PVH Corp (PVH) 2009 Q4 法說會逐字稿

Good morning and welcome to the Phillips-Van Heusen fourth quarter and year-end 2009 earnings conference call.

Today's call is being recorded.

At this time, I would like to turn the call over to Pamela Hootkin, VP -- pardon me -- PVH Senior Vice President and Treasurer and Investor Relations.

Please go ahead.

Thank you and good morning.

Please be advised this webcast and conference call is being recorded on behalf of PVH and consists of copyrighted material.

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

Your participation in the question-and-answer session constitutes your consent to having any comments or statements you make appear on any transcript or broadcast of this call.

The information made available on this webcast and conference call includes forward-looking statements that reflect our view as of March 22nd, 2010, of future events and financial performance, including that of our proposed acquisition of Tommy Hilfiger.

Any such events in performance is subject to risks and uncertainties indicated in our SEC filings.

Our future results of operations could differ materially from historical results, or current expectations.

We do not undertake any obligation to update publicly any forward-looking statements including without limitation, any estimate regarding revenues or earnings.

This information -- the information made available also includes certain non-GAAP financial measures as defined under SEC rules.

A reconciliation of these measures is included in our earnings release which can be found on our Web site, www.PVH.com, and in our current report on Form 8-K which was furnished to the SEC in advance of this call.

At this time, it is my pleasure to turn over the call to Manny Chirico, Chairman and CEO of Phillips-Van Heusen.

Thank you, Pam.

Joining me on the call are Mike Shaffer, our CFO and Pam Hootkin, our Treasurer and Investor Relations point person.

We are quite pleased with fourth quarter results which significantly exceeded our previously guidance.

Let me -- I will start the discussion with the Calvin Klein licensing business.

Overall our royalty revenues in the quarter were up over 20%, operating income in the quarter increased about $4 million or about 11%.

We had strong growth in Jeans, underwear, fragrance, women's sportswear, dresses and the outerwear categories.

I will try to put some color on each of our large businesses, both for the quarter and for the year.

Let me start with our Calvin Klein jeans business.

Full year sales were up about 6%.

That growth continues to be fueled by our international business.

The success of the Calvin Klein jeans business is due in large part to growth of retail square footage internationally, and the ongoing introduction of innovative new product supported by compelling global marketing campaigns.

During the year, we successfully introduced the Body Jean.

The concept was launched globally to a coordinated worldwide marketing campaign.

In 2010, we will build on the strength of the Body Jean concept with the spring introduction of whitewash Body Jean, followed by X Body for the fall.

The response globally to both introduction has been exceptional, and we are excited by the revenue opportunities associated with both of these campaigns.

For the year revenue in the Calvin Klein underwear business was up about 2%.

Every international region posted constant dollar revenue increases.

The US revenue was down reflecting the difficult market in the US department stores.

However in the fourth quarters revenue increased about 10% over the prior year.

Looking ahead, we were very -- we are very enthusiastic -- about our new initiatives for 2010.

Warnaco will continue to grow retail square footage and expand internationally.

But the excitement is in product and marketing.

We are planning to increase the marketing budgets to support both our men's launch Calvin Klein X in the spring and our women's launch Envy in the fall.

Bookings for both of these initiatives are up substantially versus prior launches.

Calvin Klein X is being supported with traditional advertising of print and outdoor and is supplemented with exciting digital component.

We will have a presence on Facebook and YouTube and we expect the films featuring a diverse cast of American and international actors and athletes will get extensive play and will likely be a viral hit.

The campaign broke in early March and is getting quite a lot of buzz already.

With the strength of new product, increased marketing spend, and the use of new medias as well as a continued expansion of retail square footage, we expect double digit revenue growth for Calvin Klein underwear in 2010.

For the fourth quarter overall we saw Warnaco's royalty revenues grow about 20%.

Moving to our fragrance business which has our most challenged business in the first half of the year, we have seen a significant improvement in sales trends, with total fragrance royalties up almost 20% in the fourth quarter.

We have seen a great response, particularly internationally to the new CK Free men's fragrance and our large fragrance franchises, Euphoria, CK and Eternity are all seeing positive sales momentum and restocking of inventory levels at all points of retail.

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 strong growth in women's dresses.

Both of these categories ran ahead of plan for quarter.

Royalties for the quarter were up over 30%.

Our men's and women's footwear licensing Gemlar recorded strong sales growth for the year and that trend has continued into the fourth quarter, as we benefited from a continuation of door growth as well as comp store growth in comp doors in the fourth quarter.

Let me move on to our combined wholesale and retail businesses.

Sales in earnings exceeded our expectation.

Overall sales for the combined segment were up about 10% in the fourth quarter.

Overall gross margins in the fourth quarter increased about 450 basis points, that improvement was driven by cleaner inventories, less promotional selling and a significant reduction in post-Christmas clearance sale.

Operating income margins for the combined wholesale and retail segment improved to 10% in the fourth quarter.

Sales and margins were higher than planned in all of our major businesses; sportswear, dress furnishings and retail.

Let me focus now on our retail business.

At retail our comp store sales for the quarter were plus 11%, well ahead of our guidance of plus 3%.

We have seen a steady improvement in our comp store sales trends, and this strong positive sales trends has continued into the third week of March with comps up about 12% for the first quarter to date.

Moving on to wholesale, the story is very similar.

Overall, all of our wholesale businesses continued to outperform their retail sales plan and continue to take market share away from our competitors.

Our market share gains are most visible in the dress furnishings area, where we have seen our department and chain store share of departments, dress shirt market growth from 35% in 2007 to over 45% in 2009.

Our market share gains in neckwear have been similar during that same period of time where our market share has grown well over 50% in department stores.

The gains in these two furnishings categories have come from new labels such as Tommy Hilfiger, DKNY, Jerry Garcia and Joseph Abboud, as well as strong sales growth from our major brands -- Van Heusen, Calvin Klein, Geoffrey Beene, Arrow, Kenneth Cole and Chaps.

We believe we will continue to see strong sales and market share gains into 2010 as our spring sales plans are all being planned up with our key retail partners.

In neckwear we have reached an agreement with Wal-Mart to take over the running of their neckwear business, that should begin by the mid second quarter.

We will begin to ship goods to Wal-Mart starting in May of this year.

In sportswear, we are seeing growth in all of our branded businesses.

Our spring and fall sales plans for IZOD, Van Heusen, Timberland, Arrow and Kenneth Cole are projected up at all our major accounts including Macy's JCPenney, Belk's and Kohl's.

I'm just going to spend a moment on making a few comments on Tommy Hilfiger.

The plans for that acquisition continue to be right on target.

We have begun the financing process and are beginning to continue to meet on the road to -- with our key bank lenders.

We expect that transition will close some time in the second quarter of 2010.

We are -- we continue to plan for immediate earnings accretion for fiscal 2010.

We would expect EPS accretion of between $0.20 to $0.25 a share.

That assumes a mid second quarter closing.

And for fiscal year 2011, we would expect EPS accretion of between $0.75 to $1-- that's the first full year of the transaction.

With that I am going to turn it over to Mike Shaffer our Chief Financial Officer.

Thanks, Manny.

The comments I'm about to make include non-GAAP results and comparisons.

Please refer to the Press Release for reconciliation of the non-GAAP measures.

Total revenues grew approximately 10% in the fourth quarter to $615 million.

Our Calvin Klein licensing business registered royalty revenue growth of 22% driven by strong performance in almost all categories.

Our combined wholesale and retail business revenues were up 10%, reflecting strong performance in our dress furnishings and outlet retail businesses.

Our outlet store comps were plus 11% for the quarter with strong performances in both our Calvin Klein and our legacy divisions.

Our earnings per share were $0.61 for the quarter versus last year's $0.30.

Driving this increase was the strong revenue increases in our businesses, coupled with strong gross margin increases across all our divisions, which totaled approximately 500 basis points as a result of the heavy promotional selling our stores and our customers experienced, during last year's financial crisis.

Also benefiting the quarter was the strength in our Calvin Klein licensing business, which operated at a 55% operating margin.

On the balance sheet, our inventories are very clean and down 7% to the prior year.

Our receivables are also very clean and down 2% to the prior year.

Cash flow in 2009 was approximately $150 million.

The following guidance excludes the effects of the Tommy Hilfiger acquisition and assumes the Company continues on a stand alone basis.

For the full year 2010 we are planning our earnings per share to be $3.20 to $3.28.

This reflects approximately a 15% increase over the prior year.

Our overall revenues are projected to grow 3% to 4% for the year.

I am going to try to lay out some of the key assumptions we have made in our guidance for 2010.

Calvin Klein licensing royalty revenue is projected to grow between 5% to 7% over the prior year, with operating margins planned to increase 250 to 300 basis points.

Our wholesale apparel and retail revenues are planned to grow about 3% to 4%.

Comp sales are planned at plus 2% to plus 3%, and our wholesale and retail businesses will see operating margin expansion of about 100 basis points.

For the first quarter we are looking at EPS of $0.73 to $0.75 which is an increase of approximately 40% over the prior year.

Revenues are planned at $590 million to $600 million.

This is a 6% to 8% increase over the prior year.

Calvin Klein royalty revenues are projected to increase 6% to 7% and revenue for our combined wholesale and retail businesses is projected to increase 6% to 8%.

Our outlook comps for the year are planned at plus 6% to plus 7%.

And with that, we'll open the call up to questions.

(Operator Instructions) We will take our first question from Chris Kim, JPMorgan.

Hi.

Good morning, everyone.

Hello.

So, the trend in the first quarter to date sounds like there is somewhat of a delta to your revenue guidance the first quarter and full year, so, it sounds like there's some level of conservatism baked in.

But is there any reason to believe that this current trend couldn't continue, I guess to that, what are you seeing in terms of the risk tolerance to inventory at some of your larger, non-replenishment wholesale accounts?

Sure.

Let me take the first part.

The comp trend, the plus 12%, I think we have, we believe our projections are relatively conservative.

The only unknown out there right now is the earlier Easter this year compared to last year and how March and April come together, it is always a challenge for any retailer or wholesaler to plan.

But given the trends in the business, we feel very positive about both our retail and our wholesale businesses right now.

Looking at inventory levels, we have been playing catch up for the last I guess seven or eight months when it has come to inventory -- flying goods in earlier, bringing -- accelerating shipments, moving inventory deliveries up anywhere from 30 to 60 days and that trend has continued into the first quarter.

We are in relatively good position with inventory with all of our major accounts and at our store levels we should be in excellent position beginning BOM -- beginning of the month -- for May 1st.

So I don't think inventory will be a problem at all for us as we have been able to logistically stay on top of it and keep ahead of the trend.

Okay.

Just regarding the $40 million in cost synergies you highlighted regarding the acquisition, is that all back office related or what other opportunities are there beyond that, from a distribution consolidation basis, in the US, or systems --.

At this point, Chris we are very conservative that we maintain or exceed the $40 million cost to back off the synergies that we outlined are principally based in North America.

Okay.

And then -- Was there any revenue synergy embedded in your guidance?

There are none embedded in the guidance.

That would be more of a 2011 and beyond.

But clearly we think there's opportunity for our IZOD, Arrow and Van Heusen brands, particularly throughout Europe.

And focusing on the Tommy Hilfiger platform, we believe it gives us the opportunity to potentially grow those businesses with the expertise that are in place.

That is something that we have not quantified or tried to put into our guidance as we've gone forward.

Great.

Thanks so much and best of luck with the closing of the acquisition.

Thanks Chris.

We will take our next question from [Helena Say], Banc of America/Merrill Lynch.

Hey, guys, just to quickly follow up, can you maybe talk about the opportunities you see for the Tommy US wholesale business in terms of maximizing that top line -- just given your platform at Macy's and I have a second follow up question after that.

Sure.

We have focused on the -- look, the Tommy organization has done an outstanding job with the brand, repositioned it throughout the United States, focused in on Macy's account and they have targeted a number of categories including accessories, kids footwear, and growth on the women's side in particular, and potentially on the jean's overall in the store.

So when we met with Macy's about -- now it is about a month ago -- when we talked about the brand and positioning in the store and what they felt about the business -- they felt there were significant opportunities with the brand to expand it and over time, be it over a three year period -- to double the size of the business with the Macy's account that's there today.

We think there's plenty of opportunity for growth in some of the existing categories but also in new categories they're not in right now.

That's great.

Then my second question is just to talk about maybe more of just your core US wholesale, in terms of the acceleration in the fourth quarter.

Can you maybe help us quantify, the -- between the timing shift that benefited for the fourth quarter versus share gains and the acceleration you are seeing in business, and maybe just talk about whether you are going to see any timing shifts for the first quarter.

I think we have, for the fourth quarter, it goes back a couple of months -- we originally took the fourth quarter up when we initially gave guidance for the fourth quarter -- we took it up about $20 million that was driven by this constant roll up of delivery and then receiving the order for the late December into January that really pushed the business over the top on an annual basis.

If you keep rolling and you keep pushing and accelerating deliveries forward, you get to an end point and a measurement point -- clearly you are going to have more deliveries in that period of time.

And we picked up about $20 million in wholesale sales overall because of that.

And then as we ended the quarter, we exceeded our sales guidance particularly less on our sportswear businesses which really are based on delivery but more so in our dress furnishings business which are our replenishment business that continue to accelerate into December and into January.

We had the inventories to support the added sales there.

So that grew as well.

We think that there's upside against the plan that we have given and the guidance that we have given and I think it could be first half of the year anywhere from $8 million to $12 million if the trends were to continue in wholesale.

Okay.

Thanks so much.

We will take our next question from Chi Lee, Morgan Stanley.

Good morning, guys.

Hello.

Can you just update us on where you are thinking the store closure number will ultimately end up to be.

I think last time you guys had updated us with around a 150 store closures over the next couple of years.

But with the comp trends running the way they are, I wanted to get your updated thoughts there.

We had originally targeted something closer to -- something around 30 to 40 stores a year, and as we look out, now, and we are seeing our comps for the fourth quarter, and the year were significantly stronger than we had planned, looking at the first quarter with comps planed 6% to 7%, we are feeling some of the stores that are on our closing list have fallen off the list.

So we are now looking at a number that's probably closer to 100, 120 stores, and we are looking at closing about 20 to 25 stores for the next two to three years as opposed to 30 to 35 stores.

Okay.

Great.

And then, just on the Tommy retail business, can you can share with us just how maybe the recent performance has been, has Tommy also seen the strength in retail that you have seen in your own outlet business.

Yes, in the -- the short answer is yes, their business continues to outperform and has seen as good or better sales -- comp sales performance in that channel and distribution as well.

Okay.

Great.

And then last question, Mike, what are the major working capital differences we should be considering for the Tommy business particularly from a DSO and inventory turn perspective?

I -- well, we haven't given guidance, we haven't talked about officially.

The one thing that is different, they have a larger retail footprint.

They have got the European specialty stores, the US outlet business, the Canadian outlet business, the Canadian specialty business.

So there's more of a retail footprint which has a different assumption and also business obviously, it is different.

Also, the wholesale business is still driven out of Europe is a little bit slower to turn on the receivables and we are working through it as we speak.

We will get back to you in the next couple of weeks on how that weighs out.

Perfect.

Thank you.

Our next question comes from Bob Drbul, Barclays.

Hi.

Good morning.

One question on the comp store sales.

Overall, is there a big differentiation around the geographic breakdown in terms of performance of the stores or is everything strong or is there one name plate outperforming the other?

I think Bob, the performance is pretty consistent across the board.

It is strong everywhere, and we are seeing in the international market -- that would be anywhere there's significant tourists trade -- Orlando, New York, Las Vegas, along the Texas border and along Canadian border -- we are seeing sales performance there very strong.

I think that's partially just a recovery from where we were this time last year, and just strong business and strong demand and traffic in those areas.

But across the board geographically, business is very strong.

Have you seen the Calvin Klein white label stores pick up in terms of the performance of those stores and maybe update us on the plan around some of those.

Are you talking about the special -- full price regular specialty store.

Yes.

Look, business has gotten better in those stores.

We are operating about -- four of those stores today, we have closed them.

I think they're really just at this point -- they are beautiful stores that are very brand supportive -- but from a financial point of view you have to consider those marketing vehicles, at this point.

There is no plan to roll those out, or expand that store base.

Thank you very much.

We will take our next question from Jennifer Black, Jennifer Black & Associates

Good morning and let me add my congratulations.

Thank you, Jennifer.

I have two questions.

So I will start with the first one.

I wondered do you see the outlets outpacing your full price stores, and can you -- you just talked about the Calvin Klein stores, but have you changed your longer term thinking as far as store count there?

I guess on -- based on our analysis across all channels of distribution, I don't think there's a healthier channel to distribution today than outlet retailing today based on what we have seen from our landlords, based on what we have seen from our some of our competitors and based on our performance in those centers -- I don't believe that there is a channel of distribution, that is putting up stronger numbers more consistently for the last -- now, it is almost ten to 11 months -- that we have seen good performance out of those stores.

I think as we look at the store counts, clearly there is more development going on in outlet retailing, not so much impacting 2010, but 2011 we are seeing more store openings.

And we are looking at Canada as the next geographic space where we think that we can have an expansion into factory outlet retailing which is developed across the border.

And we have chosen so far not to participate in the that, with the strength of our brands, north of the border, we think that's a real opportunity for us as we go forward and we will start to explore and test some stores up there.

So we think that there's opportunity over the next 12 to 24 months to add some significant real estate as we go forward.

Great.

And then I also -- my follow up is can you talk about what you are seeing at the high end and if you see any significant changes in consumer behavior as far as better -- and luxury in the men's business and also women's collection.

And the potential of Timberland as a women's brand.

Thank you.

Okay.

I think let me take that in pieces.

At the high end, in the United States, businesses has gotten better, margins are significantly improved.

It is still not back to obviously -- we are putting up positive numbers and we are seeing positive comp store sales performance but it is still well off of the levels of 2007.

Price and value continue to be more important.

We are seeing overall retails from two years ago are down.

And we are seeing that key designers have moved price points anywhere from 10% to 25% down, in specific categories on the luxury end.

So I think that is all moving in that direction, as we go forward.

It is better but still it is -- from my vantage point it is still the last piece that is coming into play.

As far as Timberland, it has a very large women's footwear component and we have chosen at this point not to pursue the women's apparel sportswear opportunity and we will explore as we go forward with the Timberland company, whatever opportunities there might be.

Our men's performance has just been as strong as any collection on the floor, and we are getting great sell throughs at retail, and we are seeing an expansion at our doors with the Timberland brand.

But at this point we have decided not to go forward with the Timberland's womens' sportswear rollout.

You have plenty of opportunities.

That's for sure.

Anyway, congrats and good lucks.

We will go next to David Glick, Buckingham Research Group.

Yes.

Good morning.

A couple of questions.

First on your domestic business, and then, secondly on Tommy Hilfiger.

When I say domestic I am talking about your PVH business, before Tommy.

Your Calvin Klein royalties were up in the low 20s in the fourth quarter.

Obviously your licensees submitted plans and projections significantly below that.

And, the Q1 guidance strikes me as a bit conservative.

You have an X launch in men's which is very significant and certainly a lot of newness in Calvin Klein Jeans.

The fragrance business just started to turn around in Q4.

I would think that -- I am just trying to understand the difference between Q4 and your Q1 guidance, on the Calvin Klein side, maybe you can help us appreciate the difference.

We have started to see a turn around in the business, the historical growth rates we have experienced in Calvin Klein have been more over the last six to seven years have been more like 13% to 14% royalty growth.

We believe that trend will come back, it is a question of when and how quickly.

Clearly we were surprised by the strength in the fourth quarter that we did see in the business, and we would think that there is opportunity to do significantly better .

You understand the licensing model -- it is not one that you are immediately on the ground monitoring orders as they come in since you're depending on your licensing partners to do that.

Everything that we hear, feel and see, tells us that we should do better than the 5% to 7% growth rates we have targeted for the year.

But again that's to be determined and the nice thing about the licensing business is when it comes with a disproportionate amount of the dollars fall to the bottom line, so we are in a very good position to hopefully outperform the guidance.

But at this point, we think it is just prudent, with still relatively six to nine months of good performance ahead of us, we think it is still at this point more prudent -- it is better to be a little prudent with our guidance.

So, it may be conservative and as soon as that business starts to roll again we will start to let it out as it

That's fair.

Thanks.

On the wholesale side, how does your order book compare to your 3% to 4% growth and are you still seeing this trend of order acceleration and replenishment orders coming in higher than you had been expecting?

Give us a sense of what the book looks like, what the replenishment trends are and the order acceleration trends.

Sure.

I think that our order book for sportswear is ahead of the overall guidance that we have given for wholesale overall.

We are planning the dress furnishings business with the exception of the new business -- couple of new components -- we are really planning that flat year-over-year, flat to up 1%.

And that is because even during this difficult environment, our dress furnishings business continues to perform and was very strong for us.

So we are not planning for a continuation of the type of growth that we saw last year on our furnishings business.

Right now the business is outperforming that and we should exceed it for the first quarter.

But the way the projections were put together, dress furnishings is being planned relatively flat to up 1%.

And, wholesale sportswear, because of the orders we have in place, particularly with IZOD and Van Heusen and Timberland, which is driving the growth -- that's being planned up above 5%, and we have the paper in hand and the order and the strong performance at retail that gives us a lot of confidence that we'll deliver that or better.

So I think right now, we'b be disappointed in if we didn't exceed those numbers.

And are you still seeing the order acceleration trend, Manny?

From retailers moving up orders.

The only difference now is that have actually -- have actualized the orders.

So it is no longer an acceleration.

They're actually planned now.

Okay.

Well ahead of where they are.

So it would be the -- open to buy and our deliveries are in synch for the first time starting in February.

Great.

Moving on to the Tommy business, can you giver us a sense for how you are thinking about the square footage growth plans there --

That's a little too granular for a business we haven't even closed yet.

How about -- can you give us a sense of what the overall capital requirements of the business may be going forward, from a CapEx standpoint?

Yes.

I will give you a generalization -- our business tends to run about $50 million a year.

Their business is about 2X that given that there is a much more retail component and international expansion.

Somewhere in the $100 million -- combined about $150 million a year.

Last question, can you give us a sense of how the comps have performed over the last couple of quarters, and what you may be seeing now on the Tommy retail business, internationally, and how we have seen with some other apparel manufactures with businesses in Europe and Asia, we are seeing the the order books start to improve for the second half of 2010, is that similar in what you are seeing at Tommy Hilfiger?

We are seeing from -- we were with the Tommy senior management the last week or so and talking about their business plans and where the projections stand.

So they're seeing good growth in the fall 2010 order book which should bode very well for us against plans, that's starting to build and there seems to be a strong recovery getting back to some significant growth.

The trends in their retail business is what you would have expected through the difficult economic cycle -- they were down mid single digits and that has started to turn and started to post positive and I mentioned that their outlet, US and Canadian retail businesses are posting comps that are comparable to ours.

So, it feels like there's momentum in their business as well.

Very similar trends going on in their business that we are seeing and it gives us a lot of optimism as we go forward.

Next question is from Ben Rowbotham at Goldman Sachs.

Thank you.

Just looking at the operating margin guidance I believe CK was -- you guided it 250 to 300 basis of -- and the retail wholesale up 100 basis points.

Can you help us understand on a consolidated basis, what the expense growth rate is projected to be for SG&A to reach those numbers.

As we look at expenses for next year, we are basically looking at expenses for the Company will remain on the dollar basis pretty flat to the prior year.

Okay.

I'm sorry, go ahead.

Go ahead Ben.

I was going to follow up quickly, and ask about the $40 million in synergies from the Tommy deal.

Can you just remind us how you expect to see that unfold, year by year?

Is it a lump sum, or will it be maybe $20 million and then you get an incremental $10 million and an incremental $10 million.

How does that unfold over the next -- post-acquisition?

I'm sorry.

The way you laid it out we would like to do better than that.

But right now at this stage, we are looking for a $40 million in savings and we would probably get half in year one, we would pick up another component of it in year two and we would get the full amount by year three.

We would be disappointed if we didn't get it all by the second year.

And, we'd be disappointed if we didn't exceed the $40 million.

But right now, that's what we're projecting and that's what we're looking at.

Got it.

I meant it more in relation to the guidance but that basically -- in term of the accretion.

The guidance is talking about $20 million, then $30 million, and then $40 million.

Perfect.

Thank you very much.

Best of luck.

Our next question comes from Omar Saad, Credit Suisse.

Thanks.

Good morning.

Wanted to ask a question on your inventory levels.

They look very clean as they in the last couple of quarters, minus seven.

But as you continue to see these double digit positive comps and wholesale business picking up, when do you think you would really need to start to build your inventory levels higher to meet the demand or do you think you can operate at this lower leaner level, with the positive numbers you are seeing?

It is Mike.

The way we are planning the business is at the end of the first quarter we will start to see small increases planned in our inventories, and those will be driven primarily from wholesale.

The retail business will capture more in the second quarter, and then by the middle to the end of the second quarter, we are back on 100% on plan, and we have recovered from the significant increases to our plans we've had in sell throughs for the last couple of months.

Then on ongoing run rate, how should we think about -- I know you've got a lot of opportunities coming up with the acquisition potentially -- working capital, run rates relative to sales and you have a long term rate, how should we think about it.

I think once we anniversary, where we have gotten, we brought our inventories pretty much back in line, by the beginning of the -- by the end of the first quarter last year.

So as we plan for sales increases you should anticipate that the inventories will grow at a comparable level.

So if we are planning sales up about 5%, inventory will be up about 5% beginning with the end of first quarter and into the second quarter.

So I think that's a prudent way to play it and we think it is the best way to capture the incremental sales that are available to us.

Perfect.

Thanks, guys.

We will go next to Eric Beder at Brean Murray.

Good morning.

Good morning.

Could you talk a little bit about you said that now we are seeing parity in -- you are no longer chasing in domestic department stores -- what does that mean for their inventory levels, when you talk to them, how far -- what is the new new in terms of how far they want to be down -- like two to three years ago in term of inventory levels?

It is very hard for me to talk about their inventory levels from two to three years ago.

I can tell you it continues -- that turn continues to be a major initiative with them.

And if your business is being planned up 5% your open to buy dollars are up probably only up 2% to 3%.

So there continues to be this pressure to continue to really be, to perform on not only a margin basis, but also to perform on a turn basis -- and that puts more pressure on you logistically to really manage that process and to be quicker, and faster, and I think with our systems we are able to do that as well as anyone.

That's what we are doing.

In the replenishment area, the better planning tools you have, you get projections and if you are exceeding those to be able to get back in and keep your basic stock in appropriate size and color components of the inventory enables you really to fulfill and grab a greater share of market.

That's what we have been able to do the last number of years.

I would expect that the benefits -- that the type of benefit that is you are seeing -- at department stores and some of the other retailers is not sustainable into 2009 as they plan for comp store sales growth.

So I think you will start to see a leveling off of inventories and probably for the second half of the year start to see a buildup of inventories as we go forward.

Especially if the sales trends continue.

Okay.

You've talked on prior conference calls about expanding the marketing spend for both Calvin and some of the non-Calvin brands, what has been the push back from that in terms of some of the non-Calvin marketing spend, for your core brands there?

By push back, if you mean some of the results we are seeing, we have seen very positive results, I guess the best results are always sales and demand.

Based on our market research, we believe our -- we know we are being seen and cutting through with some of the events we have done with Van Heusen and the Pro Football Hall of Fame and with IZOD and Indy Racing League in particular in some of our sports marketing that we've done.

We think we are really connecting with our consumer and it shows I believe in our sales results and our research.

This year our overall marketing spend is up about $15 million year-over-year and we would expect next year that our dollars would be relatively flat if not possibly up $5 million at this point.

We believe that is a good level for us to be at if that historical levels for us from a spend point of view and we think it is appropriate given the market share of our brands and how they are performing.

So, we will continue to make those investments, absent a real dramatic improvement in our sales and bottom line which we hope we can deliver, we would expect the marketing spend to be up 1% for the year.

Last question, how is Calvin Klein sportswear doing?

I know that was a big push in terms of taking -- marketing some space.

We continued on the women's sportswear side, we've continued to see strong improvement in the trends of that business.

We are seeing door expansion as we go into 2010.

I think the doors will double in 2010.

The business is continuing to perform.

G-III is doing an outstanding job with it -- the right products at the right price points -- delivering value to the consumer and the appropriate product.

So we are really happy with that performance.

It is really -- that category on the floor is really an anchor for all women's businesses and when done correctly we believe it not only helps that business but it helps the entirety of the Calvin Klein women's business across the store.

Similar to the way our men's sportswear business we think really has lifted all of our men's businesses on the department store floor.

So that's a real win for us and it's something we haven't experienced in the last five years.

Great.

Congratulations.

Thank you.

We will go next to Emily Shanks with Barclay's capital.

Good morning.

Manny you touched a little bit on this when you commented on orders and deliveries being in synch.

In the past when consumer spending fell off in fall of '08, you had said retailer really felt as though there was no visibility.

Can you comment and give us a sense of what the mood and the visibility is today, specifically as it relates to fall selling period?

Sure.

I believe retailers are buying into sales trends.

And they're buying into performance, and having since December -- having three good solid months of positive comp store sales growth -- December, January and February -- and March seeming to continue at those trends, it is giving the retailers much more confidence to buy into sales trends to actually start to plan for comp store growth as opposed to a negative trend.

I would characterize the last 12 months -- last year's fourth quarter and back -- as more of a focus on managing gross margin, managing clearance, getting profitability improvements through that.

Management of inventory and inventory levels.

What we are seeing now is based on that strong margin performance, retailers really buying back into the sales trends and planning for low single digit comp store growth for the fall.

Great.

Thank you.

And then one question about Wal-Mart you had indicated you will be rolling out the next high business this May I believe.

How many stores does that go out to?

How many doors.

Initially it's in 600, we believe it grows to over 1,000 and that's where the rubber meets the road.

There's an opportunity to be as high as 2,500.

They don't carry neckwear in that many stores today but we believe given -- if we are able to demonstrate performance, they would roll out it to more doors.

It is really going to come down to execution and performance over the next two years.

It is clearly an opportunity to be at least $20 million in sales -- wholesale sales -- for fiscal 2011.

Okay.

And, would that growing into 1,000, would that be potentially as early as this year or that's more 2011.

I think that's fourth quarter of 2010.

Okay.

Thanks very much.

Good luck guys.

We will go next to Dana Telsey, Telsey Advisory Group.

Good morning everyone.

And congratulations.

Manny, as you look at market shares, and talk about taking market share, do you see it more from private label or national brands.

Where do you see the opportunity, and just as business now starts to normalize, what are the opportunities and pressures on costs you see going forward?

Thank you.

Okay.

From the market share gains, we've seen -- I would really say it's been a combination of the categories -- in the dress furnishings area, we have seen some clearly some growth against private label -- clearly in neckwear, the whole Wal-Mart expansion is all against private label as we have gone forward.

And in some of our dress furnishings categories, we have taken some competitors off the floors, particularly at Macy's and Belk's and have grown our position there because we are able to service the business so well logistically with our merchandise coordinators in the field and our systems to support the EDI replenishment business.

So it is really come from both areas.

On the sportswear area side of the business where we have seen expansion of business that's clearly come against other brand and apparel makers and we have been able to secure some of their square footage, some of their collection and on the main floor side of -- as well.

So it has come from both.

From costing point of view our costs in the first six months of year are flat to down slightly, and we are anticipating some minor cost increases in the second half of the year.

But I don't think anything that would have any significant implications to gross margin at all.

Of course, inflation, deflation have been relatively mild in most of our categories.

We have been able to manage against it and from a sourcing basket point of view, and we would expect that to continue to fiscal 2010.

Thank you.

And we'll go next to [Sean Naughton], Piper Jaffray.

Thanks for taking my call.

First on the Calvin Klein brand, obviously a lot of the sales come internationally.

Can you remind us or let us know the impact of currency on the top and bottom line for the fourth quarter and what your assumptions are for 2010 around currency.

I can tell you that the 2010 -- Mike is grabbing the current year -- for 2010, we are planning currency flat year-over-year, at about I think somewhere between $1.35 and $1.40 if you use the euro as a base.

That should give us overall a flat impact on currency.

And for the current year, I know it was slightly negative -- and a little over $2 million of negative impact most of -- all of that -- in the first half of the year.

Okay.

And then in terms of guidance on the first quarter comps, obviously tracking well above the 6% to 7% range you're guiding for, can you remind us what the comps were in April and March of last year to potentially give us an idea of the sense of conservatism that you are building into the model for the first quarter?

I can tell you that the first quarter comps last year were minus 8% to 10% depending on the division, and that trend was pretty consistent February through April.

Okay.

Great.

And then lastly, on the marketing spend, to support the Tommy brand on a go forward basis, is it relatively to what you've seen on Calvin Klein -- about 6% to 6.5% of total sales?

You broke up.

Can you say that again on the marketing?

Yes, the marketing spend for Tommy Hilfiger, is it relatively similar to the burn rate you have for Calvin Klein?

It is a different business model.

The Calvin Klein business model is a license model.

We collect royalties from all licensing, we collect marketing contributions from all of our licensing, we have a much bigger fragrance business -- ten times the size, Calvin is one of the largest fragrance brands in the world.

The nature of that business is a very high marketing spend in that category.

I would say if you took the fragrance component out of it, the marketing spend year over year is pretty consistent, business by business.

But our fragrance business being ten times the size, we spent a disproportionate amount of marketing there for Calvin that Tommy does not have.

That's helpful.

Thanks and best of luck on the rest of the quarter.

We will take our next question from Paula Torch, Needham & Company.

Good morning, thank you for taking my question.

I was just wondering in terms of your corporate, are there any opportunities for any product category extensions?

There always are but I think the growth for our core brands would be more geographic expansion.

We have for IZOD, Van Heusen and Arrow in the United States, and international, but more so in North America we have very big -- we have relatively large apparel business and categories that we license like kids and a number of accessory businesses.

So I don't think this is anything I would point out as a growth vehicle in our core heritage brand except for the geographic expansion we think would occur over the next two to three years with the potential rollout with the Tommy Hilfiger platform internationally to really grow that business.

Great.

Thank you.

Best of luck.

Thank you.

And Mr.

Chirico with no other questions remaining at this time I'd like to turn the conference back over to you for additional or closing remarks.

Well, I would like to thank everyone for joining us today.

We will keep you informed of our progress, and status on the Tommy acquisition.

Clearly we are enthusiastic about it.

We believe that we will continue to perform against that and outperform our current business plans and we look forward to speaking to you on the first quarter conference call in the end of May.

Have a really good day and speak to everyone soon.

Bye bye.

Again that does conclude today's conference call.

Thank you for your participation.