PVH Corp (PVH) 2011 Q1 法說會逐字稿

Good day, everyone, and welcome to the Phillips-Van Heusen first-quarter 2011 earnings conference call.

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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 31, 2011.

Any such forward-looking statements are subject to risks and uncertainties, indicated from time to time in the Company's SEC filings.

Therefore, the Company's future results of operations could differ materially from historical results or current expectations, as more fully discussed in its SEC filings.

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

The information made available also 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, I would like to turn the call over to Manny Chirico, Chairman and CEO of Phillips-Van Heusen.

Please go ahead.

Thank you very much.

Good morning, everyone.

Joining me on the call this morning is Mike Shaffer, our Chief Financial Officer; Allen Sirkin, our President and Chief Operating Officer; Ken Duane, our head of our wholesale businesses; and Dana Perlman, our new Treasurer and Head of Investor Relations.

In general, we are very pleased with the results we delivered for the first quarter.

We beat both our sales and our earnings guidance.

This was delivered as the top end of our guidance; we beat our estimates by about $0.07 a share.

The strong performances that we were able to deliver were clearly driven by our two growth engines, Calvin Klein and the Tommy Hilfiger business.

Let me start with the Calvin Klein businesses first.

We continued to see strong momentum in the Calvin Klein businesses.

Total revenues in the first quarter for the combined Calvin Klein businesses were up 17%.

And our operating profit increased about 10% for the quarter, despite a planned advertising increase of $9 million relating to the CK One global marketing campaign.

When you consider the $9 million investment we made in CK One, if you were to put that back and make it apples to oranges, the operating profits would have been up in excess of 25%.

On the businesses that we operate, our Wholesale and Retail businesses, we posted a 23% sales increase in the quarter.

The strong performance was driven by our Men's wholesale sportswear business, as well as a very strong performance in our own retail stores.

Our Calvin Klein retail business posted a 14% comp store increase in the quarter.

That strong trend has continued into May, with comp stores posting a double-digit increase for the month of May in our retail store.

Moving to our Licensing segment, revenues were up overall about 10%.

And I'm going to speak about some of our bigger businesses.

On the fragrance side, our Coty business there had a very strong quarter, posting an 8% increase in revenue.

Business has been very good across-the-board, with Euphoria and CK One fragrance continuing their strong growth.

The quarter also benefited from the strong performance of Calvin Klein Beauty, particularly in the international markets of Europe and South America.

Moving to our US women's apparel business, there, we had another strong quarter.

Our royalty revenues with our main women's licensee, G-III, were up about 23% for the quarter.

The growth is being fueled by strong selling of women's sportswear, performance apparel and dresses, as well as continued good performance in the outerwear category.

In addition, our new handbag and accessory business is off to a very strong start.

G-III has seen excellent sellthroughs both at Lord & Taylor and at Macy's.

We have a lot of optimism about that business as we go forward.

Our watch and jewelry business with Swatch saw significant growth in the quarter, posting a 40% increase over last year's first quarter.

The growth was driven by door expansion and considerable comp store growth, both in Asia and in Europe.

Our CK Bridge business in Asia continues to grow dramatically, posting a 40% increase in revenues for the quarter.

The growth is being driven by the China, Hong Kong and Korean markets, where we experienced significant door expansion and double-digit comp store growth.

Moving to our underwear category, the underwear business overall with Warnaco was ahead about 20% in the quarter, with all regions, Europe, Asia and the Americas, posting double-digit sales gains.

This growth was driven by continued growth of international retail square footage and the extremely strong performance of CK One.

CK One is the largest launch in the brand's history, and retail results have been very strong in all markets.

In men's, CK One is exceeding the strong performance of [X] in the prior year and has helped us maintain our number one share within US department stores.

CK One is expected to represent about 10% of our annual underwear business by the end of the year.

Moving to jeans, our jeans business was up about 10% for the quarter, fueled by strong growth in the Latin America, Asia and European markets.

Overall, our international jeans business grew about 15%, while our domestic business grew in the mid-single-digit range.

I am going to move now to our Tommy Hilfiger business.

Let me start by saying the North American integration is complete, with all systems converted, and all systems appropriately operating at this time.

We are on target to deliver all the cost savings that we talked about, and Mike Shaffer will quantify some of that in his remarks.

From a brand marketing perspective, we introduced the second chapter in our successful Meet the Hilfigers marketing campaign, as we continue to invest in and broaden the Tommy Hilfiger reach around the world.

Our spring campaign was a truly global campaign, with significant exposure in major markets throughout the United States, Europe and Asia.

From a business perspective, all of our Tommy business had a very strong quarter.

We exceeded our revenue guidance by about $15 million and our operating income guidance by about $10 million.

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

I will start with our European Wholesale business.

For the spring season, we have seen sales growth of about 15% over the prior year.

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

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

Our business in Germany continues to grow and expand, posting a 12% sales increase.

Our key growth markets of France, the UK, Italy and Russia are all seeing growth in the 20% range.

As we look out, we are seeing growth in our orders for the fall holiday season; our order book is running ahead over 15% for the second half of the year.

We are seeing strong double-digit sales growth in almost all countries.

By product category, the strongest growth is coming out of footwear, bodywear, men's sportswear and women's sportswear.

Moving to our Tommy European Retail business, sales were very strong in the first quarter, with comp store sales exceeding 10%.

That strong sales trend has continued into May, with comps up in the high-single-digit range.

In our North American business, I will talk first about our larger business, the North American Retail business.

There, we posted comps in the first quarter of over 10%, and that sales trend of plus 10% has continued into May.

We are seeing strength in all regions of the country, with particularly strong performance in the geographic areas that cater to international tourists, such as New York, Las Vegas, Miami and on the West Coast.

The Tommy Retail businesses are very consistent with the strong sales performance we have seen in our own Calvin Klein retail business in the United States.

On the Wholesale side of the Tommy business, our Macy's business continues to do very well.

In both men's and women's sportswear, sales ran ahead of last year and sellthroughs at retail were on plan.

Our average unit retails at Macy's are up over 5% over the prior year's first quarter.

Moving to our Heritage business, here, we saw a softening of business.

Our dress shirt and furnishings business continued to perform, delivering both sales and operating income growth.

Our Heritage Wholesale and Retail sportswear business did see softness in their business trends for the first quarter, recording a 2% decline in sales and a $9 million decline in operating income.

The earnings decrease was driven by pressure on gross margin due to higher product costs and increased promotional selling, particularly at Bass, Izod and at our Timberland business.

On the positive side, as the weather broke in early May, we have seen a marked improvement in sales trends in both our Retail and Wholesale sportswear businesses.

Moving to the guidance overall, we tried to be prudent concerning our estimates.

Clearly, our outperformance is being driven by the Calvin and Tommy businesses.

We have tried to put sales and operating margin projections together that we believe we can beat, and truly contemplate the increased cost environment that we see coming forward for the second half of the year.

We believe that the momentum we see in our Calvin and Tommy businesses will continue to drive our growth and should allow us to outperform our current projections.

With that, I would like to turn it over to Mike, who will try to quantify some of what I said.

Thanks, Manny.

We are very happy with our first-quarter results.

As a reminder, the comments I'm about to make are based on non-GAAP results and are reconciled in our press release.

Our revenues for the first quarter were $1.369 billion.

Revenues for the quarter were greater than our previous guidance and significantly greater than the prior year.

The primary drivers for our revenue increase were strong performance in our Tommy Hilfiger businesses, both domestically and internationally, as well as strong performance of all our CK businesses.

Our Tommy Hilfiger business delivered revenues of $715 million.

These revenues were all incremental, as the Tommy acquisition was completed in the second quarter of 2010.

Our Calvin Klein business also had a strong quarter, with revenues growing 17%.

Both the Tommy Hilfiger and Calvin Klein businesses exceeded our revenue plans for the first quarter.

Our Heritage revenues for the quarter were flat to the prior year and down about $10 million to our plan.

The decline was primarily attributable to Izod and Timberland Wholesale, as well as Bass retail.

The cold weather in the Northeast and Midwest, heavy reliance on spring (inaudible) at Izod and sandals at Bass was a factor in our [costs].

Operating income for the first quarter was $167 million, which was an increase of $86 million from the prior year's $81 million.

The primary drivers for the increase were our Tommy Hilfiger division, which delivered operating income of $91 million, and our Calvin Klein business, which delivered operating earnings 9% greater than the prior year.

Included in the Calvin Klein operating income is an increase in advertising expense of $9 million associated with the global launch of the CK One campaign.

Operating margins for the Heritage business were down to the prior year, a result of our sales shortfall and resulting gross margin pressure as we cleared product.

To our guidance, Tommy Hilfiger and Calvin Klein earnings increases more than offset our first-quarter Heritage business shortfall.

Overall operating margins were 12.2%, and were ahead of our guidance.

Our inventories for the first quarter were $685 million versus last year at $285 million.

Our inventories at the end of the first quarter last year did not include Tommy Hilfiger.

The Tommy Hilfiger inventories at acquisition were $289 million.

Adjusting for the Tommy Hilfiger inventories, we're in line with our Quarter 2 sales projection of 15% to 17%.

As a reminder, our inventory continues to reflect longer lead times in order to take advantage of off-cycle production and opportunities to reduce product costs.

And we do expect to bring goods in earlier as we progress through the year.

Moving to our guidance for the year, our revenues are planned at $5.7 billion to $5.75 billion, an increase of 23% to 24%.

The Tommy Hilfiger business is planned at $2.91 billion to $2.94 billion, and compares to $1.95 billion for the partial year 2010.

Our Calvin Klein revenues are planned up between 9% and 10%.

The Heritage business revenues are planned up 1% to 2%.

We continue to plan our gross margins down about 150 to 200 basis points for the year as a result of product cost increases.

Our expenses are still planned to be down about 100 to 150 basis points, reflecting expense reductions and SG&A leverage.

Operating margins are planned to be at 11% to 11.5% for the year.

We have raised our earnings per share guidance to $4.80 to $5.00, a 13% to 17% increase over last year's earnings per share.

Our new guidance also reflects an increase of $0.10 and $0.05 on the low end and high end of our previous guidance, respectively.

For the second quarter, we are planning our revenues at $1.27 billion to $1.29 billion, or 15% to 17% greater than last year.

Driving the increases are Tommy Hilfiger business, which is planned at 23% to 26% over the prior year, and our Calvin Klein business, which is planned at 9% to 10% [over prior year].

Our Heritage businesses are also planned to increase 5% to 6% over the prior year's second quarter.

We are projecting earnings per share for the second quarter at $0.93 to $0.95, an increase of about 30% over the prior year.

As Manny talked about, we continue to invest in marketing.

In the second quarter, we are planning a shift of Tommy Hilfiger marketing of about $8 million to $10 million from the second half into the second quarter.

As a result of this shift, we are planning the total operating margins for the Company down about 70 to 80 basis points for the second quarter.

Our tax rate for the second quarter is expected to be 31% to 32%.

Our tax rate for the year remains unchanged at 29% to 31%.

We are continuing to project debt repayments for the remainder of the year of about $300 million.

With that, operator, we will open it up for questions.

(Operator Instructions) Bob Drbul, Barclays Capital.

Hi, good morning.

Manny, I guess a couple of topics I would like to hit on.

The first one is in the Heritage business, when you look at the experience that you had in the first quarter with your price increases, really what did you learn about it?

And will it affect any change in terms of your plans for the fall, in terms of the larger price increases and cost increases going forward?

You know, Bob, I think the one thing we really learned is weather impacts the first quarter.

And I just don't think it is a fair comparison to call out, particularly on business in the month of April, which is dramatically driven by short-sleeve knits, sandals in the Bass business.

That business really took it on the chin, and was impacted, and clearly forced us to be more promotional than we had planned to be.

So I think that -- you can't ignore it.

I hate talking about weather, but that did have an impact.

I think as we move through the second half, look, the consumer -- when the product is right, when it is competitively priced in the market against our competitors there, we get good sellthroughs.

So I think we will see how it all plays out in the second half of the year.

I think we are being very -- we're giving ourselves plenty of room in the second half to deal with a promotional environment, and if we catch a break, I think we have an opportunity to outperform against the estimate that we're giving ourselves right now.

Clearly, we are planning gross margin down 150 to 200 basis points overall.

I think clearly, we have given ourselves room and built in more than enough promotions into the projections going forward.

Got it.

And then the second question is, on the Tommy business, when you look at the fall backlog and the order book for the fall, and you look at your sort of second-quarter guidance, have there been any sort of surprises to you over the last several months, as you sort of look into the black half of the year, as you lap the anniversary of the acquisition?

Well, look, when it comes to the Tommy business, the only surprise has been positive.

The strength of the business; clearly, we were not planning the business to grow 15% to 18% coming out of the box.

We were more planning the business in the 8% to 10% range in Europe.

So we have been pleasantly surprised with that.

And also, in the United States, having 11%, 12% comp store increases, clearly, that wasn't planned, as well.

So the strength of the brand continues to surprise us.

We have been able to catch most of that and gain market share as we have gone forward.

And I think that portends well for the second half of the year, as we go into fall, both from a margin point of view and a potential sales upside point of view.

That same upside, I think, is available for Calvin Klein as well, because the same dynamic is at play.

Clearly, the consumer is voting, and those two brands are winning both the market share gain and being able to deliver higher AURs.

Great.

Thank you very much.

Adrianne Shapira, Goldman Sachs.

Hey, this is Scott Kaufman-Ross on for Adrianne.

Just wanted to ask a quick question on the advertising shift.

It seems you shifted some into -- you know, you had the $9 million from CK in the first quarter, and now you're shifting some of Tommy into the second quarter.

And I believe you're also lapping a $10 million shift in Izod last year.

So could you just kind of break down the advertising cadence and expense guidance maybe by quarter?

Obviously, we know the 100, 150 basis point leverage for the year, but just how to think about that quarterly, given all these shifts in advertising.

Well, I guess what I would say is last -- let's talk about Tommy first.

Last year, we acquired the business May 6.

And we made a decision early on that we wanted to -- with the acquisition that we wanted to make investment in the new marketing campaign.

And we clearly shifted last year -- we weren't up against a comparison, but we very much heavied up our third and fourth quarter spend overall.

What we did this year is going from a nine months of Tommy business last year to 12 months this year, we annualized that increase and then spread it in a more rational basis between spring and fall.

So that is what you are seeing in the second quarter and the shift on the Tommy side.

The only other shift is what we spoke about, which was the Calvin shift, which was $9 million of Calvin spending into the first quarter to support the marketing of CK One.

Again, I think you will see that coming out of the fourth quarter.

So simply stated, I think you will see second-quarter advertising up in the $8 million to $10 million range on a Company basis, and you will see fourth-quarter advertising down in the $10 million to 15 million range, when it is all done.

Great.

And then anything --

(multiple speakers) Sorry.

Oh, no.

Thank you.

Anything on the Izod from last year?

I think you had shifted from 4Q into 2Q on the Izod sponsorship.

Just anything on that?

Is that repeating in the same quarter?

Yes, 2010 to 2011, that spend will be consistent year-over-year.

Okay.

So then the only real shift we are dealing with in the rest of the year is Tommy out of the back half and moving that out?

That's correct.

Okay, thank you.

David Glick, Buckingham Research.

Yes, good morning and congrats on the quarter.

Manny, I just wondered if you could give a little more detail -- it sounds like you are being pretty reasonable about your gross margin outlook.

Could you walk us through what you are seeing in cost increases and how that compares on an aggregate basis versus the ticket increases?

And then what your underlying assumptions are for what the consumer ultimately is going to pay in terms of higher AURs.

Okay, look, I will give you some general facts today.

I think it is really -- there are two distinct stories going on here.

There is Calvin and Tommy, and then there is the Heritage business.

Calvin and Tommy business represent about 75% of our profits, and then the Heritage businesses clearly are under more pressure, since most of those businesses are opening price point.

But generally speaking -- let's talk cost first -- spring costs were up 5% to 6%.

The second half, we're seeing costs, depending on the product category, up 10% to 20%; on average, something between 15% to 16%, cost increases that we are dealing with in the second half of the year.

In the second half of the year, we are raising ticket prices somewhere in the 12% to 14% range.

And from a financial point of view, we are assuming that half of that sticks from an AUR point of view.

So we are planning AURs up 5% to 7%.

So that should more or less give you a sense of where we are coming out, and give you a sense of what the potential opportunity would be if we outperform the financial plan and more closely align with our sales ladder plans that we have, both at Wholesale and at Retail.

And I think it also gives you a strong sense of minimizing the risk in the second half of the year, at least against our projections, that I believe we have taken most of the risk out of there, unless it just becomes a disaster.

We are clearly getting AUR increases in Calvin.

Even though most of the competitive set have not raised ticket prices, we are seeing higher AURs out the door in the 5% to 6% range, and we are seeing similar results with Tommy Hilfiger.

Great.

So I think it gives us the strong feeling with those two brands that clearly the opportunity to raise prices in the second half are there, given the strength of those brands and the positioning that they have (inaudible).

Great.

Thanks for that detail.

Just one other question.

Now that you have owned Tommy for about a year, and you have had a chance to see firsthand what the opportunities are and the strength in the business, when you look at your overall business and you look at the continued growth of Calvin, the opportunities in Tommy, and when you factor in your Heritage business, what does the long term top-line model look like?

And once we get through this second half on the product cost side, can you deliver earnings growth faster than sales growth?

What is your current thought on what the long-term model looks like now?

You know, David, I guess -- I think both brands, Calvin and Tommy, have demonstrated over the last five years the opportunity to grow the top line somewhere.

The Calvin business is growing on average 13% over the last five years, if you take out the 12 months of the global recession.

And even there, it was up slightly.

But -- so I think under normal environment, that business should continue to grow top-line growth of between 8% and 10%, even for such a large brand, given the international growth opportunities that exist.

And I believe the Tommy business should also be able to grow its top line somewhere in the 8% to 10% range.

Both businesses, absent this gross margin craziness -- this cost price situation that we are dealing with for the second half of this year -- have also demonstrated an ability to consistently grow their operating margin.

A combination of better gross margins, but also leveraging the SG&A line.

I think both brands should be able to grow their operating income somewhere in the 50 to 100 basis points a year, beginning in 2012 and beyond, as, hopefully, the global cost environment product gets more balanced, more under control.

I don't foresee, at least from what we are seeing right now, next year being anything like this year from a cost (technical difficulty).

I think it will be more rational.

It will be product cost inflation, but much more manageable from a Tommy point of view as it flows through.

So it sounds like overall, if you figure the Heritage businesses kind of flattish, [double] low singles, that you've got a model that can put up high single-digit revenues from a planning perspective and grow earnings in the double digits.

Yes, look, nothing has changed.

We have been consistent -- I think we have consistently said since the acquisition that we felt we can grow the top line, when you blend everything together, in the mid-single-digit range, and we can grow the bottom line in excess of 15% on an earnings per share basis.

Given the leverage that we get on the SG&A side, the paydown in debt associated with the cash flow nature of all of the businesses, clearly, we are very comfortable that we can grow earnings per share at a 15% (inaudible), at least for the next three to five years.

Thank you very much, Manny.

Good luck.

Robbie Ohmes, Bank of America Merrill Lynch.

Hey, Manny.

How are you?

Good, how are you.

Good, thanks.

Hey, a couple of follow-ups on Tommy Hilfiger.

Apologize if I missed this on the call.

On the backlog for the back half, I think you guys said 15% plus.

Did you break out domestic versus Europe on that?

No, I was only talking about Europe, the European business.

And actually, let's remember the US business is 75% Retail, 25% Wholesale, and the Macy's business is being planned in the mid-single-digit range, 4% to 6% growth (inaudible) year.

Go you.

And then I think you guys brought back in house handbags and accessories for Europe.

Can you give us an update on when that is -- is that hitting the backlog already as an in-house run business?

Yes, that business really has started up, to some degree.

But really second half and into 2012.

It is in the backlog numbers, but it is still a relatively small business.

To put it in perspective, our footwear business is approaching EUR100 million business this year.

We believe the same opportunity exists for handbags over a four- to five-year period, and the handbag business is closer to EUR25 million today.

Got you.

And the last question I -- again, sorry if I missed this.

CK One jeans launch US, I think, hit in April.

Any update on how that has been performing?

I don't have anything specific, except in our own stores, which has been performing very well.

I think if you look at the jeans launch, it is a much bigger launch, as you would expect, with back-to-school, much more focused there.

And I think it will be much more meaningful to really speak about the results when we get into the second and third quarter.

It has really been -- the focus has really been much more on the underwear side of the business, and there we are seeing sellthroughs in the 5% to 7% range, and seeing very good placement and feeling very positive about that.

Great, thanks a lot, Manny.

(Operator Instructions) Kate McShane, Citi Investment Research.

Thank you, good morning.

I was wondering if you could go into a little bit more detail as to what you saw in the sportswear category during the quarter -- what you saw from your competitors in terms of their pricing strategy and what you are seeing that has improved in May.

Okay, I guess I would say is for spring, basically, what we saw is it continued to be a very promotional environment.

Fall clearance into the first part of the first quarter was very aggressive, and the actual clearance prices that were going out were significantly lower than they were at this time last year.

And as we got into April, where we were expecting to see more sellthrough of spring product, the weather did impact it.

Everyone across-the-board, there was more promotion going on, driving prices down in the month of April.

What we did see in May as the weather broke, we were aggressive to keep the inventories clean, and we saw a strong reaction to the product and the sellthroughs through the month of May.

The last two weeks in particular, with the weather really coming on, have been very, very strong.

So we are getting -- our inventories are back in line and back on plan, and we feel much better than we did three or four weeks ago about the Heritage line.

What I will say is the Calvin and Tommy businesses, both in the United States and internationally, clearly did not have those issues in their sportswear business.

From the Calvin business, that we operate directly, we saw AURs that were up 5% to 7%.

That has continued through May.

We saw strong selling, as I said, with mid-teen increase in sales.

And that trend just hasn't slowed down.

So that's more or less the tale.

And I think what we are seeing is some buildup of inventory towards the end of the first quarter, clearing out, from a competitive [set], through the month of May, things settling in.

And what I am hopeful about is as we get to fall, spring inventories will be at an appropriate level that they will not necessarily impact the pricing strategies that are on the floor for the back-to-school season.

So we are hoping if this trend were to continue for the next couple of weeks, that overall inventories in department stores across America will be in very good shape, that we can start fall back-to-school clean.

Okay, great.

And then it sounds like Dress Furnishings did extremely well despite the increase in price during the season.

And I just wondered if you could help us better understand some of the dynamics that drove the strength in the category during the quarter and what your thought is on pricing for that category specifically?

Yes, I think in general, well, look -- when you -- it is helpful when you control 50% to 60% of the floor in most of our competitors.

So we have been able to raise ticket prices, be less promotional.

What we are clearly seeing is higher AURs and slightly lower units going out the door.

And I think that formula works very well for us, particularly as we move into the fall season.

So we have been able to stay in inventory, react to the business, keep the business flowing, and not have any issues from a clearance point of view, which has kept the retail prices up.

So I think that is one of the big differences on the Dress Furnishings.

Okay, great.

And my last question is, can you attribute what the inflection -- the positive inflection was in Spain during the quarter?

I really don't think that -- I think the inflection is the strength of the Tommy Hilfiger brand, particularly at our [Porte Anglais] and in that market in general week.

We were able to retain more market share and shelf space on the floor.

I don't believe that anything dramatic is happening to the Spanish retail economy, with the exception that I think it is bottoming and we're coming off the bottom.

So I think the Tommy Brand is very strong in that market; we are gaining market share in a difficult market.

Thank you.

Jeff Klinefelter, Piper Jaffray.

Yes, thank you.

Just a couple questions for Manny.

First, on the Tommy Hilfiger business, with respect to the Asian strategy, could you just give us a little bit more detail there, an update on where you stand on potential catalysts here for the balance of this year and next year?

Sure, I guess I would start -- I'm going speak about Asia -- let me start with Japan.

I guess we have been pleasantly surprised with the resiliency of that business.

We continue to plan it and have not changed any of our projections from our initial guidance at the beginning of the year.

We're planning the profitability down about 25% this year.

What we have seen is post the earthquake crisis, the tsunami and settling in of the nuclear situation there, business the last three to four weeks has really popped backed strongly there.

The month of May, we are seeing business that is flat to up slightly, which has been positive for us there, and margins have been good.

So, again, I think more needs to be played out there.

But in Asia, in Japan, that business seems to have stabilized.

And hopefully, if the trends were to continue, we can outperform our projection.

On the overall Asian environment, we are actively supervising and managing the China business.

The joint venture, we own 45% of that joint venture, and we are managing that business.

We continue to see China as a significant growth vehicle for the brand.

It is about a $35 million business today in China.

We think the opportunity in the next four to five years is for it to approach $150 million to $200 million.

We have the logistics, the team in place, we are working through it.

We will open a few stores in the second half of the year, and I think we're on a good track with the Tommy business in Asia and are focused on that.

The rest of Asia today continues to be run as a license business, and we are looking at some of the opportunities there to bring some of those businesses in-house.

And probably when I say in-house, more in line with the joint venture model that we have in China, meaning teaming up with a local partner, owning probably a significant portion of that joint venture, but less than a majority.

And giving us the ability to operate in those businesses, make the investments in there, and then have the option in the next four to five years to buy those businesses and bring them totally in-house, once the business is up and running at a level that we think it will deliver appropriate levels of profit.

So, Jeff, I really don't have much more to talk about.

The brand continues -- in each of the local markets continues to exceed its business plans from a sales point of view and an operating point of view.

So it is just -- we are undeveloped there compared to the rest of -- how developed we are in Europe and North America, and it's a real opportunity, given the strength of the brand.

And we continue to work through that, but we are in the early phases of that.

And I think you will start to see the benefits of that in 2012 and beyond.

Okay, two other quick questions.

Thank you, Manny, for that insight.

On the Tommy Europe business, I know one of the major changes -- one of the major advantages of you owning that business as part of a strategic acquisition is that you have been able to allocate more marketing dollars, more advertising dollars, get more into a brand-building campaign for that business, particularly in Europe.

In terms of the growth that you are experiencing there right now -- I know it is always difficult to say it is the cart or the horse first -- but the growth that you are experiencing, do you think it has to do with the advertising you've put up and demonstrated to your partners over there, and therefore they are giving you more shelf space?

Or is it this gradual step function of sellthroughs that are getting you more shelf space over time?

Just a little color on that, and then one more on Calvin Klein.

Sure.

Well, Jeff, look, I think you did a good job of asking and answering the question.

I think it was a perfect setup.

I think you've basically -- look, I think we have been able to demonstrate to our major customers and to the consumer that we are serious about investing behind the brand and that has given them more confidence -- that has given our retail partners much more confidence to step up.

And we have clearly seen a consumer reaction to the marketing campaign.

It was terrific -- when we walked in the door, when we were doing our due diligence, we were able to see the campaign in its infancy.

And really just were excited about it, felt it had tremendous legs, and made a decision early on with the Tommy management team to really invest behind that marketing campaign.

It has paid dividends for us in the United States.

I know we talk about Europe because it has been such a growth market for us.

But in the US, I can tell you that at point-of-sale and at retail, it has clearly helped us in our own retail stores with the kind of comp store increases that we have seen.

And I think we have a built-in, proven case with Calvin Klein.

We have a great brand, we invest behind it, the consumer responds to it, and I think that formula has worked so well in Calvin Klein, it will work for Tommy, it is demonstrating that it is working.

And I think it is a combination of the operating platform that we have and the expertise that are present throughout Europe, and the relations that are built there, coupled with that investment, that is really paying the dividends and putting up the 14% to 16% growth quarter by quarter.

Okay.

That's great.

Just a clarification on that.

Are you getting the sellthrough from more space, more product on the floor?

Or do you feel like it is truly just organic turns of existing floor space?

And then on Calvin Klein, just quickly, the CK One, anything at all that you would change in hindsight with the way the global launch went for that campaign?

On the Tommy piece, look, we are gaining also shelf space with some of the new product categories.

So it is hard for me to tell you what that percentage is.

But clearly in our own stores, where we haven't added square footage, throughout Europe and the United States, putting up comp store increases that are well over 10%, I think we are clearly getting both from a square footage being added basis and from a comp store growth on a like-by-like square footage basis.

On the CK One campaign, look, I think we were very happy with the results of the campaign.

We really -- the campaign, to remind everyone, was directed towards a much younger consumer.

So it is at a different -- it is significantly different than anything we have done at Calvin Klein.

It's got a significant digital component, social media component that we really have invested behind.

We had new measurement tools to measure the reaction we are getting from that consumer.

And then I guess the proof is in the pudding from the sales and the sellthrough.

So I think it -- look, I think there is more to learn about this.

This campaign continues to have legs and it will go on through the second, third and fourth quarter of this year, and we will learn more as we go forward.

It is a little too early to say anything that we would change.

But anything that we do see that we would tweak, I think we will put those in place for the second half of the year.

But on balance, we are very happy with the campaign and we really do think we are targeting a new consumer for Calvin Klein and getting that consumer involved in our brand earlier than they have been involved before.

Great.

Thank you and congratulations.

Evren Kopelman, Wells Fargo.

Great, thank you.

Good morning.

I have a question on product cost -- any visibility you have into the next year, in light of some of the declines in cotton prices.

Maybe if you had any visibility into the first half of next year, if you expect costs to still be up year-over-year.

And then would we see maybe a softening in the back half of next year?

You know, Evren, I think -- everything you said, I believe -- directionally, it seems to be where things are hopefully shaping up.

But at this point in time, we have not placed any goods, and I don't think anyone has actually bought goods yet.

So there is a lot of discussion going on.

I think there is some jockeying.

I would expect that spring -- from fall holiday, the prices to spring, we're hopefully going to see some pullback in prices.

But spring-to-spring costs will be up.

They won't be as dramatic as we -- hopefully as we saw in the second half of this year.

But it is still too early to really -- for me to say that with any authority, other than we see the trends in the market, we understand what is going on, and my focus now is really on second half of this year.

Our sourcing people are on the ground, operating throughout the Far East, the Caribbean and the Mideast.

So we are down and into all of that tactically, but we are not ready to really talk about costs yet, except some of the directional things that you mentioned.

Okay.

The other question is on your Tommy Hilfiger guidance for the second quarter.

If I heard you right on the US, it sounds like maybe in Europe then you expect the revenues to be up in the maybe 30% range.

Is there a shift in revenue into the second quarter somehow?

Because it just sounds like a lot higher than some of the bookings you have mentioned.

I think you have to be careful.

It's a couple of things -- is the second quarter, the Tommy business, we made the acquisition in the quarter, but we basically lost -- since it was May 6, it is going to be 12 weeks last year versus 13 weeks this year.

So there is an extra week in there, when we talk about the business.

So you have got to be careful with the comparisons for what is being shown.

I am not sure we've given you numbers of up 30%.

I think -- and we don't really get into that level of guidance, so we don't -- we're focused.

But I don't believe -- we are not seeing anything from a shift basis that should impact the business.

We are not aware of anything, so --

Okay, great.

Thanks.

And last week -- in the second half last year, your Heritage [Foursquare] business was up really strong, I think, 20%, 30% or so.

How should we think about when we are modeling lapping that?

Are you modeling that business down against the compares, or that is just not a concern?

Thank you.

I think in general, when you think about -- look, when we talked about the guidance, we said the Heritage business for the year would be up about 2%.

And we said that for the second quarter, it will be up about 5%.

So I think just the pure math that you put together, I think the second half of the year, overall Heritage would be up somewhere in the neighborhood of 1% to 3%.

And I don't think there is -- there is not much to talk about there.

Business wasn't very strong this year.

We did gain a significant amount of market share, particularly with our Izod business and our Van Heusen businesses.

But I think we will continue to maintain that market share, but clearly not have that kind of growth that we had last year.

And I think, given that it is now after 10 o'clock, I am going to close the call.

I appreciate all your attention, and look forward to our second quarter press release.

We continue to be very excited about the business, continue to believe that the Calvin and Tommy businesses will carry us through the year, and potentially deliver stronger results as we go forward.

So have a great day, and speak to you all soon.

Thank you.

Once again, this does conclude today's conference.

We do thank you all for joining us.