PVH Corp (PVH) 2009 Q1 法說會逐字稿

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At this time, I would like to turn the conference over the your host, Mr.

Emanuel Chirico.

Please go ahead, sir.

Thank you very much.

Good morning, everyone.

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

Given the difficult envi -- external environment that we are dealing with we were pleased with our first quarter earnings that came in at $0.53 per share and exceeded our previous guidance.

Mike will quantify the financial results for us for the first quarter after my comments and I am going just try to put some color on to each of our business segments.

Let me start with Calvin Klein licensing.

For the first quarter, royalties came in ahead of plan and were about flat with the prior year.

In constant dollars our royalties were up about 5%.

Both our international business as well as our US business was up about 5%.

Operating margins increased slightly in the quarter to 47.6%.

Looking at our largest licensing categories, our Warnaco jeans and underwear had a good quarter.

Warnaco's royalties were flat for the first quarter.

On a constant dollar basis, Warnaco sales were up about 5%.

The US jeans and underwear business for the quarter were up 4%, while the international jeans and underwear businesses were ahead about 5% in the quarter.

Warnaco's international comp sales increased about 4% in the quarter overall and they have increased their 2009 projection for retail square footage growth about 20% to 120,000 square feet.

Moving to our fragrance business, which continues to be our most challenged Calvin Klein business.

In the first quarter, total fragrance royalties were down about 20%.

The two primary channels of distribution for this product are high-end US department stores and travel retail, particularly duty free airport shops.

Both of these distribution channels are being negatively impacted by the global recession and a significant reduction in travel, international travel overall.

I will talk about a little later the Coty of the number of new initiatives planned for the second half of the year, some new product launches and some new marketing campaigns that they feel will bring the business out.

But we are projecting at least for the next two quarters that this negative sales trend will continue.

In the US, our licensing partner G-III is continuing to post strong sales in the men's and women's outerwear category, as well as very strong sales growth in women's dresses.

Both of these categories ran ahead of plan for the quarter.

Royalties for G-III for the quarter were ahead about 20%.

In addition, G-III has -- has had their first deliveries of the women's sportswear product.

They took the license over from our former partner, Keelwood and the initial reaction to the product has been very positive.

The positioning on the floor from a price positioning and from a merchandising point of view has been very well received by the consumer and our customers.

We are anticipating some growth in doors in the second half of the year based on the initial results of the launch.

So we are feeling a category that had significantly underperformed for us for a number of quart -- for a number of years is in a position to start to build back over the next couple of -- couple of years as we go forward.

Our men's and women's footwear licensee, JIMLAR, continues to post strong growth also.

The men's and women's footwear sales are ahead about 30% in the quarter.

We continue to benefit from a continuation of the door roll-out, as well as comp store growth in the first quarter on a door by door basis.

Let me move to our combined wholesale and retail business.

Results for this segment came also in ahead of plan for the quarter.

Revenues in the first quarter were down about 8%.

At retail our comp stores for the quarter were down about 8% with our heritage brands posting a minus 5% comp against last year's minus 4% comp store increase.

Our Calvin Klein retail comps ran down about 12% for the first quarter versus last year's 11% comp store increase in the first quarter.

Operating margins came in on plan.

Combined wholesale and retail businesses' operating margins were down about 400 basis points driven by planned promotional selling and a deleveraging of the operating expenses resulting from the planned sales declines at wholesale and retail.

We continued our very aggressively to manage -- manage inventory levels.

At quarter-end our inventories were very clean both at retail and on our balance sheet.

We made an investment in dress shirt inventory to put ourselves in a strong position to fill in EDI orders going forward.

So we made an investment about -- of about $9 million in that inventory year-over-year.

That's a combination of the new Tommy Hilfiger business, which will begin in June of this year that we'll start shipping, and an increase in pivot stocks and back up stocks in order to support the strength of the dress shirt business going forward.

As we look out to 2009, we are planning the business realistically based on current trends.

Our plans assume that the negative sales trends will continue through the third quarter with a leveling off in the fourth quarter of this year when we begin to anniversary our most difficult business trends.

Given the performance that we had in the first quarter, although it was better than planned, it continues to be -- the environment continues to be challenging.

As we look at business on a week to week basis, it is not as consistent as we would like it to be.

So, given that, before we think about taking up second half sales estimates, we would like to see another quarter worth of business and see if the consistency of the performance, both at our retail partners and at our retail stores.

We have a number of new product launches planned for the second half of the year, starting with Calvin Klein in jeans.

We will be launching our Calvin Klein body dual gender jeans in the fall of 2009.

The launch will be supported by a major marketing campaign featuring Eva Mendez and Jamie Downing.

We are not only launching the product dual gender, but it is also being launched across all geographies at the same time.

So we believe this will be an exciting platform for us to deliver the message of newness and innovation in Calvin Klein jeans.

In the fall, we are also having a major underwear campaign.

We will launch a dual gender campaign, Calvin Klein white and Calvin Klein the black, which will also feature Eva Mendez and Jamie Downing.

This will be our first dual gender marketing champaign supporting both jeans and the underwear categories.

Both of these campaigns will be high exposure and, true to our brands' DNA, they will be sexually charged.

The fore marketing spend for these complimentary campaigns will be significant and we believe will be a major driver of business in the second half of the year.

In September, Coty will launch a new men's fragrance under the CK franchise.

It will be supported by a large media spend.

The fragrance is target to a younger male customer.

This will be a big internet push.

Sampling and other media spend beyond the traditional print category.

Additionally in the fall, Coty will be relaunching the Euphoria women's and men's line, which is by far our largest and their largest franchise in the portfolio.

The belief that Coty is, they want to get behind a proven winner with their marketing dollars in order to solidify sales for the second half of the year.

Finally, I would like to just touch on a major marketing promotional campaign that we have going on with our IZOD brand.

Our IZOD brand has entered into a five year agreement with the Indy Racing League as their official apparel sponsor.

We are activating this relationship with the Macy's department stores throughout the racing season, which runs from April through October.

We will have significant regional presentations in stores, coupled with the regional races throughout the country.

The highlight of this year's event is the Indianapolis 500 race this weekend.

In celebration of that race and the motor speedway's 100th anniversary, IZOD, Indy and Macy's are presenting a three week museum quality retrospective exhibit in Macy's Herald Square store, featuring one of a kind art and historical racing cars.

The exhibit was capped off this Monday and Tuesday with an international photo opportunity of the complete field of drivers.

We closed down Broadway to showcase the drivers for the Indy event.

We had personal appearances at the stores by some of the racing legends on Tuesday, Al Unser, Jr., Rick Mears.

In addition, this weekend we are sponsoring the 2000 Indy 500 rookie of the year, Ryan Hunter Ray as part of the campaign.

Ryan and his car will showcase the IZOD logo at the Indy race.

We will also have a major advertising campaign going on in May that is centered around Sunday's Indianapolis 500 race.

The campaign as a major print outdoor cinema television components.

Highlighting the campaign are six national spots that will be featured on the Indianapolis 500 race this Sunday on ABC Network.

We are making significant marketing campaign.

We believe the Indy -- Indy race is -- is in line with our marketing of the IZOD -- the IZOD brand.

We like the relations with Indy and we love the idea of activating thing relationship with Macy's and showcasing product and marketing and memorabilia in their stores over the next four months.

So it is a great partnership and we believe you will see more and more of it as the season goes on.

And with that I am going to turn the call over to Mike Shaffer to, our CFO, to quantify some of the results.

Thanks, Manny.

My following comments include non-GAAP results, which are reconciled in our press release.

EPS for the first quarter was $0.53, was $0.03 higher than the top end of our previous guidance.

This increase was primarily a function of revenues.

Revenues for the first quarter were $557 million, approximately $17 million over the top end of our guidance.

Revenues for our combined wholesale retail businesses, as well as our Calvin Klein licensing business, were ahead of plan.

We ended the quarter with cash at $282 million, a $98 million increase over the prior year.

Inventories were on plan at $281 million, a 5% decrease to the prior year.

Receivables were also very clean and current with the 4% reduct -- 14% reduction to the prior year.

As we look forward, we are continuing to feel the pressure from the difficult economic environment and have projected these difficult trends to continue for the second and third quarters.

The fourth quarter is projected to show some improvements in trends.

Our revenue guidance for the year remains unchanged at $2.00 -- $2.3 billion to $2.33 billion, a 3 to 4 point decrease to the prior year.

Our wholesale and retail businesses are planned to decline 3% to 4%.

Our outlet comp store sales are estimated to decline 6% to 7%.

Calvin Klein royalties for the year are projected to be flat and reflect royalty growth on a constant currency basis of 4%, offset by $9 million to $12 million of foreign currency translation impact due to a stronger US dollar.

Total Calvin Klein licensing revenues are planned to be down approximately 3% to 4%, as we plan to collect less advertising revenues in 2009 as a result of less discretionary spending this year versus last year by our licensees.

As a reminder, advertising revenues for Calvin Klein are shown as revenue and a like amount as expense in SG&A.

They have no effect on the EBIT line.

Operating margins for the Calvin Klein licensing are projected to be up 150 to 200 basis points and flat to the prior year in dollars.

As a result of our first quarter performance and a conservative view for the balance of the year, we have raised the low end of our full year earnings per share guidance.

Our full year EPS guidance is now $2.05 to $2.30.

Full year 2009 cash flow continues to be projected at $65 million to $75 million and reflects capital spending of $40 million.

We continue to be prudent in our spending as we continue to invest in our businesses.

For the second quarter, our earnings per share is estimated to be $0.35 to $0.45.

Total revenues for the second quarter are planned down 3% to 5% to the prior year.

Our wholesale and retail businesses are estimated to be down 2% to 4%, with retail comps down 7% to 9% to the prior year.

Our wholesale and retail gross margin for the second quarter is planned down between 100 to 150 basis points, reflecting the current promotional environment.

Our wholesale and retail expenses for the second quarter are estimated to be relatively flat in dollars.

Expense reductions associated with our restructuring programs will be more impactful and more felt in the second half of the year.

Calvin Klein royalty revenues for the second quarter are planned at minus 2% to minus 4%.

On a constant currency basis Calvin Klein revenues will be up 4% to the prior year offset by $3 million to $4 million of foreign currency translation impact due to a stronger US dollar.

Our operating margins in Calvin Klein for the second quarter will be relatively flat to the prior year.

And with that we will open it up for questions.

(Operator Instructions) We will take our first question from Chi Lee with Morgan Stanley.

Hi, good morning, guys.

Good morning.

Manny, you had mentioned inconsistency in performance.

Could you just elaborate on that a little bit (inaudible - technical difficulty) consistency by region, is it by product class?

It is by region and it is by -- and it is by week.

I think the issue that's out there is April is, just to put it -- give an example, April started very strongly.

In the middle of the month it softened and then it strengthened again toward the end of the month.

So it is just a -- an inconsistency.

So we talk about our comps as minus 8, but we had weeks that were plus 5 and we had weeks that were minus 15 in the quarter.

So it is -- there's just trying to build a consistency in order to get more confidence as you go out to project and have visibility on the year, I think there's clearly a stabilization of the sales declines.

So I believe we found the bottom from the sales declines point of view, but it is still -- it's still not as consistent as you would like to see it in order to have confidence to build that projection off of that.

On a regional basis, it is more of the same.

For us our southern stores are under more pressure.

Anything that's near -- near the borders, be it Texas, New Mexico, Arizona, southern California, Florida, those categories seem much more under pressure.

A lot of that driven by international tourism or lack of, the strengthening of the dollar has really impacted those businesses dramatically.

In the southern United States and even the northern borders that border Canada, we have a core group of stores that have been -- that were comping double digit increases that are now comping double digit declines and we believe a lot of that has to do with the strengthening of the dollar.

Great.

And then on the (inaudible - technical difficulty) margins up (inaudible - technical difficulty) from 5200 can you just break the key drivers of that, how much can really(inaudible - technical difficulty), anymore detail there?

Sure.

You broke up a little but I think the question was going forward, the operating margin improvement that we are looking for.

We are planning top-line flat.

So clearly, the margin improvement coming out of expense savings, the biggest -- the biggest driver there is in the Calvin Klein area.

Total marketing spend year-over-year will probably be down somewhere in the $7 million to $9 million range.

And that is a combination of what we are collecting from all licensees.

There was more -- we did more discretionary marketing spend last year and also had the big marketing spend associated with the 40th anniversary of the Calvin Klein brand.

We, at this point in time, we are not planning to repeat that spend and that is what is driving down -- driving down the expense and improving the margins about 150 basis points for the year.

Great.

And you will see that much more in the second half of the year.

Great.

Thank you very much.

Our next question will come from Ben Rowbotham with Goldman Sachs.

Thank you.

Was hoping you might be able to provide a little bit more color on the first quarter revenue trend, specifically in the wholesale segment and where that upside came from.

If that was more customers chasing receipts or what really drove that.

Well, on the -- on the dress shirt side -- on the furnishing side of the business, which is significant EDI business, the better performance that we had was driven by replenishment goods and just filling in inventories at stores.

So that was clearly driven by point of sale.

In our sportswear business, the businesses are on -- are on plan and we did fill in some receipts.

There was some early taking of goods, which is a -- which is an excellent sign.

And by early taking I am talking about a week, which is always a positive sign that goods are being pulled into the stores to get them on the floor.

So all of -- all of our brands are well positioned on the floor from an inventory point of view and the flow is good.

So I can't really say to you one brand out -- one specific component out performed another.

Consistently our dress shift business has out performed, so I think that's -- that just has continued.

Thanks.

That's helpful.

And then as we look at the gross margins into the second quarter, looks like another quarter of pressure.

Given that some of the, within the wholesale channel at least, some of the large department stores are starting -- starting to show some upside on the gross margin line, when can we think about seeing an inflection point for you guys, particularly in the back half.

Just to put into context, though, through the first half of last year and into most of the third quarter of last year, our margins, on a business by business basis, weren't feeling that much pressure.

We continued to perform pretty highly.

So put it all together just based on the mix of business, we were down slightly in the first and second quarters, first quarter of last year and actually we were up in the second quarter of last year.

So I think we didn't feel some of the pain that a lot of people felt last year and we were up against that in the first half of the year.

I think our opportunity, I spoke about this a number of times on our conference calls and conferences, I think our opportunity is clearly in the third and fourth quarter of this year, the way we have the business planned.

But I think there's an opportunity to do better from a margin point of view if we are continuing to hit our top-line sales plan.

We-- our margins were off in the fourth quarter last year about 400 basis points.

That's where the opportunity really exists.

Got it.

And then -- and then on the distribution and sourcing costs side, I think on the last call you noted that you were firming up back half orders or what not but you did note that -- that costs were going to be down about 4% to 6%.

Is that still the case?

And is that in the guidance.

Yes.

One, it is the case and the cost -- the cost opportunity that is there coupled with the mark down opportunity is not fully reflected in the gross margins at this point.

So we will -- we'll -- it is really going to depend much more -- it is going to be less dependent on the costs and much more dependent on how promotionally environment and how clean the inventory stay at retail.

Makes sense.

Thanks so much and best of luck.

(Operator Instructions).

Our next question comes from Emily Shanks with Barclays Capital.

Hi.

Good morning.

I wanted to ask about your bonds that are coming due in 2011.

Hopefully you can hear me okay.

There's a lot of feedback on my end.

What about them?

I want to ask if specifically are you contemplating or would you contemplating -- contemplate refinancing those early through either new debt issue or perhaps some equity issuer.

Yes.

I think the likelihood is -- depending on the bond market and how it all comes together, I think we are seeing the bond market, based on dialogue we've had with our bankers, that it is opening up.

And given the environment, we would like to see that market stabilize more.

We are under no real pressure to do anything.

Our bonds come due in two years and we are also sitting -- we will end this year close to $400 million of cash on our book.

So clearly there's no pressure on us.

We are in an excellent position from that point of view to opportunistically refinance them as it makes sense and we clearly won't be one of the leaders going to market, but we will sit and wait and if the market was to strengthen, we might use that as an opportunity to lengthen maturities, strengthen our balance sheet even further than it is and put ourselves in a better position as we go forward, but right now we are just watching the market.

Given the stock at $27 to $30 a share, I am not a big believer in selling stock at this value.

I don't see any need for it absent a major acquisition, so I wouldn't want to use equity as a vehicle at this point.

Great.

Thank you.

Best of luck.

Thank you.

Our next question comes from Kate McShane with Citi Investment Research.

Hi.

Thank you.

Good morning.

Good morning, Kate.

I think that you said on the last call that you expected retail comp store sales to be down 10%, but they were down around 8% at your own stores.

Was that from better traffic, better prices or both?

It was, again, the traffic -- the traffic was slightly -- I guess it was a combination of both things, as in anything, Kate.

Traffic was better in the fourth -- in the first quarter than it was in the fourth quarter and better than we projected.

Our conversion rate and UPT at the store level was also better.

So when you put it all together it was a combination of those things for the -- for the first quarters.

Okay.

Great.

One thing that you also mentioned last quarter was about how you are changing some of the value propositions of your merchandise going forward.

For example, maybe offering more Marino wool sweaters in Q4 than cashmere sweaters.

Is that something that has been enacted so far in the first quarter and do you think customers are responding to that.

Yes, I think it -- not to the -- not to the degree that it will be enacted in the second half of the year.

There's clearly value and we've -- we recognize coming out of the box in this environment what's going on you need to entice the consumers.

So this -- there's a fair amount -- there's a lot of promotions going on, which is fine.

It is worked into our numbers.

The big benefit as we go through this will be less clearance in June and July to clear goods out and in the -- and in the fourth quarter as we go forward.

So I really think that that is the opportunity on margin.

There continues to be a lot of promotion.

I don't think the merchandise lines are as value pointed as we would like them to be or they will be for fall deliveries, but clearly there's value in the lines.

We significantly repositioned the Timberland line to get out at very sharp price points, opening price points for collection.

Significantly at $29.99 seems to be the magic price point for that brand.

We do significant volume when we are there.

So we know how to source those goods, position the goods on the floor at that price point, and make money both for our retail partners and ourselves.

So clearly we are moving toward that and I think you will see more of that on the Calvin line as we turn towards -- towards fall.

Okay.

Great.

And then my last question is just on inventory.

I know you had the inventory built for the Tommy shirt going into the second quarter and for some of your dress shirt business.

But ex those two items, would inventories have been down kind of at the level that they were at the end of the fourth quarter of down about 12%?

Yes.

I think -- well not -- here's where we'd be.

There's about round numbers, there's about $75 million of dress shirt inventories that are up approximately -- dress furnishings inventory that's up approximately $10 million.

If you -- and the $10 million about half of that is the new Tommy business and half of that is building higher levels of pivot stock to support our EDI business.

We believe we missed some sales opportunities last year during this period of time because we were chasing so many goods we wanted to build back, that back stock is basically all basic stock inventory.

So we think that's a good investment to capture the potential sales that can come in the second and third and fourth quarter above plan.

So we've made those investments.

If you take -- if you were to take the balance of the inventory, which is about -- which is about $200 million, we are down about 10% year-over-year in our retail and wholesale sportswear businesses.

So I think, given where the sales trends are, we are very happy with that and we made a conscious decision to invest in dress shirt inventory.

Okay.

Great.

Thank you so much.

Our next question comes from Evren Kopelman with JPMorgan.

Thanks.

Good morning.

Good morning.

Couple of questions on the retail side.

First on the -- can you give us an update on the store closures, how many you expect this year and next year and kind of what level of phasing should we expect from those again in '09 and then next year?

I am going to turn it over to Mike, who has got that detailed information about the number of stores.

For this year we are talking about 35 to 40 store closings.

And we will see those primarily towards the back half of the year.

And the second question was?

What's the loss associated with those stores?

Somewhere between $2.5 million to $3.5 million.

Okay.

Great.

And then given the inventories are in much better shape, are you seeing your gross margins in the retail segment beginning to level off and then the -- the margin pressures coming strictly from deleverage or are we still seeing gross margin pressure from the promotional environment?

Okay.

Depends.

If you are comparing it to the fourth quarter, clearly we are seeing -- we have seen an improvement in gross margins from the fourth quarter and the trends significant less clearance.

If you are comparing it to last year's first quarter, which was -- which was a pretty healthy quarter for us, our margins are down about a little over 100 basis points.

So against sequential trends, our margins are improving and we feel better that t That gives us an opportunity when we get to the third and fourth quarter of this year, but on a pure 12, you know, first quarter to first quarter basis given that the world was in a completely different situation last year, we are clean but we are being much more promotional to entice the customers into our stores.

That makes sense.

And finally on the retail side, as you are renewing leases, are you seeing better rents and if so can the savings be significant to your business this year or in 2010.

We are seeing as leases come up there are definitely opportunities to be had.

We are seeing savings, but the way we open our stores and the way the leases come up it is typically back half weighted.

So I think the real benefits will fall through 2010 not through 2009.

And I think the other opportunity, because we are being very cautious, is if we -- unless it is an A center where we are seeing the opportunities on lease term being a much short duration, going to 12 month leases and going to month to month leases or just shorter duration, which gives us more flexibility to just watch the market and what's happening, so we don't have to make a long-term decisions about stores.

Great.

And on the wholesale side, can you comment on how your fall orders, the volumes are looking year on year.

I will turn it to Al, Allen Sirkin is going to take that.

All of our orders going forward seem to be consistent with the retailers original projections for the year.

Most of the projections were from down 7% to 10% on commitments.

No retailers have changed their trend lines as of this date.

So we are in sync with their plans for the back half of the year.

We do have some opportunity that -- we do have some opportunities which will really be back-end weighted, it's really more of the spring 2010 opportunity, particularly with some of our moderate brands, be it Van Heusen, IZOD and Timberland, to expand some door penetration with some of our key accounts.

As those -- I think in this kind of environment, clearly the -- the retailers are seeing the value of national brands at very good retail values and that could be working towards our advantage.

We will probably see that benefit more in 2010, but with our January year-end we would get a nice shipping going into the month -- end of December into January.

And finally on the Calvin Klein on the fragrance side, can you talk about some of the initiatives in place to offset this sales decline?

Thanks.

Yes.

I guess I would start with by saying we -- we really spent a lot of time with our partner Coty and we have also looked at the industry.

I am not sure how many of you really follow it that closely, but if you look at Estee Lauder's results, if you look at some of the big houses' results, everybody's for the fourth quarter seems to be down somewhere in the 20% to 30% range if you run a large international business and that trend has continued into the first quarter with all the pressures that are going on around the world.

So clearly fragrance is a true consumer discretionary item.

It is also at the price points we are a luxury item and those categories are under pressure.

That being said, Calvin Klein is by far Coty's largest fragrance line and has some of the largest franchises in there with Euphoria, Eternity, CK, CK one.

So clearly they are making investments there from a marketing point of view.

I touched on in my opening comments the new launch of the men's fragrance for the second half of the year.

That will be seen much more internationally than domestically, since CK is such a strong international presence for us.

And domestically, in the US the decision we've made jointly was really to reinvest back into our strength, which is the Euphoria franchise.

Given the environment we are in, we believe that -- that's a much better spend for our marketing dollars to support our largest business.

So I think those are two areas that you will start to see.

The other thing -- the other phenomena that was going on is I think retailers were going through a significant destocking of inventories at retail, promoting down that inventory.

So as sales at point of sales were down in the mid teens, actual wholesale shipments were down closer to 20% to 25% as inventories were getting back in line at point of sale.

I believe we feel by the end of April going into May, after Mother's Day, that situation is under control now.

Inventories are at the appropriate levels, so we should just start to see sequentially some improvement in comparisons going forward.

So we believe Coty continues to invest in the Calvin Klein franchise from a marketing point of view, continues to invest in product innovation, and we think in a -- in a tough environment is doing as well as we could expect.

Thanks for all the color.

Thank you.

Our next question comes from Bob Drbul from Barclays Capital.

Hi, good morning.

Hi, Bobby.

Just a couple of questions, more on your retail stores.

Any geographic trends that you would call out and I guess specifically just thinking about Florida, California, anything like that?

Yes.

I touched on that before is the -- the businesses in southern California are tough and in Florida are tough.

Our comp comparisons there are down 400 to 500 basis points lower than the total trends.

Our border stores are a number -- are another area where we see more difficult business.

On the positive side, our business in the Midwest, in the northeast, particularly New York and throughout the northeast, and the southeast, excluding Florida, are out performing chain wide.

So, yes, it -- I think it is not much different, with the exception I think we, because of the outlet environment particularly with Calvin Klein, I think the border stores for us probably are a big component than most retailers, but I think if you spoke to most retailers, they would tell you their Florida and California stores are by far are their worst performing from a geographical point of view.

Got it.

And when you look at weather and how weather is impacting your business today versus, I don't know, a year ago or that -- I mean is there any difference or is it very similar?

Well, the outlook -- in this environment to start talking about weather I think I could get hung out to dry a little bit.

But the reality is it has been a much -- it's been a much cooler spring, particularly the last six weeks than it was this time last year.

And the business -- the business that's probably being most negatively impacted for us is our Bass footwear business, which is a big sandal driven business first -- for the -- beginning in April through July.

So I think we keep hoping for a little warmer trend in weather and I think we would see a pop in that business going forward, because we are up against some very strong performance at Bass for the first half of the year.

So that's what I would call out on weather.

All right.

Thank you very much.

Thanks, Bob.

Our next question comes from Omar Saad with Credit Suisse.

Hi, this is [Spencer Hill] with Credit Suisse in for Omar Saad.

I was hoping you could talk about a little more on inventories at retail, you mentioned they're very clean.

Are some of the stores starting to look bare, might have broken vises and just given that everyone's generally higher comp expectation for 4Q, are retailers going to need to restock a bit.

Are retailers even going to be willing to take that bet?

I think we -- look, we have not seen any -- any slow down in our EDI replenishment business.

I would have said to you in the fourth quarter last year, when we were out performing, that some of our retailers, trying to get inventory in control, shut the -- shut the pipeline down for periods of time in order to rebalance stock.

We haven't seen any of that have post Christmas.

So I don't believe that that is going on.

So I think we are getting our fair share of the sales as we go forward to replenish.

I think inventories are lower than they have been for the last nine months, which is a positive.

As far as isolated instances, there's clearly less clearance on the floor, which I think is going to be very healthy from a margin point of view, particularly for the retailers in the second quarter.

And if they keep their private label clean, we won't have to promote nearly as heavily as we had to promote in the July period last year.

So I am -- I'm pretty happy the way inventory has lined up and the way inventory has flowed.

So I haven't seen any instances of slow down.

Great, great.

And then just to clarify the reduction in Calvin Klein ad spend this year, this is essentially all driven by the 40th anniversary last year and that's been not recurring or are you and your license partners starting to pare back on other discretionary ad spends.

Well, I think it is a combination of the fact that some of -- it is some of the discretionary spending is lower, given the world that's going on.

Last year we spent, totally marketing the brand, about $250 million, so this year we are spending $242 million and what we are finding is it is much cheaper to buy ad space, television time, and outdoor billboards and cinema.

So clearly we don't think it is in anyway taking away from the intensity of the presentation to the consumer.

And we believe that we have a larger share of voice.

As far as I have seen and what I have heard in the market, particularly in fashion brands and particularly in apparel, there has been a much more dramatic pull back in advertising at our competitors than what we are talking about We are talking about a 2% to 3% pull back and I know the numbers that are being talked about are closer to 20% and 30% kind of pull back.

We think share of voice is going to be much greater for Calvin Klein.

There will be less clutter, particularly in the second half of the year, and just when I flip magazines I just don't see some of our competitors out there with the intensity that we are out there.

Great.

Great.

And just to follow up, could you quantify the reduction in advertising cost, that replacement that you are seeing in your business?

Roughly.

Are you talking about what's -- how much cheaper it is to buy ad space.

Exactly.

I -- no, I'm not going get into that.

Great.

Thanks very much.

Thank you.

Our next question comes from Jeff Mintz with Wedbush.

Thanks.

Manny, following up on the marketing, can you talk a little bit about the plans for marketing the heritage brands in the second half.

Yes, right now our marketing spend year-over-year is actually up about $1.5 million, just to put it into perspective.

We are not backing off of that spend.

And we are making investments similar to the -- we talked about the IZOD event.

We have significant marketing spend with Van Heusen with the National Football League.

We are partnering with JCPenney in that endeavor.

So you're go -- you will continue to see our heritage brands out front and center on a relative basis, although our sales are planned down on a relative basis compared to the compe -- to the competition.

We know we are gaining market share and we believe given the competitive landscape and our financ -- and the financial wherewithal we have given strength of our balance sheet and our overall performance, this is not the time to necessary pull back.

This is a time when you gain market share.

This is a time where you gain space at retail with your customers and this is a time that we want to capitalize on this difficult environment where we think a lot of our competitors are feeling a lot of pressure and we are just going after the business as aggressively as possible.

Okay.

Great.

Thanks.

And will you also comment on some of the changes taking place at Macy's and kind of what you see as the risk and opportunities for -- for your brands there?

Well, I think -- look, the Macy's situation, Macy's has talked about their consolidation.

Clearly when anybody goes through that -- the kind of consolidation and change that they are going through, I think they have done an outstanding job of managing through it, but it has to have some impact on your business.

And I think as they -- as they now -- their organization has really come together.

We've had a number of strategic meetings with them about our brands and about our positioning in the stores and that group has really come together.

I think you will see better and better performance out of Macy's going forward.

I think the opportunities for us as a large -- as a large resource for them dealing with one consolidated group who hasn't been seven or four regional groups that buy goods differently, make us more efficient.

I believe given the environment that we are in -- combination of their consolidation and just the environment that we are in, that the weaker players in our industry, some of the private companies that you just can't have confidence that they're going to be there next season, I think it is clearly a -- a shift toward the stronger players in the industries that will be there both for logistic support, will be there for financial support, will be there to make sure if there's any issue with inventory that will make those goods disappear.

So clearly I think that whole process over time is a benefit to a Company like Phillips-Van Heusen and we -- we see a direct correlation, a growth in our business with the Macy -- with the Macy's -- with a Macy's as our customer as we go into the fourth quarter and second -- and spring of next year.

Okay.

Great.

Thank very much and good luck.

(Operator Instructions).

Our next question is from David Glick with Buckingham Research.

Good morning.

Hi, David.

Just wanted to look beyond 2009 for a minute if we could, as you kind of work your way back to your historical earning power, clearly you have an opportunity for some margin recovery in your heritage businesses in wholesale and retail.

But if you are to return to that historic mid teens EPS growth, you are going to need to see some growth in the revenue line.

And I am just wondering where you stand today if you could just highlight the top two or three opportunities as you see them next year and beyond.

You just cited the growth with Macy's, but if you can just give us maybe a quick overview on where you see the opportunity sitting here today.

I think, David, I would say, cutting through it all, we have opportunities brand by brand, they gain market share and continue to move forward.

But I think if we are going to get back to our historical levels of operating margins of 13% to 14% overall, which we put up in 2005, 6, and 7, I think we need to -- we need some -- we need top-line growth, obviously.

And I think what we need in order to do that is we need the -- we need some help from the overall economy.

We are operating efficient.

We'll continue to challenge our SG&A expense line, but in order to get to leverage the SG&A expense line going forward, we can only -- you can't save yourself to success.

We are going to need to see some top-line growth and we are going to need some cooperation with the economy going forward.

We are not going to need 8%, 10% growth, but we are going to need to just see some basic comp store improvement in the low single digits, coupled with retailers buying into their sales plan that they get their inventories in line.

So it is too early to call how spring 2009 is going to be built.

But we will look at some of the new initiatives clearly, I think there's opportunities for Van Heusen to grow its sportswear business.

We believe the Timberland business could be a much larger business for us going forward, particularly at the price positioning it has today and our IZOD business, be it women's and other categories that we are in, we believe we can intensify that presentation going forward.

And clearly, look, the Calvin Klein business for us has consistently been, up until the fourth quarter of last year, top-line growth at 13% to 14%, bottom-line growth because of that that was closer to 25%.

We have got the headwinds of currency this year that's worth $10 million of -- of margin and top-line.

So clearly if we have that behind us, get some cooperation with the economy, I think over the next 18 months, we get back to those historical levels.

It is really just a function of rights of the world getting -- coming back to some level of normality.

Within Calvin Klein, Manny, what -- just remind us what you see as the, assuming the economy is better and we get beyond the FX headwinds, what are the top few opportunities in Calvin Klein to get that back in the double digit growth.

Well, I think, look, for us the is the biggest piece of it is on the licensing side, 60% of licensing income is coming from outside the United States.

There's clear -- there's clearly an opportunity to get back to the comp store kind of levels that put up.

I don't -- we are not planning for 15% to 20% comps or growth that was being experienced in '7 and '8, but we believe that we should get back to mid single digits.

Given that -- that kind of growth, the continued growth and white space that's available to open retail stores internationally, even in this difficult environment, our partners are Warnaco, Club 21 and some of our other international partners are opening stores aggressively in the face of a tough environment.

We are growing square footage about 20%.

I think when the world change -- comes back, that that growth could be more significant.

I am confident that we can get top-line growth back to Calvin Klein, take out the current -- if you just took out the currency this year, we would be close to about a 5% top-line growth.

And if you just added some normal -- whoa, we are back to 10% and at 10% that translates close to 20% to the bottom-line and that goes a long way, at 52% operating margins for that division, of bringing us, the overall Company, to a mid teens range of EBIT margins.

great.

Thanks a lot, Manny.

Good luck.

(Operator Instructions).

And we have no further questions at this time.

Okay.

Thank you very much.

We appreciate the time you put into this and we look forward to our conference call in where our results -- call in July -- August where we will have our second quarter results.

Everyone have a nice day.

This does conclude today's conference.

Thank you for joining.