a significant growth continues to be Calvin Klein. We're going to end this year with about 70 stores. We talk about that the right number of stores for Calvin Klein is between 90 and 100. Polo operates about 140 to 150 stores. Tommy Hilfiger operates a similar number. So clearly there is opportunity to grow those Calvin Klein stores. We want to be a little bit more disciplined than that, at the 140 or 50 store level. We see it more 90 to 100. We want to be the best centers. As that real estate becomes available we'll be back-filling into it, looking for the right opportunities.

So I would estimate that we'll open somewhere between 8 and 10 stores with Calvin Klein next year. For our other brands, we'll open as a number of really strong centers come on line next year, we'll be opening in some of those centers. I would expect somewhere around 10 to 12 stores opening for our legacy stores. So a very disciplined program growth. And as we look out, we plan our comps on an overall basis, in the 2 to 3% range.

Okay. Great. Thanks very much.

We'll go now to Robert Samuels with J.P. Morgan.

Thanks. All my questions have been answered.

Thank you. [OPERATOR INSTRUCTIONS] All right, Mr. Chirico, there are no further questions. I'll turn it back to you for any closing comments.

Okay. Well, I'd like to thank everyone for joining us for the call. Like to wish you all a happy Thanksgiving and a healthy and happy holiday season. And we'll see you all and talk to you on our next conference call which is in the fourth quarter -- which is the fourth-quarter call in March. Have a good day. Thank you.

Thank you. That does conclude today's conference. Thank you all for joining.