PVH Corp (PVH) 2008 Q2 法說會逐字稿

Good day, everyone, and welcome to today's Phillips-Van Heusen Corporation's second-quarter 2008 earnings release conference call.

This webcast and conference call are being recorded on behalf of PVH and consist of copyright material.

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The information made available on this webcast and conference call contain certain forward-looking statements which reflect PVH's view of future events and financial performance as of August 21, 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.

The information made available also contains certain non-GAAP financial measures as defined under SEC rules.

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

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

Please go ahead, sir.

Thank you, Kim.

Good morning, everyone.

Joining me on the call today 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.

To take a step back, we were quite pleased with our second-quarter earnings release and results, particularly in light of the difficult retail environment that we are dealing with.

Let me start with the Calvin Klein licensing business.

Our Calvin Klein licensing business had an extraordinarily strong second quarter.

Royalty revenues increased 28% in the second quarter and operating revenues -- operating earnings grew over 47%.

Results were very strong across all geographic regions and virtually all product categories.

Royalty revenues grew internationally about 35%, while domestic business was up about 15%.

Mike Shaffer, our CFO, is going to quantify the details of the quarter.

What I would like to do for the licensing segment at Calvin Klein is focus on the first-half results to give you a perspective of the business.

When you look at the first half, overall revenues, royalty revenues, grew about 23%, and our operating earnings for the first half were up about 32%.

Overall, our operating margins through the first half of the year increased by about 300 basis points to over 53%.

Looking at our large businesses, I'm going to start with the Warnaco businesses.

Our jeans royalties for the first half were ahead a little bit more than 25%.

Our international jeans business was up 40%, while the US business was ahead slightly more than 10% for the first half of the year.

The US growth was driven by the women's jeans business, as well as the newly-launched plus size department store business.

Our international business was driven by strong performance throughout Europe, Asia and throughout the Americas.

Strong retail performance was fueled by comp store growth of over 20%, as well as continued expansion of our retail stores, particularly throughout Asia.

Moving to the underwear side of the business, royalty revenues for the first half were ahead over 20%.

The business grew in the US about 10%, while international growth was an impressive 35%.

The international growth was driven by the direct-to-consumer portion of the business.

This growth came from comp store growth of about 20% and the continued opening of new retail stores.

We saw continued strength on the men's side of the business from the success of our Steel launch, which has continued to benefit from an extremely strong product offering and amazing marketing campaign that features Djimon Hounsou throughout the first half of the year.

Just to remind everyone, Steel launched at the second half of last year.

It was a tremendously successful launch for us, and that momentum has just continued into the first half of this year.

The major news for fall is the launch of Seductive Comfort, which we believe will bring as much excitement to the women's business as Steel has done for the men's business.

The launch will be supported by a major marketing campaign featuring Eva Mendes.

The product offering and the marketing campaign has been received very strongly by our retail partners, there has been great marketing and PR buzz surrounding the campaign, and we think the marketing machine is working very well for us with this launch.

And we are very excited as we head into the third quarter, particularly around underwear.

The strength of Steel, coupled with the new launch, we think will continue to fuel the growth in the Calvin Klein underwear business.

Moving to Coty, our fragrance business, Coty for the year is ahead of plan and is up for the first three months -- for the first six months of the year about 3%.

That is very important when you consider we were planning this business down in the first half of the year because we were up against some major product launches.

In particular, the CKIN2U launch was in the spring of 2007.

That was a tremendously successful launch for us.

That franchise is over $100 million wholesale shipment business for us today.

So we are up against that launch.

That launch continues to be very strong.

And even being up against that launch, our business was ahead for the year about 3%.

Just to remind everyone, we are coming off of three years of 20% plus growth in our fragrance business, driven by new launches which started with the Euphoria, continued with CKIN2U last year, and for the second half of last year, Calvin Klein MAN launched.

For the fall, we have a major fragrance launch planned.

It is Secret Obsession.

The campaign also features Eva Mendes, and the advanced PR and media buzz surrounding the campaign has been outstanding.

It has been talked about throughout on the Internet.

There has been numerous articles written about our campaign.

It is a very risque campaign.

And given the excitement that is being built around this launch, we believe Secret Obsession will be a major launch for us for fall.

So we have high hopes for our fragrance business as we turn to the second half of the year, as well.

Moving to our other licensees, another one of our major licensees is GThree.

We just recently announced the signing of a new license agreement with GThree.

We've entered into the women's better sportswear license for the Americas.

They are taking over the Kellwood position on that business.

We believe that this is a major untapped opportunity for the brand.

GThree is a terrific partner.

They have a proven track record with the Calvin Klein brand.

To remind everyone, they are our licensee for women's dresses.

The women's dress business, which launched last year, is well ahead of all of our plans.

It is up against budget about 30% where we planned it, and it is up against the prior year, which was a partial year, it's up over 75%.

They are also our women's suit licensee, and that business is up 15% through the first half of the year.

They've done extraordinarily well positioning that product; the product offering is terrific.

They are our coat licensees for men's and for women's, and we have one of the largest coat positions in department stores with the Calvin Klein brand that they help to build.

And this year, they are also launching performance active sportswear on the women's side of the business.

So GThree has been a key strategic partner for us.

The agreement that we signed with them has provided them with new minimum royalties that they believe they can exceed.

But we are financially protected on that transaction, as Kellwood continues to be our financial backstop against the minimum royalties that they originally signed in their licensing agreement.

So from a financial point of view, we are in as good or better position than we were before the signing of this new license, and we have the opportunity with a very experienced Calvin Klein licensee who we have a great deal of confidence in to really build this business over the next five years to a business that we think can approach $200 million at wholesale.

So again, very happy about that business.

GThree has done an excellent job for us.

Another licensee that has performed extraordinarily well for us is Peerless.

They are our men's tailored clothing provider.

Their business through the first half of the year is up over 35%.

The tailored clothing business for us is very strong with Macy's; we have a major position there.

And we have new product offerings, a range of product at Dillard's, that has also been extremely strong for us.

So the business there continues to be very strong.

Continuing with Calvin Klein, on the businesses that we operate, our men's better sportswear business continues to perform exceedingly well.

Shipments and profits are ahead of plan in the prior year.

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

And that is measured on a sales per square foot basis and a maintained gross margin basis.

So that business continues to have momentum, continues to grow, and we feel very good about it.

Moving to our Calvin Klein outlet retail business, again, we had a very strong quarter with that business.

We continue to have great momentum there.

Our comps for the second quarter were up 9%.

Our comps in the first quarter were up about 10%.

Margins are well ahead of last year.

This business is one of our most profitable retail formats and is on the way to becoming our most profitable operating division.

These stores average sales per square foot of about $550 of sales per square foot, and in-store four-wall profitability of well in excess of 30%.

We currently operate a little bit more than 85 of these Calvin Klein outlet stores, and we believe the opportunity throughout the United States is close to 135 to 140.

We announced in our first quarter that we would be closing our Geoffrey Beene retail division, approximately 100 stores.

Of those 100 stores, 25 of those stores will be converted to the Calvin Klein format by year end.

The vast majority of those conversions will take place during the month of January.

The Geoffrey Beene liquidation and closedown is moving well ahead of plan.

It is going exceedingly well.

We are on target to open the Calvin Klein stores.

We believe by taking these 25 Geoffrey Beene stores and converting them to the Calvin Klein platform, we will accelerate the Calvin Klein growth and add to the profitability of what is our most profitable retail division.

Moving now to our heritage businesses, our heritage businesses in the United States continue to be impacted by the difficult environment.

Overall, our combined wholesale and retail business posted a 2% sales decline, and a 270 basis point decline in operating margins.

The operating margin contraction was due to slightly lower gross margin and a deleveraging of the operating expenses.

Speaking to the components of the legacy businesses, on the dress furnishings side of the business, we continue to perform very well at retail.

Our dress shirt and neckwear businesses at retail are running ahead on a comp store basis at all of our retail accounts.

The dress shirt component of our retail partners businesses, our major retailers, dress furnishings continues to be one of the best-performing departments on the floor.

For the most part, just about all of our retail accounts for the department are running positive comp store trends.

And our business throughout our major customers are running 200 to 300 basis points higher comp store trend in the dress shirt department.

So we are clearly driving the performance of dress shirts and neckwear throughout America.

Very strong performance at retail, both from a sales performance and a margin point of view.

During the second quarter, we did see some inventory management going on on the part of our retail partners.

We did see retailers tightly managing the inventory intake and attempting to balance their overall inventory position.

We saw about $8 million in sales that were planned to be shipped in the last 10 days of July that were actually shipped in the first five days of August.

So there was some rollover of goods, about $8 million.

We are monitoring this situation very closely and believe that this pushout is a one-time event.

It is not a pushout that will continue for the balance of the year.

We believe as we move into the second half, particularly with the back-to-school selling season and with the holiday selling season, that our performance is so strong that we really believe the retailers will be pulling the goods out at the beginning of the shipping windows as opposed to the end of the shipping windows.

We believe it is such a strong selling season, particularly for dress shirts, that we don't believe that we will see this pushout continue into the third quarter or fourth quarter.

The impact was about $8 million and would be about $8 million for the year.

But at this point in time, we don't see a slowdown going forward on that.

But it was something that we dealt with, we absorbed in the quarter, and were able to still deliver our earnings results.

On the wholesale sportswear side of the business, our sales plans are in line with our customers' reduced sales expectations and their reduced overall open-to-buy position.

With the exception of the Mervyn's and Boscov's Chapter 11 disruption, our wholesale sportswear business met their second-quarter sales plans and profit expectation.

So we are right on plan with where we felt we would be in our sportswear business.

We took those open-to-buy positions down and our sales expectations down with it.

And we are right on target to deliver our business as we go forward into the second half.

Our heritage branded outlet business continued to be a challenge for us in the second quarter.

We had planned our comp stores at about minus 2%.

Our actual comp store sales declined about 5% in the quarter.

That put pressure on our retail gross margins, and it also put significant pressure on our operating expenses with the delivering of expenses.

So when we look at our wholesale business, we came in slightly worse than we thought we would, but Calvin Klein more than made up for that shortfall in delivering our results.

I'd like to take a minute and talk about our marketing for our brands.

We continue to invest in our brands.

I think you see the Calvin Klein advertising everywhere, and I think you have also seen our heritage business continue to make the investment in our IZOD, Van Heusen and Arrow brand, as we continue to invest in those brands.

As we move into the second half of the year, our total second half of the year marketing spend is being planned flat 2007 versus 2008.

However, we are shifting $10 million, or $0.12, of our marketing spend into the third quarter.

There are a couple of major events that are going on that we needed to take advantage from a marketing point of view, and we made a decision over the last 60 days, particularly on our heritage brands, to invest in those venues to really support our brand development.

Some of the events were the Olympics.

Our heritage brands had a tremendous opportunity to make a very opportunistic media buy -- basically on television, some supporting print campaign with it -- but basically on television with Arrow, IZOD and Van Heusen, to really take advantage of this once-in-every-four-year event for the Summer Olympics.

We think we've gotten great marketing buzz, but also great PR buzz associated with the advertising.

We know it was the right decision for our brands to accelerate that expenditure into the third quarter, and we will be reducing our fourth-quarter expenditures at a similar amount.

In addition, this year, we are celebrating the Calvin Klein 40th anniversary celebration.

That is a major event for us.

It will take place during the month of September.

We have a number of events going on.

And it is targeted to be -- in association with the Fashion Week that will take place in September.

We also have a number of major product launches that I touched on for Calvin Klein, fragrance -- the Secret Obsession launch will be a major marketing campaign.

Seductive Comfort, our underwear campaign, both with Eva Mendes.

Those two launches will take place in the third quarter, as well.

We are putting the marketing dollars behind that.

And we're expanding our World of Calvin Klein event with Macy's.

That event will take place in the latter part of September.

It is being expanded to all Macy's doors from 300 doors last year.

So just in summary, our marketing spend for the year and for the second half is being planned flat, but we are shifting marketing dollars out of the fourth quarter and into the third quarter to the tune of about $10 million.

It impacts us about $0.12 per share in the third quarter, and it is the sole reason why our growth in the third quarter is not as advanced as we would have normally projected it to be, and why our advance in earnings-per-share for the fourth quarter is so advanced, with the $0.12 benefit that we will have there for reduced marketing spend.

And with that, I am going to turn it over to Mike Shaffer and I will come back with some closing comments on the opportunities and risks we see in the second half of the year.

Thanks, Manny.

The comments I am about to make include non-GAAP comparisons related to the Geoffrey Beene outlet store shutdown and are reconciled in our press release.

Let me begin by reviewing our results for the second quarter.

Our revenues for the quarter were up 2% to approximately $561 million.

Strong performance in our Calvin Klein licensing business, which was 30% ahead of last year, more than offset shortfalls in our combined wholesale and retail businesses.

Our combined wholesale and retail business revenues were down $11 million, or 2%, to the prior year as a result of the difficult economic climate, bankruptcies and negative heritage outlet comp store sales.

Our gross margin on sales for the combined wholesale and retail businesses was approximately flat to the prior year as a result of our tight inventory controls.

On a total Company basis, gross margin was up 190 basis points to the prior year, reflecting the benefit of the strong Calvin Klein licensing performance.

Operating expenses for the second quarter for the combined wholesale and retail businesses increased 250 basis points from the prior year and include startup costs of $5 million, as well as the deleveraging of expenses as a result of our sales declines.

Operating expenses for the total Company increased 240 basis points from the prior year, as the decrease in Calvin Klein operating expense margins in the quarter helped offset a portion of the increase in the wholesale and retail businesses.

Earnings for the quarter were $0.66, at the top end of our guidance.

From a segment point of view, the Calvin Klein licensing business delivered very strong operating income growth of 47%, while our combined wholesale and retail businesses posted operating profit declines to the prior year of 30%, the net effect of this being a decline in total operating income margins of 50 basis points versus the prior year.

As we look forward, we are maintaining our guidance for the year at $3.32 to $3.41.

Our revenues for the year are projected to be $2.56 billion to $2.58 billion, approximately 6% greater than the prior year.

The revenue increase is being driven by the Calvin Klein licensing businesses, which is planned to increase 15% for the year.

Our combined wholesale and retail businesses are planned to increase 3% to 5% for the full year.

This increase reflects the additional revenue from the Timberland men's better sportswear business, which was launched mid-year 2008, a full year of IZOD women's wholesale sportswear sales, along with the sales benefit from the annualization of the Calvin Klein specialty stores opened last year, plus the specialty stores opened this year.

On the retail side, revenue projections are based on legacy comp store sales projected at minus 3 to minus 4 for the year, and our Calvin Klein comp stores planned at plus 8% for the year.

Operating margins for the year for the total Company are planned to decreased 60 to 80 basis points, with Calvin Klein operating margins increasing 260 to 280 basis points and our combined wholesale and retail businesses declining 100 to 130 basis points, driven by sales declines and the deleveraging of expenses.

As we look to the third quarter, earnings per share is projected at $1.07 to $1.13, an increase of 2% to 8% versus the prior year.

Third-quarter revenues are projected at $730 million to $740 million, or 5% to 6% greater than the prior year.

For the third quarter, we are projecting our Calvin Klein licensing business to have revenue growth of 9% to 11% and our combined wholesale and retail business to grow between 2% and 4%.

Comp store sales for the third quarter are projected at minus 2 to minus 3 for our legacy outlets and plus 7 for Calvin Klein outlets.

Third-quarter gross margin for the Company is expected to increase 70 to 90 basis points, driven by Calvin Klein licensing growth, which carries a 100% gross margin, coupled with an increase in the combined wholesale and retail business gross margin of 60 to 80 basis points, as sell-throughs for our products remain above our plan.

A significant impact to the third quarter results is a shift of $10 million, or approximately $0.12, of advertising spending from the fourth quarter into the third quarter versus last year.

This third-quarter increase is supporting planned activities surrounding the celebration of Calvin Klein's 40th anniversary in September, as well as having made opportunistic media purchases for our legacy brands during the Olympics.

As a result, income margins for the third quarter for the total Company will decrease 180 to 200 basis points, driven by similar declines in the operating margins in both the combined wholesale and retail business, as well as declines in the Calvin Klein licensing business.

Overall, our marketing spend for the second half of 2008 will remain relatively flat.

I would like to point out that we continue to plan our tax rate for the year at 36.5% to 37%.

In the third quarter, we expect our tax rate to decline to 32.5% to 33% as a result of certain discrete tax items that we recognized in the quarter.

Lastly, we continue, even in this difficult environment, to maintain our cash flow projections at $80 million to $90 million for the year and project to end 2008 with approximately $350 million in cash.

And with that, let me turn the call back to Manny.

Thanks, Mike.

What I would like to do is just put the business and the guidance into some type of perspective, to really just talk about the risks and opportunity associated with the guidance.

When we look at the Calvin Klein licensing business, revenues for the first half of the year, royalty revenues, were up about 23%.

We are planning the second half at a rate of 10% growth overall.

Given the trend of the business, there is clearly opportunity to do better than our current estimate that is out there.

We believe it is a conservative estimate.

We believe in the first half there are a number of things that won't anniversary and that we are up with some of our licensing partners against much stronger business and some product launches last year.

But on balance, there is clearly upside against the royalty revenues.

Somewhere, I think, [around] 10%; we could be closer to 15%, when you take it all in.

And I think that clearly gives us upside against any risk that we might have in our heritage businesses.

And to talk about that, let me just speak about our dress furnishing business.

I mentioned how strong the business is at retail.

We continue to feel good about how that business is performing; our platform and our operating platform there works very well.

Our sales projections are in the second half is that the wholesale shipments will grow 2% to 4%.

That is totally in line with our retail partners' projection of what they see for sales for back-to-school and the holiday selling season.

So we really see minimal risk when we look at the dress furnishing business.

On the wholesale sportswear side of the business, our new launches, both Timberland and IZOD women's, are having strong reception at retail.

The IZOD women's business now has a full 12 months' worth of results, and the performance has been very strong at retail.

Continue to get good results there.

And our Timberland business, which just launched, the reaction to the product has been positive.

The initial selling -- we had a small launch with the product associated with Father's Day -- was very, very positive.

But again, we are just beginning to ship those goods.

But that business seems to be off to a good start in a tough environment.

Our heritage sportswear businesses are being planned down for the second half about 3% to 4%.

That is in line with our retailers' plans -- orders, with their planned bookings.

And we've been on plan with these businesses throughout the year.

We are looking for some improvement in the fourth quarter.

I think that is being driven by a couple of things, particularly that we are anniversarying much tougher business last year's fourth quarter with our sportswear business.

We began to feel the pain of last year's results in the fourth quarter with orders being reduced.

So we think we really have a much easier comparison there.

But even overall, looking at the second half, we are being planned down 3% to 4%, and we think there is minimal risk against our wholesale sportswear.

On our heritage outlet business, year-to-date comps are minus 5%.

They have been pretty consistent, give or take 50 basis points, from the first quarter to the second quarter.

We are planning that business at about minus 2% to minus 3% for the balance of the year.

The improvement is being driven off our belief that we will do better in the second half because our comparisons are much easier in the second half of the year, particularly beginning at the last week of August.

Just to put it into perspective, our prior-year first-half comps overall for our heritage businesses were up about 2.5%, and our prior-year second-half comps were down about 2.5%.

That 500 basis point swing in business we believe should give us some improvement in the trend of comps.

We are not looking to get it all.

We are looking to get about half of it.

So we are taking our trends from minus 5% to about minus 2.5%.

Initial selling in August has improved somewhat over second-quarter results.

Our trend is about minus 3 right now, and we really have not anniversaried the easier comparisons.

That will begin starting next week.

So more to follow there.

When we look at our heritage businesses, whatever risk that we might see there, we see the Calvin Klein business having the opportunity to offset most of that -- if not all of that.

So we feel very good how we have the business planned for the second half of the year.

We believe our numbers are very achievable.

We do recognize when you look at the bottom line earnings per share, we are looking for substantial growth in the fourth quarter and not as much growth in the third quarter.

But the entirety of that differential is the $0.12 or $10 million marketing spend that we are accelerating into the third quarter.

If marketing spend was at the same levels in this year's third quarter as last year's third quarter, we would be looking for 15% to 20% earnings growth in the third quarter and a similar amount in the fourth quarter.

And the only real variance that you are seeing such improvement in the fourth quarter is driven by that $0.12 a share shift in marketing associated with our brand.

With that, I would like to turn the floor open for any questions.

So Kim, if you can.

(Operator Instructions) Jennifer Black, Jennifer Black Associates.

Good morning, and congratulations on doing very well in a tough environment.

I wondered if you could talk about White Label.

You have not spoken about the White Label stores.

And then I have about a follow-up question.

Sure.

We have 10 stores open as of today.

That was all planned, to open 10 Calvin Klein specialty stores.

This year -- the openings this year have outperformed our prior-year openings.

Five stores reopened this year.

Three of those stores are on the West Coast, one store is in Miami, and one store is in Las Vegas.

We believe the quality of the real estate on the second-tier stores is better, positioning in the mall is better.

The stores are slightly -- this year's stores are slightly smaller.

They average close to 8500 square feet, which we believe is more or less the right size for the stores.

We've seen some improvement in the stores, particularly in the second quarter of this year.

They are averaging close to, all-in the 10 stores, about $400.

They are trending towards $400 in sales per square foot.

We are still underperforming our original pro forma.

But we are learning a lot.

We think the stores are really presenting the White Label merchandise and really providing us with a showcase for the brand.

And, we believe as we go forward that we will see continued comp store ramp up.

So I this point, we are feeling good about those stores.

Our plan calls for us to potentially open five stores next year.

We are being very cautious about that in this environment.

And we will look only at some of the best real estate in America before we do that.

I would think that we are probably more in line that we would open one to three stores next year, and continue experimenting and understanding that format.

We think it is a format that long-term will work for us and we think it is terrific for the brand to have that presence at [regular] retail.

Great.

And then my follow-up question is how long will it take for you to do the conversion of the Geoffrey Beene stores to Calvin Klein?

What is realistic?

And are there other stores in the heritage businesses that you could do the same thing with?

We will be converting the 25 stores all in the fourth quarter.

About four of those stores will convert early fourth quarter.

The balance will convert in the end of January.

In order to efficiently move through Geoffrey Beene inventory and get our most value for the liquidation, it is best to be in a position with the stores through the Christmas holiday selling season.

So we are right on target, right on plan.

But from a profit opportunity, you really have to look at those stores as a 2009 event as we go forward.

When you look at our other three legacy businesses, Bass, Van Heusen and IZOD, those are proven retail strategies for us.

We don't believe we see any opportunity to convert or downsize those stores to create opportunity for Calvin Klein.

By the end of this year, we will be operating about 110 Calvin Klein outlet stores.

We believe there is an opportunity to get close to 140, and I think we'll get there over the next three years.

So I believe that will be by expanding real estate as opposed to converting our existing store base.

Great.

Thank you very much.

Good luck.

Robby Ohmes, Merrill Lynch.

Thanks.

Just a couple quick questions.

Manny, can you tell us how big the Timberland men's launch was or is expected to be for this year?

And also, can you update us on the women's launch?

Is it still on track for spring '09?

And then my third question was just if you can remind us on share repurchase versus acquisitions, sort of where the priorities look right now for you guys.

Thanks.

The Timberland launch this year, we originally talked about $30 million to $35 million -- $25 million to $30 million.

We will be closer to $40 million this year on launch.

We are able to recoup some additional doors with Macy's and some of our other retail partners.

So we are really happy about how that is proceeding.

The IZOD women's business continues -- the Timberland women's business continues to be a concept for us and continues to be a focus for spring 2009.

It has always been -- 2010 -- I'm sorry, Robbie.

It has always been 2010, and that is our goal right now, is to launch 2010.

The share repurchase, look, we are going to generate somewhere around $80 million to $90 million in cash this year, and that is after making some significant investment in our infrastructure and doing a small acquisition in the neckwear area.

I believe what we would like to do with our cash is to really focus on strategic acquisitions.

That would continue to be our first priority.

But I have been pretty consistent to say we are not going to be a bank and just hold cash as a stockpile.

So we will look at our capital structure as the year progresses, particularly into the second half, first half of next year -- first half of next year.

We will look at what the M&A pipeline looks like at that time, and if we see opportunities, and then along with our Board, we will make a decision about a share repurchase plan.

We completed a $200 million share repurchase plan in the first quarter of last year, and we would look at that same opportunity, given our timeframe this year, to see what would be appropriate given the environment.

Got it.

Thanks a lot.

Emily Shanks, Lehman Brothers.

Good morning.

Thank you for taking the question.

Very nice quarter.

A couple of follow-up items.

Can you tell us what D&A was for the quarter?

For the second quarter, D&A was approximately $14 million.

I'm sorry, how much?

$14 million.

Thank you.

And in terms of the EBIT hit from exiting Geoffrey Beene at [$8.6] million, [$8.7] million, can you give us a sense of what portion was cash versus non-cash?

For this quarter, we took a significant charge on the assets.

So for this quarter, I would say -- on the write-off of the asset.

So I would say approximately $2 million to $3 million was cash for the quarter.

Great.

That's helpful.

And then finally, can you comment at all, Manny, around what your sense is of international tourism potentially influencing either the CK outlet as well as the retail stores?

I know there are only a few of those.

In certain parts of the country -- New York, Florida and Las Vegas, to a degree -- tourism seems to be strong, from an international point of view.

And more importantly, with the dollar-euro -- and some of the other currency differentials, you can clearly see that international tourists are shopping, and they are shopping with their bags open and their wallets open.

So that is -- in certain markets, it is significant.

Less so for our specialty stores, more so for our outlet stores, which tend to be located in tourist destinations, areas like Orlando and Vegas.

So I would say we see it there.

And we also see it in our collection business in New York, on Madison Avenue.

That business continues to be very strong for us in our Madison Avenue store, and tourists come in, and we think a substantial portion of that business is driving our sales, as well.

Would you say, though, that there is still an underlying demand away from international tourism?

You know, I am just not close -- I don't want to sound like an expert when it comes to that.

I can only talk about how it is impacting our business.

I really can't speak to tourism statistics in general.

I can tell you that traffic is down in the outlet centers and it is down most specialty retailers.

I believe that is probably driven -- the vast, vast majority of that is being driven by US tourism being down, people not getting in their cars and traveling as frequently, and just the demands that people have on them with the price of gas or whatever.

So I think we are clearly seeing in our outlet stores -- in our legacy business, our comp store trend of minus 5, our traffic is about the same level on about minus 5.

We have counters in a fair number of our stores, and based on that, I'd just say footsteps coming into the stores are less.

Great.

That's really helpful.

Thank you very much.

Kate McShane, Citi.

Two quick questions.

Could you give us a little bit more detail behind the monthly comps for Calvin Klein?

Because I think you stated last conference call that the Calvin Klein retail comps started the quarter up 11, but they ended up around 9%.

I was wondering if you could give a little bit more detail around that.

And then on the balance sheet, receivables were [up] around 14% during quarter, and I think we've seen receivables picking up now for the last several quarters.

Could you give a little more detail behind that, as well?

Sure.

I'll take the first question and turn the other one over to Mike.

Getting pretty granular on Calvin, the trend, I guess through the first three weeks of May, I guess, was a plus 11.

And I guess -- we did see some softness in July overall; when I say softness, in all of our retail businesses.

It continued to be positive; I think Calvin was probably about plus 8.

But then for the first three weeks of August, it has been closer to plus 12.

So you have to be careful about school return dates -- that impact -- and vacation scheduling.

So there are a number of issues.

But on balance, the trend in Calvin Klein has been between 8% and 12% pretty consistently month to month for the first half of the year.

And on the receivables, Kate, we do see an increase in receivables.

It is up about 14%.

I can tell you we took a charge in the quarter for our two customers who declared bankruptcy, Chapter 11.

Our receivables are very clean.

We don't see a delay in payments.

More of -- the balance increase is primarily driven by the timing of shipments.

Okay.

Thank you.

(Operator Instructions) Benjamin Rowbotham, Goldman Sachs.

Thanks.

Manny, I was hoping you might be able to talk a little bit about traffic.

I know you noted that your stores do have counters in them, and you were saying it was sort of flattish -- I'm sorry -- slightly down in the last quarter.

When you look at the easing comparisons coming up, do you expect those to pick up more from traffic or more on the ticket side?

Thanks.

Okay.

I think our traffic in our stores is down about minus 4%.

Overall, our comps are down about minus 5%.

And again, we don't have counters in every store.

So I think the conclusions we've been drawing pretty consistently are the comp store declines are being driven predominantly by lack of traffic in the outlet centers.

I think that has been pretty consistently stated by most other retailers in that channel.

As we go forward, it is clear that when you look at last year's comp store performance, it was all driven also by traffic.

The plus 2.5% comp store trend that we saw in the first half of the year was driven by better traffic in the centers and the minus 2.5% that we saw last year was driven by less traffic in the centers.

So we are expecting the softness at retail that we experienced last year's second half that was basically traffic driven to just be an easier comparison to where we were.

So we think it is very much in line -- traffic is what is driving the comp store performance.\

Great.

And then if you could maybe give us a little bit of color on where the inventories are at within that channel, given that gross margins are expected to pick up, and your certainty around that number.

I think it was cited at 60 to 80 basis points.

Absolutely.

Our inventories -- I guess our inventories when you take out the new businesses overall are down about 5%, and our retail inventories relating to the outlet business are down closer to 8%.

So we are much cleaner.

We are really managing the gross margin dollars.

And not only are we cleaner on dollars and units, we are cleaner from the seasonality point of view.

Less percentage goods carrying over -- beginning of month September, our Spring inventories will be significantly below where they were at that time last year.

So from -- the quality, quantity of inventory in the outlet channel is much better, and that gives us a confidence that there is an opportunity on the gross margin line to even do better in that channel of distribution as we go forward, particularly if we hit our sales planned, that there is opportunity on the gross margin line.

Great.

That's good to hear.

And finally, with regard to Mervyn's and Boscov's, there is no other charges left to be had there in terms of reserving for anything on a go-forward basis, correct?

No.

We took our best estimate of what we thought the collection against those receivables would be, and we are in good position there.

Thanks.

Best of luck.

Bob Drbul, Lehman Brothers.

Good morning.

The questions that I have, first, Manny, on the IZOD business, with American Living and JCPenney, have you seen any major impact on that business within that particular store?

Well, when we planned the business with Penney's, Penney's was very strategic with us to make sure we didn't lose open-to-buy position or position on the floor.

The IZOD brand was one brand that was clearly focused on to continue.

I guess I would say JCPenney's business has been tough in general, and the American Living business -- I don't think I'm saying anything -- I don't like to talk about my competition -- but that business has been tough.

And it has manifested itself, from a competitive point of view, of that there is a significant liquidation throughout the second quarter of inventory going on at JCPenney at significantly reduced price points.

So the American Living goods are going out the door at a lower retail than was being planned.

And I think that is putting pressure on the competitive set.

But the IZOD AURs continue to be above last year's.

Our performance at Penney's continues to be very strong in all categories, women's and on our men's sportswear side of the business.

And licensing products, including kids', that business -- and we compete with American Living on every side.

So I don't want to say we haven't felt anything or we are clearly dealing with it, and it has been disruptive from a promotional cadence point of view.

But our AURs are up, and we are right on plan with Penney's from a maintained margin and a sales plan.

So it is a competitor that we clearly watch and monitor, again.

The other question I have is just on markdown support, when you look at the first half of this year versus the first half of last year and your assumptions for the second half of this year versus the second half of last year, has it changed dramatically in terms of what you expected the markdown support you need to be?

And when you think about it in the back half of the year, do you think that you have allocated enough dollars from that perspective or is there risk or you've been very conservative with that, as well?

Okay.

Bob, I think we reacted pretty quickly to the sales trends that we saw in the second half of last year -- beginning in the third quarter of last year.

So I think where we took it on the chin, to put it bluntly, is on the sales line.

I think we looked at plans, we worked with our retail partners and we made sure we got the inventories in line with the sales expectation.

And if we had any pain associated with that, it was in the wholesale shipments.

And it has been reflected -- it has reflected itself on the sales line as we go forward.

Our gross margin and our allowance performance and maintained margins at retail have been very good, because we've kept our inventories clean and haven't been put into that situation.

I would say to you as we got our inventories in line, the support was heavier in the first quarter than in the second quarter, because the inventories came in line as we came out of the holiday season.

And with inventories being significantly in better position, that retail -- our inventories in department stores are down somewhere between, depending on the brand, 5% to 12%.

Inventory levels significantly cleaner than last year.

So we are rightfully planning for some improvement in the margin support from last year, because we had a much higher sales plan last year at retail that just didn't materialize for anyone.

And we are expecting higher AURs and somewhat less promotional selling going on the second half of the year.

And I think we have been seeing that for now the last four months at department stores.

Great.

And then just one final question, Manny.

On the marketing spend, as you go into the fourth quarter, how much discretion are you willing to use in terms of the marketing dollar investment that you make, if the environment remains as difficult as it is today?

I guess, Bob, if you are asking me do we have levers -- you always have levers on managing expenses, if things were to get tougher than anticipated, to potentially play if business goes forward.

I think that there is $2 million to $3 million just in the fourth quarter alone, just with our heritage brands, that we -- if we chose, if things got very tough, we could choose not to spend.

But at this point in time, we are committed to spend those dollars and we will continue to support the brand.

So I think that's kind of the number you are looking at.

Anything further, questioner?

I think he is done.

(Operator Instructions) Omar Saad, Credit Suisse.

Good morning.

I wanted to talk to you guys about the US dollar.

It looks like it is starting to stabilize and strengthen here.

And something probably we haven't done as good a job of in the past understanding kind of the foreign currency impact on your business.

I know from the Calvin Klein piece, a big chunk of the royalty revenues are coming from overseas.

And maybe you could help us understand what that impact has been over the last year or two, and how it could look going forward if the dollar strengthens further.

Okay.

The net impact to us, because we have licensing income and we also have international expenses, for the first half of the year was $3 million to $4 million.

And in the second half, we are projecting $2 million to $3 million of benefit that we have received this year going forward.

And it tends to be -- the focus on currencies tends to be the euro.

And I think when the euro was going up, it was -- to some degree, it was definitely impacting our business -- I'm not saying that.

But there was an overemphasis on it because we do have a number of currencies we are dealing with.

And some of those currencies all moved and were appreciated, but not to the level of the euro.

And that is the impact of it.

I think on balance, we would like to see -- if you're asking -- I would like to see the dollar stabilize and appreciate further, because I think it would benefit us from a sourcing point of view.

Because I think the flip side, which is very hard to quantify, is that obviously the weakness of the dollar has had impacts throughout the supply chain, and we will start to see that with product costs beginning in the fourth quarter, but more dramatically for Spring 2009.

So as the dollar strengthens, I think it softens some of that.

But clearly, that is an area where we are starting to look at it.

That was my next question, on the inflation on input costs.

I know for a lot of the apparel guys, the weaker dollar has hurt kind of the input costs.

But it sounds like that has been the case for you, as well.

I think we are all dealing with an increase in product sourcing costs driven by -- you can put them in (inaudible) -- the currency strength of foreign currencies against the dollar; the commodity costs, starting with oil and moving to raw materials and piece goods, which are all being impacted.

And dealing with all of the social issues and what is going on in China from a factory point of view, with a number of factories that have closed, and the pressures that are going on around the world.

So clearly, we are seeing product cost increases for Spring 2009.

I would characterize them that on average, it will be in the 3% to 6% range for product cost.

Our goal is, depending on the product category and depending on the brand, to take our MSRPs up and to try to promote off of a higher MSRP and to increase our average unit retails out the door.

That could be a challenge in this environment, so clearly, next year, we might see some gross margin pressure.

But I think it is manageable in light of where we are, my diverse sourcing mix.

And the ability, particularly in some of our brands, particularly Calvin Klein, to really pass along the price increases.

Helpful.

One last question, on the acquisition front, Manny, what are your views there now?

Heard your name come up a couple different times out there in the marketplace.

Do you think now is a good time to be buying some of these brands that might be for sale out there?

Are you still looking for kind of strategic bolt-on acquisitions?

Or given the environment, are you going to take the pedal off the gas and stay focused on your business?

I think -- again, if you can find the right acquisition and the right brand, this is a great time to make an acquisition -- if you have a balance sheet that is strong and you have cash and clearly have debt capacity to make acquisitions.

We continue to be active and looking.

We're not taking the foot off the gas.

But we are also being disciplined.

And valuations and what people believe their businesses are worth have not come in line with where valuations are today.

So that is an ongoing challenge.

I think the market is more active in looking and seeing more opportunities.

But you really haven't seen a whole lot of acquisitions announced either.

So there is a lot of disciplined approach going on.

We are being very disciplined at the things we do look at.

And it has to make strategic sense, and it has to be a strong brand that fits into our portfolio.

Great.

Thanks a lot.

I still have several questions.

Are you able to take those?

We will take three more and try to finish up in the next 5 to 10 minutes.

Sean Naughton, Piper Jaffray.

I have a quick question on the sourcing.

You were discussing possibly 3% to 6% on product costs overall, depending on which particular product.

Is it possible to break out -- are you seeing higher inflation costs on the footwear versus the apparel for next year?

We see -- with leather, leather is a major challenge.

And there is a good portion of our lines and footwear that is totally leather-based.

And that is where we are seeing -- that is probably one of the areas where there is the greatest inflation going on.

Our exposure in the footwear area, Bass represents just about 10% of our volume.

About 40% of that is done in apparel and accessories.

So on an overall basis for us as a Company, it is a challenge for the Bass brand, but it is not that significant an issue for us overall.

Okay.

And then a question on the outlet business.

From a regional standpoint, have you seen any new areas coming under stress domestically?

Clearly, people have talked about Florida, California and some of the housing impacted states.

But are there new areas that you are seeing some additional challenges on the heritage businesses?

No.

The toughest markets continue to be Florida and Southern California.

And that continues.

We've actually seen some improvement in those markets in the last 45 days, but I think part of that is we are just up against a softer business.

Okay.

And then finally, the CK license for the women's better sportswear, you said that could potentially a $200 million wholesale brand.

Where is that currently today, and what type of growth rate could potentially be in that?

That business today is about a $40 million business.

It is very underdeveloped.

And I think given -- I think it is possible to get to $150 million to $200 million over the next five years.

Great.

Thanks for taking my questions.

Brad Stephens, Morgan, Keegan.

Two questions for you.

First of all, could you give us some color on the merchandise margin assumptions for Q3 and Q4?

And then just within the channels of wholesale and retail, and the puts and takes year over year.

And then second, on your dress shirts and dress furnishings segment, what you are seeing going on there, given a soft employment picture, are you seeing trading down, or any other color you could give?

On the margins, Mike, we are planning our gross margins on a business-by-business basis up about 10 to 30 basis points.

I think we're being pretty conservative there, given the cleanliness of the inventory.

That is about where we are seeing plan -- business plan.

Your second question, I'm sorry --

The dress shirt and dress furnishings, you have a variety of price points.

Are you seeing people trade down?

What are you seeing in that channel?

I'm going to turn it to Allen Sirkin to --.

We are seeing strength across all channels in all customers.

Our three largest accounts, Macy's, JCPenney and Kohl's, are all enjoying significant increases in business.

And that does span the specter mode, moderate priced brands to the better priced brands.

So we are seeing actually in the dress furnishings category outperformance for the store and to the men's categories.

Is there any trading down within that?

We don't see it.

We see our core brands performing well, and we see our better brands performing well.

Calvin Klein, Kenneth Cole, the new launch of DKNY, everywhere you go in our inventory of brands, we are seeing positive performance.

All right.

Thanks, guys.

That is all the questions we have today.

Mr.

Chirico, I will turn the conference back to you for any additional or closing remarks.

Thank you very much.

I thank you all for joining us, and we look forward to speaking to you on our third-quarter press release.

Have a great day.

That does conclude our conference call today.

Thank you all for your participation.