PVH Corp (PVH) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to today's PVH Corp.

fourth-quarter 2011 and full-year earnings conference call.

As a reminder, today's conference is being recorded.

This webcast and conference call is recorded on behalf of PVH Corp.

and consists of copyrighted material.

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

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

The information made available on this webcast and conference call contains forward-looking statements that reflect PVH's view of future events and financial performance as of March 27, 2012.

Any such statements are subject to risks and uncertainties indicated from time to time in the Company's SEC filings including those identified in the Company's Safe Harbor statement that is part of the earnings press release that is the subject of this webcast and conference call.

These include the Company's right to change its strategies, objectives, expectations, and intentions; it's need to use significant cash flow to service its debt obligations; its vulnerability to weather, economic conditions, fuel prices, fashion trends, loss of retail accounts, disease, epidemics, war and terrorism, availability of raw materials, and other factors; its reliance on sales of its licensees and retail customers; and its exposure to the behavior of its associates, business partners, and licensors.

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 statements including without limitation any estimate regarding revenue 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.

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

Manny Chirico.

Thank you.

Good morning, everyone, and thank you for joining us.

Joining me on the call this morning is Mike Schafer, our Chief Financial Officer; Dana Perlman, our Treasurer; Allen Sirkin, our President; and Ken Duane, who is in charge of all of our apparel business -- all of our Wholesale Apparel businesses.

Just some general comments before I get into each of the businesses.

We're very pleased with our fourth-quarter results.

We beat the top-end of our fourth-quarter earnings guidance by $0.08 and we gave that guidance in mid January of this year.

And given the momentum we see in all of our businesses, we're also able to increase our 2012 earnings guidance by $0.20 to $6.10 to $6.20 from $5.90 to $6.10 -- to $6 that we gave about two months ago.

Moving to each of our businesses, our Calvin business continued its strong momentum.

Total revenues in the fourth quarter for the combined Calvin Klein businesses were up 12% and operating profits increased about 6%.

The Calvin Klein wholesale and retail businesses that we operate directly posted a 13% sale increase in the quarter.

The strong performance was driven by our Calvin Klein retail businesses, which posted an 18% comp store increase in the quarter.

For 2012, we're planning our Calvin Klein wholesale and retail businesses to grow about 7% to 9%, which will be driven by mid-single-digit comp store increases and a growth in square footage at both our wholesale and retail businesses.

Moving to our licensing segment, royalties in the quarter were up about 16%.

The business posted strong double-digit growth in all geographic regions with the exception of Europe.

Specifically North America was up about 10%, Asia was up about 21%, Latin and South America were up about 30%, and Europe was up low single digits with fragrance posting strong performance while our apparel businesses were down for the quarter.

For 2012, as we look at the Calvin Klein business, we're planning the growth more conservatively than in prior years.

Overall we're planning royalty revenue growth on a constant currency basis to grow about 4% to 5%.

Foreign exchange will have about a 200 basis point headwind against this business.

In North America royalty revenues the plans call for mid-single-digit growth with departments in department store is being partially offset by a planned reduction in sales to the off-price channels resulting in planned overall North American royalty growth in the low-single-digit range for 2012.

In Europe, the macro environment is causing us to conservatively plan this business for 2012.

In addition, our take back from Warnaco of the European CK bridge business will result in about a $3 million reduction in royalties for 2012.

As such, our overall European royalties are being planned down about 5% in 2012.

Geographically our Asian and South American royalty revenues are being planned to continue their explosive growth of about 20% to 25%.

This growth is being driven by retail square footage growth coupled with strong comp store sales increases which will drive growth in these regions.

I'm going to just touch on some of our bigger Calvin Klein businesses and just put a little color on the total 2011 businesses.

In underwear, the Calvin Klein business was ahead in 2011 about 11%, with all regions -- US, Europe, Asia, and South America -- posting strong sales gains.

The growth was driven by the continued strong performance in international markets where we grew retail square footage and had extremely strong performance from CK One.

CK One retail results were strong in all markets.

In men's, CK One continues to exceed our plan and helped us to go to the number one position within US department stores.

CK One currently represents over 10% of our annual underwear business.

In 2012, a major initiative for us is the launch of Bold.

Bookings in men's are very strong for Bold and are exceeding our initial bookings for CK One.

Moving to jeans, our global jeans and related businesses were up about 6% for the year.

Relatively soft businesses in the US and Europe were offset by strong performance throughout Asia and South America.

For 2012 we expect our jeans category to grow in the mid-single-digit range overall, driven by new product initiatives, particularly our power stretch program, which will see significant sales increases in the spring season.

Fragrance had a very strong performance for us in 2011.

We posted just about a 10% increase in revenues for the year.

Business was very good across the board with our Euphoria and CK One fragrances continuing to post very strong performance for us, both domestically and internationally.

In the US, our women's business continued their strong performance.

Both women's apparel and footwear businesses were up in excess of 15% for the year.

On the apparel side this growth is being fueled by strong selling of women's sportswear and outerwear.

In footwear revenues are running ahead about 20%.

Our two licensees there, G-III and Jimlar continue to do an outstanding job for us.

In addition, our new handbag accessory business had a very strong 2011, its initial performance under G-III.

G-III saw excellent sell-throughs both at Lord & Taylor and at Macy's.

In its first full year, sales exceeded $50 million at wholesale.

Moving to our CK bridge business in Asia with Club 21, this business continues to grow dramatically, posting a 25% increase for the year.

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

Moving to the Tommy Hilfiger business, overall the Tommy Hilfiger business has had a very strong quarter and significant -- it exceeded both our sales and profit expectations.

Revenues for the fourth quarter were up 16% and operating earnings increased 25% over the prior year.

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

Just to put some color on each of those businesses, in Europe for the fall holiday 2011 season we saw sales growth in excess of 15% over the prior year.

On a product category basis we posted double-digit sales increases in men's sportswear, women's sportswear, denim, and in footwear.

All countries with the exception of Ireland posted strong sales growth in 2011.

Moving to our Tommy Hilfiger international retail business, in the fourth quarter comp store sales were up 16%.

With the exception of Italy and Japan, all of our major markets posted double-digit comp store sales increases.

And margins are up significantly in our retail businesses internationally.

Moving to North America retail, we had a very strong quarter.

Our comp stores were plus 15% in the fourth quarter.

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

The Tommy retail results in the fourth quarter were very consistent with the strong sales performance we saw in our own Calvin Klein retail businesses in North America.

Our US wholesale business, which is particularly focused at Macy's, saw very strong performance in the quarter both in men's and women's sportswear.

Sales ran ahead of last year and sell-throughs at retail were well above plan.

Our average unit retails out the door in the quarter ran up between 7% and 8% over the prior year.

As we look out to 2012 we're planning the Tommy Hilfiger business to grow 5% to 7% on a constant currency basis with foreign exchange rates -- with foreign exchange conversion being planned to result in about a 500 basis point negative impact to our overall sales growth.

Given the uncertain economic environment in Europe, our international growth is being planned much more conservatively than in the past and much more conservatively than current business trends would indicate.

We are planning the international Tommy business revenues to grow between 7% to 8% on a local currency business while the US is being planned to grow between 4% to 5%.

Moving to our Heritage businesses, revenues in the quarter were down about 1%, driven by a 17% decline in wholesale sportswear, which was partially offset by a 9% increase in dress furnishings.

Our heritage retail businesses had a very healthy quarter posting a 6% increase in comp store sales.

Operating earnings in the quarter were down significantly, driven by the poor performance in our wholesale sportswear business.

We have been aggressive in clearing goods, providing margin support for our retail partners, and taking markdowns on the floor to move through holiday seasonal goods.

These steps were taken to position us well for 2012 to really begin our turn around there.

We expect that our business will continue to underperform in the first quarter and we should see a significant turnaround beginning in the second quarter of 2012.

I thought I'd give you a sense of how business is performing for the first two months of the first quarter of 2012.

In North America we've really seen our business accelerate in the first quarter, particularly with our Calvin Klein and Tommy Hilfiger businesses.

At US retail, our comps for the Tommy Hilfiger businesses are tracking in the mid-teens range, about 16% up, against a sales plan that's up about 4% to 5%.

For Calvin Klein or businesses are running on a comp store basis up about 10% with a plan that's planned between 4% and 5% as well.

Comps for our Heritage businesses are running up about 3% against a 1% to 2% comp store plan for the first quarter.

In our US wholesale businesses, both Calvin Klein and Tommy Hilfiger continue to perform ahead of sales plan and we continue to seek increases in our out the door retails.

It's early in the spring season, we haven't gotten to Easter yet, but the feeling on those two businesses are that we have a lot of momentum in those businesses and should continue to see growth as we go forward.

In dress furnishings, business is good.

We have also had -- continue to have excellent success passing along higher retail prices with our average unit retails up between 6% and 7% for the first two months of the quarter.

Heritage sportswear continues to be challenged, however we are moving through goods.

We're moving through seasonal goods there and we're starting to see some improvement in early selling of spring.

So we're optimistic how that business is doing.

Moving to Europe, wholesale, which represents about 70% of our business, continues its strong momentum.

Our spring-summer order book is up about 13% ahead of last year's bookings, and for the fall holiday 2012 season we're planning that order book up about 4% to 5%.

And given the environment in Europe and given what we're hearing about how retailers are coming back, they're open to buy and planning their open to buy down in the mid-single-digit range.

We think our performance is clearly ahead of all of the competition we see out there.

At retail our comps are running up about 5% against about a 3% comp store sales plan.

Finally, I'd just like -- before I turn it over to Mike I'd just like to make a comment about our guidance.

We believe we've been prudent with our estimates and that it's early in the year.

We feel we've put together sales and operating margins projections that we can not only meet but if business trends continue we can exceed as we go forward.

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.

And with that, I'd like to turn it over to Mike to quantify some of those results.

Thanks, Manny.

The comments I'm going to make are based on non-GAAP results and are reconciled in our press release.

We're very happy with our fourth-quarter results, and particularly the momentum we have as we move into 2012.

For the fourth quarter we delivered revenue and earnings per share above our guidance and significantly greater than the prior year.

Our revenues for the quarter increased $135 million with 10% over the prior year and were $45 million greater than our previous revenue guidance.

Revenue growth over the prior year was driven by increases of 16% and 12% at Tommy Hilfiger and Calvin Klein respectively.

Total operating income for the quarter was relatively flat to the prior year as earnings increases in Calvin Klein and Tommy Hilfiger businesses were offset by a decline in our Heritage business.

We delivered earnings per share of $1.18 for the fourth quarter, which was $0.08 greater than our guidance of $1.10.

Our earnings per share breaks down as a $0.04 EBIT beat and a $0.04 beat in taxes.

Moving to our guidance for 2012, revenues are planned to be up 4% to 6%, excluding the impact of foreign exchange and the impact of our discontinued businesses.

Including the impact of foreign exchange and discontinued businesses, we are expecting revenues to be flat to up 2%.

Total Tommy Hilfiger revenues are planned to be up 5% to 7% on a constant currency basis with Tommy Hilfiger North America increasing 4% to 5% and Tommy Hilfiger international increased 7% to 8% on a constant currency basis.

Including the negative impact of the foreign exchange, we're expecting the Tommy Hilfiger revenues to be flat to up 2%.

Calvin Klein revenues are planned to increase 5% to 7% while our ongoing Heritage businesses are planning revenues up 2% to 3%.

Our total Heritage revenues are planned to decline 3% to 4% including the negative impact of about 6% relating to the exit of the Timberland and IZOD women's wholesale businesses.

Gross margins for the year are planned up about 100 basis points, with expenses for the year planned up about 50 basis points, due in large part to an increase in pension expense.

Impacting our gross margin and expense in 2012 is our mix of business as a result of faster growth in our higher gross margin and higher expense Tommy Hilfiger and Calvin Klein businesses.

Operating margins for 2012 are planned to increase approximately 50 basis points over 2011.

Our tax rate for the year is planned at 23.5% to 24% and reflects the continued benefit of additional foreign earnings, which are taxed at a lower rate than domestic earnings.

Interest expense for the year is planned between $115 million and $117 million (technical difficulty) a reduction to the prior year as a result of debt repayments.

Our earnings per share for 2012 are planned at $6.10 to $6.20, an increase of about 13% to 15%.

For the first quarter of 2012 we're planning our revenues to increase 3% to 4% to the prior year excluding the impact of foreign exchange.

Including the foreign exchange impact, we are planning our revenues to increase 1% to 2%.

Earnings per share for the first quarter is planned at $1.23 to $1.25.

First-quarter earnings will be the quarter most impacted by product cost increases as first-quarter selling will include fall and spring cost increases.

First-quarter gross margins will be flat to slightly down to the prior year with expenses increasing approximately 125 basis points.

As I mentioned previously, our mix of business is a factor in driving our gross margin and expense percentages.

Operating margins in the first quarter will also be down about 125 to 150 basis points.

Our tax rate for the first quarter is planned at 24% to 24.5% and on the balance sheet we continue to project debt repayments for 2012 at $300 million.

With that, we'll open it up to questions.

(Operator Instructions).

Adrianne Shapira, Goldman Sachs.

Thank you and congratulations on the quarter, Manny.

I was just -- it's great to hear that the international business, the Tommy business is above plan.

But perhaps maybe give us a little bit more color as to the sequential softening you saw.

Clearly we know the environment there, but the slowdowns in sort of the mid-singles from the mid-teens, if you can kind of shed some light on that, that would be great.

Well, I guess there's a couple of things on the retail side of the business that you're talking about from a comp.

When you look at the -- as we came out of such a strong selling season in the fourth quarter, we clearly had significantly less carryover inventory in the first quarter, which had some -- you can't sell goods twice, I guess is my point.

So we saw the real benefit of selling through goods so dramatically in the fourth quarter that on a comparative basis there was significantly less spring goods in the store than there were from the year before.

So I think that had some impacts -- I said spring; I meant fall goods in the store.

So I think that had some impact on the first couple of months of selling, yet no one could also continue with that 15% to 16% kind of comp store increase.

So we are pretty satisfied with the 5% to 6% comp store increase that we're experiencing right now.

It's running ahead of plan, it's running at very strong gross margins.

As you can imagine, the one benefit you get when you're much leaner on inventories, seasonal inventories coming out in the first quarter is higher gross margins as you go forward.

So I think those things will all benefit our profits in the first and second quarter.

Great, that's very helpful.

And then just as we step back and think about last year you handily beat your initial guidance and it seemed like it was just much more by top-line and SG&A control.

As you said, the guidance for 2012 looks prudent and hopefully room for continued improvement given momentum continues.

But where you sit today, maybe kind of help us think through where you think there's potential upside coming from maybe a shift from last year.

More expense control leads to perhaps this year more opportunity on the margin and how you'd see that opportunity pacing as we progress through the year.

Well, I guess I'd characterize it in two ways.

I see significant -- I see the upside based on the sales trends right now in our plan.

We're planning comps in North America, when you put it all together, probably in the 3% to 4% range.

And right now for the first two months of the year our comps are running up 10%, 11%.

So clearly that bodes well for retail performance in North America, it bodes well for gross margins given how clean our inventories were coming out of the second half of the year.

Particularly the way we've planned the business, we're not looking to do anything really heroic in the business compared to historical benchmark, so I think there's an opportunity there.

And then clearly our Tommy international business, this is about as conservatively as we've planned the business coming out of the box.

I think that's very prudent given the environment.

But we really just have to see how sell-throughs continue there.

And if the current trends were to continue we really feel we can outperform those numbers as well.

So I think in some ways -- I think potentially there was -- we didn't have some of the headwinds last year that we had this year, the biggest one being foreign currency.

But absent that I think we've planned that all into our businesses.

And I feel about as good this year coming out of the gate for 2012 about our projections and what they may actually turn out to be as I did at this time last year.

So I think -- you know, there's no guarantees in life, but given the trend of the business we feel particularly bullish about it.

Great, best of luck.

Robert Drbul, Barclays Capital.

Good morning, guys.

Manny, the question I have is on the European side, can you talk a little about the geographic trends?

Like a country by country, what's happened to the spring order book to the fall order book and any of the changes that you could call out from that perspective?

Sure, look, I think there's a couple of things.

Geographically it's exactly as you would expect, about 30%, 35% of our business is in Southern Europe and that business is under more pressure.

And for us some of those markets, particularly Italy, had been growing on a sales rate a year ago which was in excess of 20%.

Italy now for fall is being planned mid-single digits.

So although we're still growing in a very, very tough market there, that business clearly has seen a shift in momentum that we were experiencing and that's clearly the environment and what's going on with that consumer.

I think Spain is a business that for us has been running up mid-single -- 4% to 5% growth.

In fall we're planning a business down slightly, about 2% to 3%.

Those are the two bigger markets, just to give you a sense of what's going on in Southern Europe.

In addition, we had a very, very strong fall holiday 2011 season where for a business our size to be growing 15% to 17% -- and we fulfilled those orders, had good sell-throughs at retail, but the retail performance overall in Europe at department stores and in specialty stores, our key customers, most European retailers were reporting negative comps in the third and fourth quarter.

So I think there's a reaction that's going on there where their open to buy dollars are being planned -- instead of being planned up as they were in 2011 for 2% to 4% growth, they're actually being planned for 3% to 6% negative open to buy dollars.

So in that kind of environment where the overall open to buy is down anywhere from 3% to 6%, if our business is being planned up 4% to 5% how we're clearly outperforming the market and continuing to gain market share there but it's just in a much tougher market.

And you don't want to take as much sales inventory risk given that kind of sales environment.

So we're trying to plan that business a little bit more conservatively and I think it will give us the opportunity to maximize gross margins as we go forward in our international business if the sales trends continue.

Great, and speaking of gross margins, Mike, can you put a little bit more detail around the drivers for gross margin in the first quarter and your assumptions around first-quarter and full-year 2012 in terms of mix or the wholesale versus retail?

I guess, Bobby, you kind of broke up, but in terms of color, we're thinking about our margins for the year up about 100 basis points.

And there's really -- what's going on is we've got a real favorable mix change in our business.

We're seeing by our higher-margin -- higher gross margin, higher expense, higher operating margin Calvin Klein and Tommy Hilfiger businesses growing faster than the Heritage business.

So in effect we're going to see improvement in operating margins and improvement in gross margin.

Bobby, the only other thing I'd say is in the US the retail business is so strong, posting double-digit comp store increases, that just that mix change also has the same dynamic and it's favorable both from an operating margin point of view and from a gross margin point of view.

Great.

Thank you very much.

Good luck, guys.

David Glick, Buckingham Research Group.

Thank you and another congrats on a very strong quarter.

Manny, we're looking at 2012 a little more muted revenue growth outlook.

Obviously a lot of factors impacting that that are a bit more transitory.

But as you look out beyond some of the -- some of those issues this year, has your outlook changed in terms of the revenue growth potential for Tommy Hilfiger and Calvin Klein?

And if you could highlight some of the emerging opportunities that might accelerate that growth and what impact that may have on your operating margin moving forward.

And if the Heritage business recovery could obviously play a part in that as well.

Sure, I appreciate the question.

The opportunity really for both Calvin and Tommy, we've always -- we always talk about we plan the business; those businesses will growth 8% to 10%.

And given what's going on long-term in those businesses, I see no reason why we will not exceed those numbers.

On the Calvin Klein side, we continue to see strong growth with our royalty partners.

There will be -- in the next two years you'll see some shift as -- particularly given that CK bridge business in Europe coming in-house.

We believe that business long-term, next five to seven years, is a $500 million business for us as we go forward.

We think that has extraordinary growth.

Given the platform that exists in Europe with our Tommy management team there, given their expertise, given their establishment country by country, their knowledge of the retail base there, and the strength of the Calvin brand with the European consumer that we believe is significantly untapped, we clearly believe that that's an opportunity for us to grow into that we can get to quickly.

In addition in Europe, in 2013 we take in-house the tailored business.

It's a solid business for us today that's somewhere in the EUR60 million range that we think over the next four to five years could grow to EUR200 million.

That's a strong opportunity for us given our selling base and converting from a licensing model to a direct sales model there at very good operating margins that we can leverage the infrastructure.

So, I think those are just two pretty significant examples of where we can really dramatically grow the top-line.

The Calvin Klein royalties I think will continue to be driven by explosive growth in Asia and South America.

Given those high operating margins I think once the noise gets out of those number surrounding the CK take back, the reduction of off price that we have this year that will be behind us when we get through 2012.

Hopefully currency, instead of becoming a headwind might become a tailwind going forward.

So I think clearly we don't feel any less optimistic about the growth trajectory both for Calvin and Tommy.

And in fact, we think that there's opportunity to accelerate that growth 2013, '14, '15 and beyond.

And Asia obviously a part of that as well?

Yes, now Asia for us -- and Calvin is a licensing model.

In Tommy we run some businesses directly, but the two big markets there, India and China, I think we'll enjoy significant royalty growth there.

And as those businesses really start to come on, we own a 50% interest in India and about a 45% interest in China.

And although we won't be recording those sales directly, we'll be picking up some substantial income benefits as we go out to '14 and '15.

And then we should also see and opportunity to potentially bring those businesses in-house as we have the opportunity to buy those business at some point in the future, that's going to be an interesting discussion for us.

But clearly those are two growth markets for the brand that we think has tremendous upside.

Okay, great.

Thank you for that color.

Last question, there's a lot of dislocation going on in the department store industry, and this is more related to your Heritage business.

You've increased distribution in ARROW.

You have the IZOD shop opportunity at Penney's.

Can you give us a sense of how you're navigating the change there and whether this will be a positive, neutral or negative for the Company?

I think we're as well-positioned as any company, given our stable of brands.

Our IZOD brand clearly has been identified by JCPenney as a significant growth driver for the business.

And Van Heusen is well-positioned at JCPenney's to also have significant growth there.

Our Kohl's business with Van Heusen and ARROW is well positioned there and our Macy's business, given our portfolio of brands.

I'm going to just ask Ken to talk about it to give you some color on some of those dynamics in our Heritage division.

David, in our Heritage business right now, in Macy's we have -- IZOD continues to perform, Van Heusen continues to perform, and as you come through into JCPenney, our JCPenney IZOD initiative begins really September 1 and we'll get on board for August.

But September 1 we're going to pick up 400,000 square feet in opportunity there in IZOD and Van Heusen will be a -- although we will continue to have position, we'll have shops in position for 2013 as we come around the corner.

Kohl's has brought in Van Heusen and it's performing very well and ARROW has been a good brand for them.

So we see opportunity as we've expanded our brands and our distribution within the national chains, both JCPenney and Kohl's with both Van Heusen and ARROW.

So we see market share gains.

Great.

Thank you very much and good luck.

David Weiner, Deutsche Bank.

Hearing no response, we'll move on to Eric Beder, Brean Murray, Carret & Co.

Good morning.

Congratulations on a solid quarter.

How should we think about the FX impact as we go through the year?

And also, how should we also think about costing and inventories and how you're planning those to go as we go through 2012?

Mike's going to take those questions.

So when you think about the FX impact, you know when we think about for the first -- for the year we talked about the impact being about $20 million to $25 million, and at the same time we think about that being spread fairly evenly -- for the first and second quarters I would think about somewhere about $5 million to $6 million.

The third quarter will be the quarter impacted the most; the fourth quarter impacted the least.

Overall when we think about a $0.01 move in FX we think about somewhere around $2 million to $2.5 million of impact to our bottom line.

Overall, Eric, I think Michael talked about the EPS, I think the revenues that we categorized about $150 million will follow that as well.

And then from a cost point of view or from a product cost point of view, clearly the first quarter is being most impacted.

I think the second quarter will have some impact, but we really -- given our second-quarter end is July we will already have started to have some significant selling of fall product at wholesale, shipping of product in and some -- given our outlet business, significant selling of fall product in the June-July period.

So it will be somewhat muted in the second quarter, so clearly the cost issues will most dramatically impact the first quarter.

Okay, and in terms of -- I'm sorry.

In terms of pricing, are you planning to claw back any of the pricing here or are you planning to try and utilize this lower cost [say to] get some additional margin gains?

How are you looking upon that and the consumer's ability to take that?

Well, I guess I would characterize it this way.

In Calvin and Tommy we don't see any change in the pricing formula.

We raised prices in spring 2011.

We raised them again in fall 2011 and we've raised them slightly for Spring 2012.

We're not planning to raise them in fall 2012, but we are planning to maintain the higher retail prices that we established over the last three seasons.

And I think that's pretty consistent for Tommy in Calvin and pretty consistent both domestically and international.

In our heritage businesses, dress shirts clearly benefited and AURs last year were up about 9%.

In spring they were up about 8%.

So we don't see any give back there.

We'll watch the market carefully.

So we're hoping to get some of them margin that we lost last year in those businesses back over time and we're planning second-half gross margins up year-over-year.

And I think we feel pretty confident given the tone of business and the consumers' acceptance of those increases.

Great.

congratulations and good luck this year.

Omar Saad, ISI Group.

Thanks, guys.

I've got a couple questions.

My first one is on the Europe kind of macro outlook, the change in trend it sounds like you're expecting or starting to see in the businesses.

How much of that do you think is in your wholesale business where your retail customers are kind of reacting to what happened in the fourth quarter, which was a little bit tougher on the weather standpoint?

It was kind of the height of the fears around the Greece debacle and the wholesale customers are just looking out to next fall and saying, you know what, it was a little bit of a tough holiday season, let's plan conservatively.

And does that marry up with kind of what you're seeing in your own stores?

I know it's not a huge retail business for you in Europe, but does that -- do they jive with each other and you're kind of seeing the same trends, or is it the department store kind of reacting to the environment?

Well, I think department stores are reacting to the environment.

I think they're clearly trying to manage their gross margin and their inventory.

Given what I would characterize in Europe, particularly at the department store level, the -- you saw the comps.

I think it was a relatively tough fall holiday season.

Blame it on weather; blame it on the macro environment.

I think what retailers do in that environment is they manage their inventories.

And we have got a sense that open to buy dollars are actually being cut on balance, as I said before, 3% to 6%.

So I think that's really what's happened.

For us we saw -- I can't give you -- except strong performance, I can't give you a great reason why we significantly outperformed the market except the strength of the brand, the marketing that's gone behind it and our inventory position was very strong in order to really drive sales that we saw for the third and fourth quarter sales up, if you look at it combined, probably 9% to 11%.

So even that kind of sales performance, but given the macro environment, we're not comfortable planning for another double-digit sales increase in Europe.

So we're planning the business somewhat more conservatively.

We're seeing about mid-single-digit comp store increases right now.

I think that's very good performance considering that our inventory position is good, but we didn't have as much fall carryover product in those stores.

And I think in February-March you continue to sell a lot of seasonal goods there from the carryover season.

So you can't sell the goods twice; I've said that before.

So I think we're feeling good about how that's all shaping up, but I think there's a reality -- just listening to what's going on in the European market -- that I think it's better for us to be more conservative in our inventory and our sales plans as we go forward.

Thanks, Manny.

And then one follow-up -- still on the kind of topic of Europe.

As you think about this bridge business you're bringing back in-house and the team you kind of already have over there on the Tommy platform with Fred and everybody, how do you frame that out?

I know the Tommy business is actually really quite big and you've talked about a $500 billion potential for the CK bridge business.

How do you put it in context where Tommy is today, how Tommy got to where it is today in Europe?

Is it an analogous situation or are there differences, structural differences in terms of the categories or the price points or the applicable markets for that CK bridge sportswear business?

No, I think it's -- look, the Tommy business over a 15-year period grew to a EUR1 billion business and that business includes denim, which is probably a EUR300 million business.

So when you think about the opportunity for Calvin, we don't see any reason over time, as it develops a wholesale retail strategy over time, why the Calvin business cannot be as big as the Tommy business.

I think there's different brands dynamics.

Calvin tends to be a more tailored business, which is actually a very positive thing given the price points in tailoring, Tommy more of a casual business, a sportswear business.

From a design aesthetic they're completely different, so I don't think there would be much cannibalization between the two brands.

So for us we think it's a perfect marriage as they sit along -- the two brands sit alongside each other.

But $500 million is a pretty big number to come out of the box and talk about.

And I think we clearly need to, if we execute given the talent that's on the ground in Europe, it gives a huge leg up.

The brand is well known in Europe.

I think we will have a significant marketing launch for fall 2013 when we re-launch the brand.

And I believe those things will build momentum and excitement about the brand and I think we'll see some dramatic growth there.

At this point $500 million I think is as far as we're willing to go.

And we'll play it out.

But I think if you said to me what could it be in 10 to 12 years, I think over time there's no reason to believe why Calvin wouldn't be as big as Tommy.

And I think the only reason we're not is we haven't executed as well as the Tommy team has done throughout Europe.

And to reiterate, in your mind Tommy is by far -- by no means mature in Europe?

I think that's right just given the kind of growth we've seen, significantly underdeveloped in some key markets like France, like the UK, Italy, Russia, and the Middle East -- those are clearly markets that today are, in round numbers, EUR50 million markets that we think over time could approach the size of our German business -- our business in Germany which is well over EUR350 million.

So I think each of those markets have that kind of potential.

So we don't see any reason why that -- in the next three to four years why that business would slow down.

Thanks a lot, Manny.

Good luck.

Robbie Ohmes, Bank of America-Merrill Lynch.

Thanks.

Good morning, Manny.

How are you?

Good.

How are you, Robbie?

Good, thanks.

A couple of questions.

First just to follow-up on the North American comps for Tommy Hilfiger and Calvin Klein, what -- you gave the AUR on Heritage.

What's the AUR look like for them and what's the AUR sort of plan look like for Tommy Hilfiger and Calvin Klein for comps for, say, first-half versus back-half?

And then --.

Well, I would say we're looking for somewhere, for this year versus last year, AURs to grow about 5%, that's the plan.

Right now we're pacing pretty much ahead of that both at wholesale and at retail.

And I think that will play itself out.

I think we're really enjoying the benefit of being significantly -- of having significant clean inventories in all channels of distribution.

We're benefiting from outperformance on the selling line, which has allowed us to not be as promotional as our plans had called for.

So therefore AURs are going out the door higher.

So I would say at least 30% of the comp increase that we're looking at above plan in our retail stores is just being driven by AUR improvement.

So I think that bodes well for gross margins as we go out.

And so the really strong comps that you guys are seeing quarter to date for -- in North America ex Heritage, is it -- is the AUR higher for Tommy and Calvin North America comps than Heritage right now?

Oh yes, significantly.

Oh it is?

So it's double-digit right now.

Yes.

Oh, that's great.

Second question was just the marketing plans for 2012 versus 2011, I was just curious if you had anything to call out either by brand or by region, sort of what you see yourselves doing this year versus last year, thanks.

The plan is to spend in local currencies all in about the same that we've spent this year with the hope, just like last year, if we outperform we will continue to increase that to some degree.

But we've really gotten those marketing plans up significantly over the last three years both in Calvin and Tommy, so we really feel good about the spend.

We'll look for opportunities to really drive it.

There's some product initiatives I really can't talk about.

There are some fragrant initiatives that will happen second half of the year, new master men's brand and there will be a lot of that.

The Calvin Klein underwear campaign around Bold will continue to be very strong.

So I think you'll continue to see the kind of marketing that you've seen this year.

We are planning to continue the Meet the Hilfiger campaigns.

It's just been phenomenal for us.

That campaign continues to have legs.

It works very well in print, it works very well on television and digitally, and it works great at point of sale.

So we're really able to get leverage across the board there with the Tommy campaign and we're really happy with the way it's continued to play out.

From a PR point of view, Tommy, with his American Idol appearances, has really given a shot in the arm to the brand, just becoming much more -- he's becoming more and seen, really been very positive for us from that point of view.

He's a great ambassador for the brand and we plan to continue those initiatives throughout 2012.

That sounds great.

Thanks a lot, Manny.

Kate McShane, Citi.

Good morning.

Just to follow-up on the last question with regards to SG&A dollar spend for 2012, like how should be thinking about the cadence for that throughout the year?

Could you just repeat it?

You broke up.

I'm sorry.

Oh, I'm sorry.

With regards to SG&A spend for 2012; can you give us a little bit more color on the cadence throughout the year of how we should be modeling our increase in dollar growth?

Sure, for the first quarter -- I guess for the year we're talking about expenses being up about 40 to 60 basis points.

And I think as you think about that for the first quarter with expenses being -- with operating margins being down 125 to 150, gross margins being down flat to slightly down, there's a bigger impact on expense in the first quarter versus the balance of year.

I guess that's the way I'd think about it.

Okay, great.

Thank you.

And one unrelated question back to sportswear.

I think you said during your prepared comments that you do expect a turnaround in sportswear in Q2 and I wondered if you could identify what exactly is driving that.

Is that more margin recovery or is it more top-line recovery?

And have you had to roll back your prices in the sportswear category just based on --?

Again, we're talking Heritage, IZOD, Van Heusen, and ARROW.

I'd characterize -- it's all margin opportunity.

And the whole Heritage story, historically our operating margins have been between 10%, 10.5%.

Last year they were below 7.5%, I think 7.2%.

So clearly I think there's a story over a period of time where margins will recover.

If you look at our AURs in sportswear, out the door retails, when you factor in clearance and what happened in the fourth quarter, we saw no retail selling price increases last year at all.

Even given these cost increases, when you think about there was so much private labor on the floor, there was so much -- the main floor was really crowded, too much inventory, when we got to November everyone really started to get very promotional on the main floor, required us to do that, liquidate the goods, we moved as fast as possible to do that.

The benefit that we really see is that there should be -- with better control of inventory at retail in the channel there really should be an AUR improvement, not by higher ticket prices or driving higher prices but just by having less clearance and requiring less promotion.

So the key will be watching inventory levels at retail particularly on the main floor.

That really just should naturally come back to us without having to do anything heroic from a retail price point of view if inventories are controlled.

And right now I feel as we go into spring inventories on the floor are much better controlled than they were this time last year and open to buy dollars are being planned much tighter, particularly in the mid-tier department stores where our brands play.

Great, thank you so much.

Howard Tubin, RBC Capital.

Thanks, guys.

Great quarter.

You've done a good job with the inventory and managing inventories.

How are you planning inventories really coming out of the spring season going into the fall season versus last year?

Versus last year, okay.

We are seeing a decline.

As Manny said, we're anticipating a decline in fall costing.

So from the perspective of moving into fall, we will be selling slightly more units in the fall of 2012, but the costs will be down.

So I think you'll see more of a relationship to sales as we move into the second quarter and third quarter and fourth quarter.

We will see more inventories coming in line with sales growth.

Got it, thanks.

David Weiner, Deutsche Bank.

Two quick questions.

One on China, just to follow up on some of your comments.

I think you mentioned in your interview last night that over time, over the next several years that will be a $1 billion brand in China for Tommy.

Can you talk about or can you just kind of tell us where are those revenues right now?

And then second, when I think about the Meet the Hilfiger's campaign, I think that's been running for probably coming up on two years, and to your point I think it's been a pretty successful campaign.

Kind of what are you trying to do with the Tommy brand both at retail and at wholesale kind of over time in terms of positioning the brand?

Are to trying to take it higher end or are you trying to take it someplace it's not right now?

What are the growth opportunities with Tommy in the US?

Thanks.

Thanks.

Let me talk about China first.

When that red light goes on on the camera, sometimes you get a little ahead of yourself.

Fair enough.

So $1 billion comes out pretty easily on TV.

It's a round number.

It's a nice round number, it seems to get Jim Cramer excited, so you take advantage of that.

But all kidding aside, look, there's a huge -- I don't know how to -- China is such a hard thing to quantify.

We're growing at -- both for Calvin and Tommy we're growing 20% plus, 30% plus, Tommy off of a relatively small base.

Retail sales in China are a little bit over $100 million for Tommy.

Clearly we don't see any reason why that 20%, 30% kind of growth is going to slow down over the next three years, how fast that ramps up, how quickly we go after it, how aggressive.

But clearly if you start to extrapolate and get five years out you get to some enormous numbers.

And so, clearly I think if that economy continues to grow, that consumer continues to develop, the Tommy Brand is well known in China, getting better known throughout China as it develops its Asian -- its platform in Asia -- Japan, its platform in Hong Kong where the Chinese -- that China consumer is constantly traveling.

I think clearly we look at that as a huge growth opportunity for the brand.

Calvin is somewhat -- a few years ahead of Tommy there.

Warnaco has done a tremendous job in jeans and underwear.

Club 21 has been outstanding in growing the CK business throughout China and Asia.

We have a larger platform in Asia with the Calvin business.

And I think that's one of the reasons why it's gotten a jump start on Tommy.

But I don't feel -- compared to some of the other large US brands, we're not behind anybody there at all.

In some ways we're ahead of most.

So I think that's a significant opportunity and will continue to be a big growth opportunity as we go forward.

Looking at the campaign -- for us in North America it's all about continuing to elevate the Tommy Hilfiger brand.

The Tommy brand internationally is a premium brand.

In Europe the average unit retails when you take all product categories is between EUR75 and EUR85 out the door.

It's comparable to that in Brazil, if slightly higher.

It's comparable into that EUR75 to EUR80 out the door throughout Asia.

In the United States that brand -- we all know the history and what it's gone through.

The last three years we've seen the AURs continue to increase in the high-single-digit range and we believe that that's starting to really even gain momentum and accelerate as we go forward.

So it's all for us, particularly our wholesale business at Macy's, particularly our specialty retail store business throughout North America, it's all about us continuing to use those platforms to elevate the brand, communicate with the consumer, get the message across to the consumer and continue to raise those AURs.

That's a big part of the strategic plan for our Tommy Hilfiger brand; we talk about it all the time.

It's one of the reasons why we're not planning as dramatic growth in the US for the brand because we're continuing to push the AURs higher and higher.

But we've been surprised the last two years, the consumer acceptance of great product that they're more than willing to pay for it.

And that's actually enhanced our growth the last two years by driving up the AURs, putting more into product and positioning the brand as an alternative to Ralph Lauren.

What we'd like to see it -- similar to where we're priced around the world, 10% to 15% below Ralph Lauren AURs, not 30% to 40% where it was three to four years ago.

Perfect, that's great color.

Thanks a lot, Manny.

(Operator Instructions).

Operator, if there is another question, we'll take one more.

At this point it's a little after 9.30 and we have appointments.

We did have a question from Evren Kopelman.

Thanks for taking my question.

Quickly I wanted to ask about the Heritage business and kind of understand what were the drivers of the revenue decline versus what you were initially planning for.

And is it really more a function of the mid-tier channel or the mix of outerwear and sweaters?

Could you help us understand that a little bit more?

Thanks.

I guess the sales came in in Heritage, again let's talk about it -- if you look at it for the fourth quarter we came in right where we thought we would be.

It was just really continued margin pressure.

The selling shortfalls that we had in Heritage were in our sportswear businesses only -- wholesale sportswear business only.

The Timberland business last year was very tough.

The IZOD women's business was very tough and the IZOD men's business was very tough.

There were some product issues.

Sweaters you talked about in outerwear to a degree, but I think it was more of an issue really on the main floor.

Moderate priced national brands under a lot of pressure and I think that whole main floor sportswear area, private label, really saw pressure.

I think if you look at sales performances at retail with our customer base, I think the mid-tier players were under more pressure.

And I think the Macy's business, which was very strong, had great performance in their accessories, cosmetics, and their collection businesses.

And the one area that was tougher for them tended to be main floor sportswear overall on a relative basis.

So I think it was just a -- it was a weak area overall, and the real miss for us in the Heritage business and principally the sportswear businesses was gross margin dollars and not so much from sales point of view.

I think by really getting control over the inventory, getting back over the next 24 or so months, I think we could work our way back close to that 10% operating margin in that business from where we are today.

Great, thanks.

Thanks, Evren.

With that, we would like to close the conference call.

I thank everybody for their attention and for joining us for that, and we look forward to speaking to you at our May conference call for first-quarter results.

Have a great day, everyone.

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

We appreciate your participation today.