PVH Corp (PVH) 2010 Q3 法說會逐字稿

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

The information made available also includes certain nonGAAP 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 at www.pvh.com, and in the Company's current report on Form 8-K furnished to the SEC in advance of this webcasted call.

As reminder today's call is being recorded.

I would now like to turn the call over to Mr.

Emanuel Chirico.

Please go ahead.

Good morning, everyone and thank you for joining us for our third quarter conference call.

I'm joined on the call by Mike Shaffer, our Executive Vice President and Chief Financial Officer.

I'm also here with Pam Hootkin, our Head of Investor Relations and Treasurer, as well as Allen Sirkin, our President and Chief Operating Officer.

And we're also joined today by Ken Duane who runs all of our US Wholesale Businesses.

I guess I'd just like to say how pleased we are with the results, our third quarter earnings came in $0.13 better than the high end of our guidance and we beat our sales by over $70 million.

In a similar way, we flowed that full beat through the year, we raised our guidance at the top end by $0.15 and we took our sales estimates up $140 million for the year while at the same time raising our advertising investments for the year by $10 million in the fourth quarter.

I'm going to try to put some color on the business and Mike will put a little bit more quantification into all those numbers.

But at Calvin Klein, where I'll start, we had a very strong quarter, the growth momentum really continued in the third quarter and has continued into the fourth quarter.

Total revenues for the Calvin Klein brand worldwide for us were up about 16% and our operating profits were up over 33%.

I'm going to start with the businesses that we operate directly, wholesale and retail.

There we recorded a sales increase of about 15% in the quarter.

The strong performance was driven by our men's wholesale sportswear business which saw its sales rise about 15% in the quarter as well as that we're seeing very strong performance at retail at the department store level with very strong retail sell throughs and much higher AURs this year than we saw last year.

In our own retail stores in the third quarter we posted a 12% comp store increase and that trend has really continued and actually accelerated into the quarter where we're seeing comps up about 15% through November for our Calvin Klein business and that's against a plan of about 5% to 6%.

So strong momentum in the Calvin Klein businesses that we operate directly and we believe the biggest challenge we're experiencing at Calvin Klein right now is having enough merchandise to get us through the holiday selling season.

So we're scrambling and our margins are very strong as we go forward.

In the licensing segment of the business, royalty revenues were up on a constant currency basis about 14%.

Let me talk about the larger categories, fragrance, our Coty business, we had a very strong quarter.

Sales were up about 14%.

Business has been very strong across all of our fragrance brands in particular Euphoria and CK One are having particularly strong sell throughs at retail and strong performance across the board, both domestically and internationally.

The quarter also benefited in fragrance by the initial sellings of our Calvin Klein Beauty fragrance.

This introduction is being supported by a significant marketing campaign with our celebrity spokesperson Diane Kruger.

It's very early in the sell through process and our performance at retail, but initial retail sellings has been very strong particularly-- has been strong particularly in Europe.

Moving to our US women's apparel business, that's principally run by our partner G-III.

This business is very strong.

Our royalty revenues in the quarter were up about 25%.

The growth is being fueled by very strong selling in women's sportswear and women's dresses as well as very good performance in the outerwear category overall.

Just to remind everyone, the women's sportswear category had been the one problem area that we've had in the Calvin Klein business for the last three to four years and over the last three or four quarters we've really seen dramatic improvement with our partners G-III taking that business over.

They're making investments at retail.

You just can go in and see some of the best shops just here in New York at Lord & Taylor's and on Macy's at 34th street.

And we're really seeing that the lift that we're getting out of women's sportswear is helping all of our business across the board in the United States.

Moving to underwear, the Calvin Klein underwear business was ahead about 15% in the quarter with all regions, Europe, Asia and the Americas posting double-digit sales gains.

The growth was driven by continued growth in international retail square footage and the extremely strong performance of men's.

The men's Calvin Klein X product continues to perform at retail.

And the addition of X Elements this quarter, which was a sub brand of X, has given us an added boost in the men's arena.

In women's, the introduction of Envy has been very well received particularly in Europe and Asia where we're posting our strongest results there.

We've discussed it before, but we have a significant marketing campaign going on right now to support the Envy launch.

We have a commercial in the United States which features Zoe Saldana, we're very happy about that.

In addition, besides the television, we've got cinema and digital media playing globally, and we believe this is an important step in continuing our momentum in the women's area in underwear.

On jeans, the Calvin Klein jeans business for the quarter was up about 12% fueled by strong growth in Latin America, Asia and the US.

The global response to the introduction of X jeans has really contributed to these positive results.

This launch, as I've said, is being supported by a multi-media campaign, outdoor, print and then complemented by some television around jeans.

We believe the new media for jeans is really expanding our reach to a younger consumer.

We've taken this and targeted a younger consumer, this initiative really gives it the baseline for continued expansion, particularly as we begin to launch CK One for 2011.

And at Calvin Klein we're continually looking to create meaningful impactful launches of product and marketing.

The launches have historically driven sales and created a significant marketing and PR buzz for the brand.

This began recently with the launch of Euphoria in fragrance in 2006.

Euphoria is now our largest fragrance business.

It continued with Steel in 2008, which has been a significant launch in underwear and has been expanded into other product categories.

And this year, 2010, with the launch of our X campaign, we've clearly had excitement in underwear, which we branched off into jeans as well.

I'm very excited to report that the trend will continue for 2011 where in spring of 2011 we will launch CK One.

CK One is a dual gender, multi-product category launch.

The launch will focus on the largest product categories fragrance, jeans and underwear.

Given the high awareness of CK One due to the significant success we've had, enjoyed in fragrance both domestically and internationally, we are enthusiastic about the potential that CK One brings to jeans and underwear as well as the relaunch of fragrance.

The launch will be supported by a major cohesive marketing campaign that will combine our fragrance, jeans and underwear marketing dollars.

The campaign and the product offering are being geared to a younger consumer demographic.

And just to give you a sense in just in one product category, we've seen significant bookings in underwear, our bookings for underwear are over three million units to date, nearly double what X was at this time and we believe it really provides a nice kick off for the new year and positions us in Calvin Klein to continue our momentum and continue our innovation with the brand as we go forward into spring 2011.

I'm going to move now to our Heritage businesses.

Our Heritage businesses had an extremely strong quarter.

Sales increased 16% for the quarter and operating earnings were up about 20%.

And that included a $5 million increase in advertising spending over the prior year.

At retail, third quarter comps posted a very strong 9% increase in the third quarter, a constant trend and continues -- our comps trend in November continued at plus 3%, which compares to our sales plan of about 1% to 2%.

So very strong performance at retail.

The real highlight of the business was our wholesale business which grew in the quarter 22%.

We had a very healthy increase of about 6% in dress furnishings, while sportswear had a sales growth of over 30%.

We're seeing significant growth in our IZOD, Van Heusen and Timberland sportswear businesses, we are seeing growth with all of our major customers and clearly our wholesale businesses are continuing to outperform the competition at retail.

We're clearly gaining market share in department stores and we believe this growth is being driven by two key components.

We believe we're delivering great product at a great value proposition to our consumers and that we are-- have been consistently investing behind our brand particularly IZOD and Van Heusen jointly with our partners at retail, both media and at point of sale, and we believe that partnership that we have with our retail partners has really added to the growth that we're seeing with those two businesses.

So for relatively mature businesses to be up in the range we're talking about, we are clearly getting more door openings and clearly more square footage openings on the floor.

I'm going to move to the Tommy business, just to give you some highlights.

The North American integration is on plan and on target to deliver the core savings that we've talked about.

We've seen no glitches there at all.

It's moving very smoothly for us and we're very happy how that's going.

From a marketing brand building perspective, we had some real highlights in the third quarter.

The first and foremost we launched our full marketing campaign, centered around meet the Hilfigers.

We could not be happier with the execution of the campaign in print, outdoor and on television both in the US and internationally.

The response from the consumer and the response from our retail customer account has been extremely positive.

So we are feeling really good about the investments we're making there.

We believe it's really starting to pay dividends.

And we are being seen in creating a lot of marketing and brand buzz around the Tommy Hilfiger brand.

Second we opened a 12,000 square foot Paris flagship store on Champs-Elysees on November 17, we're very excited about how that's come off.

We believe it's really going to enhance our presence throughout France and France has been a key growth market and I'll talk about that some more as I get into my comments.

And we also signed a lease to open a 12,000 square foot flagship store in Tokyo, which we believe will be a real anchor for us in Asia.

That store should open in the first quarter of 2012 and we are -- with both of those store openings we think it just enhances our position.

We have a great retail presence with the Tommy Hilfiger brand throughout Europe and throughout Asia and we think this will just move us forward as we go forward.

Looking at our business results overall, the Tommy Hilfiger brand had a very strong quarter.

We exceeded our revenue guidance by $50 million and our operating guidance by over $11 million.

Operating income margins were about 13% in the quarter.

The brand's performance in both Europe and North America has been particularly strong.

And let me start with our European wholesale business.

Before the -- for the four holiday season, we are seeing sales grow of 10% over the prior year.

On a product category basis, we have seen double-digit growth in menswear, denim, bodywear and footwear.

From a geographic perspective, our strongest markets were the UK, Germany and France which are clearly growth markets for us.

In four, given the difficult economic conditions in Spain and Ireland, they are the only two countries which are posting low single-digit negative sales trends.

In wholesale-- in European wholesale as we look out to spring 2011, the momentum continues and is actually accelerating.

Our order book for spring is running ahead over 12%.

We are seeing strength in all product categories.

All of our European countries are experiencing growth with the biggest turnaround occurring in Spain, where our spring orders are up 10%.

Our key growth markets, France, the UK, Italy and Russia are all seeing spring orders growth of over 20%.

Moving to our European wholesale business.

Business has accelerated in the third quarter with comp store sales exceeding 10% on the continent.

That trend is consistent throughout the continent and that trend has continued into November.

Our only concern is keeping stores stocked through Christmas with inventories, and given the strong sell throughs, our regular price margins are trending very strong in the fourth quarter.

Moving to North America at retail, we posted strong comps in the third quarter of over 10% and those sales trends continue into the fourth quarter.

We are seeing strength in all regions of the country, with particularly strong performance in geographic areas that cater to international tourists.

The Tommy retail results are very consistent with our strong sales -- with the strong sales performance that we are seeing in our Calvin Klein retail business.

At US wholesale we are seeing good performance at Macy's in both men's and women's sportswear.

Sales are running ahead of last year and our sell throughs at retail are running ahead of plan at this time.

We're very happy to where we see the business coming together at Tommy, we see a lot of momentum in that business, we think the marketing investments we're making are paying dividends now and clearly we believe we'll start to pay dividends as we go into 2011.

With that I'm going to turn it over to Mike Shaffer to quantify some of those results.

Thanks, Manny.

We're really happy with the third quarter.

The comments I'm about to make are based on nonGAAP results and are reconciled in our press release.

Just before I delve into when I get into the financial highlights, just to frame or outline our third quarter for everybody, from a revenue perspective comparing the top end of our previous guidance to where we came into the third quarter, our total revenue beat was about $76 million.

The Calvin Klein and Heritage businesses had a beat to the prior guidance of $48 million.

And -- I apologize, the total beat was $76 million, the Tommy business beat was $48 million and the Calvin Klein and Heritage beat was $28 million.

When you look at the earnings per share side, our beat was $0.13.

We took our-- we had guided to $1.42 and our actual was $1.55.

The Tommy beat was $0.11.

The Calvin Klein and Heritage businesses beat the EPS by $0.11.

The interest beat was $0.01.

And taxes, because of the higher rate and I'll talk more about that, we gave back $0.10 for a net $0.13 beat.

Now to talk more about the quarter and the year.

Total revenues for the third quarter were $1.5 billion, or $819 million greater than the prior year.

Driving this increase was our Tommy Hilfiger businesses which had revenues of $708 million as well as an increase in our combined Calvin Klein and Heritage business of 16%.

Our Tommy Hilfiger businesses performed ahead of plan both domestically, internationally and in both wholesale and retail.

Our Calvin Klein business had total revenue growth of 16% in the third quarter.

Royalty growth of 13% was coupled with strong sales performance of 15% in the Calvin wholesale and retail businesses.

Calvin Klein outlet retail comps were up 12%.

Our Heritage business also had strong performance in the third quarter, with our wholesale business revenue up approximately 20% and our Heritage outlet retail comps of 9% increase over the prior year.

Our earnings per share was $1.55 for the third quarter versus last year's $1.08.

We were up 44% and $0.13 ahead of our top end of the previous guidance.

Tommy Hilfiger earnings for the quarter were also very strong.

We were $11 million ahead at the top end of our Tommy Hilfiger guidance.

Earnings were driven by strong wholesale performance in North America and international as well as strong North American international comps.

In addition, gross margins were higher than anticipated both domestically and internationally.

Our Calvin Klein and Heritage business also had strong performance with EBIT improvement of 26% versus the prior year.

Strong revenue growth drove the increase.

Our Heritage business also incurred an additional $5 million of planned advertising expense in the third quarter versus the prior year.

Our tax rate for the quarter was 36%, which was higher than our guidance of 32%.

Our tax rate was driven higher primarily as a result of our domestic operations, which are taxed at a higher rate than our international operations and our domestic operations generated a larger portion of the pretax income in the third quarter than we had planned.

That was in addition to our -- some additional marketing expenses we incurred in Europe which are not tax deductible in certain jurisdictions.

As we look forward we continue to feel good about the fourth quarter.

The fourth quarter we are estimating our revenues to be approximately $1.37 billion, which is an increase of approximately $755 million over the prior year.

Driving the revenue increase is -- are revenues associated with Tommy Hilfiger at approximately $680 million and a 12% increase on our combined Heritage and Calvin Klein businesses.

Comp sales for our combined Heritage Calvin Klein retail businesses are projected to increase 2% to 3%.

And Calvin Klein royalty revenue is planned at plus 12%.

Earnings per share for the fourth quarter are projected to be $0.76 to $0.81 and this includes an additional $10 million in advertising over our previous guidance.

Our earnings reflect Tommy Hilfiger EBIT of approximately $55 million, or an operating margin of 8% and an improvement in our operating income in our combined Heritage and Calvin Klein businesses of approximately 20%.

And also for the year I'd like to try to frame our change from our previous guidance to our current guidance.

From a revenue perspective, we've rolled through the third quarter increases plus an additional increase, our total change in guidance from the previous guidance to the current guidance is $140 million.

The Tommy Hilfiger change in revenues is $95 million, and the CK -- and Heritage business change is about $45 million.

And when you look at our EPS fee, we went from $3.80 at the top end of our previous guidance, we are now projecting $3.95 at the top end of our guidance.

The beat there is $0.15 in Tommy Hilfiger, $0.11 in CK and Heritage, interest is $0.02 and the tax take down is $0.13, getting that $0.15 change in EPS from the $3.80 to $3.95.

So for the year we are projecting revenues of $4.61 billion.

Our revenues reflect Tommy Hilfiger at $1.915 billion to $1.925 billion.

And an increase in our combined Calvin and Heritage businesses of 12%.

Comp sales for our combined Heritage and Calvin Klein outlet retail businesses are projected to increase 8% to 9%.

And we're projecting Calvin Klein royalty revenue growth of 12%.

Earnings per share is projected at $3.90 to $3.95, which is $0.15 greater than the top end of our guidance and it includes an additional $10 million in marketing expense versus our prior guidance.

Tommy Hilfiger businesses are projected to have EBIT of about $205 million, or operating margin of 11% inclusive of the higher ad spending.

Our tax rate for the year is projected to be 36.5% to 37%.

This is higher than our previous guidance as shifts in income between domestic and international operations are expected to have an impact on the tax rate as well as the nondeductible expenses I discussed.

And finally we continue to plan the $300 million debt repayment in the fourth quarter, which is in addition to the $100 million we made in the second, for a total of $400 million.

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

Thank you.

(Operator Instructions) And we'll take our first question today from Evren Kopelman with Wells Fargo.

Great.

Thank you.

Great job, everyone.

Congratulations.

Thank you.

I had a question -- my question on the CK One launch, the number you gave for the underwear units, three million nearly double, how does that translate to sales?

Because I think you mentioned the average price points are lower for CK One and also I believe it's the dual sex instead of single gender for the X launch.

So can you -- what does the nearly doubling of units mean for sales?

I think again, I'm pulling this a little bit out of the air, but just to give you a sense on the wholesale sales basis, I think that will be somewhere between $15 million and $20 million.

Okay.

Great.

And then a second question is on the jeans, when you're talking about Calvin Klein jeans for the quarter, I think you mentioned last time Asia, US, but you didn't mention Europe.

Is that -- should we be reading into that, is Europe weaker for jeans?

And also just in general if you have comments on denim trends, there's the conversation of denim flowing, what are your thoughts on that?

Thank you.

Well I think in general as I speak to retail on the second part of your question, the denim category is not as strong as other sportswear categories that are out there.

I think our overall performance has been good in the United States.

I think the issue around denim is more of a North America issue than it is a global issue as far as from a demand point of view.

On the Calvin Klein jeans business, I don't know (inaudible) read into it, no, I don't think it is.

The European jeans business was fine.

It's just that the -- I made the point that we saw double-digit increases in Asia, Latin America and the US.

And I believe the European business was low single-digit kind of growth.

I don't think there's much to read into that, it's on one quarter's worth of business.

Next question.

We'll now hear from Jeff Klinefelter with Piper Jaffray.

Yes, thank you.

Again, congrats everyone on another great quarter.

Marketing dollars, Manny is what I wanted to talk about.

You guys have been consistent for several quarters now in adding to your marketing budget and clearly it's been very effective based on the top line trends.

I believe this is also considered one of the biggest opportunities as a strategic owner now of Tommy in Europe and Asia and really starting to incorporate some of the same strategies with respect to marketing dollars and demand generation.

Could you talk a little bit about that, how you plan to approach Tommy, what -- are there ways to quantify in terms of the percent of revenue that you plan to allocate to dollars, marketing dollars for that brand and how it will compare to the US?

Well I think in general we look at it globally, we don't look at it totally geographically and we're looking to spend somewhere total marketing dollars, all categories, we're probably looking to spend something around 5% of sales, between 4% and 5% of sales.

That's pretty -- that is consistent on a relative basis what we spend in Calvin, but again since it's a royalty model it's a little bit different.

And when I say consistent with Calvin, that's consistent with Calvin exclusive of fragrance.

Calvin has a $1 billion fragrance business and Tommy's fragrance business, although meaningful, is not anywhere near that size.

So clearly we are looking to step that business up, step that marketing dollars-- those marketing dollars up.

We are focused on Europe, Asia and North America and we've allocated the marketing dollars in a fashion that we think is most effective on a regional basis.

The one huge benefit that our European business has is that there are 400 full priced, regular priced stores throughout Europe about half of which we operate, a little bit less than half of which we operate, the other half of which our partners operate.

So clearly we have a presence throughout Europe with regular priced retail stores on all of the major -- in all of the major cities throughout Europe that gives us such a significant marketing advantage there.

We tend to spend a lot of our marketing dollars there at point of sale, but also print and outdoor.

In the US historically the marketing spend is centered around print and outdoor.

And this year when we looked at the -- when we really looked at the Hilfiger campaign, first of all we got very excited about the campaign overall, the creative that was behind it.

And we got into real heavy discussions with the management team there.

Fred really loved the campaign.

We thought that there was a television potential cinema use for it.

We're very happy the way it's executed here in North America.

And we're taking that same commercial and we'll probably-- and we'll be putting it into cinema throughout Europe right before Christmas and into January as we go forward.

I would anticipate we'll measure those results.

We are looking to make a significant investment again in spring, appropriate with the profitability and sales that go with that brand, and we would come right back with a strong spring campaign that would be both print, outdoor and television, again.

So we're excited about it and we think it's a campaign that has a lot of legs both in the media formats that I talked to you, but also at point of sale that it plays very well at point of sale being able to really take the -- a lot of the media and really communicate that point of sale to our consumers to really get a bang there both in our department stores and in our own stores around the world.

That's helpful, Manny.

Just for context, is there any way to think about the percent of revenue that's been devoted marketing dollars to the Tommy brand historically and how many will-- and what percent will be devoted to it under your ownership going forward?

I think the brand is always-- there's never really been a shortfall in the brand.

But I would guess 100 basis points increase, somewhere in that neighborhood is what we've talked about trying to really get behind it.

And it's really come from outperformance, the brand has really earned it based on its initial estimates of where we were and being able to put that back and invest back into it and to really try to build some momentum on top of the sales performance.

Okay.

That's great.

And just one clarification, did you provide any context on inventory between your kind of -- your core legacy businesses and the Tommy business, any metrics you can provide on the differences between the two?

I'm going to make Mike answer that, but I think the one thing I would say before he even gets into the numbers, is I wish we had more inventory.

Okay.

Particularly at Calvin, particularly at Tommy and particularly what's going on in the world with cost increases, I'd love to have more core product in order to have it going forward, so I'll turn it over to Mike.

The -- our inventories, I know you guys like to look at our fourth quarter sales increase and compare it to the inventory.

Our inventories are slightly ahead of our third quarter ending year-over-year increase.

And the drivers there are twofold, and we've talked about them before.

One is we've made an investment in our core products, primarily dress shirts.

Last year at this time our inventories were light.

We did miss sales, we've invested into those businesses to have the inventory on hand and get it into the stores.

So we are continuing that, as Manny said we need the inventory, we are a little over in the dress shirt side.

We also have advanced some orders with all the sourcing chaos that's taking place throughout the world, particularly some of the third world countries.

We've actually gone in and brought goods in a little early.

So we are-- we've brought some goods in and we're sitting with about 4% or 5% more than our sales increase in terms of inventory growth.

And differences between Tommy and legacy?

The legacy business, Mike was really speaking on the legacy business that was 4% or 5% higher than we were at this time last year given the sales trends and really focusing there on bringing those goods.

Some -- a lot of that is just to bring good goods in a little earlier to make sure we have the goods to service the retail [account].

Okay, great.

So Tommy inventory is right in line with their sales expectations.

All right.

Thank you very much.

We'll next hear from Kate McShane with Citi Investment Research.

Hi, good morning.

Good morning.

Manny you mentioned, this is a follow up to the last question in inventory, you mentioned a couple of times about just worrying a little bit about having enough inventory in a couple of categories.

During the quarter is there any way to chase or catch up if you do run out of inventory or is that going to be -- is the money going to be left on the table in Q4?

Are you concerned about that?

I'm concerned that there will -- in sportswear fashion category, there is no chasing.

In dress shirts I think we've built behind it.

I feel good that we've advanced inventory in order to be able to service January business as we go forward.

And if -- I was saying that somewhat tongue in cheek, but if we are actually -- these sales trends continue, whatever sales might be left on the table the gross margins rates will more than cover that.

So we're feeling really good about the way the regular priced selling is going on both internationally and domestically.

Okay, great.

And then on the sourcing side, I think from what I understand second half still hasn't been quite determined yet.

Can you give us a better idea of when you will have a better idea of what your costs are going to be like for the second half of 2011 and when they could change?

We have some visibility.

We just haven't booked -- we've booked some blocked and some production out, but we haven't booked and-- booked the actual course involved at this point.

So that's a work in process.

But clearly the second half, we're looking at double-digit cost increases.

I can't tell you right now if that means it's 10% or if it's 15%, I just don't know.

I think we've got some sense on different product categories.

It also -- we can sit here and talk about each individual category.

But we get paid to merchandise a line, to merchandise how that line will be positioned at retail.

We are looking at resourcing goods.

We're hitting every level and clearly we're in discussions with all of our retail accounts both domestically and internationally that clearly AURs averaging unit retails have to go up as we go forward not only for fall but for spring.

And there will be inflation that's across the board and how the consumer reacts -- the biggest question to us is we could sit here and we can anticipate what we're going to take our wholesale prices up to our retail accounts, but as you, everyone on this call well knows it's what the consumer ultimately pays given our margin position and how we support our retail partners, how the consumer reacts to that.

We are being very careful about raising key price points too quickly.

We're trying to be very thoughtful about how we move product and merchandise the line.

I think we have a number of advantages as we think about this from an operating profit point of view.

Next year, we have the Tommy business for a full year.

We'll have the expense savings associated with the Tommy acquisition on an annualized basis that continue to grow each year.

We have clearly have price elasticity in the Calvin Klein business and the Tommy Hilfiger business and our Heritage businesses, which I think will be under more pressure, clearly there we'll move price and we have expense leverage to play against that.

So I would continue to believe that our operating income margins will expand in 2011 given the mix of business, the faster growing Tommy and Calvin businesses and then it's a-- and then we'll determine to what extent those margins will grow as we go forward.

And that's really what we're playing out over the next 45 days to see where it is.

And I think we'll have a much better feel on this really placing goods in the middle of January.

So that's the sense that we'll try to be a little bit more transparent as we see it going forward.

Okay, that's very helpful.

Thank you.

And next we'll hear from Robert Ohmes with Merrill Lynch.

Mr.

Ohmes, your line is open, please go ahead.

I think we lost Mr.

Ohmes.

Hearing no response, we will move on to Helena Tse with Bank of America Merrill Lynch.

Hi, guys, [didn't think I was] calling in for Robbi and myself I guess.

But a quick follow-up question in terms of the sourcing cost.

Given the double-digit cost increases for the back half, can you maybe just elaborate a little bit more in terms of how you guys are thinking about planning retail ticket pricing versus units as you sit down at the department stores?

And then also as a follow up just sort of given the trends that you are seeing right now with the department stores, how would you sort of say that they are planning -- they are open to buy for fall?

Would you say that they're still conservative or maybe a little bit more optimistic, or how are they sort of looking at current trends, and then as well as just through the cost increases that everybody is facing out there?

Helena, I don't-- it's a work in process.

There is a tremendous amount of dialogue going on now about all the key things that you just -- you laid out.

I guess I would just say is if your -- I guess the basic question is, if your -- if AURs are going -- if costs are going up 12% as an example and if potentially AURs are going up 12%, which I don't know if they are -- or if ticketed retails are going up 12%, if that was the case, are really retailers going to plan their open to buy dollars up 12%?

I don't believe that would be a conservative or appropriate way to plan business.

So the dialogue is now ongoing.

We are in clear discussions about setting AURs and it's different for every -- it's clearly different for every brand.

There's a strategy for Calvin which I think clearly has price elasticity which we can -- raising our prices $3 or $4 on average, I don't think will be an issue for the consumer particularly in fashion goods.

On opening price points goods I think it's much more of an issue, we really have to work with it.

We are talking to the retailers not only about buying dollars, but also buying units particularly in businesses where there's replenishment and significant core and size requirements like dress shirts.

So clearly that's an ongoing dialogue, but I think that's what we -- if I had all those answers, I clearly would share them with you.

It's a process right now.

I think the retailers are feeling optimistic based on the trends of business that they're seeing today.

They're feeling good, they're buying aggressively into their sales plans for spring and I think that's a positive.

We'll start to test price increases.

We started in the fourth quarter.

We'll intensify that in spring and we'll see what the reaction that the consumer has and what the competitive set is doing as well.

So there's a lot of dynamics going on.

And I think you're really going to have to -- need to be very nimble as we think about it and we'll have to be appropriately -- prudently conservative as we think about what the price point increases could be at retail, but also give ourselves the opportunity at whatever we might be planning financially that we could raise them even higher than that.

So it's clearly just a work in process at this point.

Great, thank you.

(Operator Instructions) We'll next hear from John Kernan with Cowen and Company.

Hi, guys, thanks for taking my questions.

Wonder if you could talk a little bit about the initiatives at PVH Europe next year, specifically if you could provide any quantitative guidance around what you expect out of the Arrow brand in Europe next year and into the calendar year 2012?

Well sure, I think we're not -- from a financial point of view I think it's going to be invisible to you for the next two or three years.

On a relative basis, I think it's -- we're in the areas where we're starting, I think we'll have some start up costs next year, nothing dramatic, but I'm sure we'll have $4 million to $5 million of start up costs in our business associated with the merchandising and design.

We'll have some marketing launch probably in fall and again in spring 2012.

Product will start to be delivered.

We've got a sales plan that starts very conservatively for fall that's probably in the $5 million to $8 million range.

On an annualized basis for the first full year we're probably looking at $20 million business.

For the countries that we're focused on initially, could it move faster than that, yes, but I think we're just being prudent as we go forward with the business and I think we have a lot to be seen yet.

We've introduced the concept to retail partners throughout Europe, but haven't got into specifics about orders as you'd expect for fall at this point and positioning and where we are.

So very early and we're very excited about it.

We're excited about the idea.

But I think just to put into perspective, if we were to hit on all cylinders, I believe that business is a $100 million business in five or six years.

So I just -- I think it's a nice additive business that will be very helpful to the brand overall and to us.

But I think that's where you should keep it in -- we need to keep it in perspective as well.

Okay.

And obviously the Tokyo flagship is exciting.

Can you talk -- I believe that Hilfiger business is licensed in China.

Is there any timetable in terms of moving your strategy towards China and maybe acquiring a license?

Yes, well I think we announced about a few months ago that we are taking back the license in China.

We will begin operating that business mid-year 2011.

It is today about a $35 million business, overall the brand is represented.

It has good market positioning in China.

We like the price position that we're in there now at.

It -- the brand has got a very strong consumer recognition awareness and we think it has a lot of potential.

To put it into perspective, our Calvin Klein businesses will probably end this year north of $125 million in China.

But clearly there's a track there and we believe operating it directly ourselves with our -- to our joint venture partnership is the way to go as opposed to a licensing point of view.

We'll have much more control over the product, the distribution and the retail presence there.

So we're looking forward to that as we go forward.

Okay.

Thanks.

And we'll now hear from Chi Lee with Morgan Stanley.

Hi, guys, good morning.

Good morning.

You've seen two quarters now better profitability out of Tommy, can you talk about whether that's a function of just better product margins, better expense leverage or both?

It's a combination of both and the only caveat, caveat, the only point that is there, we are investing in some marketing dollars as well on the SG&A line.

But clearly our margins have exceeded our expectations given the combined, I guess $90 million increase to sales guidance, we are clearly getting SG&A leverage even with the marketing investment that's going forward.

So it has really been on all counts there.

I think we started the year projecting about $180 million and right now we're at $205 million for nine months.

So we know how strong that first quarter is.

So it's really exceeding our expectations as we understand the business better, get our arms around it, work with our partners.

We think that there's opportunity for operating income margin expansion at Tommy this fiscal 2010 over 2011 of about 100 basis points which is pretty consistent to what we've talked about throughout the process.

Okay.

And as you look at that 100 basis points of margin expansion I think you had previously mentioned fully annualized, you would look to the Tommy business to be around an 11% to 13% margin business.

So is it possible that Tommy starts to push itself more towards the 14% to 15% type operating margin business as we look out to next year?

I guess I would have said -- I would say, yes, there's clearly that possibility over a couple of years' period of time.

Given the cost dynamic that's going on that we talked about in sourcing and product cost, I think that you have to consider that a bit of a headwind in the short term as the market settles in, as you start to move your retail prices up, they probably will not move as quickly as the cost increases and hopefully we can get that back over a couple of seasons' period of time.

So I think that's -- that's how I feel about it.

But clearly I think this is a business that as it grows, as it expands, as we bring in new businesses from license to owned that clearly operating margin and profitability will improve.

Last question on Tommy, Manny it sounds like some of the weaker markets for Tommy Spain for example is seeing a pretty dramatic inflection in bookings going into the spring selling period.

Can you talk about what's driving that?

Is it restocking on a like for like basis?

In the wholesale doors, are you seeing incremental door expansion to get you that improvement in those weaker markets?

It's-- in a market like Spain it's really not about door expansion, it's about more space and market share on the floor.

As I think always happens in difficult environments, the strong get stronger and the weak disappear.

We're clearly taking market share in that particular country away from other players and we are getting more -- we're getting more fixtures at point of sale, which is helping to drive our business.

Because even in this tough environment in Spain (inaudible) the brand continues to perform at retail and the retailers invest back into what's working.

Thank you very much.

We'll now hear from David Glick with Buckingham Research.

Yes, good morning and congrats on what looks like a strong finish to the year.

Manny, happy to hear that you guys think you can still expand operating margins next year despite some of the challenges.

I'm wondering, I know it's early on the cost front and how the pricing is going to work out, but how do you approach managing the line items on the income statement next year?

I mean do you manage the SG&A line a little bit more conservatively?

Do you think there's an opportunity to hold the gross margin?

Obviously you have the extra quarter of Tommy at a very nice gross margin for the first quarter.

How do you think about those things?

And then, Mike, on tax rate, how do we think about that going forward?

Thanks.

Okay, why don't we get the taxes out of the way and then I'll jump in.

On the last call we had talked about the taxes for next year being somewhere around 34%, 35%, we're holding to that for next year.

Okay, great, thanks.

Still think we're in that range.

Okay.

So on the operating -- on the levers, look I think we clearly have levers, we -- let me start with marketing across all of our brands.

We are going to continue to invest.

I think on a -- if you look at it on a brand by brand based on a competitive position, we spend more than our competitors in marketing.

We don't want to back off of that, but clearly if we were to take -- if we were to put -- position ourselves as we're seeing growth in the business, keep the dollar levels flat and not necessarily grow as a percentage of sales for one year to get us through that that's clearly something we'd look at and think about as we go forward.

In addition, we've got the -- we have the benefits associated.

I touched on bringing Tommy in for the four quarters versus three quarters, and the first quarter is just a very strong quarter.

I believe on the SG&A line we will continue to leverage the growth, against the very efficient base as we go forward from an operating expense structure point of view.

We're very careful about how we're adding headcount even though the Calvin and the Tommy businesses continue to grow.

So we are very cognizant of what we are going to be up against next year from particularly in the second half with some of the cost increases and we're looking for those opportunities to really leverage the SG&A line to take some pressure off of the gross margin line for some period, for at least the next six to 12 months as we go forward.

So I think we have from a competitive set point of view, given the acquisition, given our size, I don't think anyone is in any better position to really deal with this as effectively as we can, and we're pretty confident that we will grow our operating income margins next year.

Okay, so thanks for the color and good luck.

We'll now hear from Howard Tubin with RBC Capital Markets.

Oh, thanks, maybe can you talk a little bit about the combined sourcing organization and now that you've owned Tommy for several months now, any synergies you're seeing from maybe some cross sourcing or anything like that?

Look, we're seeing a significant amount of synergies, significant amount of discussion going on where both Company's had expertise in different product categories just to give a couple of examples.

As you can imagine as the kings of the dress shirt world and woven sportswear world, that's an area of particularly on the woven tops area where we have a great deal of credibility and expertise.

We've shared all that information with our Tommy -- Tommy partners and talked about different opportunities there.

The Tommy business from a sweater point of view is much larger than ours and they clearly had some real expertise in sweaters.

So that's an area that we've tried to take advantage of where we are.

So there's clearly learnings going on, sharing of information.

Structurally I don't see us making any significant changes to the structure of our sourcing operation.

The Tommy business will continue to utilize their sourcing office and network that they have and the PVH organization will continue to utilize ours with a lot of sharing in between.

And I couldn't be happier the way those two organizations are working together to take advantage of the situations.

And we'll take the next question.

That is all the time we have for questions today.

Mr.

Chirico I'll turn it back to you.

Well thank you very much.

We really appreciate the support that we get.

We look forward to our fourth quarter press release in March and I'd wish everyone a very healthy, happy and blessed holiday season and good luck in the new year.

Take care, everyone.

Ladies and gentlemen, that does conclude our conference for today.

We thank you for participation.