PVH Corp (PVH) 2010 Q1 法說會逐字稿

Good day and welcome to the Phillips-Van Heusen first quarter earnings 2010 conference.

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The information made available on this webcast and conference call contains certain forward-looking statements which reflect PVH's view of future events and financial performance as of May 24, 2010.

Any such forward-looking statements are subject to risks and uncertainties and 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 and as SEC filings.

The Company does not undertake any obligation to update publicly any forward-looking statement including, without limitations, any estimate regarding revenues or earnings.

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

A reconciliation of these measures is included in the Company's earnings release which can be found on the Company's website 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 it is my pleasure to introduce Emanuel Chirico.

Please go ahead.

Thank you very much.

Good morning, everyone.

Joining on the call this morning is Mike Shaffer, our Chief Financial Officer, Pam Hootkin, our Treasurer and Investor Relations point person, and Ken Duane, our Vice Chairman running all of our Wholesale business companies.

I'm going to focus my comments at the beginning of the conference call on the Tommy Hilfiger acquisition.

I'll try to give you a sense of the business trends and our financial outlook for that business.

As we indicated in our earnings release, we're projecting that the Tommy Hilfiger business will generate about $1.8 billion of sales this year and about $180 million to $190 million of operating income for the nine months, May through January 31, 2011.

Let me put those projections into perspective for you.

On a revenue basis, we're estimating revenues to grow about 5% in a local currency, on a local currency basis for the period.

I characterize the Tommy revenues projections as conservatively prudent, given the actual much stronger current trends in the business offset against the back drop of a very chaotic world.

To date, we have not seen any pullback in the positive sales momentum in the Tommy business both domestically and overseas.

The business has stayed very strong both from a sales point of view and from a margin point of view.

I'm going to try to talk about each of the businesses and try to put some color on it for you to give you a sense of it.

The Tommy Hilfiger Europe wholesale business represents all in about 45% of the total volume of Tommy Hilfiger.

Our projections assume revenue growth of about 5.5% on a local currency basis.

Our fall order book in Europe is running up over 10% and our replenishment business in spring is very strong.

To give you a sense on that on a product-by-product category basis for fall, footwear is up over 20%.

Footwear was the category that was taken in-house about two years ago and has that very strong growth for us.

Denim is up about 15% for us.

Our men's and women's businesses are up 8% to 9%.

Our kid's business overall is up 4%, so on a category basis we're seeing growth in all categories.

On a country-by-country basis, to put it into some perspective, I'm going to break the countries down for you in a couple of key areas.

I'm going to focus first on the countries where Tommy has a very strong leading market position in the country and the relative economy in Europe is strong there.

So I would put Germany, Scandinavia, Austria, Belgium, the Netherlands, Switzerland in that category.

All of those businesses are showing growth in the fall order book of between 10% and 15%.

Germany, which is our largest country and represents a little bit over 25% of the total European volume, its fall orders are up 15%.

I'm now going to focus for Tommy on those countries where the Tommy market share is significantly underdeveloped and where we are targeting growth.

That would be France, which is up fall orders 25%, the UK which we're back in a more significant way the last two years is up 50% fall order book for last year.

Italy, whose economy is under pressure but where Tommy is seeing growth throughout, is we're planning that business up 4% or 5%.

And Russia is up 10% over last year as we go forward.

Finally, let me touch on the countries where clearly there's an economic challenge going on and even there the Tommy business is seeing some contraction.

Our second largest country is Spain.

The fall orders there are down 6%.

To put that into perspective, last year the business was down 15%, so clearly we're seeing a deceleration in the negative trend there but Spain is a country obviously under pressure.

Ireland, which is a very healthy business for us, we're seeing our fall orders down about 7% and Portugal, which is a very small country for us, obviously, is down about 12%.

Moving to our Tommy European retail business.

We're planning the comps in this business for the nine month period, May through January, to grow 1.5% for the period.

The last six weeks trend in our retail business has been about plus 4% which is stronger than planned gross margins, inventories are very clean and we're seeing good sell-throughs on all products.

We're chasing product both in wholesale and retail from a sourcing point of view and our retail business, if you look at it country-by-country, our largest country is Germany in particular and some of the Netherlands, some of the other countries are posting in the low single digit comp basis.

So we're seeing good retail performance out of a retail business in Europe.

The retail business represents about 25% of our European business and the wholesale business represents about 75% of our European business.

Moving to North America.

North America represents just about 45% of Tommy's global business.

I'll start with the retail business.

Retail represents about 75% of our volume in North America.

We're planning the comps at a plus 5% growth rate.

The trend in the Tommy business for the last ten weeks has been at a plus 17% comp store growth.

The Tommy business has been mirroring the strong performance of our Calvin Klein retail business.

For the last six weeks, the comp store trend is closer to plus 20%.

We've been posting very strong sales here and stronger than planned gross margins as well.

So clearly we're feeling very good about the US and Canadian retail businesses for Tommy Hilfiger.

On a wholesale basis in the US, our Macy's business represents about 90% of our volume in wholesale.

The business is planning to grow this year about 3%.

We've been consistently running ahead of our retail plan at Macy's for the last three months.

Our orders for fall and holiday are running slightly ahead of our planned levels.

We're seeing good sell-throughs at retail and our margins are right on plan with Macy's.

The Macy's relationship with Tommy is very strong.

We have agreed to extend our exclusive relationship with Macy's for another three years that will take us through 2013.

We feel very good about the long term prospects of the Macy's business and believe that we can double the size of the Tommy business at Macy's over the next three to four years through growth in existing categories and the expansion of product categories through new licensing arrangements.

When we roll up the Tommy business on a local currency basis, each of our businesses are projected to exceed our original estimate.

However, when we convert to US dollars and consolidate, we continue to estimate that the Tommy Hilfiger acquisition will contribute $0.20 to $0.25 with earnings accretion in fiscal 2010.

Let me put some color on that for you when we think about the Tommy business for the year.

Our previous earnings guidance on April 21 for Tommy assumes the Euro to dollar conversion rate of $1.30 to $1.35.

Our current estimate assumes the Euro to dollar conversion rate of $1.20 to $1.25.

Each $0.01 change in the Euro to dollar conversion rate is worth $0.01 in earnings per share.

The Euro to dollar conversion rate is negatively impacting our consolidated results by $0.10 to $0.12 per share.

We have been able to completely offset that hit to a stronger trend in the Tommy businesses both domestically and internationally and a more efficient capital structure to support the acquisition than originally planned.

Let me spend a couple minutes also now on the second quarter because I think our estimates there cause some concerns for some of our investor base.

Overall we haven't changed any of our projections for the second quarter.

We hadn't given guidance for the second quarter.

If you look at the Tommy Hilfiger business on a seasonality basis, the first fiscal quarter is their strongest quarter on a wholesale basis in Europe.

Their spring shipping sales plan for the first six months of the year is approximately EUR300 million.

EUR200 million is shipped in the first quarter and EUR100 million is shipped in the second quarter.

The split in the back half of the year is much more balanced.

It's 60% to 65% third quarter, 35% to 40% fourth quarter, so it's much more balanced, first quarter has a significant amount of shipments that go out.

It's the nature of the European business.

The retail accounts there take the goods early to set the full store up and it is a very, very profitable quarter for us.

And that is the reason why the second quarter, only with $100 million of wholesale shipments we're only projecting for the second quarter $40 million of operating income for Tommy when you layer on, on top of that the capital structure, the additional shares outstanding, and the interest cost associated with the financing of the transaction, it creates about a $0.12 dilution in the quarter.

That means that the fourth quarter are actually $0.37 accretive for the second half of the year.

The other hit in the second quarter is a shift in the spending of our advertising associated with the IZOD sponsorship of the Indy Racing Car League and our decision to really heavy up the marketing spend in the second quarter in connection with the Indianapolis 500 which is coming up this weekend.

That's about a $10 million shift, about $0.08 per share in earnings per share that is coming out of the fourth quarter as an expense and is shifting into the second quarter.

So our guidance of $0.50 to $0.52, if you were to add back the $0.20 that I just described, would take us to $0.72.

And that would be in excess of a 20% growth year-over-year so there's been no slowdown in our business in second quarter.

We feel very positive about the trends as we go into that.

I want to move on to our PVH stand alone businesses and focus on Calvin Klein.

In the first quarter, our Calvin Klein licensing royalty business was up 13%.

On a constant currency basis it was up 10%, clearly ahead of our plan for the year.

Clearly continuing the momentum that we saw in the fourth quarter where there we also saw double digit revenue growth for the Calvin Klein business.

As we look at the product category through the first quarter, the biggest positive change was in fragrance.

We were up over 9% in the fragrance category.

Strong growth out of Euphoria, and also in our CK businesses internationally.

We are really planning for a very aggressive marketing year in fragrance.

We had a major launch planned in the third quarter of this fiscal year with Calvin Klein Beauty.

Dianne Kruger is our celebrity spokesperson there that we expect that business to really have a positive impact from a marketing point of view on the global Calvin Klein franchise and are expecting strong growth out of fragrance as we go forward.

Our Warnaco business was up on a US dollar basis about just a little bit under 9%.

On a constant local currency basis it was up about 5%.

They've spoken about in the first quarter some US shipping changes by channel of distribution so we were right on plan with their projections.

The business is being planned up for the year 8% to 10% overall.

We have got some significant marketing and product initiatives going on, first in underwear in the spring we had the X Underwear campaign that's getting terrific public relations exposure and excellent exposure for the brand.

We're seeing excellent sell-throughs at retail and we're seeing strong placement of the goods at retail for our underwear business.

In the fall on the women's side, we'll be launching a new foundation business with our Envy Bra business.

It should be a very positive launch as well, significant marketing campaign around there.

The reaction in the market has been very positive for us as we go forward.

On the jeans side of the business, the jeans business has been healthy, continues to be healthy.

The strong suit there continues to be our international growth, but we are seeing some strong growth particularly in the second half of the year associated with our domestic US business.

In the second half of the year we'll be launching an X Jeans campaign and product category program.

The jeans will retail at $99.50, we'll have a significant marketing campaign around it.

It will be both domestic and international and we expect that to continue to drive the business as well.

Moving to some of the other product categories, G3 continues to outperform in the quarter.

We saw just very strong performance from our G3 business and their business is up over 25% against last year, strong, very strong growth in dresses, very strong growth in the women's suit business and the performance business.

And we're also seeing although it's not impacting royalties since we're still on a minimum basis, we're seeing very good growth and strong placement of our women's sportswear business, particularly with Macy's.

We're growing doors there and we're expanding our product offering so that business will benefit all of being such a key product category for women's sportswear for the Calvin franchise.

We think it's going to lift all businesses as we go forward.

We're seeing good growth in our accessory businesses, our watch business, and our footwear businesses in particular.

Our footwear business in the quarter was up 15% and we're expecting strong growth for the balance of the year.

Our watch and jewelry business was up over 20% in the quarter.

We're expecting strong growth for the balance of the year.

For Calvin, we're expecting royalty growth rates to continue into the 12% range for the second quarter and for the full year about 7% to 8%.

So we feel very strong about the Calvin business and we believe after a tougher 2009 where the business only grew and I put that in quotation marks, 5%, we think we're back on track where we can exceed the guidance that we've given here are 7% to 8% growth and get closer to double digit growth in the Calvin business.

So that business is very strong and very healthy for us.

Our legacy businesses in the first quarter, our combined legacy wholesale and retail business was up 11%, comps were up 12%.

We're planning the business in the second quarter to be up 5% to 6%.

We're being conservative in our estimate for comps in the second quarter with about a 5% to 6% growth rate for comps in the second quarter.

Overall through the first four weeks of May, we're seeing business shipped out for the Memorial Day weekend that's coming up, we see our business up closer to 10% to 11% on the comp basis.

So the trend we saw for the first three months of the year has continued into May and we feel very good about that business.

For the year, we're planning comps at about a 4% to 5% growth rate and that would translate into about a 2% to 3% comp store growth for the second half of the year.

We think that's a prudently conservative estimate.

We start to comp, come up against much smaller comps beginning in September and October of the upcoming year where we, in the fourth quarter, let me just reminds you, our comps were up 13%.

But given the strength of the business, the tone of the business, how we look at the business on a two year basis, we think if we are being conservative in our 2% comp store growth for the second half of the year, so that's retail.

On the wholesale side of the business we had very strong growth for the first quarter of the year.

We were up 10% overall in our wholesale shipments, strong performance across-the-board, dress furnishings and sportswear.

The second quarter we have pegged in for growth of about 5% overall.

The pulling of goods continues with retailers moving up shipment dates and if the trend were to continue we would expect to exceed the second quarter sales estimate that's in the plan.

And if trends were to continue we would expect to exceed the guidance that we've given to the year on the wholesale business as well.

Business is healthy across-the-board in the dress furnishings area.

We started to ship a Wal-Mart business in the neckwear area and good reaction to that product at Wal-Mart because that's a big area for us.

On the sportswear side of the business, the Calvin Klein business continues to outperform plan, continues to outperform just about all collection businesses on the floor but we're seeing very strong performance out of Calvin.

Our IZOD business across-the-board is running well ahead of plan at all retailers, particularly Macy's.

We're seeing good, very strong performance there.

This is a big weekend for us with IZOD from a marketing point of view.

I mentioned that at the beginning of the conference call, the Indianapolis 500 is this week.

There's major PR events going on in New York today and throughout the next three weeks at Macy's Herald Square.

In Boston yesterday, we had a major campaign going on with celebrities, spokespersons there and obviously at the Indianapolis racecourse where there's a lot of marketing going on.

You'll see us all over the television this weekend on the Indianapolis 500 race both from a marketing point of view, advertising, and for the PR point of view throughout the race, you'll see the IZOD logo just about on all race cars, on all drivers.

And you'll see it prominently displayed on ABC at one of the largest sporting events in the world.

So that's a very positive for the IZOD brand and continues to have a lot of momentum.

The Van Heusen business at wholesale, both the dress shirt and wholesale sportswear businesses are very strong, particularly at JC Penny, is where we're seeing just excellent sell-throughs, we're seeing an increase in our plans there, and growth as we go forward.

So we're feeling very positive about our plans for the year and our projections.

I guess I would summarize it before I turn it over to Mike to quantify it is that when we look at our business and we see how all of our businesses are trending both in the US and internationally, the Tommy business as well as the Calvin business in Europe and Asia, our trends would tell us we should be much more aggressive on our earnings projections for the year.

The one big question mark that's out there is what's going on in the macro environment?

I don't need to tell you the pressure that the Euro is putting on just purely from a translation point of view of our earnings, as I've mentioned at these levels is negatively impacting us to the tune at about $0.10 to $0.12 this year at a range of $1.20 to $1.25.

So clearly we feel good about our business and how that's performing and if we were just projecting off of that, we would be more aggressive.

But given the backdrop that we're estimating against, we've made the decision to be conservative, to be prudent and as we see the business develop, to continue to let the earnings out and the beat goes through and with that I'll turn it over to Mike to talk about these.

Thanks, Manny.

The comments I'm about to make refer to non-GAAP measures and are reconciled in our press release.

We're very pleased with our first quarter results and our current projections for the balance of the year which include the Tommy Hilfiger acquisition.

Revenues for the first quarter were very strong up 11% and fueled by all businesses.

Our CK licensing business delivered strong licensing revenue gains at 13% overall and 10% on a constant currency basis.

Our wholesale and retail businesses also performed very well and were plus 11% for the prior year.

Comp store sales in our retail stores was plus 12%.

Our strong retail sales have continued to gain momentum through May.

Gross margins for the quarter were also strong with our wholesale retail businesses delivering gross margin rate improvement of 290 basis points over the prior year.

Clean inventories and better than planned sell-throughs drove the increase.

Total Company expenses were also favorable for the quarter.

Expenses were down to the prior year as a percent to sales, 120 basis points, as a result of the [inaudible] leverage on sales.

EBIT for the quarter was $0.83 versus last year at $0.53 and reflects 57% increase over the prior year.

On the balance sheet, our inventories were on plan, very clean, and relatively flat for the prior year.

Cash was $791 million and reflects the proceeds of our equity offering which was completed prior to the end of the quarter.

The proceeds of $365 million we used to fund the Tommy Hilfiger acquisition, which was completed on May 6.

As we look forward, we are projecting full year earnings per share to be $3.55 to $3.65.

Our earnings per share guidance reflects our previous earnings per share range of $3.25 to $3.33 plus the first quarter upside to our previous guidance which was $0.03, plus the Tommy Hilfiger accretion at $0.20 on the low end of the range and $0.25 on the high end of the range.

Lastly, we added accretion from the core PVH businesses of $0.07 on the low end of the range to $0.04 on the high end of the range.

The Tommy Hilfiger accretion remains unchanged from our previous guidance while absorbing approximately a $0.10 impact from the devaluation of the Euro.

The Tommy Hilfiger businesses are exceeding plans, performing very well, and have allowed us to absorb the currency impact.

Revenues for the year are planned at $4.35 billion to $4.40 billion and reflect approximately $1.8 billion of revenues from the Tommy Hilfiger business.

Calvin Klein royalties as well as wholesale and retail revenues are planned to increase 7% to 8% for the year.

Comp store sales are projected to grow 4% to 5%.

For the second quarter, we are projecting earnings per share of $0.50 to $0.52.

Included in our guidance is a shift in marketing expenses into the second quarter, primarily from the fourth quarter of $10 million or $0.08 per share, as a result of the PVH IZOD Indy sponsorship.

Also included in the second quarter is dilution from the Tommy Hilfiger acquisition of $0.12 per share as primarily as a result of the seasonality of the Tommy business.

Revenues for the second quarter are being projected at $1.08 billion to $1.1 billion which includes Tommy Hilfiger revenues of $520 million.

We're projecting another strong quarter of revenue growth for Calvin Klein with revenues projected to grow to 12%.

We're also projecting strong growth in our wholesale retail business with revenues planned to grow 5% to 6%.

Outlet store comp sales, excluding Tommy Hilfiger, are planned at 5% to 6%.

We're now going to open it up for questions.

Ladies and Gentlemen,(Operator Instructions) We'll take our first question from Bob Drbul with Barclays Capital.

Hi, good morning.

Hi, Bob.

Manny, I guess the first question that I'm interested is a little bit longer term for next year.

I think when you announced the transaction, you'd talked about $0.75 to $1 of accretion for next year.

Do you still feel comfortable with that?

How should we think about that at this point in time?

Sure, Bob.

I guess I would say first of all, we've owned -- we closed the transaction on May 6 and we literally owned the business for less than three weeks at this point.

Our focus at this point has been obviously on integration which is moving ahead very smoothly.

The Management team's working together and it's been focusing on reprojecting fiscal 2010.

We've not attempted to try and take the three year plans that we put together and reproject those at this time.

It would be premature to do it so we're seeing a stronger tone in business right now than what was originally than the numbers we used to originally project the Tommy business but I don't know how it really flows through to 2011 at this point.

I will say to you that the $0.75 to $1 was based on the Euro of about $1.35 and that if we were doing it again we would be projecting something between $1.20 and $1.25.

On a full year basis in 2011, each $0.01 change in the Euro to dollar conversion rate is worth about a $0.015 on a full year basis as opposed to this year on a nine month basis.

So to give you a sense of that, I guess if you added that up, it could be met -- if we were unable to offset any of the currency hit at the current rate, it would impact our earnings accretion by about $0.15 a share so that range of $0.75 to $1 might be $0.60 to $0.85, so just to put it into some perspective.

Okay, and then Manny, I was wondering if you could go into just on the Tommy piece versus the PVH piece, the opportunities that you see on the sourcing front?

You haven't really talked too much about that.

I was wondering if you could maybe give us some examples of where you think opportunity lies where they do better than you and what you guys do better than them?

Sure.

I guess both of the companies use different business models just so everybody on the call is aware.

We do our sourcing internally.

We have a foreign office.

We do use agents in certain countries but we have foreign offices based in the Far East, China, Hong Kong, India, Pakistan, Bangladesh, in the Middle East we also have presence and in the Caribbean we have a presence and we manage that and we think we do that very well.

Tommy uses Li & Fung, it's a non-exclusive basis to do about 70% of their sourcing and then 30% they will go direct through other agents or by themselves directly.

So what we've decided to do is keep both business models in place.

Clearly our sourcing model works for us.

Their sourcing model works exceedingly well for them, particularly in their international markets.

What we have seen is as you would expect given our heritage in woven shirts, dress shirts and sportswear, I don't think anybody can source that product better than us, just given our heritage from a manufacturing point of view and our positioning around the world.

And clearly I think that's an area where PVH excels.

The Tommy business just to give you one product category.

In the sweater area, Tommy has a huge sweater business and we found their quality and their pricing to be superior.

And what the strategy will be is to take the best practices of both companies, utilize the sourcing base as most efficiently as possible in order to take advantage both from a costing point of view, speed to market point of view, efficiency point of view in order to take advantage of all of those opportunities.

So I think from a competitive point of view we couldn't be in a better position both given our size and scale and given that we have these two business models working as well as they are.

Thanks, Manny.

Mike, I just have one question for you.

When you look at the back half of the year, in the third quarter versus the fourth quarter, are there any major call-outs we need to think about from a modeling perspective around the Tommy business specifically?

I'm sorry, you broke up on the last part of the question.

Is there any, on the Tommy piece for the third and fourth quarter, are there any major call-outs that would have a big factor in terms of impacting the estimates in the third quarter and fourth quarter we should know about now?

The third quarter for Tommy is similar to our business.

It tends to be a bigger quarter for Europe, and on the US business, it's a business that is primarily retail and runs pretty much like our retail business.

And I guess that would be the best guidance I could give.

And just if you think about it, if you're thinking about the back half of the year, I'd say 60% to 65% of their profits will be in the third quarter, 35% of their profits will be in the fourth quarter.

Very similar to how our business tracks.

Great.

Thank you very much.

We'll take our next question from David Glick with Buckingham Research Group.

Good morning and congratulations on the quarter.

Just wanted, Manny, if you could update us on your thoughts now that you've actually owned the business for three weeks, what the cost savings opportunities are?

Do you think you could recognize them sooner or on a greater magnitude than your original guidance and some early progress you may have made in harvesting some of the revenue synergies for your heritage Phillips-Van Heusen brands?

Sure, I'll take the easier one first.

On the cost side, I think from the beginning we basically said this transaction is not about cost savings and synergies.

There clearly will be some in North America.

We've estimated over two year to three year period $40 million.

We're very comfortable with that number.

At the end of the day, could it be a little higher?

Yes.

But we're very comfortable with the $40 million.

We said for the first 12 months, nine months this year and the first quarter that the savings will be somewhere in the $12 million range.

We're still comfortable with that as well and such two large businesses that are operating so well just doesn't make a whole lot of sense to try to save $5 million or $7 million and do something that might move too quickly.

So we're trying to move judiciously as we go down this route.

So from a cost point of view I think we're very comfortable with it.

We've layered in no savings for sourcing at all.

Clearly the opportunity is there.

If it's not savings given what's going on in the world in general, I think we will be in a position to manage whatever cost increases we might see coming forward as well as anyone in the market.

On a revenue synergy basis from a heritage point of view, I'd turn it around.

Instead of PVH, what we see is what our Tommy Management team has seen in Europe.

They seem to be very excited about the prospects for IZOD in Europe and are very excited about the potential for taking over some of the ARROW businesses where ARROW has a relatively strong presence in Europe at much higher price points given their infrastructure.

They look at that business and believe they can very efficiently potentially take markets in-house and operate it very cleanly by setting up a separate division but utilizing the internal back office of the Tommy Hilfiger European operations.

So the IZOD opportunity, they just love what the brand stands for in North America.

We all recognize that the brand is not well known in Europe, but given its price positioning, given its US heritage, there's a belief we could really take that to Europe and over a period of time, and I would say three years, develop a meaningful business there with the IZOD franchise.

So we are more enthusiastic about the long term prospects of some revenue synergies particularly with IZOD and ARROW.

Great, thanks.

One quick follow-up.

If you could comment on the mindset in the US hereof your big department store accounts, a lot has been made of post-Easter trends slowing down.

Your comments suggest that retailers are still pulling forward orders and order books are intact.

Can you give us a sense of what you're seeing outside of your strong outlet comps?

What you're seeing and what you're hearing from your big customers about their business?

Yes, Ken Duane is here.

Hi, Ken.

Our business at wholesale, we continue to see our customers are pulling forward the orders in all tiers whether it's mid-tier, department store tier, et cetera.

Our business continues to trend along with their business in the men's area, the men's collection area as well as men's main floor.

So we see opportunity as we go into second quarter and certainly third quarter and fourth quarter in pulling the orders forward so we have not seen a slowdown in our sector.

The only other thing I'd add is on the replenishment side and dress furnishings side that business has stayed healthy for us, so that business is 75% to 80% replenishment and the neckwear business is such a quick turn business.

We see momentum in that business as we go second into third quarter and we really see a fourth quarter opportunity against last year's business.

So again, that's not reflecting our guidance but we would like to see this trend continue for a couple more months before we start to pull it forward.

Thanks very much for that commentary and good luck.

We'll take our next question from Credit Suisse and move to Omar Saad.

Thanks, good morning.

Good morning.

Mike and Manny, could you remind us, in Tommy Hilfiger and their transaction side of the currency business and on the sourcing side, are they sourcing in Euros through Li & Fung and their other agents and selling in Euros?

Or given the American heritage of the brand are they sourcing in dollars?

Can you help us understand the dynamic there, what the transaction impact could be like in that business?

Sure.

That's a great question.

About two-thirds of the inventory purchases are in US dollars, like most European companies in Asia, they all buy in US dollars.

It's more efficient for us to hedge and to have the local factory and the local vendor hedge that, so we -- our strategy is to hedge out anywhere from eight months to 12 months.

Historically, the Company has started on the fact to be hedged closer to 12 months out on its inventory purchases.

And we believe that's the right strategy to lock in your costs, know what they are, plan your European business in local currencies and then deal with the translation as we go forward.

So about two-thirds of the purchases are in US dollars and obviously, as that gets impacted and has some impact on our cost of sale.

Right now we're projecting that also between $1.20 and $1.25.

Okay, that's helpful and then can you also remind us for Tommy, which of the European countries and also maybe some of the non-European markets, whether it's Asia or other parts of the world, do you all see and does the Tommy management see as being -- having the hold in the most opportunity for growth?

Sure.

I think I tried to cover it in my comments.

Tommy has a very strong position in central Europe, if you think about Germany, Austria, Belgium, the Netherlands, strong position in Scandinavia and is continuing to see growth there.

Their business has continued to gain market share in those strong markets where Tommy really performs.

Markets that they are significantly underdeveloped in would be France, the UK, and Italy overall.

Those businesses are all planned significantly up, as I mentioned, France's order book for fall was up 25%.

We continue to see strong growth there.

We'll be opening a new flagship store in Paris in the next few months which we think will just take the brand positioning into an even stronger visibility in that market.

We are continuing to grow in the UK and opening direct retail in the UK as well.

Italy for us has been a very positive market overall and continues even with the pressures of that market, that market is planned for the second half of the year to grow about 5% for us.

Those are very large markets where Tommy's position is in comparison to, say, Germany or Spain is very underdeveloped.

The other area when you go to is the Middle East when you focus there, it's the Middle Eastern markets, it's Russia in particular and Turkey which we took our distributor there and they are running that business very successfully directly there.

I guess from a -- in Asia, I guess we operate directly in Japan.

The Japan business has been challenged as I think everyone is aware.

That business we're planning down 5% for the year.

Second half comparisons are much easier as we go forward in that business so that business is a very profitable business for us that we operate directly.

It represents about 9% of our business, but it's a business that's being challenged overall.

I would just add that there's a couple of product categories in Europe in particular.

Footwear which has been growing in the 20% range for the last two years and we are discussing potentially taking back the handbag and accessory license and bringing that in-house.

That has the opportunity to be a very big business as we go forward.

So clearly, we think there's significant growth in Europe.

We recently announced that we have taken back China from a licensing partner, extended them throughout Asia and Southeast Asia but have taken back the Chinese market.

We think that's a market that could be very big for Tommy going forward.

We'll take that business back in the middle of 2011, so I think that's a real long term growth opportunity for the Tommy Hilfiger brand in China.

Thank you.

Good luck.

Thank you.

Our next question comes from Chi Lee with Morgan Stanley.

Hi, good morning, everybody.

If I could ask a follow-up question just on Tommy sourcing.

Beyond the hedges, are there any operational initiatives in place to really help offset potentially some of the transactional headwinds that could be coming if the Euro stays as weak as it is?

Well, I guess two things.

The operating expense as you know are natural hedge against the business.

They are all paid in local currencies to create a natural hedge against the business.

We've taken -- we've also tried to look at our capital structure and EUR400 million of debt is Euro-denominated so that interest expense which is approximately $20 million to $25 million is also a natural hedge against the business or EUR20 million to EUR25 million -- sorry, is a natural hedge against the business as well.

We've tried to build that up as best as possible and but we're still exposed as you know and like every Company that is operating internationally it was still exposed on the translation of the profitability into US dollars and I'm not aware of any way to hedge against that.

Okay, that's helpful, and then Manny, can you just talk about as you look at the different wholesale markets within Europe, how your visibility may be different, one market versus the other or one more mom-and-pop base or one more large department store base?

And presumably differences in the level of EDI in each region would also help you monitor those businesses?

So just trying to get a better sense of how much visibility you have into trends in the wholesale channel.

So I would say to you the biggest visibility we have is unlike the US, when you get an order in Europe, it's really an order.

It doesn't get cancelled.

Somebody writes a piece of paper, retailers in the United States are notorious for writing paper and then saying oops, and now you have to pick up the inventory.

When you get orders in Europe, 95% to 100% of the time those are real orders your retailer stands behind on unless there's a financial problem.

So it's a much easier business to plan since you have a forward order.

The Tommy business being sportswear and unlike our business which is a big dress furnishings and replenishment business, they have replenishment in their categories but a big part of their business is really forward orders.

And then them making the decision to back up some inventory to potentially get reorders within season when business is good, they are more aggressive and when business is tight they are less aggressive.

So the EDI component business is 15% to 20% and 80% is all order driven but the best barometer is their order book and their order book as I said is a real order book and it's running ahead for fall in excess of 10% but we feel very positive how that translates.

As they -- our Management team has discussed with me, a 10% increase in the order book should translate into something north of 12% to 14% given the reorder that you usually hope to get on top of that business.

That said, if you think about the markets, anyone who is a student, you know the markets.

The UK has a strong department store base.

Spain, we've got (inaudible), there's a strong department store base.

Germany is mixed but has a strong department store base but also a strong specialty store base.

Italy is really much more of a specialty store driven market and I think we go through market-by-market, but the way the business is also organized, there is a managing director for each country, they are on the ground, in country.

We also tend to operate retail stores in just about -- we operate retail stores in every country.

Some of them we operate directly and some of them through our franchise partners so we have strong visibility into the market.

I guess what I'm saying is we feel really, very comfortable about our plans for the second half of the year when we start to ship fall beginning in July that we have a good handle on the business and the visibility into the business.

Perfect, thank you very much.

And also in Europe represents about 75% of the overall business.

Sorry.

Thank you.

From Bank of America Merrill Lynch we'll move to Helena Tse.

Hi guys.

Can you just talk to me about the comps between the Legacy and CK brands and maybe if you can talk about through the traffic versus ticket trends you're seeing for those brands as well as Tommy?

And then as a follow-up to the Tommy retail outlets in the US, can you just tell me what the comp comparisons you guys are going to be faced with in the back half?

Is it similar to your CK comparison?

Okay, I'm going to try, now that's a multi-part question.

So, let me try to make it easy.

Let me talk about trafficking conversions first.

The traffic in the outlet centers in general is down to up slightly.

If our comps are running on average in the first quarter were up 11%, our traffic was only up 2% to 3%.

We're seeing a couple of things.

Conversion is much higher in our stores than it was at this time last year and at the retail tickets, both from a quantity point of view, units per transaction and for the average unit retail out the door, both of those two metrics are also up.

So traffic I'd say is, on a center basis, I think is actually down.

We're seeing it up slightly in our stores but the real comps are really being driven by conversion and retail price of that store.

If you look at the legacy businesses for this year, our legacy business in the first quarter brand up overall ran 11%.

Calvin was up 16% and our legacy business was up about 7%.

The Tommy business comps that they are up against mirror pretty closely the Calvin Klein comps as well, so their business will -- their comparison will start to get more challenging October to November.

They are up against negative comp stores through September through the middle of October.

We think there's real momentum in that business and they should exceed the guidance that we have out there.

That's great and then just a quick question on your US wholesale business.

Are there any key additional categories you're focused on in expanding on the near term for Tommy and then also ex-Tommy, how are you planning your inventories year-over-year for the balance of the year?

Sure.

We're looking initially at three areas.

We're looking initially at kids.

We'd like to -- we have a very very profitable healthy business in our own retail channel and we're looking at the opportunity, we're looking at internal and external but I would think it would be through a licensing model that we'll look at the kids business and to grow that particularly with Macy's as we go forward.

We're also looking at the footwear area.

We do some business there today but we're really looking to turn that up.

We're not sure whether we'll use the licensing model or potentially do some of that in-house and then finally the home area which we definitely do through a licensing is an area that we're looking to expand.

And we're looking at some of our licensing partners on the Calvin side to really grow that business as well, and the last category is accessories, handbags and again, there we're looking at the choice to take it in-house or to do it through one of our third party licensing partners, so those are the four categories that we're focused on.

I think, I don't believe, you will not see any of that growth this year.

That's a 2011 fall initiative and moving on.

Awesome and then just the inventory plans ex-Tommy?

You're going to start to see our inventories grow along with our sales growth.

In particular in the second quarter with the -- I guess I haven't gotten to -- I have been waiting for the sourcing question and I haven't gotten it yet, so there's a bit of chaos out there in the sourcing market, in the supply chain.

And we are taking all precautions given the strong focus of our business, strong trends in our business to make sure we have the goods, that we aren't going to get shorted at factories.

We're in factories, we're taking goods in early, a little bit earlier, I'm talking 15 days to 20 days earlier to make sure we have the goods in-house, in country, so we're really trying to move the pipeline forward.

We don't want to be caught where we don't have the goods and we lose out on some production so we're being very judicious about taking goods in a little earlier than planned to catch the sales trend and potentially if there's upside, we can catch some of that upside.

So long answer, you'll see our inventories on the core PVH business probably up in the second quarter in the 10% range with a sales plan that's up 5% to 6% with the difference being that we're just trying to get behind the goods, catch some of the upside but also secure the production and the merchandise.

Awesome.

Thanks.

We'll move now to Christopher Kim with JPMorgan.

Hi, thanks.

Manny, you highlighted some pretty compelling revenue opportunities at the Tommy Hilfiger business.

I was wondering if you could talk about what you see as a sustainable growth rate at Tommy globally over the next several years?

And if you could put that into some sort of operating margin perspective, where you see that longer term I guess ex-currency, that would be great?

Thank you.

Sure.

Let me take this one.

As we've discussed when we were discussing the transaction when we were out selling equity, my position with the market has been -- we're looking for top line growth in Tommy in order to drive sustained bottom line growth of 15%, earnings of 15% to 18% earnings per share growth.

We need top line growth of about 5% to 6%.

The strong cash flows that we generate that will pay down debt coupled with our legacy business growth particularly in our Calvin Klein business growth coupled with Tommy's top line growth of about 5% to 6%, we'll drive 15% to 18% earnings per share growth.

That being said, is the management expectations for the growth of the business is much more closer than 9% to 11% top line growth driven by the international markets going forward and all of the opportunities that I've tried to lay out but clearly as we're projecting the business, we think there's an opportunity to grow double digits top line and we'll be planning and guiding the business more towards mid single digit growth and that's the way it's being laid out.

Okay, that's great.

And also, just in regards to the debt pay down, how should we be thinking about that for the second quarter and back half?

I think with this fiscal year, we'll pay down somewhere between $200 million and $250 million of outstanding debt.

We'll pay a portion of it down at the end of the second quarter and we'll pay the balance down probably in the fourth quarter.

Okay, great.

Thanks so much.

Best of luck everyone.

Our next question comes from Jeff Klinefelter with Piper Jaffray.

Thank you, most have been answered and Manny, you answered mine before I asked it on the sourcing.

Is there anyway you could answer it in the all in cost, logistics, fabrics, labor, et cetera?

Trend-wise, what you'd anticipate going into 2011, barring any changes, geopolitical changes?

And then just one more on Europe.

Given the team has had a lot of years managing the Tommy brand now across the European markets?

Any sense for the range of volatility that they've experienced historically?

I know there's better visibility on wholesale in Europe but can you give us some sense of the range of volatility they've experienced in any given year relative to plan for just some incremental level of confidence as we go into the back half?

Okay, let me just on the sourcing side, fiscal 2010, we see little to no pressure through December, on margins, on cost, it's all factored in and there's minimal cost inflation going forward.

Spring 2011, I don't want to get too far ahead of ourselves.

It's still too early but we are seeing between cotton shortages, between factory shortages.

If demand continues to be strong relatively throughout the world, anywhere from cost increases of 5% to 10% depending on the product category.

Woven shirts less at 4% to 5%, bottoms and sweaters closer to 10% so just to give the range.

There's a lot of strategies to potentially mitigate some of the costs and there are some potential strategies from a pricing point of view at retail to raise some of our retail prices which will be a benefit across-the-board both for us.

Our retailers and orders that really have, I think, the brands that have the ability to raise prices and have strength are clearly Tommy and Calvin given there's more elasticity at those price points.

But given the strength of our brands, the marketing dollars we've been putting behind these brands, I think we have a stronger position to move some prices of any one.

We're in the middle of looking at that.

Can't quantify it to you now except to say we're all over it and (inaudible) whatever issues are going on.

We are looking at replanting and resourcing in different areas to try and mitigate against it and we're on top of it.

I guess, Jeff, the second part of your question which was basically -- please help me understand should nothing bad can happen, I don't know how to make it do that.

The world out there is a crazy back drop that we're up against.

With the Tommy guys, they tell us as we look at their business from 1997 through 2007 all they ever experienced as a brand during that period was double digit strong growth.

They managed through the recession.

They managed very well.

Their business during that period of time was flat year-over-year.

Some of that was self-imposed that they did to themselves.

They were so tight on their inventory purchases that managed the issues that surrounded that and what they were able to do was top line was flat and they were able to generate some additional bottom line profitability.

Right now, we're talking to them, they don't see the same type of chaos that they saw 2008 to 2009 in their business as they go forward, their business has dramatically turned around, second half of 2009 the positive results we've talked about.

And they don't see anything on the ground right now that would change that but then with that backdrop one of the reasons we're being prudent on our go forward projection.

Okay.

Thank you very much.

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

Hi, good morning.

Could you provide a little more detail on gross margin for Tommy versus PVH and the seasonality of that?

PVH standalone, sorry.

For PVH and for Tommy where?

Going forward.

Okay.

Overall, on margins for the wholesale and retail group and for PVH, for the balance of the year, we'll be running flat -- up to the prior year about 40 basis points to 50 basis points.

We keep and -- Manny talked about the price pressure and some of the pressures out there but we are constant through the balance of the year, comfortable to be able to deal with those increases and are feeling good about margins as we go through the balance of the year.

The Tommy business, because of the European wholesale business, runs 2 points higher than us, it's a much stronger business, the business that they -- the European model in general does better in terms of gross margin and the US outlet business also has higher margins that just tend to be as a better brand and does better in the outlets and it does have a couple basis points better in terms of gross margins.

I think what I'd say just to put a little more color on that the Tommy business is have significantly higher gross margins closer to 55% or 57% all in, higher operating expense.

It's the European model, plus the fact there are much more retail than we are, their wholesale retail makes us closer to 50% to 60% as we are with 35% to 65% retail to wholesale, so I think that will change as well, but I would think as we go forward, their margins all in will be closer to 56% to 58% and their operating expenses will be closer to 47% to 48% and to get you that 10% to 12% operating margin on the wholesale retail businesses combined.

Okay, that's really helpful, thank you.

That's for the nine months.

On an ongoing basis it doesn't change that much except we're missing such a very, very profitable first quarter that 10% to 11% operating margin is much closer to 11% to 13% operating margin standalone, so just to factor that in.

Okay, that's great, thank you.

And then my next question is on advertising.

We're going to see as you mentioned in the second quarter the $10 million increase year-over-year.

What about the third quarter, just with the launch of CK Beauty?

Are we going to see a notable increase in back quarter and fourth quarter you'll see a notable decline?

It will be increased but it won't affect earnings because 100% of that is being funded through Coty so you'll see -- it won't flow through our P&L.

Coty's advertising goes direct, they pay it directly.

We manage it but they pay it directly so it doesn't flow through Calvin so that piece of the advertising although it's a big step up is totally funded by Coty.

So you'll see it from a brand perception marketing point of view you'll see it in the market but it will not be in our P&L.

In the third quarter, our advertising expense all in will be up about $3 million and in the fourth quarter will be down about $15 million, a very heavy up spend last year.

In fact, if business continues to be very strong, we could invest a little bit in the fourth quarter but that would only be if earnings were really exceeding where we were, but right now it's being planned down about (inaudible).

Okay, that's great and my very last question is about the opportunities for revenue synergies going forward.

What is the biggest opportunity for revenue synergy?

I think on our heritage -- look, I guess I'd say it two ways.

I think we think there's an opportunity that we can get as a Company,as a standalone with IZOD and ARROW in particular throughout Europe and then potentially Asia that the Tommy operating platform and business gives us, so we think there's a real opportunity there.

We believe given our very, very strong position in North America that we have an opportunity to really enhance some of the Tommy businesses in North America, particularly in Canada where they are 100% retail today and we have a pretty large wholesale business.

We think there's an opportunity to take the Tommy brand and utilize our operating platform in Canada and take the business to some of the key retailers there that we have great relationships with and to just maximize the potential for the brand particularly with our licensing network through Calvin Klein, some of our partners, to take those partnerships and potentially grow some of the Tommy licensing opportunities in North America.

So those are the top line synergies but Tommy business in North America was run very well.

It had a great management team particularly in the US retail and wholesale so we think we can improve it but it's really taking it from a high level.

Okay, thank you so much.

Our next question comes from Evren Kopelman from Wells Fargo securities.

Thanks, good morning guys.

I had a question on European wholesale.

You said basically when the order is in, it doesn't get cancelled or less likely to get cancelled maybe compared to the US market.

Can you talk about do they also have a culture of markdown allowances where if things go south, what happens at the nd of the quarter, especially with maybe a different mix of department stores versus specialty stores there?

Can you touch on the dynamics of that in Europe?

The dynamics in Europe are they don't understand what we do in the United States.

It's not even part of their language.

There really is no such thing as markdown allowance agreements.

You sell the goods in.

You perform.

If you perform you get orders for the next season.

You don't, if for any material purpose you don't support agreements any type of markdown support that goes forward.

Now if (inaudible) working, if there's something you want to make the retailer right for because, sure, there was some of that but there's no pressure like there is in the United States.

There's not a culture where the retailers come back and look for gross margin support either at the specialty level or even at the department store level with some of the bigger accounts.

There's much more partnership going forward and try to work out problems, if the goods back up to help them work through the goods and make them disappear but there is not a culture where we support markdown.

Okay, and then a follow-up on that.

So how do you -- how do they manage excess inventory think?

I guess there's not an outlet channel like you have here for the Tommy stores.

Can you talk a little bit about that?

Well, there is an outlet business in Europe.

It's not as well developed as it is in the United States, where we have 150 outlet centers but over there, there's probably 40% to 50%.

They are positioned outside of the major metropolitan areas.

There's much more sensitivity but again, it's usually more than enough to deal with whatever excesses come up in the market.

But just like any other business, there's also the TJMaxx's of the world overseas that will take care of some of the liquidation issues but if the business is really managed well given the Tommy outlet stores they do have and the type of volumes that go through that at a very jpf, there's much more of an opportunity there to make the goods disappear.

There is [expense] with some of the those goods that you hold them for a little bit longer.

You wouldn't take the current goods and put them right into the outlet stores and certainly the specialty stores.

You would hold them for a period of time and liquidate them but they do it very, very profitably in their outlet stores throughout Europe so that's the strategies they've used and that's worked in all seasons.

The only issue they have was fourth quarter, first quarter of 2008 to 2009 where they used some of the secondary channels in order to liquidate some goods, so yes, business is very healthy there.

Okay, and what are the operating margins for Tommy in Europe versus North America?

How do they differ?

They are about 200 basis points higher.

Okay so 200 basis points is the difference Europe versus North America, okay.

And then lastly can you give us a little bit more color on the chaos you mentioned on the sourcing side?

Maybe what are the drivers behind the shortages and it having been in the business for a long time, what do you see going forward in terms of what happens?

I think, look, right now there's a raw material cotton shortage in the market and when I say that it's putting price pressure on it.

The availability in cotton is there to support the business but you're really chasing after it.

We are a large -- both businesses, Tommy and PVH, are very large providers with long term relationships so we are well secured in the factories that we are in but it putting more and more cost pressure on the business particularly as we look out at spring 2011.

And I talked about trying to manage that and it's in that 5% to 10% range.

As you -- this time last year and into the third quarter and fourth quarter of last year and into early spring there was factory availability that you could constantly chase goods.

So if business was strong and you were able to get your lead times and if you had raw material availability, you could get your goods produced and you could get some turnaround in two months to three months and there was factory capacity availability.

With the demand that's changed as we're going forward with the pull forward of goods, in fact there isn't that flexibility in the market that was there 12 months ago and was there in spring that created a lot of buying opportunities for everyone in the industry.

So that supply and demand getting that equation to work out, the demand right now is starting as we look into spring is starting to out strip the demand and that's putting pressure on prices, that's putting pressure on deliveries, and it's forcing us to be very flexible and to move very quickly and aggressively.

Great.

Thank you.

From Brean Murray we'll take Eric Beder.

Good morning, let me add my congratulations.

Thank you, Eric.

Could you tell us -- you extended the Tommy contract with Macy's.

What is the opportunity there in potentially adding more doors or adding more space to Tommy footprint there?

I think we're in about 680 doors.

I don't think, we don't believe that there's a significant door expansion opportunity at Macy's.

What we do think is there is a a significant lateralization of the brand at Macy's.

We believe the opportunity for the brand in certain categories we should be bigger in women's sportswear than we are today.

We believe our denim business should be bigger than it is today and we believe men's sportswear which is performing very strong, we still believe should be bigger than today's presentation.

We believe product categories overall give us the opportunity to expand by using both the licensing model as we go forward.

And we'll continue to be in the same doors as appropriate for the brand, similar to Calvin Klein, similar to Ralph Lauren.

And we think that this is opportunity to really grow that brand and over the next three years to four years we believe there's an opportunity to double the size of the business.

I don't think it will necessarily be more doors.

It will be broader presentations within those doors.

Okay, and in terms of your budget for IZOD, I saw you recently expanded that into horseracing.

Talking the logic of that of where are you looking for in terms of, just in general in terms of potential additional marketing opportunities?

I guess I wouldn't call it horseracing, I would call it sporting events.

Major sporting events, the Monmouth Haskell Invitational.

We got a great opportunity through our connection in New Jersey with the IZOD Sports Arena.

And if anybody -- I'm a bit of a horseracing fan so if anybody is a horseracing fan, the way it's shaping up is the Kentucky Derby winner and the Preakness winner are supposed to be, the rematch is supposed to be in Howell in New Jersey at the Monmouth racetrack.

It's going to be probably the premier summer event in horseracing.

And for a very economical transaction, we were able to get IZOD as a sponsor of the Haskell Invitational, so it'll be the Haskell Invitational, which we think it's got -- will just add to the exposure that we have in motor speedway, in with basketball with the New Jersey Nets, with baseball with the New York Mets, with our connections throughout the major leagues as we go forward so we think the IZOD connection in sports is a big positive and we'll continue to focus on that.

Great, thank you.

We'll take a question from Jennifer Black with Jennifer Black & Associates.

Good morning and let me add my congratulations.

I wondered if in the international outlet area, is that an area that you would want to grow your business?

And then in the past I think you've said that Canada is not a big opportunity and I wanted to know your thoughts there.

Thanks.

Sure, thanks, Jennifer.

I would say on the outlet side on the Continental Europe, there is more and more expansion going on in the environment and it's becoming more and more recognized as an appropriate channel of distribution for fashion brands in Europe.

It is a very profitable channel of distribution and I think we'll probably be opening five stores to seven stores a year over the next five years.

As the Real Estate becomes available, as we strengthen the brand in key markets in the UK, there's a real, very well established outlet channel of distribution.

We don't want to jump into it until the brand has more pressure, more presence at regular pricing but over the next three years or four years I think you'll see us start to develop that both as a liquidation channel and as a profit of opportunity going forward in the UK.

So clearly there's a big opportunity for that growth and it is very profitable.

Canada is becoming a little bit more and more interesting.

One of the things we've learned with the Tommy transaction is how profitable their Canadian retail business is both the outlet and the regular price business in Canada.

And we are looking at some of our brands particularly Calvin but maybe some of our legacy brands that have had very strong presence in the Canadian market.

There may be an opportunity to utilize the Tommy infrastructure from a retail organizational point of view in Canada to support some of our retail expansion at some of our brands in Canada.

Again I think that would be a fall 2011 beyond initiative but it's just another area that through the acquisition that's come up.

Operator, we'll take one more question.

It's well past 10:15.

We're already 15 minutes to 20 minutes over, so we'll take one last question.

Okay, certainly.

Our last question comes from Karru Martinson with Deutsche Bank.

Good morning guys.

With the debt pay down here of $200 million to $250 million this year, I mean, is there any change to the longer term goal of getting back to 2 times by the end of fiscal 2012?

No, I think that's right on and consistent with what we've consistently said, consistent with what we've said throughout the time we were on the road.

We were looking to delever the balance sheet.

We think over a 24 month period we clearly could get our EBITDA to leverage ratio down to below 2.5 times with cash flows this year $200 million to $250 million and next year in excess of $300 million so I think that all works to our advantage and positions us well as we go forward.

Okay, and with three weeks under your belt are there any changes in terms of the CapEx requirements of the business as you see Tommy being integrated?

No, and we continue to see that CapEx will probably run in the $100 million range.

Our CapEx is in the $40 million to $50 million range.

Those are the type of numbers we've used in our projections, maybe a little higher than that in out years as the business continues to expand.

Clearly there's an opportunity if things get a little tighter we could cut back on that.

The maintenance capital is probably 40% to 50% of that so there's a real opportunity if we needed to to cut back but in order to continue to fund the growth and the type of momentum we see in the business, those targets we talked about stay.

And just lastly, I know it's a small part of your business but the Wal-Mart private label neckwear that you're adding how is that rollout going?

It's fine.

It's early.

We're probably two months into it.

Good initial sell-throughs.

We'll get a pretty -- we'll get a real good read on that trend with Father's Day coming up the next couple of weeks.

The product looks great.

It's very well positioned in stores.

We haven't rolled out to all doors, I think we're in about 300 doors today going to 600 doors.

And then hopefully expand for fall and expanding on that so we'll get a good read on Father's Day but I know the 300 doors that we're in are outperforming the doors we're not in that have other neckwear in it.

Thank you very much guys.

Thank you.

Thank you, everyone.

We look forward to getting together for our second quarter earnings release in early September.

We'll continue to keep you informed about how the business is projecting and have a very nice day, thank you.

Once again, ladies and gentlemen, that does conclude today's conference.

Thank you for your participation.