PVH Corp (PVH) 2007 Q4 法說會逐字稿

Welcome to today's Phillips-Van Heusen Corporation's fourth quarter 2007 year-end earnings release conference call.

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

Your participation in the 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 March 25th, 2008.

Any such forward-looking statements are subject to risks and uncertainties indicated from time to time in the company's SEC filings.

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

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

The information made available also includes certain nonGAAP 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 website at www.PVH.com, and on the company's current report on Form 8K furnished to the SEC in advance of this webcast and call.

And now at this time for opening remarks and introductions, I would like to turn the call over to the Chairman and CEO, Mr.

Manny Chirico.

Please go ahead, sir.

Thank you very much.

Good morning, everyone.

Joining me on the call are: 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 our fourth quarter results particularly given the difficult macro retail environment that we are dealing with.

I am going to try to talk about all of our businesses performance in the fourth quarter.

Let me start with our Calvin Klein licensing business.

It was another very strong quarter for Calvin Klein.

We posted a 14% increase in royalty revenues in the quarter and our operating earnings were up just about 37%.

The growth on the top line came from international principally, our international business grew about 20% in licensing, while our domestic business grew about 5%.

When you look at the breakout for the year of our Calvin Klein licensing business about a little bit over 55% of our revenues are coming from outside the United States, principally the Far East and Asia and Europe and about 45% of our revenues are coming domestically from the U.S..

The components of the business, our fragrance business continued our strong performance, royalty revenues were up about 20% in the fourth quarter.

The [larger man] which was in the third quarter of the year continued very strong for Calvin Klein, we continued to have very strong business in the Euphoria franchise, that business just continues to exceed our expectations.

The CKIN2U, particularly international, continues to grow very strong and that business by the end of 2007 was over $130 million in volume for the CKIN2U business.

So substantially ahead of all of our expectations in fragrance, and we are up against a very strong business as we go into 2008 with a lot of momentum behind us.

Our next largest legacy, Warnaco, for underwear posted about a 20% plus increase for royalties for the quarter.

The launch of [Steel], which was in the third quarter of the year continued very strong performance sell in and sell through.

The marketing campaign was amazing with Djimon Hounsou, that business just continued to be very strong for us and is a new component for us.

We continue to have good growth on the women's side of the business with our perfectly fit business, the bra business continues to grow.

The business in the United States grew about 10%, and internationally it grew about 30%.

The international growth was fueled by the new product initiatives and coupled with the continued expansion of retail stores throughout Asia and Europe.

So our underwear business another very strong performance.

The jeans business had a very good quarter for us.

Overall internationally our jeans business grew Asia and Europe by over 20%, while our business in the U.S.

was relatively flat up 2% or 3%.

But again the jeans business, very mature business, had very strong performance.

One of our large license, G3, continues to do an outstanding job for us.

We had a very strong performance in outerwear for the year.

That category was up in the 20% range.

Also the women's suit business has been very profitable for us, and dresses which launched in 2006 and we have our first full year in 2007, did extremely well.

Overall, G3 business is up over 30% for us.

So we had great performance coming out of G3.

Let me move on to some of our other businesses, our dress furnishings business.

Dress shirts had another very strong quarter and year, both from a sales and a gross margin point of view.

The business continued to run ahead on a -- of a sales plan, at retail, our average unit retail considerably higher than last year which has improved overall operating margins for us for the year.

We've had increased profitability for the year as well in dress shirts and that business has continued even when it's difficult to volume, has continued to outperform.

Neckwear for us has been a similar story, our Superba acquisition for the year exceeded our expectations.

The business is running well ahead of all initial plans.

The acquisition has contributed after interest expense about $12 million in pretax earnings of $0.13, which is much higher than our initial estimate.

So our neckwear business overall very healthy, very strong.

Overall dress furnishings business not seeming to be impacted at all by what's going on in the environment.

Our Calvin Klein men's sportswear that has been a real home run for us.

We finished well ahead of last year and on plan for the year.

The business is well over $100 million in very profitable sales for us.

At department stores, Calvin continues to be one of the best performing men's collection, sportswear businesses, when you look at productivity from sales per square foot and maintained gross margin basis.

For our retail customers, the business continues to out perform the competition, we are doing very well there.

On the retail side of Calvin Klein, our outlet business had another very strong profitable quarter.

Comps for the quarter ran at 8% positive.

And that was well ahead of our plans and well ahead of anything that's going on in the industry.

So that business contributed substantially to us.

On the business our IZOD women's business launched successfully.

The business for the second half of the year which we started to ship, shipped over $30 million in sales and we are estimating that next year will be at least $60 million in sales for 2008.

We have experienced very strong sell in, sell throughs have been very good, and we are basically on or slightly on, slightly behind sales and margin plans at retail which really is much better than what is going on in the industry overall.

So that business continues to exceed where we thought we would be and is doing extremely well.

The two businesses which really have been more negatively impacted by the environment are moderate legacy wholesale sportswear business and our moderate legacy outlet store business.

Our moderate brands: Van Heusen, Arrow and Bass and to a limited extent IZOD, were impacted in the fourth quarter.

We really saw price compression there, and additional promotional allowances and mark-downs in order to right size inventory.

Just to put it perspective all customer accounts and retail stores were planning for comp store increases at retail, somewhere in the neighborhood of plus 3% to plus 4%.

Actual results as you know at customer retails were closer to minus 3% than minus 5% for the fourth quarter.

So clearly there was a lot of promotion and need to clear inventory.

Fourth quarter margins for both of these two businesses were down about 150 basis points as we needed to provide mark downs to get inventories in the right position, clean.

As we come into 2008, I am very comfortable with the quality of our inventory as we come into 2008, we are positioned exactly where we want.

There's not much fall inventory left, much less of a percentage as we came into February than at this time last year.

So we feel good about this.

Fourth quarter comp in our moderate outlet store businesses were down about 2% overall.

From a marketing point of view, just to put it into perspective we continue to invest heavily in our brands for the year.

Calvin Klein, IZOD, Van Heusen and Arrow, all of those had very strong marketing programs.

Our 2007 advertising expense for those brands was up about $20 million for the year to just over $150 million.

So, very strong performance -- financial performance for us, we manage to continue to invest heavily in our brands.

All of our brands have very strong multidimensional media marketing campaigns planned for 2008, and our budgets are planned to be up slightly on a dollar basis compared to 2007 levels as we go into 2008.

What I would like to do now is turn it over to Mike Shaffer, our Chief Financial Officer, to quantify the fourth quarter results, to give some more insight into the guidance that we are giving for 2008, and really break down some of the numbers.

I know everyone has got some real focus on is that.

And then when he finishes with that, I would like to come back on and give some color to how we are viewing 2008 and how we are positioning ourselves going forward.

With that I'm going to turn it over to Mike.

Thanks, Manny.

I will start with an overview on the -- on 2007.

Total revenues grew 5% in the fourth quarter to $585 million, our Calvin Klein licensing business registered growth of 14% fueled by new and existing licenses.

Our combined wholesale and retail business revenues were up 4% reflecting strong performance in our Calvin Klein outlet business, which increased an 8% comp increase for the quarter and strong performance in our dress furnishings business which was up 16% for the quarter driven by the acquisition of Superba.

The contents of the Calvin Klein outlet comps, our legacy were minus 1% and reflected heavy promotional selling for the quarter.

Our sportswear division registered a 6% sales increase for the quarter, as a result of the Calvin Klein sportswear business and the new IZOD women's sportswear business which was taken inhouse 2007 and started shipping in fall 2007.

Our earnings per share was $0.55 for the quarter, up 17% from the prior year, and $0.02 better than consensus estimate.

The Calvin Klein licensing business EBIT grew 37% over the prior year and was the primary driver of the earnings improvement.

Also benefiting EBIT for the quarter was the acquisition of Superba which was completed in January last year and strong performance in our Calvin Klein outlet business.

Partially offsetting these gains was heavy promotional selling in our legacy outlet sportwear division, our overall gross margins on sales was down about 70 basis points which reflect this is promotional environment .

On the balance sheet, our inventories were very clean and on plan with the 13% increase over last year levels.

The growth in our industry in our inventories to support our new businesses, Calvin Klein Wholesale Collection, IZOD Women's Sportswear and Calvin Klein Specialty Retail.

Inventory excluding our new businesses were up 4% over last year.

I am now going to move on to the full year 2008 just in brief overview.

As we look forward to 2008, we are planning our earnings per share to be $3.30 to $3.40, our revenues are projected to grow 7% to 8% for the full year.

Our full year earnings per share reflects start up costs associated with the Timberland men's sportswear and Calvin Klein retail specialty and about $10 million all in the first half of 2008.

This is in contrast to 2007 where the bulk of the start up costs were incurred in the second half of the year.

I am going to try and lay out some of the key assumptions embedded in our guidance for 2008.

In general we being more conservative with our assumptions for our legacy brand wholesale sportswear and legacy retail outlet businesses, which have been impacted by the current sluggish environment.

We continue to project strong growth for our Calvin Klein businesses which has not seen any slow down in performance.

Our overall revenue growth for 2008 is 7% to 8%, Calvin Klein licensing revenues are projected to grow about 10% over the prior year with earnings planned to grow at about 15% to 17%.

Our wholesale apparel and retail revenues are planned to grow 6% to 7% fueled primarily by new businesses.

Our full year comp store assumptions are Calvin Klein comps will grow by 5% for the full year while our legacy store comps will decline by 2% to 3% for the year.

Combined total store comps are planned to decline 1% to 2% for the year.

The earnings for the combined wholesale apparel and retail divisions are planned to show operating margin declines of about 150 to 200 basis points.

Now, I wanted to take a step back and just give some insight into the changes between our previous guidance and our current guidance.

The biggest change is that we have taken a more conservative view on 2008 for our legacy wholesale and outlet businesses.

We have raised our -- we have revised our revenues for our legacy businesses down $50 million.

This $50 million reduction was the result of reducing our estimated sportswear sales by $35 million as we right size the moderate components of this business.

We have also revised our outlet store revenues down $35 million as a result of our revised comp store assumptions for 2008.

Partially offsetting these downward revisions was an increase in sales of $20 million for our dress furnishings and IZOD women's businesses.

The EBIT impact of this $50 million reduction in legacy business revenues equates to about $20 million.

In addition to the legacy business revisions, we have also reflected our recent acquisition of the Calvin Klein collection business at $25 million in revenues and no profitability.

Now I will move on to the current guidance for the first quarter.

We are estimating EPS of $0.86 to $0.88.

Revenues are planned at $615 million to $625 million, a 4% to 6% increase over the prior year.

Our revenue and earnings guidance reflects our cautious view of the environment with our wholesale apparel and retail business up a combined 3% to 4% driven primarily by new businesses.

Our Calvin Klein comp stores are planned up 5% and our legacy comps are planned at minus 5% for first quarter total comp of minus 3%.

The first quarter also reflects $5 million of start up costs associated with new businesses.

Lastly, our tax rate for the year is estimated at 36.5% to 37%.

However, as of last year we expect some quarterly shifts driven by discreate tax items.

Based on the anticipated timing of these discreet events we are expecting our first quarter tax rate to approximate 38.5% to 38.7% as a result of certain discreet items.

And now I'm going to turn it back to our CEO, Manny

Thanks, Mike.

I just wanted to try to put the -- each of the business units in perspective as we are projecting 2008.

Before I get into that, the direction we really wanted to come out was numbers that we can put out there that we were comfortable with and hopefully that we can exceed as we go forward.

And as we look at each component of our business, I am going to just share with you the opportunities and if there's -- if there are any risks.

On the Calvin Klein licensing business, we are currently projecting with our current estimate growth on the top line of about 10% and growth on the bottom line in that business of 15% to 17%.

The current trend in that business is closer to 13% to 15% top line growth, principally driven by strong growth internationally that is going on both in our jeans, underwear and fragrance business.

We believe therefore that there is an upside against our 2008 projections if the trends continue in the business as they are right now.

On our CK, our Calvin Klein wholesale business and retail business that we operate our ourselves, our sportswear, dress shirt, neckwear, and our outlet store businesses, these businesses continue to outperform the competition both on a sales and a margin point of view.

We think there's opportunity in these businesses as we go forward.

Our comp store sales plan for Calvin Klein is a 5% for the first quarter and the year.

And our comp store trend currently is running at over 10% for that business.

So clearly we believe all components of the Calvin Klein business have upside against the estimates that we put out there given the current trends in business.

Our dress furnishings businesses continue to perform.

We are very comfortable given the current sales trends in that business that we have these businesses planned appropriately at about 5% sales growth.

Both our neckwear and dress shirt are outperforming overall department store sales trends and as such we are comfortable with the projections we are given there.

As Mike said, we have reduced our sales projections at our wholesale sportswear businesses by about $35 million.

We believe this fully considers the tightening of our customers open to buy.

We believe that these overall sales reductions have right sized the businesses so that we are currently in line with our revised estimates of our customers for their sales trends for 2008.

We also believe that our projected lower inventory levels at retail during the year should provide for improved gross margin performance particularly in the second half of the year.

This gross margin opportunity has not been fully incorporated into our second half projections and as such we believe we have the potential to exceed the expectations in earnings guidance that we have given for the sportswear business that we operate.

The business that has been under the most pressure for us under the last two months has been our moderate legacy outlet store business.

We are currently projecting first quarter comps at about minus 5% and the balance of the year is projected at between minus 2% to minus 3%.

Our current sales trends are running slightly behind these estimates.

We believe any sales and product risk to this business will be more than offset by the upside opportunity in our Calvin Klein businesses.

And with that I'd like to open it up for any questions that you might have from the audience.

Thank you, sir.

Today's question and answer session will be conducted electronically.

(OPERATOR INSTRUCTIONS) And we will go first to Jennifer Black with Jennifer Black & Associates.

Good morning.

Manny, I have two questions.

I wondered if you could talk about, are you seeing a big difference regionally with any of your channels of distribution?

And then, secondly, can you give us a little more color on the outlet business as far as you see the big picture with the consumer?

Thank you.

Sure.

Let me start with the outlet store business.

The sense we have and from what we see from some of the [landlord] results and competitors announcements that we have is that comps are running negative.

It seems like the more moderate brands in the outlet environment are under much more pressure, and it seems like the higher end brands, internationally regarded brands are doing much better.

In certain parts of the country we've found the international tourists being very strong and the strength of the EURO and some of the Asian currencies we think is playing into that.

And we are seeing strong performance in the vacation destination areas particularly in Calvin Klein.

So the outlet business is feeling the pressure particularly at the moderate area, we would expect.

That's pretty consistent with what we are seeing across the board.

We believe the channel of distribution we've been very aggressive in the fourth quarter to get our stock to sales levels in line.

So we are seeing profitable selling as we go forward.

We find that our sales trends are are in line with our retailers sales plans particularly in the sportswear businesses.

And so although we might be planning those businesses negative against last year in certain cases, they're still running on or ahead of plan.

So we continue to be right where we think we shall be and hopefully we'll be in a much more profitable situation with our sportswear brand as we go forward.

From a channel and distribution point of view, I think you know, as you would expect I think the more moderate department stores are feeling more of the pressure that I can see than at the higher end of our business as we have, than some of our customers.

Okay.

Thank you very much.

You're welcome.

We will go next to Jeff Klinefelter with Piper Jaffray.

Yes, just a couple of questions for you, Manny.

First on the Timberland launch for the second half, given the weakness with some of the department stores, what is the most current read on that launch in terms of what they're willing to accept, or what they're willing to give you for floor space and how you think the inventory build is going to go?

And then secondly on IZOD and JCPenney, and your business overall with Penneys, given we know there was some space changes when American Living went into the stores, and now that it has been in the stores and been promoted, American Living has for a few weeks, can you give us an idea on how that is affecting the IZOD and Van Heusen brands?

Okay, Jeff.

Let me start with Timberland.

We are happy with the reaction that we've got with Timberland in the market.

When we show the line in January, and then we showed it at [Magic], the reception has been very strong.

We will be in 300 plus doors across the country.

Shops have been approved and going in and that's moving forward so we will be in really good shape there.

The business is on plan.

We will do somewhere in the neighborhood of $25 million plus for a partial year.

We are very excited about what Timberland is doing with the brand.

Their marketing in the fourth quarter was very exciting.

What they have done in certain key markets from an advertising point of view and positioning.

I think they have really done some extraordinary things there.

I believe that they are continuing that investment as they go forward into '08.

We are working closely with them on the launch and the advertising associated with it, and the marketing.

So that has been really, there has been no slow down we have seen on Timberland.

And we haven't had any problem with the open to buy.

And I think there has been some disruption there and some open space for us that we have been able to take advantage of in department stores with the Timberland brand.

On the IZOD, we have moved on the sportswear side the positioning in the stores, we believe has really gotten better.

We believe our positioning is usually front and center.

JCPenney is a great partner for us and we've really -- whatever minor and I use the word minor contractually as we've in open to buy has as much to do with the environment as opposed to any new product launches they have in there.

The IZOD business and as well as the Van Heusen business for them is key as they go forward and we are feeling good about that.

Our business is running pretty close to plan with them, and we have got a very healthy both Van Heusen IZOD business with JCPenney, so we're very happy where that's going.

Okay.

Just one other, Manny, if I could.

On the international business has been strong for you through your CK license businesses and clearly continues to be.

How much visibility do you think you have into those businesses through your partners licensing partners?

Is there some concern that the European are starting to wind down following the U.S.

and given that has been where most of your growth has come from, how do you view that?

And as one other side question on that, a lot of people do ask, at what point would you consider buying back your license, for example from Warnaco?

And just curious how you are answering that and if investors are asking you the same thing.

Okay.

Let me take it in steps.

The international business for us has gotten very strong and over the last three years it as strong as the growth has been, our international growth has been more significant.

At Calvin Klein I think I mentioned over 55% of our revenues and profits are driven from international.

And the growth -- we are expecting the growth in 2008 internationally to be closer to 14% to 15% with domestic is being planned closer to 5%, so we get to our overall 10% growth for Calvin Klein.

For my discussions with all of our licensing partners on the sales plans that they have given us which were updated as recently as three or four weeks ago, no one sees any slow down in the Calvin Klein international business.

Now, I can't make a statement of what's going on with the international economies.

I can only talk about the Calvin Klein business internationally.

So we don't see any slow down in that business at all.

In fact, the sales trends in February that we have got reports are well ahead of what was projected for February from our licensing partners.

So we feel very good about the Calvin Klein international business and how that growth goes forward.

On the bringing back licenses and what we would do with that business, that's a long term approach to the business.

We like the licensing model as it is structured.

We like the profitability it brings us with the royalty rate anywhere from 7% to 8%.

An advertising contribution and PR contribution that is at least 3% to 4% of their sales.

So it is a really good model for us, allows us to control the overall business.

And today for the first time we are disclosing that international profitability for us represents about 25% of our total profitability.

And that -- you would go back four years ago our international profitability wouldn't even register.

So clearly we enjoy that flow of revenue, and that is a much healthier business today given the strength of the currencies and given the strength of those economies, particularly given our Asian business are even stronger than our European business.

Okay.

Thank you.

Our next question comes from Jeff Edelman with UBS.

Thank you, good morning.

Manny, my first question has to do with the back half of the year.

You did take down your sales guidance for the wholesale business.

How much of that is typically replenishment?

And if we are looking at pluses and minuses in terms of where we might see some upside, does that represent much?

Well, let me take it in pieces, Jeff.

When we look at our wholesale domestic businesses, our dress shirt business is over 75% of it -- 75% to 80% is EDI replenishable.

And what was healthy about our is that we clearly enjoyed there is that business continued to be strong, inventories were always in very good shape there.

We continue to feed that business into the fourth quarter and as we have gone into the first quarter of this year.

So that business remains healthy.

Neckwear is a very similar business to dress shirt.

Lot of reorder.

We may -- we have fashion deliveries in neckwear 11 to 12 times a year, so that's a quick turning business, goes in and out, and we keep that inventory very clean and it's a short-cycle business.

On our sportwear business, I would say about 30% to 35% of that business is EDI replenishment.

Things like the IZOD PK knit.

We have that, a big pants business in IZOD and Van Heusen, a large short business, so we hide inventory to support those businesses and we get behind them.

We are not particularly planning those businesses of what I would call aggressively for the first half of the year.

We will have a read on business, we don't want to get in problems with inventory, and we can quickly get behind those inventories if we start to see a change in sales strength.

So I would say to you we will be in cash and dress furnishings almost any kind of sales trajectory that would come through, it starts to be an upswing, and on the sportswear business on the -- on the EDI side, with a 30 -- within 30 days we would be able to get in the business there.

So we are usually pretty good with managing that.

Okay.

Thank you.

And then secondly, on the follow-up question to bringing the additional licenses, in house, if I am not mistaken isn't this year a critical point for the Calvin Klein women's business?

The better business that go with [Scott], I know that has not been doing well and obviously it is a private company now, but would you share some thoughts there?

Yes -- pieces.

There is no triggering event in 2008.

The next triggering event would be in 2000 -- it's three or four years from now, I believe it's four years from today.

The business has been the one licensed business we are not happy with the performance from a sales point of f view.

We believe the product has been significantly improved.

We believe their presentation in retail, their shops, are very -- are done very appropriately for the brand we don't believe it's at all negatively impacting the brand overall.

We just believe we are missing a great opportunity in women's.

The women's business is half the size of the men's sportswear business in the United States.

And we expect it to be just the opposite.

So it's an opportunity for us.

We've decided given the environment that we're in, it's not a business that we'd like to bring back inhouse in the short term, and by that I mean the next two to four years, but on a long term basis if there's not an improvement in performance we will look at the opportunities as we go forward.

The business is being planned as we go forward, just based on minimum guaranteed royalties based on the license agreement.

So there's no risk based on the projections.

So it was just not something given the numerous initiatives that we have going on for growth had the company today going on that we wanted to take on another business at this time.

Great.

Thank you.

We will go next to Robert Drbul with Lehman Brothers.

Hi, good morning.

A couple questions.

First, on the Calvin business, in terms of the collection business, how are you planning that for 2008 in terms of your ability to make progress on the profitability side?

We are planning the business at a break even to small loss for 2008.

The way the business -- inventory clearly has been more or less purchased and secured for a portion of the year.

We believe we will have impact on the operations of the business going forward and positioning ourselves for 2009, but we don't belief we're going to have a significant impact on the top line in 2008 and we don't believe we're going to have a significant impact on initial gross margins going in.

So we are planning that business, I think, realistically, it is a business we don't plan to be overly profitable.

It is really there as a halo for the brand and we are planning a small loss right now, Bob.

Okay.

Question for Mike, when you look at the second half of '08 versus the actuals from 2007, what sort of levels of mark downs are you assuming in the business, given the higher you experienced in 2007?

Bob, when we look at it we, are talking on the entirety of the wholesale business we are probably looking at about 100 basis points, 50 to 100 basis points of decline.

Okay.

And then one final question just on the inventory levels, if you broke down inventory on wholesale versus retail, your retail stores at the end of the quarter can you maybe give us that level of granularity?

For the end of the fourth quarter?

Yes.

In terms of retail versus wholesale for the end of the fourth quarter, we were about 50/50.

It tends to peak more for retail at the open of the third quarter as we go through the holiday season, but by year end it comes back in line to the 50/50 split.

Got it.

Okay.

Thank you very much.

You got it.

We will go next to Kate [McShane] with Citi.

Hi, good morning.

Thank you.

With your guidance of operating margins down 150 to 200 basis points I guess this kind of is a follow up to the previous question on mark downs.

Can you go into more detail about how much of this decline from mark down pressure, higher sourcing costs, opening of Calvin Klein stores and the Timberland's men business?

Let me -- I guess a couple of things.

We are seeing cost increases for the back half of the year of somewhere in the 1% to 3% range.

We have also had selling price increases to our retail partners.

And the key will be how sale throughs are and what the retail average is out the door.

So we are seeing modest selling cost increases in 2008 for the second half of the year, and that has been factored into the numbers.

We have also, for the first half of the year we have planned aggressively for mark downs and allowance exposure, on the allowance side we think given the right sizing of the inventories and the open to buy and our initial performances that we have seen out of the box, we don't expect to see much, either improvement of decline on the wholesale side.

And -- because we are basically most of those businesses particularly Calvin business are performing at or more in excess of plan and average unit retails have held in there pretty strongly.

In our outlet store business the Calvin business is just fine and is actually upside in that business.

The exposure will be on I think if we have the risk we have is in our legacy retail businesses we are planning for additional mark downs in those businesses, and have tried to keep the inventories in line.

I think we will -- the inventory from a quality point of view is just fine.

We came out of the year very limited on fall and winter product as we come out of the year, out of 2007.

But given the sales trends that we were anticipating against what is actually happening , we were probably buying into a legacy business is a plus 1% comp store increase and we are running sales trends.

And we have factored those margins into the business.

So overall given mix of business, Calvin Klein business is growing faster with higher overall gross margins, legacy business is being played down, overall when we look at the year we are planning for about 50 or 70 basis point decline in overall gross margin.

As we go forward, that's a combination of allowances, mark downs and some selling cost pressure factored into

Okay.

Thanks.

And one other question, please, if you could.

Could you update us with the Calvin Klein specialty store opening plans for 2008?

Is that still on track?

Yes, we are exactly on track.

We will open -- we have opened five stores in 2005.

We will open -- sorry, five stores in 2007, and they opened later than we had hoped.

We are just getting the real estate and the stores built on time.

The next five stores for the -- basically most of them will be open in 2008.

The locations have been -- the leases have been signed, three of the locations are in California and actually malls -- one is in Miami at the tourist center.

And the last one is in Las Vegas in Caesars.

So we are really excited about the locations.

They are even stronger locations than we had last year.

So, we're feeling positive about those businesses from a brand hallowing point of view.

And we think he will be on sales trend for those businesses going forward.

Thank you.

You're welcome.

We will go next to Emily Shanks with Lehman Brothers.

Hi, good morning.

Wanted to see if you could just give us a little bit of color around your view of the dress shirts performance.

Do you think the whole sub factor is continuing to grow, or do you think you're gaining market share?

And then if you could just update us on what your view of your own market share is in that subsector.

Sure.

I am going to, Allen Sirkin is here.

I'm going to give Allen the dress shirt discussion.

We're very pleased with our dress shirt performance over the last year.

We don't see the category growing.

We believe it is a flat growth category.

We believe that we are out performing the competition.

We believe that the good controls that we instituted last year helped us execute higher AURs and slight share of market growth.

If you merge all of the channels together, we own about a 37.5% share of the market, and the context of department store and mid channel, all channels combined together and the department store sector, we have the number one, two, three and four brands from a share market standpoint, Van Heusen, Arrow, Geoffrey Beene and Chaps, significantly ahead of our competition.

And all of our brands seems to be performing extremely well.

We have the strong moderate position covered and we have the strong up scale position covered with Calvin Klein and Kenneth Cole, we have outstanding performance on the Trump line and some of the other niche brands that we are running.

We are currently now launching DKNY for -- this will be our first full year.

We introduced it right around holiday time.

So we feel pretty good about our dress shirt position.

It is not a share market gain, but we've got good opportunities going forward into 2008.

Year-to-date we are operating at about a 10% comp performance which is certainly out performing the competition, and it looks like this category is being treated, one that people want to look good, dress up, it is easier to get a shirt and tie than maybe to spend $300 or $400 for a suit.

Interesting.

That's really helpful.

Thank you.

And we will go next to Carla Casella with JPMorgan.

Hi, a few questions.

One on, could you talk a bit about any changes you are seeing in sourcing cost and where your -- if you are changing any of where you are sourcing from?

Carla, as far as our sourcing plan, we always tweak that business, we I guess on balance we're big sources and we're big source is in China, but as a percentage of our business it's probably close to a little bit over 20% of our business.

I think other people have been more aggressive in that business.

As we go into 2008, we are probably the 22% will probably come closer to 28% of our total sourcing mix.

So we are -- we are pulling away a little bit from China, based on some of the disruption in China.

Some of the cost increases that's going on in China.

So we are just managing that as we go forward.

And some of the other countries that are important to us are Vietnam, Bangladesh, Pakistan, and the Caribbean, we have got very good relationships there and have been able to as well as anyone, I think maintain our course position.

So I feel good about how we've handled that and how we've gone forward with that.

And are you hedging any of your material or fuel costs?

No, we've never have historically.

We always buy in dollars.

We don't, we -- absent -- the dollar is under a lot of pressure now.

So it is not normal times.

So we have been able to hold most of your vendors particularly our Asian vendors from a dollar point of view, we might see some more pressure on that in 2008.

But overall, we don't hedge.

Okay.

Great.

And then my second question, on you talked about the average unit retail, in shirts being up.

Is that price increases less promotion or mix shift?

When I talked about average unit retail in dress shirts being up, that has more to do with less promotion and less clearance.

We haven't really changed our price ladders dramatically.

It is more about selling more at the first mark down and the second mark down and having less clearance and that has been worth somewhere in the neighborhood for dress shirts around $0.70 a unit, and when you think about the average dress shirt is in the mid [$0.20s] that's not insignificant.

That's 3% or 4%.

It is really been disciplined inventory management control as opposed to trying to drive pricing selling increase, selling price increases.

Okay.

Great.

That's all I have.

Thank you.

Thank you.

We will go next to Brad Stephens at Morgan Keegan.

Good morning, everybody.

First question, on the CK royalty business, can you give us more color going forward and remind me the moving parts, the total is up 14% but royalties were up 8% and advertising up 31%.

Kind of the break down to think about that going forward?

Yes, it is always hard, Jeff, on a quarterly basis to try and pinpoint anything.

And last year was a 14 week quarter, I'm sorry, Brad, last year was a --

Two in a row, Manny.

I'm sorry.

I apologize.

Last year was a 14 week quarter, this year was a 13 week quarter.

We directed the advertisings expenditures as we went forward.

And we tried to [telegraph] how we were going to handle that.

So I think it was all right what we've though on plan for the quarter and you just can never deal with the [vagueries], somebody ships in December versus going out in January or something is , just shipped in September rather than October.

It is just a [vagueries] in business.

There's nothing to be [gleamed] from that at

Okay.

Second, can you break out the sales per square foot difference between legacy outlet stores and your CK as well as operating margins between the two?

And then a question for Mike Shaffer, could you just -- looking at the receivables, the trade and other, they're up pretty substantially.

Is that a timing issues, or what exactly is the differences there?

Mike is going to handle both question.

On the sales per square foot, the legacy businesses are about $250 a foot.

The Calvin Klein outlets are about $500 a foot.

And on receivables a couple of things, we've got the new businesses which is a component of the increase.

But in addition to that, we did have some heavy up on our shipments in December and to some degree January.

So, last year those goods have been shipped in November.

We collected by the end of the year, this year a little bit later and in turn we are haven't collected on the receivable yet.

Receivables are very clean, no change in terms of collections from last year, we have a small specialty store business.

So we are shifting to the big guys, not a bunch of little guys.

Right.

Mike, roll back -- real quick back to the outlet, an operating margin performance between the two?

For '07?

Yes.

Between the two, all in, we were up around about 8% to 8.5% operating margins for the outlet business.

And the CK business run probably mid teen?

That includes the CK.

So if all in we are 8% and 250 on the legacy business, 500 on the Calvin, just in general it is just a much more profitable business.

All right.

Great, guys, have a good year.

We will go next to Jeff Mintz with Wedbush Morgan.

Thanks.

Manny, could you give us just a little more color on the IZOD versus Van Heusen and Arrow?

It sounds like the IZOD is definitely outperforming as has been the case.

Just a little more color both on what happened in the fourth quarter and also how you are planning those businesses in '08.

Sure, Jeff.

I think it's really the Van Heusen and the IZOD businesses have really performed well throughout this environment.

We were -- both of those we were on a growth trajectory and we got caught up in what was going on in retail, our buys have been adjusted for those businesses but not nearly as -- for both of those businesses.

Our Arrow business at KOHL's on the sportwear side has been adjusted more significantly.

We've really right sized back we believe.

We were in some product categories that weren't profitable for us or for them.

So we've took it and tightened it.

We think we're in a position now at sportswear to be much more profitable with them.

And it's -- I think it is really factored in all of that.

Arrow also gets negatively impacted to a degree by what happens at Sears and Mervyns, those businesses are just down.

I think it has more to do with Sears and Mervyns performance than the brands performance.

And that is the brand that's probably being most impacted by the $35 million, $40 million take down in our legacy sportswear business.

Okay.

Great.

And then, Mike, probably just a couple of questions for you.

The $35 million -- $35 million to $40 million reduction in legacy sportswear business, what is kind of the base of off which that base is being taken?

In terms of revenues?

Yes.

We are looking at sportswear, all in legacy businesses.

We break out -- I'm sorry, it is Manny.

We don't break out each business but we do break out sportswear, wholesale business.

So that is about $700 million.

Okay.

And I guess, but the women's is about $20 million of that or so.

So it is really being taken off a $680 million number; is that about right?

Calvin I said was over $100 million.

So you can do the math.

Okay.

Great.

And then Mike what was the revenue contribution from Superba in 2007?

About $150 million.

$150 million.

Great.

Thanks very much.

We will go next to Susan Sansbury with Miller Tabak.

Hi.

Yes, thanks very much.

Keeping with the Superba, if memory serves me correctly, the contributions from Superba in '07 was what you had expected for '08.

So can you refresh my memory now about whether you expect the accretion to increase in '08, given a less robust overall environment, or is it going to be flat?

Susan, my answer to that is you are right.

We did significantly better with Superba than we had originally planned.

The accretion we had about was what we delivered this year was about $0.12 to $0.13, which is compared to about $0.10 to $0.11 that we had talked about.

We are advancing brands into Superba from other licensees faster than we had anticipated.

And for next year we are looking at accretions to grow at about $0.14 to $0.15, and sales to grow at about 5%.

Okay.

That's perfect.

Thanks ever so much.

You are doing a great job, by the way.

I don't think anybody has congratulated you, but I will.

Thank you.

Thanks, mom.

Next to Andrew Berg, Post Advisory Group.

Hey, guys.

Just a couple of quick housekeeping.

Mike, can you tell me what the gross interest expense for the year and also what the contingency payment to Calvin was?

I heard the first part, I didn't hear the second.

The contingency payment to Calvin for the quarter.

The gross interest expense for the quarter was -- I'm sorry for the year '07 was about $34 million I believe the Calvin -- We had, given --

$35 million.

$35 million to $37 million.

We will check that number, but we will get the exact number.

Somebody just looking.

Okay.

While you are doing that, after the stock buy back, any of the indentures limiting your ability to repurchase further stock or your restricted payments baskets still pretty wide open?

I'm going to make Pam answer the question.

We do have a stricter payment covenant in our two senior note agreements.

We still have availability in those covenants, they're not totally wide open for us to do millions and millions and millions of dollars, but we have -- we probably have at least another $100 million in there for now.

Okay.

Thank you.

Our next question comes from David Glick with Buckingham Research.

Good morning.

And one more congratulations.

I was trying to understand, Manny, just what your underlying organic growth sales assumption are by major business in term of your outlook for 2008.

It just sounds like over the last series of questions that dress shirts and neckwear you're looking at about a 5% to 6% increase for each of those businesses and not a lot of meaningful new brand additions or few in neckwear, but it sounds like mid singles is your expectation.

On the sportswear side, what is the total versus organic growth when you factor in women's IZOD and Timberland?

Just trying to get a sense for what your assumptions are there.

Okay.

Bear with me.

I guess we are planning our sportswear business overall to grow in the the 5% to 7% range.

That's with our legacy businesses overall including Calvin, including some of the new businesses.

Our legacy businesses are planned to contract this year as we right size the business and depending on the brand I think it could be down anywhere from 3% to 5%.

Okay.

And you see Timberland and women's IZOD adding about --

Next year, I think Mike quoted about -- the IZOD women's business would be $60 million plus and the Timberland business half the year, I think $25 million.

And then just to complete the circle here, in outlets you gave us the comps, what do new stores add in terms of the overall percent increase?

That's a great -- we've got between [TYOs] last year -- this year's openings and last year's openings, it is about 30 stores -- bear with me one second.

Okay.

It is worth about 4% to 5%.

Okay.

Great.

And then last question, any color you can giver us on now that Easter is behind us?

I know there's some weather disruptions out there may be tough to interpret the results, but can you give us a color on what's happening at retail in your own stores and your big customers in terms of how the sort of early Easter impacted business?

I will tell you, yesterday was a great day.

I guess.

That's how closely we are watching it.

It is very hard because especially in the outlet store business it has much more -- it has -- it is as important as school breaks, and spring breaks and when the kids are off and when they're going on vacation, as it is the falling of Easter, they're not necessarily aligned geographically around the country.

So it is very difficult to get a handle on.

We were pleased with the business last week, the week before Easter even though it was -- for pre-Easter it was unusually cold.

I don't know if it was unusually cold for March 15th, but it was unusually cold to be the week before Easter.

So clearly we -- the early Easter has not been a benefit for us given the weather trends that just haven't cooperated with the business.

So we are really not -- I don't want to give you a half an answer, David.

We really won't have a good handle until I get to the second week of April.

By then I can give more color and talk about it.

So, we are being cautious as we are projected it, we're trying to understand it.

It is hard to determine how much growth the plan in April given the Easter shift, and offsetting that is obviously the warmer weather and how it is interpreted.

So I guess I just as soon wait to let you know.

So we are cautious about it right now.

And similar answer for your big customers?

Yes.

I guess , there was a general sense that they were happy with business last week.

I think it will be important to see how this week

Okay.

Great.

Thanks, and congratulations and good luck.

And our last question comes from Clark Orsky with KDP Investment Advisors.

Yes.

Just had a question on the balance sheet, I mean you've still got a lot of cash and are you thinking about buying back more shares, or [husbanding] cash for acquisitions.

What are your thoughts there?

I think consistent to what we have been saying for the last three years is our first priority would be continue to look for acquisitions.

And we believe in a market that we are in today, for strong strategic buyer with a strong balance sheet that can have cash and can borrow, this is the time to make acquisitions and in the future, pay significant dividends, because you can buy them right and you can do a transaction that makes a lot of sense.

Just to remind everyone, we did the Calvin Klein transaction, we announced it in November of 2002.

At that point in time the bond market we were told was closed, there was no financing for businesses.

We were able to put a deal together at that time that clearly has paid dividends.

So I think, chaotic times are times when good companies do acquisitions that really can fuel growth going forward.

So we would like to be aggressive in that area.

We would like to continue to look, but to be consistent with what I have said overall, we will continue to look for opportunities.

If we can't find the opportunities and if we can -- we are talking about generating $80 million or $90 million of free cash flow this year.

If we are sitting with $350 million to $400 million in cash next year we will look -- we will not be a bank and just sit there with cash.

We will do what's appropriate for shareholders and return the money, but I think we have demonstrated the ability to do acquisitions, to do them accretively, to get them in and integrated appropriately, and that's the best way we can -- we believe we can deliver value to our shareholders.

Are you seeing more opportunities now, given that the environment has kind of fallen apart?

Things have opened up, valuations have gotten more realistic, but still haven't gotten where they need to.

And I think it will start to flush out over the next three to six months, is my belief.

Okay.

Thanks.

And just one question, can you tell me what D&A was for the year?

Yes.

For '07, D&A was about $47 million.

Thank you very much.

Okay.

All right.

I guess I'd like -- one, I would like to thank everyone for joining us.

I look forward to speaking to you on our first quarter conference call in May, and have a good day.

Take care.

And again that does conclude today's conference call.

Thank you for your participation.

You may disconnect at this time.