PVH Corp (PVH) 2008 Q1 法說會逐字稿

Good day, everyone.

Welcome to today's Phillips-Van Heusen Corporation's first quarter 2008 earnings release conference call.

The call is being recorded.

This webcast and conference call is being recorded on behalf of PVH and consists of copyrighted material.

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

Your participation in the 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 May 21st, 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 statement including, without limitation, any estimate regarding revenues or earnings.

At this time, I would like to turn the call over to the Chief Executive Officer of Phillips-Van Heusen, Mr.

Manny Chirico.

Please go ahead, sir.

Thank you very much.

Good morning, everyone.

Thanks for joining us on the call.

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

Let me start off with saying we were quite pleased with the results in the first quarter, particularly considering the overall difficult retail environment.

Let me focus first on the Calvin Klein licensing segment.

We posted a 19% increase in royalty revenues in the first quarter and a 17% increase in operating earnings in the quarter.

It should be noted that the quarter includes about $3 million of expense timing issues which will reverse out over the balance of the year.

These expenses principally relate to an increase in advertising associated with a number of new second half launches, and marketing associated with our new specialty stores of Calvin Klein.

We continue to expect the operating margins for the Calvin Klein licensing segment to increase about 200 to 250 basis points for the year.

The licensing revenues for the quarter internationally were up about 28%, while our domestic business was up about 8% for the quarter.

Getting into each component of the business, I'm going to start with underwear.

Underwear posted about a 25% increase in royalty revenues for the quarter.

Business grew in the United States about 10% and internationally about 35% in the quarter.

The international growth was fueled by a number of new product initiatives, coupled with a continued expansion of retail stores, particularly throughout Asia.

We saw continued strength both domestically and internationally in our men's business, principally driven by our Steel product which is benefiting from a very strong product offering and an amazing marketing campaign which features Djimon Hounsou.

As we look out into the underwear segment for the second half of the year, the major news for fall is that we are launching Seductive Comfort, our new women's bra initiative.

Seductive Comfort brings much excitement to the bra business that Steel did to the men's business in 2007.

The launch will be significant -- it will be significant and supported by a marketing campaign featuring Eva Mendez.

Eva personifies the Seductive Comfort proposition perfectly and speaks to the Calvin Klein consumer that is diverse and she has very broad appeal.

The jeans business posted a 30% increase in royalties for the quarter.

Our international business was up about 40%, while our U.S.

business was up about 10%.

The U.S.

business was driven by the women's side of the product assortment as well as the newly launched plus size department store business in the United States.

The international growth was driven by very strong performance in Europe and Asia, strong wholesale growth as well as the continued expansion of retail stores, particularly in China and Korea and that business for us in Asia and Europe continues to be very strong.

Moving on to fragrance, our fragrance business was ahead of plan for the quarter.

We planned the business down and it was down about 5% from last year when you'll remember we launched CKIN2U in the first quarter of last year.

Significant fixture fill going on in the first quarter and we're up against that launch and, just to remind everyone, the CKIN2U business is today is about $130 million wholesale business worldwide.

We're coming off in the fragrance business three years of plus 20% revenue growth driven by a number of new initiatives including CKIN2U, Calvin Klein Man and a number of introductions under the Euphoria label.

The business was very strong internationally and was softer in the United States, when you consider that the major distribution in the United States continues to be the department store base and their fragrance business was soft overall.

We have a major fragrance launch planned for the fall.

The launch, which will be announced probably in the next couple of weeks and the name of the fragrance will also be launched at that time, will also feature a significant marketing campaign with Eva Mendez as our celebrity spokesperson.

There will be a significant marketing campaign launched with Eva and there will be over $20 million in the third quarter spent on launching the product as well from a marketing point of view.

So we're very excited about that.

We really think that will have a big lift for us in the second half of the year.

Touching on some other licensees, G3 had a very strong quarter, particularly on their outerwear business and their women's dress businesses continues to do very well in all department stores, particularly Macy's.

Our men's tailored clothing business with Peerless just had an extraordinary quarter.

Business is up up over 50% for the quarter.

We had strong growth coming both from Macy's and, in particular, Dillard's.

So that business overall, Calvin Klein, both domestically and internationally had a very strong quarter for us.

Continuing with Calvin Klein, our men's better sportswear business continues to perform very well.

Shipments for the quarter were up over 15%.

At department store, Calvin continues to be one of the best performing men's brands on the collections sportswear pad, when you measure it on a productivity basis, on sales per square foot and maintained overall gross margin.

So very strong there.

Our order book for fall continues to be very strong.

We continue to gain square footage, both from the door expansion but even more importantly from an expansion of our presentations at department stores.

Our Calvin Klein outlet retail business had another very strong quarter.

Comps were up 10% in the division.

Margins were ahead of last year.

The business, the Calvin Klein outlet business is one of our most profitable businesses within our retail portfolio and our overall portfolio.

These stores average over $550 in sales per square foot and have an in-store four wall profitability contribution in excess of 30%.

We currently operate about 85 Calvin Klein outlet stores and believe there is an opportunity to grow this business to 135 to 140 stores over the foreseeable future.

Moving to our dress furnishings business, dress shirts and neckwear continue to have strong performance.

The environment which is putting pressure on -- at department store business, we don't see it in the dress furnishings category.

The department stores, it's one of their best performing category.

The business continues -- our business continues to run ahead of sales plans.

At retail, our average unit retails are up considerably over last year, which has improved the overall operating margins and has and will increase the profitability of the business going forward.

At neckwear, we recently announced the Mulberry neckwear acquisition.

That acquisition will add about $25 million in annual sales to the Superba division of PVH neckwear.

The acquisition labels that we acquired were Kenneth Cole, Kenneth Cole Reaction, Sean John, Jerry Garcia and the BCBG label.

The integration has just begun and is off to a good start.

We believe this acquisition will deliver synergies and significant future earnings accretion as the business is layered in and we get the start-up costs behind us.

The two businesses which have been most impacted by the difficult retail environment has been our 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 have been impacted by the environment in the first quarter.

We experienced price compression and additional promotional allowances and markdowns necessary to drive sales and to keep inventories clean.

First quarter comps in our moderate outlet store divisions ran about minus 6% in the first quarter, which put some pressure on gross margins and operating expense leverage.

However, we did see a turn in business beginning in April.

Our comps turn beginning in April improved significantly and the trend has continued into May.

And for our outlet legacy businesses, the trend right now is more towards a flattish comp than the negative trend that we have seen, so we feel good -- I feel much better about that business today than I did two months ago when we reported our fourth quarter business.

Given the sales and margin pressures that we experienced in the first quarter, overall operating margins were down about 200 basis points and that was the part of the business that felt the pressure.

From a marketing point of view we continue to invest heavily in our brands, Calvin Klein, IZOD, Van Heusen and Arrow.

Our first quarter advertising and marketing expense for all of our brands was up about 8% to about $40 million for the quarter.

All of our brands have multi-dimensional advertising campaigns planned for 2008.

And our budgets, which are included in the earnings guidance that we've given, are projected to be up slightly, 5 to 6% for the year, compared to 2007 levels.

I'm going to now turn the call over to Mike Shaffer to quantify some of what I said and then what I'd like to do is just come back after Mike has quantified the results and talk about how we feel about each component of our business going into the balance of the year to put a little bit more color on how we have come up with our guidance for the year.

Thanks, Manny.

Total revenues grew 6% in the first quarter to approximately $625 million and our earnings per share was $0.90, which was $0.02 better than the top end of our previous guidance.

Fueling revenue growth was our Calvin Klein licensing business, which posted a licensing revenue increase of 19% and an earnings increase of 17%.

Our operating margins in the Calvin Klein licensing business were down from the prior year as a result of additional advertising revenues which were collected and spent within the quarter.

This is a timing difference.

Calvin Klein licensing operating margins for the year will increase approximately 200 to 250 basis points over the prior year.

Our other Calvin Klein businesses also performed well with revenues exceeding the prior year in Calvin Klein sportswear, Calvin Klein dress shirts.

The Calvin Klein outlets posted a comp increase for the quarter of 10%, versus the 5% we planned.

The difficult retail environment continued to pressure our legacy businesses.

Our legacy outlet comp sales for the quarter were minus six, compared to our guidance at minus 5%.

Our legacy outlet business comp store trend improved in the later part of the first quarter through today.

Our legacy comp store trend for this period is flat to minus one.

The shortfall in outlet revenues for the first quarter was offset by our dress furnishings and sportswear revenues.

The combined wholesale and retail businesses posted operating margin declines for the quarter of 220 basis points, as a result of start-up costs for new businesses, an increase in advertising expenses, and gross margin pressures.

Start-up costs were approximately $7 million for the first quarter.

Start-up costs are estimated to be approximately $12 million for the full year and are planned in the first half of the year, as opposed to last year where the costs were incurred in the second half of the year.

On the balance sheet, inventories ended the quarter very clean.

Our inventories were 5% greater than the prior year, driven by new businesses.

Excluding these new businesses, inventories were down 3% from the prior year.

We are also on plan for 2008 to generate approximately $80 million to $90 million in cash with capital expenditures at about $90 million.

For the year, we're holding our revenue guidance at $2.6 billion, we have increased our earnings per share guidance up to $3.32 to $3.41, which continues to reflect the cautious view of the environment for the balance of the year.

We are projecting second quarter earnings per share of $0.63 to $0.66.

Included in our second quarter earnings per share guidance are start-up costs of approximately $5 million, associated with our Timberland sportswear business and Calvin Klein specialty stores.

Revenues for the second quarter are projected to be $575 million to $585 million.

With that, I'll turn it back to Manny.

Okay.

Just like to take this opportunity to really just put our overall projections in place.

As I said in the first quarter, we tried to put plans together that we really felt that we would be able to receive if we delivered against our numbers.

So we put our earnings per share guidance that we've given, we feel we clearly are very comfortable with as we go forward.

If you look at each piece of the business, our Calvin Klein licensing business for the balance of the year is being projected to grow at about 10%.

The current trend in the business is 15% plus growth that we're experiencing.

So we clearly feel that in the Calvin Klein licensing business, given the current trend of business, the currency gains that we've had, that clearly that there's upside against this business as we go forward.

Our other Calvin Klein businesses, both sportswear and outlet, continue to exceed sales plans and trends are well ahead of where our plans are.

We're planning comps for the balance of the year in the Calvin Klein retail stores at plus 5%.

The trends through yesterday is closer to plus 11%.

So clearly we feel good about the Calvin Klein outlet business and our Calvin Klein sportswear business.

Our dress furnishing business just continues to perform, both neckwear and dress shirts.

We see no sales slowdown there.

This business continues to deliver and the acquisition of the Mulberry assets give us the ability, if we do what we've done in the past, which is to integrate quickly the business online, is to exceed the estimates that we have for that additive piece of the business in this current fiscal year.

So we think there's upside in dress furnishings as well.

The businesses that have been under the most pressure have really been -- we talked about our legacy sportswear and retail businesses.

We really feel our projections today really take into effect the down side pressures that we're feeling in sales in our wholesale sportswear businesses, Van Heusen, Arrow, and to a limited extent, IZOD.

We factored in the open to buy contraction that's going on at department stores.

We think we've had that factored in.

We talked about in the first quarter that we've taken down our legacy sportswear businesses, anywhere from $35 million to $40 million.

We continue to have those estimates, given the projections we have from our department store accounts and how we feel about it, those businesses look very realistic.

We have -- we see inventories at department stores getting back in line as we go into the second quarter.

And we feel very strongly that inventories are going to be in excellent position as we get to the back-to-school selling period.

We haven't factored in any significant improvement in gross margin, starting in the second half of the year and we'll be up against much softer business in the second half of the year and inflated inventories at retail in particular and the overall environment.

So we believe if the department stores, our customers are close to their sales plan, that there could be margin upside for us in the second half of the year, given the pressures we experienced last year in the second half.

Finally, in our outlet store business, our legacy outlet store businesses, we feel really good about the trend of business the last six weeks, getting to a flat to minus 1% trend with a projection of minus 2, gives us comfort there.

We believe we have our margins appropriately planned there.

And we know that our inventories is under where it was at this time last year and is a very clean position.

So I think we've done everything we can do to position ourselves to deliver an hopefully exceed the estimates that we put out there.

We're being cautious on our projections for the balance of the year, given the environment.

We beat the estimates for our -- for the quarter by at least $0.03 on the top end and on the low end by $0.05.

We did not float all of that through.

We only flowed through a small portion of that.

It's just our nature, how we run the business.

As we see hopefully a continuation of this trend into the second quarter, we'll be more aggressive in moving the bottom line but I'm going to need to see some more of that before I get ahead of ourselves.

And I think we're in a situation right now where the consumer can be very fickle up and down.

And with that, I've tried to put that into perspective, I'd like to open it for questions and turn it back to the operator to start the Q&A portion of the call.

Thank you, Mr.

Chirico.

(OPERATOR INSTRUCTIONS) Our first question of the morning goes to Robert Drbul at Lehman Brothers.

Please go ahead.

Hi, good morning.

Hi, Bobby.

Manny, on the Calvin business, in terms of the sportswear and the department store business that you're seeing, can you just give us a number on the booking side of it as you look into the rest of the year, in terms of your wholesale sportswear side?

And Mike, I was wondering if you could maybe talk a little bit about exactly how currency did help you or how much currency helped you, whether it's in the Calvin royalty business or overall in the business today.

We're seeing the Calvin Klein, as I said, the Calvin Klein sportswear business in the first quarter grew about 15%.

For the balance of the year planning that to grow about 10%, 10 to 11%.

Our orders are in place to support that in the sales plan.

And we continue to look for opportunities there with some of our key accounts.

There might be some more opportunity in the fourth quarter.

We'll see how that -- some of the potential door expansions, shop expansions in doors.

And Bob, in terms of the currency, pretty much driven by the euro for the first quarter on both the revenues, also by some expense.

We were up about $1 million to $1.5 million as a result of that.

Okay.

Great.

Thank you very much.

Next question goes to Carla Casella at JPMorgan.

Hi.

Question is on the sourcing costs.

Where are you seeing sourcing costs going?

Do you think we've seen the peak and it's going to get better or does it only get worse from here and how do you absorb that.

I guess, Carla, we haven't -- heretofore, we haven't seen any impact in sourcing costs on current products that we're dealing with.

Our sourcing costs through the first half of the year are flat year-over-year.

We've talked about that we were seeing some increase of 1 to 3% in the back half of the year.

We've absorbed that.

We've dealt with some of that by just moving some sourcing around.

The pressure that we really see is 2009 and I think everyone is seeing it and if everyone's not talking about it, I don't think that they're being forthright about it.

I think there is pressure.

The dollar is the main culprit of it.

There's social issues and other issues around the world.

But it's clearly pressure with spring 2009 on product.

I'm very comfortable with where we are in 2008.

It's going to require some price increases at retail across the board and I think some of our -- some of our more upper end brands will be able to deal with that much easier than some of our more moderate brands.

But that's one way we are attacking it.

We are raising our prices.

We're going to have to manage that to make sure the velocity sticks.

But right now, if I had to guess, I would look at 2009 and think we're going to be somewhere between 4 and 6% apparel inflation.

We have not experienced apparel inflation for the last seven years.

Right.

It's about time.

And then on the acquisition front, are you starting to see any more increase in opportunities, given this environment, or pretty much what you've been seeing?

Well, there's more talk now, I guess is the best thing I can say.

There's more discussion.

Being a strategic buyer with a strong balance sheet and $300 million in cash makes us a strong choice to be an acquirer for anyone who's looking to sell.

And I think our -- to be honest, our track record with private companies like Superba that we brought in very well with the management teams and how we've dealt with Calvin Klein, the brand and the person, to successfully bring that in has made us a choice for people to speak to us about opportunities, even if they're just exploring.

So I think as the year goes on, I think very similar to what I said in the first quarter, I think it's still going to be relatively slow for the first three to six months of the year and I think the second half, the acquisition appetite might open up and the ability to do deals might open up.

Okay.

Great.

That's all I had.

We'll go next to Brad Stephens at Morgan Keegan.

Good morning.

Couple questions here.

First, I guess a couple for Mike.

The CapEx plan it looks like it came down $10 million.

Where is that coming from?

And then, I know the last two years you've invested a little more in the CapEx front.

Where should we assume that goes in FY '09 and beyond?

Then I have a couple follow-ups from there.

Okay.

Lot of different pieces on the CapEx reduction.

A little bit of legacy business pullback and some store openings, just based on the environment, some support that we planned to spend on that we pulled back on.

Overall, that came down about $10 million from plan.

Offsetting that though in our cash flow was the fact that we bought Mulberry and that was not planned for.

So net-net, it came to about zero dollars, we still have about $90 million in cash flow.

Next year.

For next year on the CapEx, we talked about 65 to 70 being a more normalized kind of number as we get through (inaudible) of investing back in the business.

Great.

Couple other follow-ups to that.

Start-up costs in the first quarter were $7 million.

I think you said originally $5 million.

Second, could you talk about the impact of American Living, pretty aggressive on the pricing front, how that's impacted IZOD.

And then last, looks like you're breaking out the Calvin Klein Collection business in corporate overhead.

So could you talk about how to look at corporate overhead in the collection business this year?

Okay.

I'm going to start, keep it in order, I'll start with the last piece first.

On the corporate piece, the Calvin Klein Collection business is planned to be about a break-even to a small loss.

So I don't think at the end of the day, it'll have much of an impact on corporate.

We're planning somewhere around $30 million in volume this year, partial year as we bring that business in-house.

I think from that point of view, that's the collection portion.

It really shouldn't have a bottom line impact of any impact on the Company.

Secondarily, the -- I guess the other -- what was the other?

The American Living.

American Living.

Well, you know, I think JC Penney's efforts there I think were well-placed, trying to move price points and the consumer perception of the brand.

It just -- execution I think is to a degree was very good when you look how it was presented.

But they just walked into a land mine from a timing point of view of trying to launch a new brand at higher price points that the customer historically has been at.

The difficulty, I guess, the challenge that was placed on everyone is right now those goods are just more promotional than anyone planned and it's putting some pressure on all businesses in the store because they're anywhere from $5 to $15 less retails than would have been planned for at this point in time, as they try to right-size their inventory.

I think that situation will correct itself by the middle of June, particularly at the back-to-school, inventories will get right-sized.

But in that store, that's a challenge to deal with.

That being said, our IZOD business and our Van Heusen business are close to being on plan and given just the general environment, I think that's good performance of the brand.

The Van Heusen performance in particular has been very strong across the store and we're seeing good results in IZOD in dress shirts and in some other areas besides just the normal men's sportswear.

So I think overall, it's an impact.

It's something that we watch closely.

But I think it's been minimal from a corporate-wide basis but significant at JC Penney.

And the extra $2 million in start-up costs?

You know, Brad, it was an estimate.

I don't know what else to say.

Some of the Calvin Klein specialty stores start-up costs have been more significant.

Some of the stores have opened later than we thought, so that's created some additional start-up costs.

We didn't have the sales associated with them.

I mentioned on the call last time that we're running about 40% of our sales plan.

We'll open another five stores this year and stop, get a sense of that business.

The stores I think are great marketing vehicles for the brand.

It's very important that we have a retail presence in the United States.

But I'm pretty -- I'm very comfortable that it will not exceed $12 million and that will be over from a start-up point of view, start-up costs will be over by the end of the second quarter.

All right.

Guys.

Good luck.

We'll go next to Jennifer Black at Jennifer Black & Associates.

Good morning and congratulations in doing well in a tough environment.

Thanks.

I have a couple questions.

Manny, looking down the road, I'm curious to know how you would see your business three to five years or one to three years or both as a percent of international to domestic.

Well, clearly one of the strategic objectives for the Company is to grow our international exposure for all of our brands.

If you look at our profitability, about 30% of our profits in the first quarter came from international.

Last year for fiscal year it was about 25%, maybe a little higher.

But to give you a perspective.

On the rev, we do that principally using a licensing model for all of our brands.

We operate in Canada.

We operate in Mexico and we have a small business in Europe doing dress shirts.

But principally, the revenue that we drive, the profits we drive is through the licensing model.

As I look out over time, I would like to see that change.

I think it's important that we become more of an international company.

I think we have to do that very -- we have to be very careful and smart about how we do that.

It's clearly going to be done through acquisitions of brands that have a platform to grow internationally and then over time potentially bringing some of our businesses from around the world in-house.

And I think as we try to do everything, we'll try to move judiciously as we try to make those investments.

But clearly I think we need to grow our international component of our business and not rely solely on licensing as the model for international growth and I would hope in three to five years that from a sales point of view, that 30% of our sales will come from overseas and closer to 45 to 50% of our profit would come from overseas.

That would be our objective and goal long-term.

Okay.

And then secondly, in looking at your real estate portfolio, are there any legacy outlet stores you would want to convert to Calvin Klein outlets?

Yes.

That's something that we're looking at.

We'll talk about that probably more in the not too distant future.

But there's opportunities that we have to take some of our formats and some of those stores and potentially the sales per square foot is double and the profitability is double in Calvin Klein stores.

So there's an opportunity to do that in a selective way going forward.

And then lastly, how do you feel about your ability to chase sales in all your divisions, based on the lean inventories that these retailers are keeping?

I'm going to make Allen Sirkin answer that, he's my in-store manager and merchandiser.

Hi, Allen.

Good morning.

There's a lot of stress and strain on inventory levels at retail.

We've taken a position that we're going to manage the inventory for the balance of the year very tight.

The one exception that you would find is with our strong replenishment position in dress shirts.

We're able to service those businesses, same thing in neckwear which are short cycle businesses.

We're able to replenish and chase trends.

So an example of that would be year-to-date we're running up about 10% on dress shirts.

A fair portion of that comes from core replenishment and therefore we are able to -- on that side of the ledger, to capitalize on flexes in the sales trends from now to the end of the year.

On the sportswear side, we've taken a much more judicious approach.

Our idea is to stay clear, is to minimize the amount of price depression through clearance and markdowns and try and hold onto our AURs through the balance of the year.

We think that's a much more prudent approach to the sportswear side of the business.

Thank you very much and good luck.

Thank you.

Our next will go to [Shawn Naughton] at Piper Jaffray.

Good morning.

Good morning.

Quick question for you on traffic and inventory within the heritage businesses.

Are there any changes by Van Heusen that IZOD or any regional differences with these stores?

First of all, on inventory, our inventory in our retail businesses businesses on a like-by-like business are down 3 to 5% across the board, so we feel very good without the inventory position.

I felt good about the inventory position last year.

So we really think we've managed it.

We've taken advantage of the uptick in volume that we saw in April and continued to really keep ourselves clean.

So I think our presidents, our operating division managers have done a really excellent job in keeping us out of trouble with inventory and moving it.

Geographically, look, I think we are seeing pressure, it's not much different than I'm sure you heard.

Southern California tends to be a little softer than the rest of the country.

Florida also has been softer.

However, when you get into a vacation or school break or vacation period, the Florida business bounced back very strongly.

Tourists are still traveling.

Vacations seem to be taking place.

Given the strength of the euro, the weakness of the dollar, I don't think there's much overseas travel going on.

So people are vacationing this summer, I think the majority will be in the United States and that usually works very well for our outlet business, which is very much tied into the tourist destination location.

So overall, I think our businesses continue to perform and the softness of our legacy retail businesses is our Jeffrey Bean designer business.

And we're taking steps to manage that inventory to keep ourselves clean.

Great.

And then any breakdown between the retail and wholesale, the 220 basis points decline in the first quarter?

Yes, I think it's clearly -- let me take it in pieces.

You'll see our segments -- we'll break it out significantly when we issue the Q in about a week or so, but I think where you'll see the biggest pressure will be in our retail businesses.

They had the most significant pulldown in margin and because of the minus six really on expense leverage, own store expenses.

So I think you'll see more there than you will on the wholesale side of the business.

The wholesale side of the business probably down 100 basis points where the retail division is down close to 280.

Okay.

And then lastly, any change on the magnitude or the overall size for Timberland and IZOD women's?

I think you had mentioned 100 to 150 on Timberland and then 200 on IZOD women's.

Are those still reasonable goals?

They're still reasonable goals as we talked about three to five years out.

We're planning the IZOD women's business will be $50 million plus this year, $50 million to $55 million.

The Timberland business is a $50 million business but we're only going to have half a year or so worth of sales, so will be $25 million plus there.

So no change.

Feel good about both businesses.

The IZOD women's business is in and is performing.

Every retailer talk, the toughest part of their business is women's and the toughest part of the women's business is the main floor collections, sportswear classification business and I think IZOD has really outperformed the competition in a tough environment.

Timberland, a lot of excitement about the brand.

A lot of excitement about the marketing that's going on that's being directed at Timberland headquarters, where we are totally in sync with and will take advantage of, particularly in the back-to-school selling period with a lot of initiatives that are going on.

So I think there's some real excitement going on there.

We feel good.

The retailers have really accepted it well.

We'll be in 300 Macy's doors and I think that's a good summary.

So optimistic about Timberland's launch for us.

Great.

And good luck in the back half of the year.

Go next to Kate McShane at CitiGroup.

Just two quick questions.

Can you give us a little more color on the increase in receivables this quarter?

Mike?

Sure.

Two components.

There was clearly new businesses.

We layered on the Calvin Klein specialty business, the IZOD women's business is new for this year and to a much smaller extent, the Mulberry business and the wholesale Calvin Klein Collection business.

Overall, that was about a third of the increase.

In addition to obviously the new businesses, we did have shipments that had gone out later in the quarter, so instead of -- instead of the end of March, those went out maybe the first week of April.

So it did push our receivable balance up to some degree.

Orders are going but getting confirmations and dealing with the retailers, there's been some, just a little bit of a pushback.

Just from a cleanliness point of view, there are no aged receivables in the mix.

We don't believe we have any collection issues to speak of.

And I don't think there's an issue from a realization point at all.

And we also have a very small business in terms of specialty stores.

The business is really with the big guys.

Okay.

Great.

Thanks.

And then just in the Calvin Klein licensing business, did you pick up any of Warneco's benefit from that extra 14th week in the quarter?

No, we -- our quarters don't align.

Warneco is December year end, we're a January year end.

Warneco is -- so we had 13 weeks against 13 weeks.

We didn't have the extra week at all.

Okay.

Great.

Thanks very much, guys.

We'll go next to Jeff Mintz at Wedbush.

Thanks very much.

Mike, if I could start by following up on your answer about orders being pushed back or there being some pushback on orders.

Do you think there's more of an inventory management thing or are the retailers trying to get product closer to need?

I think the trend has been getting orders closer to need.

Everything's going.

It's really -- orders are being on.

There's nothing here except sometimes having a cut-off date and retailers taking the goods more toward the end of the cut-off date as opposed to the beginning of the cut-off date.

Jeff, I guess I would just add is coming out of March, just to put the -- everybody's got short memories.

Coming out of March, if you remember how horrific comps were coming out of March for the department store sector in particular, minus 15, minus 10, minus 12, there was a pushback particularly in that period of time.

When business started -- began to improve the first three weeks of April in particular, both department stores and ourselves, there was a pull-in of the goods.

So clearly, we felt that there was a two-week period there, where the orders that we were expecting to go in the beginning of March -- beginning of April or the end of March really didn't happen until April 15th.

And when you're giving 60 days terms and you're giving -- it just was a roll-back throughout the whole day.

That I think was the basic issue.

Great.

That's helpful.

Manny, if you could address on the dress furnishings business, it sounds like the business is doing very well.

Are you seeing changes in buying patterns in terms of what the customer is buying or are they not really changing despite the economy.

I'm going to just give one point of view, is on dress furnishings, it tends to be counter-cyclical to a downturn.

Gentlemen tend to buy two or three dress shirts and some neckwear at $30 each as opposed to a $400 or $500 suit.

That has always been historically what's gone on in our dress shirt business and we see that trend continuing, so we're actually comping positive in dress shirts throughout our business.

Allen will talk about what's going on from a merchandising point of view.

From a product perspective, in our moderate brands, particularly Van Heusen and Arrow, we have a very strong position in the core side and replenishment side of the business.

We think that's that's the strength of the brand.

It's also the value of the brand.

On the higher end, though, in our fashion brands, Calvin, Kenneth Cole, we're seeing the interest in the fashion side of the business.

So we think that it's properly segmented to the brand equities and that's the way we own the inventory and we're seeing the kinds of sales that we had planned when we sold the assortments in.

Okay.

Great.

Thanks.

And then Mike, just a quick question on the tax rate.

You had said previously kind of a 36.5 to 37% for the full year.

Is that still an appropriate assumption?

Yes, it is, Jeff.

The first and second quarter will be more in the 38 range, 37 to 38.

And then for the balance, the second half of the year will be lower, we still are looking at about 36.5 to 37% for the full year.

Great.

Thanks very much and good luck.

Next question goes to Emily Shanks at Lehman Brothers.

Hi, good morning.

Just a couple of quick follow-up questions.

It looks like interest on the P&L was just a bit higher on a quarter-over-quarter basis, the absolute dollar amount.

Are there any one-time items in that?

You broke up.

Could you just repeat it again?

You said interest?

Apologies.

The interest expense looks like it was a little bit higher this quarter.

And I was just curious if there was any one-time items in there.

Pam is going to talk about it.

For the first quarter, we were higher by about $2 million.

That was pretty much 50% due to the fact that we had used $200 million of our cash in the fourth quarter to complete our buyback program.

So we had lower cash balances.

In addition, the average interest income rate that we earned on the remaining cash balance was about 1.5 to 2% lower and that was responsible for the other $1 million.

So it really is a function, we pretty much operate with fixed debt so our gross interest expense component is pretty much flat.

The variation in our net interest expense really is driven by earned interest income, which moves both on balances and rate.

Okay.

That's very helpful.

And then just one last follow-up question.

With the credit market stabilizing, particularly the high yield market, would you consider refinancing those 7 1/4s that become callable in June, should the economics warrant it?

If the economics warrant it, absolutely.

Again, we really have to depend -- it would be a combination of both the rate, terms and the covenant benefits that we potentially would get, considering the fact that when we did those two notes, it was in connection with the Calvin Klein acquisition, we were a much more levered, highly levered company with a much more -- with a different balance sheet and a different profile.

So clearly, we think there would be benefits to refinance them that are both earnings-driven and covenant relief benefits would come with it.

Thank you.

We'll go next to David Glick at Buckingham Research.

Good morning.

Congratulations on the quarter.

Most of my questions have been answered.

Manny, a little color on the Calvin Klein specialty stores, some of the lessons you've learned, some of the successes, some of the things you'd like to improve upon, your feeling on the store size, just a little bit of color on kind of what you've learned so far.

Sure.

I guess, on a couple of things.

I'll start with store size.

Our belief going in was for a test, as a marketing vehicle, is that we felt that we wanted to have a position that we could really showcase the brand in a way that would present product in the best possible way and the store's tend to average between 9,000 and 10,000 square feet.

As an economic model, that's probably too big, maybe 25% too large, I would think, except in some of the best, most productive malls.

Overall I think the right size for the store is probably closer to seven but I think what they are and to really do appropriate test, to be able to test the product categories, to see what really would work in order to have those all presented in the store.

And as you learn what works and what doesn't and tailoring the mix down, I think you could tailor the size of the stores down.

To start with a 7,500 square foot store with the hope of getting to one I don't think would have worked.

I think you really need to have the merchandise in there to see what would be more productive in a specialty store environment.

Secondly, the other lesson we learned, I guess, if I had a crystal ball, don't open stores in the middle of a downturn in a recession in specialty environment.

That's just the reality.

Traffic is clearly down in mall-based retailers.

I mean everyone you talk to is dealing with it in different ways.

We're being impacted by it.

And we're learning from it and dealing with it.

So I think as this starts to turn around, I would expect to see some improvement.

We're learning about store location within the mall, where it works best, what our better co-tenancies are be best to be next to.

So I think those are all positive learnings going forward.

We continue -- I continue to feel very positive about the stores as a concept, but until we can -- but I assure everyone, until we can demonstrate that we can make the economics work in those stores, we will not go beyond 10 stores.

So they are right now a marketing showcase, there'll be a loss associated with them that's in the numbers, very manageable.

And we'll deal with it and we will not roll any out, I don't foresee us opening any in 2009 and before we commit to open any, we would have to see a change in the direction of the sales trends.

Great.

Thanks a lot, Manny, and good luck for the rest of the year.

We'll next go to Susan Sansbury at Miller Tabak.

Hi.

Thanks very much.

Manny or Allen, I wonder if you could touch on backlog and how the retailers are feeling.

I think you mentioned that you control license or manage five of the six largest brands out there.

Calvin Klein continues to do very well.

There's no argument about that.

But if you put your pulse on some of these major retailers at this point, can you give us any insights in terms of how they feel about their business, whether they continue to plan it down and can you -- I mean, to look forward into spring '09?

I guess it's hard to speak for the retailers.

It's a very liquid environment.

Obviously, the retailers are very trend-sensitive.

When their trends are off, they will project forward.

Virtually every major retailer has tailored their assortments for the back half of the year to a much more conservative level.

In some of our businesses it requires adjusting the open to buy, particularly on the sportswear side.

On the dress furnishings side, it's a lot easier for us to manage the ebb and flow because of our in stock position and our stock replenishments.

But if someone said to me, how are retailers projecting themselves, I think they're being very careful and very judicious with their inventory projections for the back half of the year.

And everyone is hopeful that they'll be able to optimize the inventory they have and get the highest AUR they can, but in the real world we know that there's a certain amount of promotion required to bring the customers to the store, which is critical to the sale.

I guess the only thing I would add, Susan, is that I think Allen said it perfectly, from that point of view, quantifying it a little bit is I would just say is I think for the most part every retailer I talk to is planning their sales for the second half something flat to up one to down one.

I mean, I think probably put everybody in that kind of a realm.

I think what's important to remember is they were probably planning their overall sales up last year at that same time for the second half.

With new stores and LYO stores and comps, they were probably planning a 4 to 5% increase and what they actually got for that same period of time was probably a 4 to 5% decrease.

So I think what's clearly happened is the open to buy dollars have shrunk for that change, somewhere between 5 and 10%, depending on the brand, depending on your trend and what's going on.

We feel we factored all that in.

We have the projections from them.

We've aligned our inventory and our sales estimates with that.

And I think -- that's -- it's one thing that I would point to, given those projections, that makes me feel more comfortable as we go into the second half of the year that I really do believe inventories are going to be in significantly better position which should translate into both higher margins for retailers and less margin support for us.

So that's to be demonstrated and how much promotions will be necessary, as Allen said, to drive the consumer into the store is always a question.

But I think we clearly provided for that and we tried to factor that into our sales estimates and that's why they're not as aggressive as they've been historically.

Okay.

Great.

So your backlog, your fashion backlog, your non-replenishment backlog is consistent with what you've just described as how the retailers have planned their business?

That's correct.

And I would say it's being planned down somewhere between 5 and 7%.

Okay.

Great.

Manny, second question, I don't mean to put you on the spot, but --

That's why I get the big bucks.

Okay.

I'll go ahead and do it.

You mentioned that the end of your comments that you were cautious about your projections in the first quarter and did not flow through everything.

Can you amplify on what that means or what you were trying to impart?

Did you increase allowances -- ?

No, it's as simple as, I don't mean to make it too simplistic, it's simple as we beat the first quarter by, I guess, at the top end by $0.03, at the bottom end $0.05 -- if I'm off $0.01, I'm not sure, whatever -- and we only took the guidance up by $0.04.

The reason for that is, given the environment, where we are, it's the first quarter, we've got nine months ahead of us, it just didn't seem prudent to start raising guidance when seems like everyone else on the street and retailers are actually pulling back.

So just didn't seem prudent at this time.

It's a contingency against where we -- what we said and hopefully we'll overdeliver against that.

We took a little bit out of second quarter, we took a little bit out of the back end of the year.

For no specific point of view, except to just say let's husband some of this upside until I get more visibility.

Okay.

I just -- I didn't mean to imply that there was an agenda there.

I just was a little bit curious.

You're doing a fabulous job, so I'm sure you will meet -- certainly meet but probably beat expectations.

So best of luck for the balance of the year.

(OPERATOR INSTRUCTIONS).

We'll go to Clark Orsky at KDP Investment Advisors.

Please go ahead.

Just had a quick question on the guidance.

It looks like part of the improvement is better margins in the legacy business versus what you thought before.

Is that just from a rebound in sales that you talked about?

I think, Clark, we're planning pretty much consistent with where we've been.

I think the only change has been is that the -- I think you're relating to is -- we always had planned that the first quarter would be under more pressure from a margin, from an operating margin point of view so we had planned that to be more of a hit.

And the rationale for that really has to do with the inventory position, both at overall at retail, we've just didn't feel it was in line, and we feel it's much more in line today.

Retail meaning department stores, our customer base, the world at large.

So that's why we feel like the 200 basis point decline we had will be closer to 130 to 150 basis points for the balance.

Okay.

Thanks.

And Michael, can you tell me with the D&A was for the quarter?

Sure.

D&A for the quarter was about $13 million.

13?

13.

Thanks.

Mr.

Chirico, we have no other questions in the queue at this time so I'd like to turn the call back to you for any closing comments, sir.

Okay.

Well thank everyone for joining us on the call and we look forward to speaking with you on our second quarter call.

Have a great day.

Thank you.

That does conclude the call.

We do appreciate your participation.

At this time, you may disconnect.

Thank you.