PVH Corp (PVH) 2006 Q4 法說會逐字稿

Good day, everyone and welcome to today's Phillip Van Heusen Corporations fourth quarter 2006 year-end earning release and conference call.

Today's webcast and conference call is being recorded on behalf of PVH and since this is copyrighted material it may not be recorded, reproduced, retransmitted, rebroadcast, downloaded, or otherwise used without PVH's expressed written permission.

Your participation in the Q&A portion constitutes your consent to having any comments or statements, you may 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 certain events and financial performances as of March 27, 2007.

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 has been 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's rules.

A reconciliation of these measures is included in the Company's earnings release which can be found on the Company 's website www.PVH.com and in the Company's current report on Form 8-K furnished to the SEC in advance of this webcast and call.

At this time I'd like to turn the call over Manny Chirico, Chief Executive Officer.

Thank you very much.

Good morning, everyone, and I'd like to thank everyone for joining us.

On the call with me this morning is Allen Sirkin, our President and Chief Operating Officer; Mike Shaffer, our Chief Financial Officer; and Pam Hootkin, our Vice President , Treasurer, and point person on Investor Relations.

Let me just start by saying we were very pleased with the results we were able to post for our fourth quarter.

What I'd like to do is talk about some of our key businesses and then talk about some of the initiatives that we have going on for 2007 and what I'll start with is Calvin Klein.

Calvin Klein had a very strong fourth quarter.

Some of the key product categories in the fragrance area, for the year we posted a double digit revenue increase associated with our fragrance business.

It was driven across our brand franchise in Calvin Klein, CK1, Eternity and in particular, our Euphoria fragrance.

The women's line in Euphoria continues to accelerate and gain market share and the new mens launch exceeded our expectations for the second half of the year.

We were very positive performance both in the U.S.

and internationally.

Looking out to 2007, we have a number of new initiatives going on with fragrance, Our partner Coty is doing an outstanding job in this area.

They continue to invest in the marketing of the brand and in 2007, they're again expecting to exceed their 2006 marketing budget.

We'll have a number of new launches in 2007 and in the first half of the year, a very exciting launch for us is CK Into You.

It's a new fragrance that's being targeted to a much younger consumer, the 20 something consumer.

We're in the very early stages.

We've had some positive sales results throughout Europe.

We're seeing very strong sell-in and sell-through performance in Europe.

In the United States, the product is just starting to hit the showcases and the aisles in department stores.

We should be set up for end of March, beginning of April, the sell-in on CK Into You has been very strong in the United States and we're very optimistic about this launch as we go forward.

Moving on to underwear, worldwide, this product category has really been -- has seen double digit revenue growth as well.

The business has been equally strong both for mens and women's.

It's been equally strong both internationally and domestically.

On the women's side, we've benefited from Perfectly Fit, which was our new launch last year and that business has exceeded all of our plans.

On the mens side, it's been a continuation of the Calvin Klein business there, plus the introduction of 365 Men, which happened in the beginning of 2006.

We're seeing very strong performance there, Warner Co.

has done a terrific job with the brand and the category, we've also enjoyed internationally very strong retail expansion with the underwear portion of our business.

So overall there, we're very happy with the performance.

On the jeans side of the business, domestically, we've maintained our market position, dealt with a number of the retail consolidation and door closings that's gone on here and maintained our strong market position while internationally, we've experienced significant sales growth, particularly in Asia.

It's been a combination of both retail expansion that we've benefited from as well as selling through our traditional department store doors throughout key countries in Europe and in Asia, so that business has been very strong for us as well.

Overall in the women's category, when we look at that business overall, our women's sportswear business with Kellwood has doubled its number of doors in the fourth quarter of 2006 compared to the prior year.

We're seeing improved sell-throughs at retail and significantly improved margins at retail and significantly more full priced selling going on with that line.

So we're encouraged by the results we're seeing with that business and we think it bodes well for 2007 and beyond.

Some of the other categories in women's, women's suits had a very strong performance in 2006 and it has got a lot of acceleration and momentum as we go into '07 and women's dresses, which was a partial launch really in 2006, really had excellent performance at department stores and is getting great placements and the early reads on the women's dress business is very positive.

So I think we feel very positive about that business and overall, the Calvin Klein business continues to deliver strong growth for us, exceeding our targeted growth levels of 10% and for the last three years has averaged over 14% top line growth and we're really enjoying the benefits of that.

On our apparel businesses, wholesale dress and sport business, we've posted sales increases for those two businesses, increases of over 15% in the fourth quarter.

A lot of momentum in that business, all of our brands had a very strong fourth quarter performance at retail.

We clearly are outperforming the competition at all channels of distribution, department stores, the mid tier, and at the mid tier as well.

IZOD in venues and in particular had very strong performance both in department stores but in particular in JC Penny's.

The brands have really gotten great position there and have really shown great sales performance in that channel of distribution with that very strong retailer.

Our Arrow business continues to have strong performance with Kohl's in particular and that business continues to drive good profitability for us as we go forward so overall in our wholesale dress and sportswear business, we've seen terrific performance there and we're very well positioned coming out of fourth quarter.

Inventory is extremely clean.

A lot of momentum in the business and I think it sets us up very well for performance coming into 2007.

Our retail performance in our own outlet store chain has been very strong.

The comp performance accelerated in the fourth quarter, we posted an 8% comp store increase in the fourth quarter excluding the 53rd week, so on a 52 to 52 week year, we've posted an 8% comp store increase for the year and the quarter so we are very happy with the performance we're seeing in our retail businesses.

We've seen an improvement both in profitability and sales productivity on a per square foot basis and we are again coming out of that business with a tremendous amount of momentum, very clean inventory, and we think we're very well positioned as we go into 2007 to deliver against our plan.

I'd like to touch on some of the new initiatives we have going on with each of our businesses.

With Superba, our new neckwear acquisition, we closed that acquisition in the beginning of January.

The integration is going very smoothly from a system point of view and a people point of view.

We've been very fortunate to retrieve earlier than we expected, the Calvin Klein, IZOD, and Eagle brand and have put them on to the Superba platform.

The strategy of having a comprehensive presentation of neckwear and dress shirts and presenting that to the market is just beginning to unfold.

The potential for synergies from joint marketing of both those product categories we think is ahead of us and we should start to really see the benefits of that as we get into the second half of 2007 so we're very pleased with how the acquisition is presenting, how the initial performance of the division is doing with a new neckwear acquisition and how the market has received the acquisition.

The next area I'd like to move to is IZOD women's.

That team is totally in place today.

We've brought our first lines to market, presenting a full lifestyle presentation of women's, very consistent with how we market and present the mens product.

The launch has been very well received by our retail partners and we're really, we think we're off to a very strong start in this area that we're very well positioned going into 2007.

Just to remind everyone, we began shipping second half of this year with Fall deliveries, first shipments will probably occur in July, so all indications here are we're expecting a very positive launch of this product for us and it's been very well received by retailers.

In particular, what they like about the transaction is the fact that we're in control of the business, that the master licensee has control or the master marketer of the product has control of the business and the literalization of the business from mens to women's across the store we think is going to be very well received at retail, so we feel really good about that business and think we're in good position.

The last business which is really a 2008 initiative is the recently announced Timberland Sportswear license, both mens and women's, just to remind everyone, we'll begin shipping Timberland product in the Fall of 2008 for men and the Fall of 2009 for women.

We've begun to put the organization in place.

The market has received our announcement very positively, taking a great brand like Timberland and being able to layer it on to our infrastructure, put it into our brand portfolio where it doesn't cannibalize any of our other initiatives, it's a true, traditional, authentic outdoor brand in the collection area of Sportswear.

We think it fits very well into our portfolio so we're very positive about what this brand is for us as we go forward.

We're making investments this year in the organization and the infrastructure in order to benefit from that and we feel as good at that business as we did when we announced it.

Lastly, I'd like to talk about our Calvin Klein specialty store initiative and test.

We have the organization, it is in place.

It's coming together.

We've been very fortunate to hire some very strong specialty store retail key executives that we've layered on to our organization.

We think they are fitting in very well with our organization.

We are being very positively received by the major specialty store developers in America.

We are getting access to some of the best real estate space in America, and in our second quarter conference call, I'll be able to put a little more flesh on to some of the locations that we'll be opening in the fourth quarter of this year.

We haven't officially signed any leases yet but we're very close on a number of excellent malls that you'll all recognize and know and really be in position for us.

We think this is really going to be -- this is a twofold initiative for us.

The first initiative is that from a marketing point of view, to have 5 to 10 stores that give us the ability to showcase the Calvin Klein, White Label product lines across all lines and in the best retail space in America, we think is a significant marketing investment that we need to make for the Calvin Klein brand.

It's a way that we can show the brand in its full lifestyle presentation in the best real estate and retail space in America so we think it is very important from that point of view and what we're also testing is how many of these stores are appropriate for us?

Is this a sales and profit opportunity for us besides being a great marketing showcase?

That's what the test will determine over the next two years.

Those are the investments that we're making now to determine that and the opportunity is great, both from a marketing point of view and the potential upside from a sales and profit point of view.

Lastly, I'd like to just touch on and I'll take a number of your questions on I'm sure as well, on some of the marketing initiatives that really went in place in the fourth quarter.

We're very happy with how the marketing has been received by our customers, by our consumers, our initial -- the initial reactions to the investment we made has been very positive.

It's always difficult to measure quantitatively what the marketing means but we've seen very strong performance in all channels of distribution for our four brands that we've really invested in the marketing, Calvin Klein, Arrow, IZOD, and Van Heusen.

We know we're being seen by our consumers.

We're targeting the marketing to a much more diverse portfolio of cinema, media, television, outdoor, so it's a very diverse media buy that we're talking about and our intention is to continue that marketing into 2007 beyond at the same type of dollar levels that we spent in 2006 and we'll continue to do market research on our marketing campaigns and how our consumers are reacting to that, but all initial indications are it's been very positively received and we believe we are top of the line with our consumers.

And with that I'm going to turn it over to Mike Shaffer to quantify and put some color on numbers.

Okay,

All right, thanks, Manny.

Let me start with my comments are based on non-GAAP results.

As Manny said, we're very happy with our fourth quarter and full year results.

Total revenues for the fourth quarter grew by 21% to $557 million with all of our divisions posting an increase in revenues over the prior year.

Our wholesale dress furnishings and sportswear division had a fourth quarter revenue growth of 21% fueled by continued strength in our Calvin Klein businesses along with strong performance in our legacy brands.

Our retail group finished the quarter with comp sales performance of 8%.

Our reset comps reflect 52 weeks of business in '06 compared to 52 weeks of business in the prior year.

The 53rd week for all PVH divisions accounted for $10 million of revenues or 2% of the 21% revenue growth for the quarter.

EBIT for the quarter increased 11% over the prior year and reflected the additional advertising $29 million that Manny spoke to earlier.

Our earnings per share for the fourth quarter increased to $0.47 which was $0.04 over our guidance and the 31% improvement over last year's earnings per share of $0.36.

Earnings growth was fueled by a strong revenue increase and 190 basis point improvement in gross margins.

Our gross margin improvement was the result of a 33% increase in revenues in Calvin Klein licensing.

Those revenues carry 100% gross margin.

Along with strong growth in our Calvin Klein wholesale and outlet retail division which carry a higher gross margin than our other branded divisions.

From a balance sheet perspective our inventories are very clean and are 11% over last year.

This reflects our planned growth in revenues for the first quarter which is 15%.

Receivables approximately 10% lower than last year, and we saw strong collections in our wholesale division, coupled with the impact of the 53rd week which benefited our licensing businesses.

Our cash flow for 2006 was approximately $100 million after the acquisition of Superba for $110 million.

Also included in our cash flow was $11 million of inducement and offering costs associated with the conversion of the remaining shares of our Series B preferred stock and sale of the underlying Common Stock which we completed earlier in the year.

We are projecting our 2007 cash flow to be 85 to $90 million.

Included in our 2007 cash flows are capital expenditures of $100 million in 2007.

This compares to capital expenditures of $46 million in 2006.

The increase in capital expenditures reflects investment, new and expanded facilities including warehousing and offices, both domestically and internationally to support the growth of our heritage businesses as well as our new business initiatives.

We are on track to deliver 2007 earnings per share growth of 15 to 17%.

We are raising our 2007 earnings per share guidance for the full year to $3 to $3.06 per share.

Our 2007 earnings per share guidance includes an aggregate of approximately $8 million of start-up costs.

These costs are associated with Calvin Klein specialty retail and the Timberland wholesale businesses.

Revenues for the full year 2007 are projected to to be $2.4 billion or 15% greater than 2006 revenues of $2.1 billion.

As a result of our wholesale businesses growing faster than our retail licensing businesses, our guidance for 2007 reflects a decrease in our gross margin rates and a corresponding decrease in our SG&A rates.

This decrease reflects the gross margin expense structure of our wholesale businesses which runs lower gross margins and lower operating expenses than our retail businesses and our licensing businesses.

Overall, our operating margins are flat from 2006 to 2007.

We are projecting first quarter earnings per share of $0.85, an increase of 15% over last year's $0.74.

Included in the first quarter earnings per share aggregate start up costs of approximately $2 million associated with Calvin Klein specialty resale and the Timberland wholesale businesses.

Our revenue for the first quarter is projected to be $580 million which is 15% greater than 2006 first quarter revenues.

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

Thank you, sir.

[OPERATOR INSTRUCTIONS] And we go first to Tim Dwyer with Piper Jaffray.

Congratulations on another very strong quarter.

Just a couple questions for you.

First of all, I was just trying to dig into your top line guidance for growth of 15% for the year.

I was wondering what type of CK licensing growth is factored into that?

And then if you could break that down further what type of growth are you expecting from the international CK business and how does that compare with the domestic business?

Sure, our top line growth guidance with CK is about 10 to 11 % for the year, which is pretty consistent from where we've been.

We are planning our international growth to be about 50% of our total growth, so it's a very balanced group between domestic and international, overall, and that's pretty consistent the way it's been trending for the last three years and we don't see any change in that.

Okay, great.

And then regarding the IZOD women's business that you're taking in house, I was wondering how big of a launch are you anticipating that will be in terms of doors?

And then will the distribution be similar to what that has been in the past?

Yes.

The distribution is consistent with the mens distribution.

We're planning to be in about 1,500 doors overall.

We're planning to launch somewhere around, I guess the guidance we've given is $20 million for the second half of the year, and with a little bit, with the momentum we've seen and some of the positives we've seen, we're hoping to be able to exceed that, so that's where we are right now.

Great.

Thank you very much.

You'll hear next from Robbie Ohmes at Banc of America Securities.

Thanks.

A couple of quick follow-up questions.

How big, since you gave the $20 million launch for IZOD women's, can you remind us how big you expect Timberland to be in '08?

And then a follow-up question, can you just talk about the IZOD mens positioning in Macy's versus private label like Charter Club and also your anticipated impact from the American Living rollout in JC Penny on IZOD as well?

Thanks.

Try to remember all of those, Robbie.

I'll try, on the Timberland position, just to remind everyone, we're launching second half of '08.

The plan is to be close to a $50 million launch in '08.

To remind everyone, it's about a 75 to $80 million business today, so we're planning at that level.

The second part of the question deals with the positioning of IZOD?

Yes, IZOD both in JC Penny with the American Living brand being rolled out by Polo and in your guidance how you're thinking about that as either impacting or not impacting and then also it feels like and we don't get to see a lot of the Macy's stores but it feels like Charter Club is getting some better floor positioning this Spring than we remember it getting last year at this time relative to IZOD and is that a broader trend and how you're thinking about that?

Well, given the Federated-May merger, proprietary private label brands that are a key part of their strategy, those handful of brands seem to be getting excellent floor space, the corners, the aisles or whatever, but IZOD line has to compete against those directly.

We believe the brand has given it's marketing and it's national recognition, it's positioned well to compete at that level, it's continued to perform very well in that store, it doesn't have as strong performance, as strong as positioned in the store as some of the private label position but it seems on a day in day out basis to out perform that private label, so it's just part of what we need to overcome.

We've got coordinators in store, we have sales specialists in store that make sure the product is presented well.

We've been fortunate enough to maintain our lifestyle presentation so we're not being shown as in categories, we're being shown together as a pull a pull together lifestyle presentation throughout department stores.

So that's been a positive for the IZOD business and we haven't seen any slowdown in the business.

So we seem to be overcoming some of those hurdles that have been placed in front of us, but it's clearly an issue particularly at Federated with the positioning of the brand since we're priced very much directly against some of those private label brands.

On the JC Penny side, right now, there's a lot of talk about American Living.

We've been assured by the JC Penny management that this initiative will not impact either Van Heusen or IZOD.

We've been assured that we're going to continue to get our Lifestyle presentations at JC Penny at the appropriate places and as we are now, and we've been assured that our open to buy is not going to be impacted at all and actions speak louder than words and JC Penny's actions with both of our brands has been very strong.

We've gotten better positioning over the last nine months at Pennies.

We've been pulled together as a lifestyle presentation in all doors, and we're very happy the way JC Penny treats both of those brands and we don't expect that the American Living will directly impact it.

We're dealing with competition every day, and depending how that brand is received and whether the American consumer recognizes American Living as a real brand and how it's presented, will determine how we have to react to it, so it's a lot to come.

We're truly watching it and monitoring it, but we don't expect it to directly impact our business.

Terrific.

Thanks a lot, Manny.

Our next question comes from Bob Drbul with Lehman Brothers.

Hi, good morning.

Hi, Bob.

When you look at the cash balance today, Mike and Manny, I guess a couple of questions.

You're stepping up to CapEx, you got a strong free cash flow number coming out for '07.

Can you talk a little bit about other opportunities that you see to utilize that cash in your mindset today, despite the fact there's many other initiatives that you're investing in heavily in '07?

Sure.

Look, in the fourth quarter we spent $110 million to purchase the Superba and we utilized our cash for that.

We are making significant investments both from an operations point of view and start-up costs and from a capital point of view to invest in our new initiatives and we're using our cash to drive future growth.

Acquisitions will continue to be our first priority for our use of cash, appropriate brands that we could layer on to our infrastructure and our business platform, and to do the businesses that we are good -- that believe we have core competencies in and to license out the businesses where we have our strategic partners to utilize and grow appropriate brands.

So it's really a continuation of the strategy we have in place.

We're going to generate probably 85 to $90 million of cash next year.

If we get to the fourth quarter of next year and we haven't identified an acquisition candidate that we feel good about by that point, we'd clearly look at our balance sheet and we'd look to do either a stock buyback or some type of debt restructuring and to utilize our cash to deliver value to our shareholders directly through a stock buyback or to the accretion of maybe a debt buyback and we look at what makes the most sense at that time.

So we recognize we're not a bank and we're not going to sit here and hold the cash, but at this point we're still in a net debt position today and although significantly underlevered, we think our cash is a strategic asset that we have to be used for future growth and particularly with the first priority being acquisitions.

Okay, and then second question, Manny, around the investment in the advertising and the marketing, and you look at the top line returns that you've gotten in the fourth quarter and what you're expecting in the first quarter, I guess my question is around, can you just give us your updated market share views in terms of where you are, whether it's for the dress shirt business or the sportswear business and maybe targets that you think are attainable over the next few years within the various segments of your business that you see this necessary spend?

Look, we've talked about this.

I believe very strongly that given the chaos at retail last year, particularly as we came into the second half of the year, the rebranding of the Macy's, the May Company stores to Macy's, the consolidation of all of those name plates, the significant marketing spend that was going on by both Macy's, JC Penny, and the lack of spend that was really occurring in the apparel industry overall, we felt it was an appropriate time for us to step up and spend on marketing our brands and I'm not going to sit here and try to correlate for you to say the performance we saw in the fourth quarter was driven by the marketing spend, but I have to believe that some of it was a benefit, an 8% comp store increase on top of prior year fourth quarter increase of close to the same levels speaks for itself.

The continued strong performance that we've had at wholesale sportswear and dress shirts as Macy's remerchandised their stores and we lost some position in those stores overall, compared to where at May Company, we didn't lose any of our market share.

We've really replaced it with other retailers, other department stores and JC Penny so I think it's a testament both to the divisional management team that was able to react quickly and to the strength of the brands that we were able to do that, so I believe off of this base, I don't see any reason why with our brands that we would not continue to grow our market share in those appropriate channels of distribution that we're seeing.

I think the consumer has our brands top of line given some of the marketing and the shelf space that we have with our brands, and I think Calvin Klein speaks for itself.

When we did this acquisition, there was a lot of concerns about would keep up the spend and the presentation of the brands at the level it had been by the predecessor Company?

I think all we have demonstrated is ability to accelerate the spend in that area.

We're spending dramatically more today, marketing the Calvin Klein brand than we were when we took the Company over in 2002.

We have invested both in the collection business and as for a halo for our brand, and we've invested in the marketing of all of the product associated White Label products in America to really drive that brand.

So I'm a big believer that you get behind your big brands and you spend the marketing money and you will get paid back for it.

The targets we've set, I think are clear.

For Calvin Klein, we've consistently over delivered against our 10% top line growth in licensing for the last four years.

We are planning 10% top line growth.

We've got a lot of momentum as we go into the year.

I would like to leave we're going to exceed our targets.

We've talked about the core business growing in the mid single digit range, given the performance that we've seen at retail, year-to-date, in the first quarter and given our strong performance in the department store channel, we would be disappointed if we didn't exceed those numbers, so the momentum is there, the target is there to continue to gain market share for all of our brands.

Thank you.

Our next question comes from Robert Samuels with JPMorgan.

Hi, good morning.

Can you give us some more detail about what's driving the strong growth in the wholesale business, particularly in the mens sportswear and then just with regards to the 8% comp, can you break that down a little bit more into traffic versus ticket?

Sure.

I'm going to take the last one and then I'm going to turn it over to Allen to talk about the particular sportswear industry's growth.

The 8% comp is being driven, I'd say it's 65, 70% on unit growth and 25% on average unit ticket out the door.

We're really seeing strong average unit ticket growth in our footwear divisions and the Calvin Klein business continues to have growth in its average unit ticket but I think the vast majority of the 8% comp store growth is traffic driven and it's, plus I believe getting a greater share of the consumers shopping in that mall and then Allen will talk about sportswear.

The main drivers of our sportswear growth are Calvin Klein and the IZOD brand to the larger extent and both Van Heusen and Arrow to the lower degree.

The IZOD brand continues to perform everywhere.

Fundamentals of that, we have had a year of concentrating on productivity per door.

We have accomplished that.

We had a significant growth last year followed by a projected growth for this year.

Our door counts will also increase this year.

We ended 2006 at 545 doors, France should take that number by year-end to 636 doors this year.

We are selling all products across the category and performing well.

IZOD it's a similar story.

We are pulling together our lifestyle presentations.

There's some product lateralization going on and within that we have segmented our customers particularly between Macy's where we feature the LS brand and the other accounts and both of those initiatives on a performance level are performing well.

To a degree, the Van Heusen brand, we've centered on a lifestyle presentation.

We're getting acceptance to that concept, and that brand as well is continuing to grow and the Arrow brand which is positioned well is performing as well, so we're operating on all cylinders and have a positive projection for the year.

Thanks, congrats.

Thank you.

Our next question comes from Elizabeth Montgomery from Cowen.

Hi, guys, can you hear me okay?

Yes.

Congratulations on the great year.

Thank you.

I guess I have a couple quick questions for Michael.

When I look at the Q4 numbers it looks like the Calvin Klein operating margin on the licensing business declined a bit and I apologize if you adjusted it.

Was that due to the increased advertising in Q4?

Yes, absolutely.

That was about 10 million.

Okay, in terms of the step up in CapEx, should I be viewing that as kind of a one-time event for '07 or how are you guys positioned in terms of infrastructure after this planned increase in '07?

What we're looking at is really two years.

We believe we're going to be in the 100% range for '07 and for '08 on CapEx.

Okay.

And then a final question.

I guess Manny, when you were talking about the Superba acquisition and your ability to migrate some of those brands over sooner than expected, can you just tell me again which brands those were and when did you guys initially expect to be able to migrate them over?

Sure.

The three brands are Calvin Klein, IZOD, and Eagle.

The expectation was we would bring those brands over beginning in 2008, we're able to accelerate that retaking back of the license by, in effect purchasing the license back for a year earlier.

We thought it was worth the expense to incur for that, so that we quickly gained control over the brand and be able to joint market in both neckwear and dress shirts as we go forward for those brands and control the distribution of brands ourselves as opposed to have someone else do it.

Great.

Makes sense.

Thanks a lot.

We go next to Melissa Otto with WR Hambrecht.

Congratulations on a great quarter and nice finish to the year.

Just a question to follow-up on the SG&A expense that we saw tick up for this fourth quarter.

When we think about fourth quarter 2007, should we anticipate a similar sort of increase?

No, Melissa.

We're planning from a dollar point of view, right now, given our budget for the year, the advertising on a dollar basis is planned flat year-over-year, so as we grow the top line, we would expect particularly in the second half of the year to get a little bit of leverage on the SG&A line because of the advertising, so we're very comfortable that the advertising dollar levels that we have today and given the sales growth we're projecting, it should go down as a percentage of sales and particularly in the third and fourth quarter.

Okay.

And then just a follow-up question on Timberland.

Could you just give us a little bit more color in terms of the distribution of that for 2008?

What sort of penetration are you anticipating?

We will be following this Timberland distribution strategy that they currently employ with footwear.

It's a combination of department stores, specialty store and some trend right apparel footwear stores for the authentic youth side of the business.

We have plans to grow off of the base as Manny said, we're taking over a $75 million wholesale business, and we believe based on our ability to work with licensers properly and brand development that we can grow off of that base.

How big do you think you can become in terms of penetration?

How many doors?

We believe that overall, again, looking out into 2010 or '11, that we think that Timberland has a position to be a a $200 million apparel and that's the target we've set for ourselves to grow to over that five year licensing period.

Okay, great.

Thank you very much and congratulations.

Thank you.

We go next to David Glick with Buckingham Research.

Good morning and congratulations on another great quarter and year.

Thank you.

Just a question, Manny, about how we should think about the organic earnings growth rate of PVH going forward.

You guys have made -- you are making significant investments this year in '07, some of which you're going to receive no top line benefit or earnings benefit at all this year and some only a half a year benefit and without these investments, certainly operating income and EPS would probably be up at least 20%.

As you look ahead, '08 and beyond when some of these investments are going to begin to pay off, should we or can we start to think of the organic earnings growth rate of PVH at around 20% rather than the typical midteens that you've been guiding us to in the past few years?

Let me just take a step back, because that's a mouthful and I appreciate the question.

We've guided 15 to 20% earnings growth.

We started that back in 2003 post-Calvin Klein acquisition.

That was off of an earnings per share base of $1 a share, about $27 million.

Today, we're projecting $3 plus a share which projects out to a net income of $165 million.

Our performances has been that we've actually grown the bottom line closer to 40% a year over that same period 2003 to 2006.

So David, I guess with that as a prelude into what I'm going to say, I guess we believe that it's healthy, healthy for the business, healthy for our business model and healthy from a management point of view to not overextend the businesses out there, given the high base of profitability where relatively we're at today that we continue to guide to this 15 to 18% earnings per share growth, including some of the initiatives that we have in place today as they grow forward.

We think it's prudent for two reasons.

Some of these initiatives are truly a test, and they need to be -- the potential needs to be delivered against the actual results, so we're not there yet and I think to get ahead of ourselves, if we were to assume everything was going to work, and everything was going to be successful, clearly we would exceed the 20 or 30% earnings growth that we've had in the past, but again, I think that's a mouthful to say, so I guess our long term guidance is to continue to guide long term earnings per share growth in the 15 to 18, 19% range, and given optimum acquisition, given top line growth overall, somewhere with the new initiatives in place, somewhere in the 8, 10% top line revenue growth range, and I think that's a healthy business model.

It puts us appropriate where our stock is trading and it gives us the ability if we deliver against our results hopefully to exceed the targets we've set out there.

So a long answer to basically saying our long term growth rates that we're going to guide the market to will continue to be here until we see the delivery against some of these new initiatives, 15 to 18% bottom line growth.

I appreciate your comments on that, Manny.

Just a follow-up on the advertising spending.

Clearly, that was concentrated in Q4.

Do you see that spread out more evenly in 2007?

We obviously have visibility on Q1.

I just was curious for modeling SG&A for the balance of the year, should we assume the same relative spend in Q4 for the year or more spread out over the year?

No.

Given our sales -- given our -- how our sales flow, given how we believe getting the attention to the market, we'll continue to be back end weighted with our marketing.

You might see an uptick in third quarter relative fourth, but it will be second half driven to capture the back-to-school selling season and to obviously the Christmas selling season.

We think that's when we get the attention in the market the best and where our consumers watching sporting events, new shows that hit the market for that second half of the year on television, in primetime for some of our brands, we think the best time is then.

Great.

Thanks a lot.

Good luck this year.

Thank you.

We go next to Julie Brian with Jennifer Black Associates.

Julie Brian, your line is open.

We might have lost her.

Hearing no response we'll move on to Carla Casella with JPMorgan.

And Carla Casella, your line is open.

Can you hear me all right?

Hi, Carla.

We just heard you.

Oh, sorry about that.

I wondered about the cash flow, if you could prioritize your use of excess cash for the year.

Are you looking for further acquisitions, share buybacks, any chance of bond buybacks?

Yes.

I touched on that before, Carla, our first priority would continue to look on the acquisition front, branded acquisition, obviously that we could layer on to our platform, and take advantage of the brand and maximize it, both from a optimal -- businesses we would operate in to utilize the licensing model.

That would be our first priority and we'll look hard as we come into the fourth quarter of 2007, if nothing were to materialize, we would then look at our balance sheet after we've generated about $90 million in cash, we would look at our balance sheet to see what would be appropriate to deliver value both to our shareholders.

Okay, great.

Thanks.

We go next to Jeff Mintz with Wedbush Morgan securities.

Thanks, just a couple of quick follow-up questions.

Could you, Manny, break down a little bit on the outlet business?

Are you seeing strength in any particular brands in that channel or is it kind of strength across-the-board?

We're really seeing it across-the-board, given 1or 2 percentage point difference between our brands, but overall, all of our brands are posting somewhere between 5 and 6 or 10% comp store increases in the fourth quarter.

As we've rolled into the first quarter of this year, our comp trend on a shifted basis, trying to take this 53rd week out of the equation, so we shift the calendar and line it up , we're running comps right now of about plus 5%.

On an unshifted basis, on a financial basis, with the calendar off base, we're running close to a 10% comp store increase, so very healthy, we're running ahead of plan, as the weather has gotten warmer, we've seen the business significantly pop.

February was probably our softest month, and I think it was driven both by weather and the fact that we came out so clean with Fall, holiday product, that we just didn't have a lot of product to sell and promote off of and there, I think it impacted sales but we'll see an improvement in gross margin as we go forward.

So overall, just very healthy on the retail channel and it's really across all five of our

Great, thanks.

And then on Superba, realizing that you've only had the business or you're in the process of integrating the business, it's only been there for a few months, can you talk about the possibility of expanding, using the Superba business to expand to higher end distribution channels with some of your other businesses?

One of the things that we found very enticing about the Superba acquisition, they are much more developed in the specialty department store area, meaning that with their Insignia division, it focuses on Nordstroms, Bloomingdale's, Nieman Marcus, and Dillard's, hand made ties for that business, that is their, by far their strongest channel of distribution and their most profitable channel of distribution.

At PVH, it's a channel of distribution that we've always talked about that we do some selling in that business with Calvin Klein label, but it's relatively limited and it's a channel distribution that we really would like to open up.

So we're exploring different ways and opportunities, first maybe to take advantage of the neckwear opportunity with dress shirts and then potentially moving towards sportswear, we continue to look at that channel of distribution as an opportunity for us as we go forward.

Great.

Thanks very much.

Congratulations and good luck.

Thank you.

And our final question comes from Susan Sansbury with Miller Tabak.

Hi, thanks very much.

Just a point of clarification, Mike, and Manny.

On this $100 million spend in '08, are any of the priorities or what you're spending money on going to shift or is it going to be focused on the same priorities that the '07 capital investment program is going to be focused on and where do we put, what do we think of in terms of how many, I can't speak today, the Calvin Klein test, do we already have a planned number of stores that you're going to try to open in '08?

Okay, from a capital expenditure point of view, the focus is on -- the big increase is on infrastructure.

We are both in 2007 and 2008, if I were to target it in three key areas, the first area is as simple as office space expansion.

As you grow, one of the challenges you face is dealing with the infrastructure growth and right now, we are busting out of our seams from a space point of view both in New York and our Calvin Klein facility with the growth we've experienced, at our 200 Madison Avenue facility where our legacy PVH businesses are located, our sportswear and dress shirt businesses continues to grow and then finally in our administrative center and our retail headquarters in New Jersey, that business continues to grow and we're just running out of space.

We're also growing internationally in the Far East.

The requirements from a sourcing point of view and product procurement point of view continue to expand as the businesses grow, and we just need to expand our office space there, so office space is a key driver of our growth.

The second area is warehouse and distribution.

We've got some terrific distribution facilities but they are really being stretched at this point.

This year we'll be expanding.

Some of our internal facilities to try and manage that growth and 2008, there's a potential to look for a new facility to handle the growth that will be coming on with Timberland and the IZOD women's business in particular, growing and the needs that those businesses have as we go forward.

So 2007 and 2008 it's pretty much a continuation of investing in the infrastructure.

The third piece obviously is in systems.

We continue to invest in our systems and our structure to try and make ourselves more efficient as appropriate and that's an area that we continue to target.

On the Calvin Klein stores, right now, and again, this is all subject to change given the dynamics of what might happen with the initial openings of the stores, we're targeting to open five stores in 2007 and five stores in 2008.

If we saw very strong performance in '07 we could accelerate the '07 test to maybe a few more doors and if we saw maybe a softness, we could pull back on that, so we're not committed in any way yet, but the plan in place is to open five and five.

Thanks.

So the dilution from this test is not going to significantly increase one year over the next?

No.

We're targeting overall start up cost in 2007 to be as Mike said about $8 million, about half for Timberland and half for Calvin Klein specialty business and as we go into 2008 we would expect that number to significantly decline.

Okay, great.

Sounds good.

Manny, you're doing a fabulous job.

Thank you.

I'll tell Mike he's doing okay, too.

Well, Mike is doing okay, too.

With that, we'd really like to thank everyone for joining us on this call.

We really appreciate all your support, and support of our associates around the world and we look forward to speaking to you on our first quarter press release call in May.

Thank you very much.

Take care.

Bye-bye.

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

We do thank you for your participation.

You may now disconnect.