PVH Corp (PVH) 2007 Q2 法說會逐字稿

Good day, everyone, and welcome to today's Phillips-Van Heusen Corporation second-quarter 2007 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 materials.

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

Your participation in the question-and-answer session constitutes your consent to having any comments 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 performance as of August 22, 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 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 and 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, [www.PVH.cp], and in the Company's current report, Form 8-K, furnished to the SEC in advance of this Webcast and call.

At this time, I would turn like to turn the conference over to Emanuel Chirico.

Please go ahead.

Thank you very much.

Good morning, everyone.

Joining me on the call this morning is Allen Sirkin, our President and Chief Operating Officer; Mike Shaffer, our Chief Financial Officer; and Pam Hootkin our Treasurer and Director of Investor Relations.

We are quite pleased with the results that we posted for the second quarter.

Each of our businesses continue to perform very strongly.

All posted increases for the second quarter.

And let me go through a review right now.

And I will start with the Calvin Klein licensing business.

Overall, that business posted a 20% increase in royalty revenues for the quarter and a corresponding 30% increase in operating earnings for the quarter.

That business continues to be driven by our fragrance licensee, Coty; continued strong momentum with CK IN2U, the new launch that was went out beginning in March of this year.

That performance continues to be very strong for us around the globe, both men's and women's.

Our Euphoria fragrance continues to go, even up against very strong numbers for the prior year.

The franchise continues to be a strong performer for us.

And we're positioning ourselves as we -- for the back-to-school season with the significant launch of Calvin Klein Man, which is a new fragrance and master brand that's going to be totally focused on the men's fragrance side.

So a lot of exciting excitement going on with Coty in fragrance; tremendous amount of marketing spend going on in that business.

Overall, the fragrance business for us in the first half of the year was up over 30% from the revenue point of view.

We are expecting that business to continue to grow -- not at that rate in the second half -- but again, a lot of momentum in that business, feeling very good [with it].

Our two other large categories, jeans and underwear, also have had a very strong first half of the year.

Those of you that follow Warnaco know they posted very strong numbers for the first half of the year, particularly internationally, particularly with the jeans business.

But the underwear business also posted well over 20% increases for the overall underwear business.

A lot of excitement there -- we just had our recent launch -- Calvin Klein Steel underwear, a major marketing campaign going on there.

I believe that advertising is breakthrough.

Djimon Hounsou is our spokesmodel.

The print is just hitting magazines as we speak.

The outdoor campaign is also just hitting.

You will see it much more intensified as we go into the heart of back-to-school selling in September.

So a lot of excitement going on on the underwear side of business.

On the jeans side of the business, it is really being driven internationally, particularly in Asia, although Europe is also very strong.

Our U.S.

business in jeans is healthy.

And I think as Warnaco spoke to the market and talked about their sales increases, they had overall -- between the two categories of jeans and underwear, they posted over a 20% sales increase.

As you know, there's a number of timing issues going on there.

They are planning the second half up about 8% -- very healthy business; relatively mature businesses, but continue to grow in the United States and internationally as [well] -- other growth is coming there.

Some of our other licensees -- it's a very similar story as you go licensee to licensee.

Our women's dresses and suits -- G-III, our licensee there, continues to perform very strongly for us.

That business has been good.

Orders and bookings are good.

Our men's suit business with [Peerless] continues to be very strong as well.

And I -- what's really happening as well, Calvin Klein, a true international brand, has got a significant amount of growth going on internationally.

A lot of the emerging markets, we're seen tremendous growth with relatively small businesses that we think, more so for 2008 and beyond, will be tremendous growth vehicles for us -- China, India, Russia, the Middle East -- those areas of the world, our business is just on fire there.

And we're having very strong performance.

From a marketing point of view, I talked about the Steel campaign and what's going on with the new launch in that underwear category.

But there's a significant amount of marketing and intensification at Calvin Klein.

We spend over $250 million marketing that brand.

We've got a major event going on in September with Macy's that is going to be launching Calvin Klein Week in the third week of September.

It's a 10-day event.

It will be a national event with Macy's.

And its going to get some tremendous media coverage.

And its going to have great coverage at the Herald Square store.

The whole store will look like a Calvin Klein store -- and the Union Square store on the West Coast.

So we're very excited about what's going on there with our great partner, Macy's.

Moving on to our legacy business, our combined retail and wholesale businesses overall posted a 20% sales increase and a 25% increase in operating income for that business.

I will start with retail.

Our retail businesses posted a 5% comp store increase.

We also experienced very strong sellthroughs and higher margins at retail.

That business is ahead of plan.

We planned the business at about plus 3%, and we ran, as I said, plus 5.

Margins are ahead about 50 basis points in that business as well.

So we're really feeling good about how that business is performing, especially when you consider what's going on in the general retail environment.

We have over 700 stores all over the United States.

And although we see pockets of strength and weakness, overall, the business is very strong.

The first three weeks of August, our business has continued about at that same rate.

We're running at about plus 5 to plus 6%.

So we feel good about the business.

Inventories are in great shape at retail.

And if the consumer hangs in there, we feel good about the upside that we might experience in that business in the second half of the year.

Our wholesale business, dress shirts, it's just been a very strong quarter for dress shirts.

Great -- our management team has continued to operate that business very solidly.

Average unit retails for dress shirts are well ahead of where they were this time last year.

That's enabled us to post higher overall margins for that business, and then overall increase profitability for that business.

At neckwear, our Superba acquisition is exceeding our expectations.

The integration is complete and the business is running ahead of plan and we believe there will be earnings upside to our initial estimates.

Initially, we thought the business would earn this year $0.03 to $0.05, be accretive $0.03 to $0.05 this year.

It looks like it's going to be at least somewhere in the neighborhood of $0.07 to $0.08 accretive this year, most of that upside coming in the second half of the year.

On the sportswear side of the business, our Calvin Klein men's sportswear continues to perform.

We're running well ahead of last year end plan for the year.

At department stores, Calvin Klein continues to be one of the best-performing men's collections sportswear businesses on the floor.

We are in excellent position from an inventory point of view, and we're well positioned as we go into the back-to-school selling season on the floor and from a marketing position on the floor and from a presentation position on the floor with that brand.

So we feel good about how we're going into the second half with Calvin Klein -- substantial amount of momentum in that business.

On our more moderate men's sportswear businesses, IZOD, Van Heusen, and Arrow, all of the businesses were on plan for the quarter.

Inventories are in excellent position as we come out of July and get set up for the back-to-school selling season.

We think we are in as good a position with the things that we can control as we set ourselves up for the second half of the year.

The department store channel has been under pressure from a sales point of view the last couple of months.

So we're going to -- that's where we play in that environment with these brands particularly -- Kohl's, Penney's, Macy's, Belk's.

So we believe as those businesses go, we're in very good position to capitalize on whatever happens in that channel of distribution and to move well.

The IZOD women's sportswear launch for us just began.

We started shipping goods at the very end of the second quarter.

We have intensified those shipments as we've gone into August.

We feel really good about how that business is setting up for us.

We believe we'll be in a strong position for the back-to-school period.

Inventories are in a good position, taking on a new business and starting it up.

We don't see any logistical glitches.

So now it's going to be all about sellthroughs and how we perform.

The brand has got a lot of momentum.

There's going to be a significant amount of marketing going on.

So we feel we are in very good position with that launch.

And we will report to you in more detail about our third-quarter press release and how we're doing there.

From a marketing point of view, as I think anyone who knows us knows, over the last couple of years, we have continued to invest heavily in marketing our brands, making those investments.

And that momentum just continues, particularly as we go into the second half of this year.

Last year at this time, we were just beginning a significant ramp up really geared more for the fourth quarter last year.

And a heavy up in the fourth quarter this year -- we're really intensifying that marketing campaign through the entire six-month period.

All of our all three of our heritage brands, Van Heusen, IZOD, and Arrow, are launching major campaigns.

All three brands will launch multidimensional media marketing campaigns beginning, really, in September with intensification.

That will include print, television, cinema, outdoor, and the Internet.

So we really feel like we're making investments in our brand in order to capitalize on business opportunities.

Even for IZOD and Van Heusen, the lifestyle advertising campaigns that we've been doing and have been very successful for us will just be continued and refocused.

We're sharpening our focus with our consumer.

For our Arrow brand, for us will be the first time since we have owned it, and probably for the first time in 15 years that Arrow will be back on television in marketing campaign for the second half of the year.

It will begin in September.

We're tying our campaign together with Ellis Island.

We're working very closely with them on Save Ellis Island/We Are Ellis Island.

We think it's a great connection for the brand to a great American monument tied to a great American brand.

We're very excited about it.

There's a new -- the Internet site launched about a week ago.

It's getting a lot of -- a tremendous amount of traffic on it.

But the real campaign really takes off in September .

And I would just ask you to look for it.

We're very proud of it and very excited about it.

And we think it's going to really intensify -- a brand like Arrow that is so well known by the consumer, just intensifying the focus from a marketing point of view we think will pay dividends for us at retail from a sales transaction point of view for the back-to-school period and the more important holiday selling season.

With that, I'm going to turn it over to Mike Shaffer to quantify some of those

Thanks, Manny.

As Manny said, we're very pleased with the second-quarter results.

Our total revenues grew 20% in the second quarter to $552 million.

Fueling this increase was strong performance from our Calvin Klein licensing business, which had a 27% increase in revenues.

Our Calvin Klein fragrances, as well as jeans and underwear businesses, were particularly strong.

Revenues from our combined wholesale and retail businesses were 20% ahead of the prior year, driven by our newly acquired neckwear division.

Strong retail comps adjusted for the calendar shift were 5%, as well as revenue increases we experienced in our sportswear and dress shirt divisions.

Our EBIT margin improved 130 points in the second quarter to 12.3%.

Our EBIT margin improvement was driven by a 70-basis-point improvement in gross margin as a result of the strong growth in Calvin Klein licensing revenues which carries a 100% gross margin, as well as strong product sellthroughs in the combined wholesale and retail businesses.

Also contributing to our overall improved EBIT margin was additional expense leverage as a result of the revenue increases experienced across all of our businesses.

Earnings per share for the quarter increased 28% to $0.68 per share.

That was $0.06 ahead of the consensus estimate, and $0.07 ahead of our previous guidance.

From a balance sheet perspective, cash flow continued to be strong.

We ended the quarter with $366 million in cash, approximately flat to the prior year.

And that is after funding for the acquisition of Superba in January 2007.

Our inventories at the end of the second quarter are very clean, on plan, and in line with projected third-quarter revenue increases.

As we look forward, we are projecting our third-quarter earnings at $1.02 to $1.03 per share, which represents a 15% to 16% improvement over the prior year, with corresponding revenues of approximately $705 million or an increase of 24% over the prior year.

Our fourth-quarter earnings are projected to be $0.53 to $0.54, or an increase of 13% to 15% over the prior year, with revenues expected to grow 7%.

For the year, given our strong second-quarter results, we're raising our 2007 earnings per share estimate to a range of $3.15 to $3.17.

This represents an increase of 20% to 21% over the prior year, with corresponding revenues of $2.4 billion or a 17% increase over last year.

As a reminder, and as detailed in our press release, our guidance for the balance of the year reflects the 53rd week in 2006 and the resulting calendar shift in 2007.

While the full-year impact of this shift is minimal, the quarterly impact is material.

On a final point on our guidance, if the current trends of our business were to continue, we believe we would exceed our estimates for the second half of the year.

And with that, we will open it up to questions.

(Operator Instructions).

Jeff Klinefelter, Piper Jaffray.

Congratulations, first of all, to everyone on the team -- great first half of the year and great second quarter.

A few questions for you.

First of all, Manny, your comment on the dress shirt business about AURs being up significantly versus last year.

Could you comment more specifically on that?

What is driving that trend, and is that something that will continue through the balance of the year?

And maybe longer-term, how do you see the dress shirt business developing?

Yes, on the AURs [hiring] (inaudible) I think there's a couple of factors going on.

We're clearly managing the inventories very tightly -- significantly less closeouts going on, significantly less clearance merchandise.

And then in addition, just to remind you, this time last year, and throughout the first half of last year, we dealt with the Macy's Federated acquisition and transition.

There was a lot of promotion going at us.

Merchandise was repositioned on the floor.

And there was a lot of clearance going on and promotion going on during that time.

So the dress shirt business overall is just much healthier from an out-the-door retail selling point of view.

And we have really benefited from that.

As we look going forward, we manage the dress shirt business exclusively.

This excludes where we take on new businesses and new licensed.

We plan that business to be low single digit growth for us.

And given our strong sourcing capabilities, as sales exceed that, we're usually able to get back into the market pretty quickly in order to position ourselves with inventory to fill the pipeline to take advantage of upside.

So we're planning that business to continue to grow in the low single digits.

It's done better than that during the first half of the year.

So we feel good about where that business is now, particularly from an inventory positioning point of view, ourselves, and the market in general.

And we feel a similar way as so related with the neckwear category.

That business has been very healthy for us.

AURs are also up there.

And we feel that the business is -- the way we are working with this Superba management team, some of the disciplines we brought in -- we really have cleaned up some of the sellthrough of clearance issues that plague that industry.

And that business is much clearer and cleaner.

And we're getting the margin benefits.

And we'll continue to get them, particularly in the second half of the year.

Okay.

Just a couple of other questions -- thank you for that -- very helpful.

In terms of the European or international business, obviously, Calvin Klein is trending very well across Europe and Asia through your license with Warnaco.

I think you said you launched a men's IZOD in Europe -- was it this spring?

Just if we can get an update on that, how it's tracking -- and then also, any other costs on other international expansion opportunities across your portfolio?

Yes, you know, Jeff, we really focus on all our brands internationally.

We choose to run that business on a licensing model.

We think that's the model that serves us best.

And you touched on the IZOD business.

That business is launching.

It's in the early stages.

So I can't really report to you a lot of specificity on what's going on there, except to say it's been well-received.

We feel very good about it.

The IZOD brand, as well known as it is in the United States -- and let's say in North and South America, it really doesn't have the same brand positioning across Europe and Asia.

So we really are launching in France.

And really, we're using that as our laboratory to test and see where it is.

We're very happy with the execution and how things are going there from that point of view.

On balance, our Arrow business is very mature in Europe and Asia -- and by that, I mean well established in Europe and Asia.

It's a great licensing business for us.

The brand positioning outside the United States is substantially higher than it is in the United States.

It is an aspirational brand in Europe and Asia as opposed to being a moderate velocity brand in the United States.

We like that positioning for the brand, particularly for the businesses we operate in the United States.

That business is doing very well.

We have some excellent partners.

And we're hoping to be able to talk to you in the second half of the year about some opportunities about expanding the Arrow brand, particularly along -- throughout the Continental Europe through licensing arrangements with some of our key partners.

So, that business is doing well.

And international for us, particularly with the Calvin Klein business -- the Calvin Klein brand is a true international brand.

Its strength overseas is phenomenal.

And the growth we have been experiencing in the last three years has been very balanced between North America and the rest of the world.

But I think as we look out and see the growth, we would expect the growth to be more robust outside the United States as we look to 2008 to 2010, particularly driven by a number of the emerging markets that I spoke to at the beginning of the conference call.

So we feel really good about the Calvin Klein brand.

And the results speak for themselves.

Just to clarify something on Arrow, if you take your licensing revenue you are currently generating on a run rate basis, can you give us a sense for kind of the size of that -- either on wholesale or retail equivalent, how big that Arrow business is outside the U.S.

today?

Yes, well, the overall Arrow business is about -- round numbers, it's about $900 million at retail.

About a third of that volume -- about 35% of that volume is done outside of United States.

And that business, we think -- particularly next year and beyond, has got some growth that really can come from it.

Great.

Last question -- any update on the startup costs for Timberland and Calvin Klein specialty?

You know, I think this press release stands on its own.

We talk about that there's about $7.5 million of startup costs for the balance of the year.

And it's really just investing where we are.

The Timberland brand -- I guess the update really is the reception at retail.

And even with the really poor performance that's going on in Timberland apparel -- I'm not speaking of the Timberland brand, because I'm not close enough to it.

But Timberland apparel, what's gone on there -- it's really performed poorly at retail for the last number of years.

And that has continued.

But the receptivity that we've had at retail with our customer base -- one, for the brand, and two, I think the belief of our expertise to deliver logistically on the brand, to get the right product into the stores to be able to really deliver what we do with our other brands -- there seems to be a lot of enthusiasm and belief in the brand.

So we're feeling good about how we're positioned.

And we start up with Timberland in the third quarter of next year.

Jennifer Black, Jennifer Black and associates.

Let me add my congratulations.

You said that comps were up 5%.

And I wondered how you see traffic now.

And do you have an outlook for holiday in your retail?

Many of the retailers have complained of slow traffic.

And I just wondered how you guys felt about things.

Well, you know, it's -- from traffic comps we're running -- how could you complain?

We're running -- last quarter, we ran at a 5% comp rate.

First three weeks of the year, we're running at 5 to 6.

It's clearly not as robust in the outlet malls as it was last year.

But we're still putting on significant sales increases.

So we feel really good about our performance.

I believe we're getting more market share, because I don't believe traffic is up 5%.

If anything, if you talk -- and this is true mother-in-law survey.

I don't have [quantitatable] data to share with you.

But I believe traffic is down in the centers on an overall basis.

And we're really doing it by taking market share away from the competition, and from a profitability point of view, keeping our inventories clean.

Our projections, I think, tie into the year-end.

We're planning the business on [balance] for the second half at 3%.

We think that's very prudent given the environment, given what I hear going on there.

But right now, we're running ahead of that.

So it makes us feel good about it.

But what I usually say when I speak to people -- when we get to September, the world changes again.

The outlook environment is driven off of vacations, particularly the summer season.

It's really a vacation-driven business.

When we get to September, it is a true back-to-school selling season.

It's like starting over again.

And then when we get to November, it's all about Christmas and it starts again.

So we really need to -- I think we can draw some conclusions about the trends of business.

But I don't think we should get overconfident about it.

But overall, from our perspective we feel good about retail and how it's performing.

But clearly, the consumer environment and what's going on -- you can't be blind to what's going on out there.

Gas prices, real estate market -- I think psychologically, there is a pounding going on with the consumer, because if you look at unemployment statistics and wages, that seems very healthy, and the consumer should be very healthy.

And it really comes down to psychologically how they are going to feel about back-to-school and the holiday season.

So we are cautiously optimistic.

Thank you very much, and congrats again.

Bob Drbul, Lehman Brothers.

On the Superba performance, can you elaborate a little bit more in terms of where the upside came from and the expectations?

It's a much stronger performance than your original anticipation.

And I guess how should we think about it for 2008 as well?

Bob, I think we've been clear.

We said after the first full year of this year, as we look in 2008, we felt the business would contribute somewhere in the range of $0.11 to $0.12 of earnings accretion.

We felt in the first year -- we talked about $0.03 to $0.05, basically based on we felt there would be integration costs, there will be transition issues, getting the business in and operating at the same level.

And we're just doing better.

It's as simple as that.

I think the 11% to 12% is the right target for next year at this point.

But instead of $0.03 to $0.05, the integration has cost us less than we anticipated.

We're overperforming.

We were able to accelerate bringing in some of the brands -- our own brands this year as opposed to waiting until next year, particularly with Calvin Klein, IZOD, and our Eagle brand.

So those businesses came in, be it -- not at full margins, but they're still contribute ahead of them.

So the $0.03 to $0.05 is now $0.07 to $0.08, and it's really coming out of less integration cost and better initial gross margins than we anticipated.

We thought there would be more transition issues as we adjusted some of the sourcing dynamics and moved the business somewhat.

So it's just coming sooner and better, similar to a lot of the other acquisitions that we've done as we've gone forward.

So that's really where the improvement in financial performance has come from.

And then on acquisitions, Manny, are you seeing anything that is interesting to you these days in terms of the use of that cash that's sitting on your balance sheet?

There's always interesting things, Bob.

(laughter) But, I got asked the question, I guess on TV -- have I seen any change in valuation?

And given what's gone on in credit, it's too early to really have any reaction to that yet.

I think over time that will be a positive for us.

I think private equity money and easy credit was a nice thing for everybody, but it really was a boon for private equity.

So I think strategic buyers are in a better position to do acquisitions.

We're clearly looking to do acquisitions.

I think we have -- we couldn't be more upfront about it.

And we continue to look for acquisitions that fit into our business strategy -- great brands that we can either license key components or operate directly those components that we feel we have expertise in.

So we will continue to look.

And I would be disappointed over the next 12 months if we didn't do something.

And a question for Mike.

When you look at the expectations for gross margin for the remainder of the year incorporated in your guidance, can you just talk a little bit about the assumptions you're making on markdown support for the department store channel and how you're planning that versus last year, given the performance that we're seeing from many of the larger department stores?

You know, we have deals and we have agreements in place.

And we expect to honor those agreements.

There's really not a change to the prior year.

Jeff Edelman, UBS.

Two questions.

One, Manny, as you look across all of your businesses -- and while we've heard a lot of concern about the consumer, you've raised some reservation.

Are you seen any noticeable shift in momentum in any parts of your business?

Yes.

When you compare it to last year, given -- if you look at retailers, you guys see comp sales over the last three months, and it's not what it was this time -- the same period of time -- this time last year.

So when you are dealing in an environment where clearly the consumer has pulled back to some degree, you're going to be impacted by that.

So I think Macy's strategy makes all the sense in the world.

And they are going through some transition issues.

And if they are going to post 1% comps, we're dealing in that environment -- we need to get more marketshare, but it's not being [incentivized].

In the mid channel, Penney's and Kohl's seem to be performing at a much higher level.

Our business reflects that in those channels of distribution.

And our brands are performing very well.

The one thing I can say is we look at the business -- each of our customers' businesses very closely.

We know what they're doing on a store level and a department level and how we compare to that.

Almost with -- I can't think of a month where we haven't outperformed the store over department with our brands in that store on an overall basis.

That maybe a little bit of an overstatement.

But on balance, our trend is that we've been outperforming whatever has gone on at retail.

Try to give you insights into the consumer -- when I look at our own stores, I've talked about it.

I do think traffic is down, but we're still posting plus 5% comps.

That's up against last year -- I think for the year, we were plus 8%.

So it's not as robust.

But it's comping against a very strong comp number last year.

But I think there is -- it would be disingenuous to say there isn't something going on with the consumer.

I think they are trying -- this is my personal opinion.

I think the consumer is trying to figure it all out.

And there's a lot of noise out there -- the market up -- the volatility in the stock market, I think, plays on people psychologically.

I think the whole mortgage situation -- I think sure, that's some impact.

I think our Calvin Klein business is the business that's probably the most insulated from that -- one, because it's 50% of it is international, and two, because the brand is just so strong.

And it seems at the top end, that that consumer hasn't much lost much of its momentum.

So it goes back to our business strategy.

I think operating multiple brands in multiple channels distribution at multiple price points is a strategy that we think makes a lot of sense.

Great, thank you.

And then just one short one.

Calvin Klein women's sportswear -- you did not make a comment on that.

Is the environment such that the women's business -- it's just difficult to get a good read as to how successful they are now?

Well, I guess the Calvin Klein women's business continues to have, for lack of a better word, fits and starts -- good months, bad months, they are transitioning.

I think Kellwood is working very hard on it.

You know, the better sportswear category for women's is probably one of the toughest categories that are out there.

And I think they're feeling some of that pain with the business.

But they continue to open doors, and they continue to position product.

And the reception at retail is very strong.

The sellthroughs haven't been what they would like.

And I think that's the one licensee -- license category that we're really not satisfied with the results that we've seen overall.

And it doesn't match up with what we're seen everywhere else.

So, I think Kellwood is very much aware of that.

On top of it, we think they've done a really good job of positioning and making investments to what's been necessary.

And we need to see that business as it goes through the next 12 months -- how it performs.

So that's an overview of it.

Margaret Mager, Goldman Sachs.

I wanted to ask you, as far as the department store business -- Van Heusen, IZOD, Arrow -- you said you are meeting plan.

Can you talk about how you manage your business against the trends there, and the fact that as you said, they are softening.

So how do you ensure that you don't end up with an end-of-season markdown liability that's a big [nut] -- if you could talk about that?

And then on your Calvin Klein business, are you still pursuing the large Calvin Klein stores -- that idea, and full price stores?

And in your licensing area, as far as the underwear growth that you highlighted, growing 20% first half, 8% second half, I don't think the underwear market is growing quite that fast.

So can you explain how that business and your other Calvin Klein businesses are outpacing their markets, like why are they gaining marketshare?

Is it distribution, growth, or is it building out products, offerings?

And how do you control your distribution to make sure your licensees aren't just flooding the market for short-term gain?

Thanks.

Let me try and take those in pieces.

First, how we control sports -- in sportswear area, how we control those businesses to make sure you are not surprised by a glut of inventory at the end of the season.

We really do invest heavily in people, in systems.

We have more sales analysts then we do salesmen.

We monitor the business on a weekly basis.

We move retail prices more aggressively, I think, than anyone in the market.

If we see a glut of inventory, we get it in, and we get it out.

I think that's something that we've always done.

We dealt with a difficult environment in the first quarter.

It cost us a the few million dollars, a couple of million dollars.

We put it in, and we got the inventory out.

That's how we deal with it.

There's no guarantees to how your product is going to perform, how it's going to sell through and if it's the right fashion.

The one guarantee I can give you is that when we see it, we react quickly.

We think the first markdown is the cheapest markdown.

And we move goods in, and we try to keep bestsellers in and running.

We're good at from a logistic point of view, from a sourcing point of view to get back into goods and keep it flowing and keep the velocity going.

And we move quickly on retail.

We don't sit back and hope that the retail sales are going to improve.

If inventory -- we have out dates for each of our key product categories.

And if we're not hitting those dates, we accelerate the markdown cadence.

And hopefully the way it works is you might have to move on some goods, but other goods, you may not have to get your markdowns as quickly as you thought.

And that's how you manage your business.

Up until this year, one of the big business benefits that sportswear has had is that they have consistently beaten their markdown plans, and they've been able to deliver better margins and profitability to the bottom line.

First half of the year, given the difficult retail environment, we were $2 million short from our gross margin plan from markdowns.

And we have dealt with that, and got through from where we felt we would be in the first quarter.

So that's how we do it.

We stay on top of it.

It's a discipline that has been in place long before I ran the Company.

And it's something that I think we do well.

On the Calvin Klein distribution issue, well, first the Calvin Klein specialty stores.

I've described them.

We're opening five stores this year.

This is in the United States.

Outside the United States, between our licensing partners around the world, we operate almost 400 stores -- Europe, Asia, South America, Calvin Klein jeans, underwear, Calvin Klein sportswear store, and a handful of collection stores; probably about five around the world.

They have been a significant piece of our growth engine.

And a big piece of the growth that we've talked about them -- that we've experienced with Calvin Klein is the opening of their own retail stores, especially internationally.

In the United States, we've been talking about now for the last nine months that we felt Calvin Klein deserved a regular retail strategy.

We felt it's a strategy that could be -- that had the potential to be a significant profit contributor.

But we were opening the stores initially because we felt that they were great marketing vehicles for the brand.

We replaced the showcase, the white-label product that [we've] really been the growth engine for Calvin Klein since we've acquired it.

It's a way to potentially long-term have somewhere around 80 to 120 stores throughout the United States in the best malls and freestanding locations in America, and to open stores that average somewhere between 8 to 10,000 square feet.

We'll open five of those stores in the fourth quarter of this year.

We'll open five stores next year.

And we will see how they perform and make a determination whether we're going to invest and roll that strategy out, or are we going to have 10 flagship stores that will break even and be great marketing vehicles for the brand?

And that's what we need to really experiment with and understand.

So we believe it's really important for the brand to do that, understand it, and from the drivers -- topline growth and profitability, they clearly could be.

But that's the test that's going on, and we'll know better in the next 12 months.

On the distribution issue, all of our contracts -- especially the ones -- anything that we have entered into in particular, but all our contracts have very stringent guidelines about distribution with Calvin Klein.

And we monitor that very closely.

That doesn't mean to say that you won't see some product in the secondary channel distribution.

These are big wholesale businesses, and we sit next to Ralph Lauren, and we sit next to Polo, we sit next to Tommy in the United States and Nautica at Marshall's clearing goods as appropriate.

But we're very close to the distribution.

From a percentage point of view and a dollar point of view, the distribution has not increased at all in the secondary channel.

In fact, when you go back three or four years, one of the lawsuits that Calvin had with Linda Wachner and the former Warnaco management really all centered on the overdistribution of Calvin Klein product.

From that point, part of our -- when we bought the Company, part of our negotiation was to put hard caps into those businesses.

So there is a limitation about how much product can go into that channel distribution.

So we're very judicious how we monitor that.

And if you look on the propensity of product that's out there, clearly, the secondary channel on a percentage basis hasn't grown at all.

In fact, we've tried to keep it well under control.

And the total dollar basis hasn't grown at all.

So we're very much on top of that.

So the growth has clearly come from the primary channel distribution and from us opening our own stores in the United States.

The last point is, why is Calvin Klein doing better than the competition in the market?

And not to be flippant, but it is Calvin Klein.

And the reason we acquired the brand was we felt it was one of the world's great fashion brands that was significantly underdeveloped at retail.

And I think we've basically doubled the size of the business almost since we have owned it.

So it clearly shows, and we think there is substantial growth above that.

With underwear in particular, clearly, the U.S.

underwear market is not growing.

But the Calvin Klein presence at retail is growing.

They've done it with brand extensions, initially with 365 in the United States and around the world, geared to a slightly younger consumer.

It was a situation where we were able to secure more shelf space at retail.

We're doing it, I believe, with the higher priced goods from a [halo] point of view with Calvin Klein Steel.

Again, it's just launched, but we're getting more position at retail in the United States and around the world.

And Warnaco is also -- Warnaco's numbers speak for themselves.

Warnaco's numbers have also done it with the opening of retail stores internationally in Calvin Klein underwear, and now that they have controlled jeans and sportswear in Europe, growing those franchises through opening the stores.

So that's the way we have attacked the market.

Clearly, the international component, just to say it one more time is going to be a significant driver for us as we go forward, and it's going to be a significant driver particularly in those emerging markets, China, Russia, and India, where we think there is a growing middle class that clearly the Calvin Klein products is desired.

Thanks for the insights into your strategies.

I appreciate it.

A quick one on fragrances.

I can tell you are really excited about what's happening.

Just wondering -- of your royalty income stream, how much of it is represented by fragrances?

Well, I guess -- round numbers, Margaret, I don't have the royalties in front of me.

But I guess just to put into perspective, the Calvin Klein business last year was about $4.5 billion in retail sales.

And fragrance was about $1 billion in sales.

That business has grown.

So this year, I would think it's about $1.2 billion in global retail sales.

And I would imagine it will be over $5 billion in global retail sales with Calvin Klein.

All that said, it's approximately 25% of the royalty revenues.

Congrats on another great quarter, and that homerun acquisition on Calvin Klein.

[Robbie Ohmes], Banc of America Securities.

Just a quick follow-up on Superba.

Could you give us clarity on the seasonality?

I think you guys are -- I think, Manny, you said that you think Superba is $0.07 to $0.08 now for the year.

But could you remind us -- did Superba make money in the second quarter?

And then, just sort of how that $0.07 to $0.08 flows through the year -- is it even more than $0.07 to $0.08 in the back half?

Thanks.

Robert, when you look at the business, the second quarter if you just look how it falls from a calendar point of view, it's the seasonally weakest quarter for the neckwear business.

Most of the shipments for Father's Day are out, and as you go in, June and July are very slow months for neckwear overall.

So for us, the neckwear business is a loss quarter in the second quarter, breakeven to a small loss.

First quarter was better than we expected, so we really see the growth.

The business [breaks] -- like most wholesale businesses with the [valet], it is 60% fall, 40% spring, first half, second half.

And, we're expecting real positive things in the second half of the year.

And it seems to be all in line.

And we don't see -- we've got to get sellthrough like any other business.

But the logistic issues, the transition issues, if we were conservative, we were conservative.

But they just haven't materialized to the degree we thought.

So a lot of it is just not -- 2 to $3 million of less transition/integration costs, both on the margin side and the expense side, has really benefited us as well.

Management team has done a great job of getting it in quickly on our systems, on our platform, and not having [a glitch] in dealing with them.

So just to clarify, the accretion to the back half could actually be more than the $0.07 to $0.08 that you're getting for the year?

Well, the first quarter was accretive.

The first quarter was slightly accretive.

The second quarter was breakeven.

So I quoted $0.07 to $0.08.

There could be -- there's a nickel in the back half of the year.

Brad Stephens, Morgan Keegan.

Congratulations on another excellent quarter.

At the end of this year, where do you expect the Calvin Klein royalty -- what percentage of that will come from international distribution?

I think it's basically 50% -- 48 to 50% would be international.

And that is not much different than what it's been.

What I think is really going to happen is international over the next three years, 2008 and beyond, will probably accelerate faster than our domestic business, particularly on the license side of this business since we operate a number of big businesses ourselves and there's not licensing revenue, obviously we have a sales and [profitability associated] with that.

So I (multiple speakers) think it's more that the growth in licensing in particular will be more driven internationally.

And the international has a higher profitability to it?

Or (multiple speakers) it has a higher contribution --

Well the -- I'm sorry, Brad -- it's a licensing business.

I don't think that there's that much of a difference in running a licensing business internationally and domestically.

We collect a royalty of between 7% to 9%.

It's the same marketing, advertising.

Our expense base is spread over -- there's not a distinction international or domestic.

So I don't think from our point of view it is significantly different than that.

Operating businesses, when they are successful, it seems like Europe and Asia are more profitable models.

But not from the licensing point of view.

Okay.

On your outlet business, I think last year, you ended the year doing about $250 a square foot in your non-Calvin Klein stores.

Comps are continuing to be strong there.

Where can that go to over time?

I think that will grow with the type of comp store increases that we're putting on.

We're talking about 2% to 3%.

We seem to be opening some more -- the new stores we are opening are more productive, on balance.

So I guess over time, I think our target -- this is not a financial think to put into your model, Brad.

But as we target the business and we talk about store openings, we talk about a minimum of $300 a square foot for new stores in order to open and make those investments.

So I think as new stores open, they tend to be potentially in better geographic locations.

And hopefully we can drive some of that higher than that.

The Calvin business, as you know, is well over $500 a square foot.

But it's not a fair comparison, given the retail selling points, and to be fair, just the strength of the Calvin Klein brand.

Carla Casella, JPMorgan.

I have to ask the token bond question about -- with all your free cash flow, are you considering either buying back bonds on the open market or calling them ahead of maturity?

You know, Carla, buying the bonds back -- I would have said the easy answer four weeks ago, five weeks ago is of course we'll look at our capital structure.

To give an answer now, I don't know what's going on with the capital markets from the point of view of what's available?

Is the bond market open?

Two months ago, if we were willing -- our bonds aren't callable.

But if they were and if we chose to do something, we clearly could have gotten an advantage against the interest rate where we were today on those bonds.

But now I'm not sure where it's going to all fall out.

And for me to try to guess where that is I think is tough.

So I don't -- given the [diceyness] of the bond market, until that settles down, I don't think we would do anything with our bonds because it gives us a lot -- looking at Pam -- it gives us a great deal of flexibility to really focus on what our strategic use of our cash is.

First priority above all is to try and do an acquisition that makes sense.

And if that doesn't transpire over the next three to six months, we will generate -- round numbers, about $100 million in cash this year, end the year with over $500 million on our balance sheet -- around $500 million on our balance sheet.

We will have to look hard at potentially being in the market to buy back our stock, especially (multiple speakers).

David Glick, Buckingham Research.

Good morning, and another congratulations to the team.

Manny, just looking at the Calvin Klein licensing revenue, obviously the first quarter was up over 30%; high 20s, Q2.

How do you plan the revenue trend for the second half?

And do you change your long-term outlook on Calvin Klein licensing revenue from kind of that high single digit, low teen level?

No.

I think it serves us well.

We're planning second half at 8 to 10% growth on the royalty line.

And the advertising line -- it could come up and down based on the marketing plans and where we are.

But the royalty line, we're planning at 8 to 10%.

I touched on I think the -- if the trends continue, it could be better than that.

And if it is, we will react to it.

I think given the size of the business, to look out next year, we are up against very strong growth in fragrance, which we would have thought was a mature business and had growth in it, but not the type of growth that we've experienced.

There's a lot of initiatives still out there.

But I think financially, it's prudent to continue to target topline Calvin Klein royalty growth in that 8 to 12% range.

And I think we've talked 9 to 11.

I think that's the right range to really focus in on.

And if it is coming quicker, we will react and try to communicate that.

But I don't -- I don't want to sound Pollyanna.

I don't think -- I could sit here and say it's going to grow 15%, 16 -- I think it would be foolish at this point of view to get too far ahead of ourselves.

On a business that really experienced the kind of growth that we've talked about, to put growth on top of that higher than 10% and plan for that from an EPS point of view and a financial modeling point of view, I think, would be silly.

So I don't think it makes a lot of sense.

And I think we will capture it if it happens, and we will try to communicate it as quickly as we can.

But I think those are the targets we're dealing with.

And I think anybody who is following us knows those are the targets that they should continue to follow as well.

Moving on to sportswear, which all your businesses have been very strong.

Sportswear [certainly] in Q1 was challenging.

It gets a little better in Q2.

How do you plan the second half?

And are you seeing any positive signs as you enter into fall?

You know, it's still too early.

For me to say there's positive signs, I think, is still too early.

I think the best news is we made sure we came out of the six months clean, and we are positioned for back-to-school.

Initial selling on back-to-school has been -- you're in the industry, you talk to retailers probably more than I do.

Everybody's trying to deal with calendar shifts.

Everybody's trying to deal with different back to school schedules.

It's a hard read right now, and that's what we're all trying to understand, especially with our wholesale customers.

I'll ask Allen to talk about it and maybe put a little more flesh on it.

(multiple speakers)

The first half of the year was pretty strong for us in spite of the mix, mostly driven by the success in Calvin Klein.

Calvin Klein pulled the ship.

We think the market in general was fairly flat.

Most of our brands performed at department level or slightly better, with the exception of Calvin Klein.

We were actually up for the first half of the year at retail at about 8%.

And we budgeted the second half of the year at about a similar number, at about 7%.

And we think it's fairly positive.

And our first reads, although it's only a couple of weeks, on early fall receipts have been positive.

And we think the positioning of our brand and the ability for us to outperform the competition -- strong product, strong point-of-sale, strong management in the field allows us to feel fairly confident that what we put on a piece of paper for the back half of the year, we will certainly deliver.

Great.

Any [early retail crews] you can report on women's IZOD?

I know it's just in the stores a few weeks?

I'm sorry -- (multiple speakers)

Can you speak up a little bit?

Yes, any early sellthrough on women's IZOD that you can talk about?

I know it's only been in the stores a couple of weeks.

It's all anecdotal, David.

Yes, first shipments of women's bottoms has been very strong.

Good sellthrough, but it's just too early.

I don't want to read anything into it except it feels good.

Last question, and then I will get off -- Mike, inventory up 26, receivables up 42.

How much of that was due to the 53rd week, where you're shipping goods a week later?

You know, it definitely had an impact.

Just to remind you on the inventory, [we're up] 26% of sales for the third quarter, up about 25%.

So that was in line, but there was an impact in the 53rd week.

Receivables also -- we shipped heavier toward the end of the month, also in part impacted by the 53rd week.

(multiple speakers) And that's going to -- third quarter end -- last year, our third quarter ended November 2nd.

This year, it's going to end November 8.

That week is a huge shipment week.

There's a lot going on.

Our shipment -- (inaudible) receipt week for us on inventory, setting up for deliveries both for our retail stores and for wholesale accounts.

So the comparisons -- I think in the third quarter, you're going to see the inventory high again.

But it really has much more to do with the shift in the week than anything else.

And we've known about it.

When you look at it, it makes sense being a week later, right before the holiday season.

Thanks for that color.

And obviously, the Superba acquisition added to the inventory increase as well.

Correct, Mike?

Correct.

And IZOD women's.

And IZOD women's -- thanks a lot.

Nice job, and good luck.

Omar Saad, Credit Suisse.

Did he call him Omar?

Manny, I've got a few more questions.

I'm going to do them one at a time, though, so you don't have to try to keep track of everything.

I know we're getting towards the end here.

The marketing strategy -- you mentioned it in your prepared remarks.

I just wanted to kind of dig into that a little bit further.

Last year, you did a bunch of TV ads.

Super Bowl -- I know you had some activity during the Super Bowl.

As you think about your philosophy around marketing behind the brands and the portfolio, is there a little bit of a shift in philosophy to more of a broader approach?

Or what did you learn from those activities last year?

Well, I think from a lot of the consumer research we have done, one thing -- if you would have looked at us two years ago, we were very print focused with our advertising, particularly on our -- I'm really focused now on our heritage brand, IZOD, Van Heusen and Arrow.

And I think like a lot of apparel brands, we were very focused on the print.

Our consumer research told us print is important, but our consumer is in a lot of different places.

So we last year, and particularly second half of the year, very much in the fourth quarter, we really decided -- made a decision to really diversify our media mix.

And we also made the decision to significantly increase our media mix, which gave us the ability to have a significant presence in print.

We've cut back a little bit, but not significantly -- but really put all of the increase into TV, cinema, the internet, point-of-sale marketing, outdoor marketing, we do these special hanger programs with Van Heusen and Arrow in particular.

So really talking to our consumer in different places, not just in fashion magazines -- Calvin Klein has always done it.

As we've been able to increase our marketing spend, we've been able to diversify and do it very effectively.

We've continued that trend this year.

We have intensified it.

And the only other shift that's gone on -- we talked about in our press release -- a combination of the calendar shift, coupled -- and the first week of November is falling into the third quarter this year, coupled with just that we think it's a better way to market is we're spreading the second-half spend through the back-to-school period and the holiday season, where last year, it was much more intensified through the holiday season.

So $9 million of spend is moving into the fourth quarter, and -- into the third quarter, and we're down about -- and the third -- second -- fourth quarter right now is planned down about 7.

So, overall, it's about flat, but we've intensified the third-quarter presence, which we think is the right way to go.

And then also, would like to see if you could elaborate on this Calvin Klein Week -- 10 days.

When is this happening?

Is it all stores?

And what are the dynamics of the promotion?

Is it price driven?

What is the arrangement with Macy's?

It seems to me -- (multiple speakers)

Let me stop.

Let me give you the background (multiple speakers) ask me every question that I will touch on.

This is about regular price selling.

This is not about discounting.

It's not about promotion.

It's about an exclusive product for Macy's.

It's really focused on -- the focus of it is on the East Coast and the West Coast, Macy's East and Macy's West.

There will be a significant marketing campaign by us surrounded by it, as well as Macy's.

The Herald Square store, the kickoff event will be September 24.

It will be significant amount of marketing at the store.

Most, [if] not all the windows will be dressed in Calvin Klein product, all product categories.

This is covering men's sportswear, jeans, tailored clothing, dress shirts, neckwear, footwear, accessories, fragrance -- just about every product category, because Macy's carries just about every one of our product categories.

It will -- a significant direct marketing campaign; a 32-page Calvin Klein magazine, I will call it -- it's a brochure, really focused on the lifestyle of Calvin Klein, from the product worn throughout the day from work to evening to casual on weekend -- it's just a great marketing piece that's going to be sent about 2 million key Macy's credit card holders, customers.

On the West Coast, the event kicks off in San Francisco September 18.

The Union Square store will also be dressed similar, in a similar fashion with Calvin Klein.

In Los Angeles, the event kicks off on September 27 -- significant amount of marketing both in that geographic area, as well as at the store.

So it's just a very exciting way to position brand with our key partner in the United States, Macy's, and trying to grow that regular-price business and drive regular price selling.

I think it ties right into Macy's strategy and it clearly ties into our strategy for Calvin Klein.

So we're very excited about it.

We think it's a great way to spend our marketing money.

And we think it helps the brand, and we believe it helps Macy's perception as well being tied to Calvin Klein.

Is this something new for Macy's?

Is this kind of a new approach for them?

I don't know that they've done many things like this in the past.

Is Calvin Klein the first brand to kind of embark on this endeavor?

This is -- I think Macy's can speak for themselves.

I think if you look at it, Macy's is trying to lift the perception of their stores, particularly the May Company legacy stores.

And this is key to their growth.

Calvin Klein to Macy's is a key resource.

It anchors the modern side of the floor for Macy's.

And I can't tell you if this was the first time that they have run a vendor event -- I'm not sure -- of this magnitude.

It's clearly one of the first -- I believe if it's not the first, it is one of the first.

And it's clearly -- I think it demonstrates how they feel about the Calvin Klein brand.

I think it's trying to drive regular price business for themselves.

And one of the best ways to do that is with one of their strongest brands, Calvin Klein.

Very good.

And then last question quickly -- legacy -- the Calvin Klein, if you think about the acquisition a few years ago, where is your feel in terms of where we stand in terms of the growth in that business, how much of it has come from legacy, how much of it has come from really the new category launches?

Are we really still at a place where most of the growth has been in kind of the denim and underwear and fragrances categories?

I think I would say to you it's -- the upside that we have incurred overall -- we have targeted 10 to 11% growth for that business.

And two years ago and up until last year, we've averaged more like 14% topline growth.

I would say a disproportionate amount of that has come from the heritage businesses.

We plan those businesses more conservatively, and those businesses have really surprised us -- fragrance in particular, the international jeans business, and underwear, which has always been a growth, has just continued to drive.

And we thought, can it really get as big as it has become?

And we see opportunity for that.

So I think from that point of view -- but as we go forward, we're not -- to get to our 11%, we're not counting on those heritage businesses growing disproportionately as they have.

We're planning them in the low -- in the 3% to 5% range, and the balance of the growth is really coming from the new entries, the geographic areas that we've opened over the last two or three years that really should start to contribute as we go forward -- new product launches, we've been through all of them in the cosmetics launching next year; a lot of the areas which are really not anywhere near maturity with some of the launches -- women's dresses, women's sportswear, both internationally and domestically.

Those businesses, we think will fuel a lot of our growth as we go forward.

And we feel good about it.

Thank you.

Nice work.

Melissa Otto, WR Hambrecht.

Congratulations on a great quarter.

Just a couple of follow-up questions on the international business.

You mentioned that 50% of the revenues are generated internationally for Calvin Klein.

And I just wanted to get a sense in terms of what that split is percentagewise for Far East versus Europe.

You know, I think right now, it's about -- it's almost 50-50.

I would say Europe is probably 60% of the 50%, and the Far East is about 40% of it.

And that's about where it is.

And then could you may be give us some quantifiable color in terms of how large you think the Far East business potentially could become in the next three years?

Well, you know, I don't -- I hate to get into geographic areas.

We have talked about that we think the brand could be a $7 billion brand over the next four years.

We talked about that last year.

I think we're going to end this year over $5 billion in global retail sales.

So I think there's $2 billion of growth.

Where that $2 billion of growth is going to come from, I think more -- I think 60% of that will come outside the United States, and 40% will probably come from the United States with the new product launches and the new distribution that we have put on our own retail stores.

And so I think that's the way to really look at it.

Clearly, Asia is a growth area for us, particularly with some of the emerging countries.

Just China by itself will continue to be a growth vehicle for us.

And I think we will try to put more color on that.

As we start to see 2008 start to unwind, we will put some more color on that for you as we go forward.

I had a great meeting with [Edith Chen] last week in China.

She is really geared up for the rollout of a lot of new stores.

Could you talk a little bit about your perception of the brand in that market, and perhaps what the Company is doing to localize in order to fuel the growth?

You know, I think -- when you talk about Asia and Calvin Klein, I think the brand perception there is -- as strong as the brand is in the United States, now well thought of -- how well thought the brand is in the United States, the positioning outside the United States is higher.

We have talked about it outside the United States.

The growth -- the focus is really on cK Calvin Klein, which is anywhere from 30% to 50% higher retail selling price points than white-label, better product in the United States.

It's better piece goods, more product is Italian based.

It's a different product.

But it very much -- the perception of the brand is higher outside the United States than even it is in the United States.

I think our licensing partners because of their expertise are very attuned to the market dynamics and the tweaks that need to be made for that market.

So if you look at or sportswear business, if you walk into a department store in Japan, a specialty store in Milan, or if you walk into Macy's, I believe you look at that product and you know it's Calvin Klein, but there's clearly geographic twists to that product that really are for that market.

And I think that's where our licensees being very close to the ground really have a great understanding of the market, coupled with our design studio to keep the Calvin Klein aesthetic consistent worldwide -- I think that's why the brand performs so well around the world.

And then (multiple speakers) -- I guess the only thing I will add is, clearly outside the United States, owned stores, licensee stores, franchise stores, stand-alone stores are the key growth vehicles for Calvin Klein, particularly sportswear, and particularly Asia as we open more and more stores with our licensing partners around the world.

Those stores continue to perform very well for them financially, and continue to be a great way to showcase the brand internationally.

Terrific.

Thanks, Manny, and congratulations.

Thank you.

Operator, I would like to just take one more question.

It is about 12:15, and we do have a Company to run.

So just if we can, I would like to take one more question.

Dennis Rosenberg, DSR Consulting.

Could you walk through the earnings deltas in '08 versus '07 relating to IZOD women's, Timberland, and the Calvin Klein retail?

I guess -- I do -- I'm looking at Mike and he's shaking his head.

I guess -- look, those businesses next year -- let's talk about IZOD women.

IZOD women for us this year will probably be a small profit contributor.

Next year, we would expect a full year's worth of sales.

It should be bigger profit contributor for us.

It depends how big the business is.

The business today that we inherited is about a 40 million to $45 million business.

How big it will be next year -- it's a little premature to say.

We are hopeful that it could be significantly bigger than that, at least over the next three years.

We're targeting a $150 million business during that period of time.

On Timberland, we're going from zero to a partial year.

Clearly, there's startup cost this year, but obviously next year being a partial year, I don't believe it's going to contribute profitabilitywise to us next year.

This year is probably, relatively speaking, a loss.

Next year, it will probably be a smaller loss.

The Calvin Klein better specialty stores -- that's a very interesting question, because we start selling not until the fourth quarter this year.

We have built the organization this year.

We will have selling next year, but it's going to be a very small base of stores.

I don't know that there will be that much of a difference from an overall bottom-line impact to 2008.

The real benefits begin in 2009 and beyond.

So I would think -- I'm answering -- I'm walking through it as I'm thinking through the question.

I would think that -- we have talked about startup costs this year of $11 million.

And I guess next year, that number might be 7 to $8 million.

But that's a little bit off the cuff, but that's the kind of delta that I think we're talking about year to year.

And then, the big benefit would be in '09.

Great -- congratulations.

Thank you, operator.

I would like to thank everybody for joining us on the call.

We look forward to seeing some of you on [Magic], and we look forward to our third quarter press release.

Have a great day.

Thank you.

Thank you.

That does conclude today's presentation.

Thank you for your participation and have a great day.

You may now disconnect.