PVH Corp (PVH) 2013 Q4 法說會逐字稿

Good morning, everyone and welcome to the PVH Corp.

full-year and fourth-quarter 2013 earnings conference call.

This webcast and conference call is being recorded on behalf of PVH and consists of copyrighted material.

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

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

The information being made available includes forward-looking statements that reflect PVH's views as of March 25, 2014 of future events and financial performance.

These statements are subject to risk and uncertainties indicated in the Company's SEC filings and the Safe Harbor statement included in the press release that is the subject of this call.

These risks and uncertainties include PVH's right to change its strategies, objectives, expectations and intentions and its need to use significant cash flow to service its debt obligations.

Therefore, the Company's future results of operations could differ materially from historical results or current expectations.

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

Generally, the financial information and guidelines provided is on a non-GAAP basis as defined under SEC rules.

Reconciliations to GAAP are included in the reference earnings release, which can be found on www.pvh.com and the Company's current report on Form 8-K furnished to the SEC in connection with their release.

At this time, I am pleased to turn the conference over to Mr. Manny Chirico, Chairman and CEO of PVH.

Please go ahead, sir.

Thank you, Lisa.

Good morning, everyone and thank you for joining us.

Joining me on the call this morning is Mike Shaffer, our Chief Financial Officer; Dana Perlman, our Treasurer and Head of Investor Relationship; and Ken Duane, who is the CEO of our Heritage Brands and our North American wholesale businesses.

Let me start off by saying I am very pleased with the results of our fourth quarter.

We beat our fourth-quarter earnings guidance.

We saw strong outperformance against our projections in both Calvin Klein and Tommy Hilfiger businesses, despite the overall difficult retail environment that has been plaguing us, particularly in North America.

Let me focus in on the Tommy Hilfiger business first.

The Tommy business continued its strong performance during the quarter, posting a 1% revenue increase and a 15% increase in operating income.

Very strong performance in Europe and North America was partially offset by continued weakness in our business in Japan.

In the fourth quarter, North American comp store sales were flat while our European business posted a 7% comp store increase.

Prudent management of our promotional markdowns and operating expenses resulted in operating margins improving 160 basis points in the quarter to just over 13%.

Moving to our Heritage business, our Heritage businesses came in more or less on plan.

Sales increased about 8% and operating income was up about 9% over the prior year.

We saw a good performance in our wholesale business, both sportswear, neckwear and dress shirts, and we saw some difficult business in our retail Heritage businesses where comps came in at minus 7%, coupled with higher promotional markdowns across the board.

They negatively impacted the ability for us to significantly drive the growth in our Heritage businesses' earnings.

Moving to Calvin Klein, our Calvin Klein businesses exceeded our earnings estimates, posting a 17% earnings increase in the fourth quarter.

By region, we saw the strongest results in the US, Brazil and Asia while our European business continued to struggle and underperform.

Let me start with South America.

Business was very strong, particularly in Brazil, where we continue to see sales growth of about 10% driven by the strong performance of the Calvin Klein jeans business.

Comp store sales were up about 5% in the fourth quarter.

Our order book for spring/summer is also running up about 10%, so there continues to be good momentum in our South American business.

Moving to Asia, overall comps in our Asia business were up about 3% for the quarter.

We saw particularly strong sales in China and Southeast Asia.

The fourth quarter did benefit from an earlier Chinese New Year, which fell into January this year versus February last year.

This impact positively affected comps by about 1.5 percentage points.

Overall, the Asia business outperformed from an earnings point of view where we saw strong gross margin performance as well and strong operating income performance.

Moving to North America and the Calvin Klein business, we continue to perform well across all product categories with the exception of men's and women's jeans.

Comps in our retail stores were flat in North America.

In the licensing area, ongoing royalty revenues were up about 14% in the quarter due to the strength in our global handbags and accessories business, as well as our women's apparel businesses.

These businesses are operated by G-III in North America and CLUB 21 and Swatch throughout Asia.

Moving to Europe, our Calvin Klein European business continued to be under pressure and continued to underperform.

Driving that underperformance was our jeans business.

Overall, our comps in Europe were down 7% and margins were hurt by markdowns in order to move through goods and position the business properly for new spring deliveries that were arriving in January and February.

Moving to the first quarter and our expectations, in the first quarter, our sales to date are on plan.

In North America, we continue to see a challenging retail environment.

It is being impacted by unseasonably cold weather and a later Easter holiday.

As such, we are planning flat comps for Tommy and Calvin while our Heritage business is expected to post a mid-single digit negative comp.

Internationally, our Calvin Klein businesses in Asia and Latin America continue to see strong sales trends, very consistent with what we saw in the fourth quarter.

Our Tommy Hilfiger European business continues to post strong sales increases across the board with first-quarter comp store sales trends up mid-single digit.

Our Tommy Hilfiger European wholesale business is also showing strong growth as our fall order projection book is coming in at plus 5% for the fall season of 2014.

Let me quickly give you an integration update where we stand on the Warnaco acquisition.

We continue to execute our plans and are on track with all our processes and conversions.

Over the last three months, we have continued to see strong conversions of a number of systems in North America, Europe and now starting in Asia.

There has been no surprises in this area since the last time we updated you and we are very comfortable with our integration timeline.

We are also comfortable that we are on plan for our projected expense synergies.

I'd like to take just a couple of minutes to talk about 2014 overall and to give you a sense of the increased strategic investments we are making in operating expenses in order to build a solid foundation for the Calvin Klein businesses worldwide.

The strategic investments really fall into six broad categories.

The first is, and we've have talked about these, is people.

We have filled and are in the process of filling key positions across the Calvin Klein jeans and underwear global business.

We are making good progress there.

Highlighting that is the hiring of our President in Asia that was hired in December of 2013 and the naming of [Ira Sipple] as the Calvin Klein President for our European operations.

So clearly making good progress here and we think we will be seeing the fruits of that.

Also continuing investments in the enhancements of the systems, the operating infrastructure and the overall operating platform at jeans and underwear.

We are also significantly reducing our off-price sales and warehouse club sales in North America and Europe.

We need to bring our overall jeans and underwear sales distribution to the same healthy mix of sales that we have in our other highly profitable Calvin Klein businesses.

We will also invest in and are upgrading the quality and the design of the Calvin Klein jeans product.

We should begin to see the benefits of this in the second half of 2014.

We are making significant investments at point of sale.

We are elevating the presentation and point-of-sale marketing of the Calvin Klein jeans and underwear retail presentations across the board globally.

And we continue to invest in e-commerce business at both Tommy Hilfiger and Calvin Klein in order to support the significant growth that we are experiencing in both of these brands' e-commerce business.

As you know, 2014 will represent two stories.

The first half will be pressured by the increased level of support that we are giving to these strategic initiatives in order to drive future growth.

The second half of 2014 will reflect the first season of new product from our newly established design and sourcing teams, as well as starting to see the beginnings of the benefits from our improved marketing presentation and investments and the enhanced retail presentations that we have in our stores and at point of sale with our key department store accounts.

We believe that the investments that we are making today in the Calvin Klein business will allow us to drive ongoing earnings-per-share growth of 15% plus in 2015 and beyond.

We believe the investments we are making today will allow us to begin to leverage our SG&A expenses as we move into 2015 and beyond as we start to see top-line growth in the Calvin Klein business that will be in the 6% to 8% range as we get into 2015 and beyond.

With that, I am going to turn it over to Mike Shaffer to quantify some of these comments.

Thanks, Manny.

The comments I am about to make are based on non-GAAP results and are reconciled in our press release.

Revenues for the fourth quarter were $2.1 billion, a 25% or $416 million increase over the prior year.

Driving our revenue increase over the prior year was the Warnaco acquisition, which accounted for $479 million and our pre-acquisition Tommy Hilfiger and Calvin Klein businesses, which posted 2% combined growth while having one less week this fourth quarter versus last year's fourth quarter.

Negatively impacting our revenue for the quarter was a $75 million decline due to the sale of our Bass Heritage retail division, as well as the 7% fourth-quarter comp sales decline in our existing Heritage retail divisions.

Overall, versus our guidance, our revenues were on plan.

Our earnings per share for the fourth quarter was $1.43 as compared to our previous guidance of $1.40.

Driving the $0.03 beat was predominantly interest expense savings.

We paid down a total of $500 million of debt in 2013, which was $50 million higher than our previous guidance.

Our revenues for 2014 are projected at $8.5 billion, or a 3% increase over the prior year.

Our year-over-year comparisons are negatively impacted by the sale of our Bass division, which, if excluded, would drive our planned revenue increase to 5%.

Our growth brands, Tommy Hilfiger and Calvin Klein, are planned to have revenue increases of 7% and 5% respectively.

Our Heritage business will decrease 5% due to the Bass sale.

The go-forward Heritage business revenues will increase 4% over the prior year.

Our earnings per share for 2014 is planned at $7.40 to $7.50, an increase of 5% to 7%.

Our 2014 earnings will be negatively impacted by the incremental spending in the Calvin Klein jeans and underwear business.es.

In 2014, our comparisons will be toughest in the first half as a result of last year's investment spending being second-half weighted while the 2014 investments will be first-half weighted.

In addition to investment spending in Calvin Klein, our earnings per share will be negatively impacted by $0.10 in 2014 for the sale of Bass, as well as a $0.15 negative impact from foreign currency.

Our full-year operating margins will be down about 50 basis points reflecting an increase in gross margin that will be more than offset by an increase in SG&A expense due in large part to the increased investments.

For the year, we are projecting our Heritage and Tommy Hilfiger businesses to have operating margins flat to the prior year.

Calvin Klein operating margins will be about 14%.

For the first quarter, we are projecting earnings per share of $1.40 to $1.50(sic-see press release "$1.45 to $1.50") and revenues of about $2 billion, or an increase of 2% over the prior year.

Excluding Bass, the revenue increase would be 4%.

Quarter one has the largest impact on the Calvin Klein investment spend where comparisons in the prior year are significantly lower as we acquired Warnaco in mid-February and tax rates while planned down for the full year are up in the first quarter by $0.10 due to a discrete item, which benefited the prior year.

And with that, we will open it up for questions.

(Operator Instructions).

Bob Drbul, Nomura.

Good morning.

Good morning, Bob.

Manny, can you just give us a little bit more color on the jeans business, what you are seeing sort of out in the fall and some of the order books perhaps for North America, for Europe, Asia on the denim businesses and just what you are seeing around the response to the new design product?

Any numbers you could share with us?

Yes, well, some numbers and maybe some showroom talk as well.

The lines have been very well-received.

The big wholesale businesses that we have are in Europe and North America.

So lines have been well-received by all of our retail partners and we are in discussions with most of them about better presentation at retail expanding the space and investing capital to support those businesses.

In Europe, we are looking for second-half increases overall of about 20% in the jeans business on a like-for-like basis.

Just remember that, at the same time, we are going to be reducing some of the off-price business there.

So net, we are looking for somewhere in the neighborhood of high single digits to low double-digit increase in wholesale sales of the Calvin Klein business.

So we are starting to see some real good response from our retail partners as we go forward.

In the US, on the men's side, our jeans bottoms business even today as we have positioned some of the new product in for spring, we are starting to see better sellthroughs at higher AURs at retail and seeing some good order increases for third and fourth quarter given the new product receptivity that the retailers have.

So we are looking there for some type of mid-single digit increase in the Calvin Klein jeans business.

For us, it is really key that we not only drive sales, but also drive improved gross margin in the denim business for us overall.

So really focusing in on trying to clean up -- the challenge has been for Calvin Klein is in North America is that there has been too much promotion of the goods, too much markdown activity around the denim business and what we really need to get is to get control of that, get control of our markdowns and our allowance budgets and I think that could drive improved profitability and the top line will follow with better presentation and a stronger product as we go forward.

So I hope that helps, Bob.

Yes, Manny, it does.

And I guess the second question I have is when you look at the first-quarter guide and your full-year guide, the increases that you were talking a little bit longer term are 15% plus.

But when you think about the implied growth rate in the second half of the year, what do you think are the biggest deltas or the risks you see to achieving that material increase and the re-acceleration on the earnings side?

Well, I think -- let me talk about our internal issues first.

I think when we get into the third quarter and into the fourth quarter even more so, that is when we have lapped the expense increases that we have put into the business.

So I think what you will start to see -- you will start to see in the business is SG&A leverage on the Calvin side of the business as we go into the third and particularly the fourth quarter and you start to see operating margin expansion as we go forward.

That should accelerate in 2015 because I am very comfortable that the expense levels, the increased levels that we have built in will only have to grow on a percentage basis with the top line.

So we should clearly get SG&A leverage into the future in 2015 and beyond.

I have got to be honest, Bob, when I look at the risk to delivering our guidance, I am getting more and more comfortable with our internal ability to deliver everything we have talked about.

And I can't help but just be more and more concerned about the overall retail environment, particularly in North America.

I don't think I am telling anybody anything that they don't already know, but, on a macro basis, traffic is down and it is being pressured, I truly believe, by unseasonably cold weather, a later Easter, an unseasonably warm weather last year in the early spring season.

So those comparisons have been tougher and you really could see it geographically in the business.

Our own stores that we operate here in North America, if you were to look at our map, you would see strong business in Florida, Texas, the West Coast and as you would expect, a very difficult business in the Midwest and the Northeast and early on in the first quarter, difficult business in the Southeast, Atlanta, Charlotte, Nashville where we were hit with ice storms and all of this.

So that business has somewhat come back in the Southeast now.

So every time we see weather somewhat improve and get to more seasonal levels, we see a pop in our business.

So when you think about the outlet channel where the majority of our resale direct sales are done, 95% of those centers are outdoor centers by their nature and I think they do get impacted maybe more significantly from the weather impact.

So feeling pretty good and we are really expecting a very strong April given the late Easter and how that fits into the mix.

So the biggest risk I see to the business is the external environment right now.

Thanks, Manny.

Good luck.

Thank you.

David Glick, Buckingham Research Group.

Thank you, good morning, Manny.

Just a quick question.

Obviously your guidance beyond Q1 suggests earnings growth that has been more typical historically for PVH.

When you look at the guidance, however, it seems to be largely driven by interest and taxes, but obviously as you refer to Q4, you are starting to see more accelerated growth.

I think as we take a step back and look at your guidance, I think maybe the biggest surprise is that EBIT is relatively flat.

It sounds like you are going to exit the year with EBIT growth, but it is healthy to see revenues and gross margins heading up in line with expectations, but if you could help us understand what is driving that SG&A increase and what is going to enable you to start leveraging that going forward.

And within that discussion, if you could touch on e-commerce because that is a question we get a lot about in terms of the incremental investments you all need to make to develop that business.

Okay, that was about a 15-part question, so I will try and hit the highlights on it.

Let's talk about the investment.

I think I touched on the investment spending, but maybe -- so clearly that is having an impact and that is really clearly impacting the first half of 2014 significantly.

I think secondarily what you are seeing on the business from an SG&A point of view is the sale of Bass and almost $300 million in sales and the corporate overhead absorption associated with that.

That is worth about $0.10 a share to us.

That is impacting -- really on the SG&A line is where we are seeing it.

We are much better off from our perspective to be out of that business.

It wasn't a business that was returning the appropriate returns on investment and it was really becoming a distraction from our growth.

But there is some minor financial impact that works through it on that.

And then I think if you look at the business overall and you do the math and we haven't given you quarterly breakdowns, but our operating income growth in the second half of the year is up high single digits when you look at it, 7% to 9%.

And I think that's clearly more indicative of what you should expect for us as we go on and I think that would only accelerate as we get into 2015.

That kind of EBIT growth that we should experience in the second half of the year, coupled with the continued paydown of our investments, our tax rate continuing to improve each year, that should -- that is a formula that should drive 15% earnings-per-share growth as we go forward.

So I think it really does hang together very well with the understanding of this incremental spend that we need to have in order to really position ourselves in the Calvin Klein business for outsized growth.

On the e-commerce side of the business, we have a pretty successful Tommy Hilfiger business worldwide, e-commerce.

I think when you add up Europe and North America, 2014, we'll be approaching $100 million in revenues and it is a pretty profitable business.

We don't break it out, but it is pretty profitable at all levels and as it scales up and grows and it has been growing double digits, you clearly get more and more leverage to that business.

The Calvin Klein business from an e-commerce point of view was behind the Tommy business.

It is about -- this year, it will be $20 million.

It is a business that is all today North America and when you consider the fact that we were a licensed model, it was a very difficult model to bring all of the Calvin Klein product together.

Now that we control jeans and underwear, all of men's sportswear and with our partnership with G-III, we clearly believe we have a formula for a successful profitable business as we go forward.

It will require some investment, but a lot of that investment has already been made from an infrastructure point of view building out the Tommy e-commerce business.

So I think we clearly will leverage that as well and I think as that business scales today as a business that loses money, $4 million to $5 million, but as that business scales and moves from $20 million to $50 million, that is the inflection point where the business starts to become profitable and above that starts to become significantly profitable.

So for us, it is part of the overall strategy.

We will be rolling out the e-commerce platform in Brazil, China and in Europe in the second half of the year.

Most of that probably fourth quarter.

So really won't be of any significant impact in 2014, but clearly paving the way to continue to invest behind the e-commerce platform.

And now with control of the Calvin business really able to make a full brand message there to really deliver a full assortment of product to our consumers and I think over a period of time, the next three years, turn that business into a profitable enterprise for us.

Great.

Thank you very much for that color.

Good luck.

Erinn Murphy, Piper Jaffray.

Great, thank you, good morning.

I guess I had a couple of questions.

Manny, first for you, I mean if you could just reflect a little bit about some of your strategic initiatives as you think about the people side of it.

I mean that's been something you guys have highlighted over the last several quarters and have made some good additions there.

I guess two parts.

One, are there any key holes still to fill and then how should we think about the management transition at Calvin Klein with the announcement yesterday of Tom Murry's intention to retire?

Thank you.

Okay, we've made significant progress on the hiring; a lot of it done in the fourth quarter and the beginning of this year's first quarter.

So the key positions are filled.

I would say we have 80% to 85% of the positions filled today and there is always some positions open in the merchandise manager level and some of the design areas, but I think we have really crossed the bridge there and we will have those other positions filled by the first half -- by the end of the first half of this year.

On the Tom Murry transition to Steve Shiffman, it's emotional for me.

Tom and I have worked together over 10 years.

It is bittersweet that Tom is leaving, but I think Tom has chosen to leave at the absolute right time for Tom and for the business.

The business is in very good shape today.

Steve Shiffman, who is the President and Chief Commercial Officer, has all of the operating businesses internationally reporting to him.

He has got all of our retail businesses today reporting up through him.

So it is a very natural, easy transition for Steve from a commercial side of the business.

Where Tom really was focused was really on the creative service side, managing the brand, retail relationships and Tom is going to be here for the next seven to eight months.

We have an unbelievably strong team at Calvin Klein, as you well know, both on the marketing, the advertising and the design side that Tom really overseas directly hands-on.

So I don't see any drop-off there and we have got a very stable force, a workforce of people there, so I don't see much of a change there as well.

So we are comfortable with the transition.

I think it has been well-planned.

It is probably 18 months earlier than was officially planned, but the timing just seemed to be right for now.

So that is where we are on that.

Great, thank you.

And then just a quick follow-up as it relates to Calvin Klein.

How should we think about just the top-line cadence over the next couple of years relative to the profitability if you think about pulling back some of the distribution off-price, as well as some of the store closures that you have kind of inked out over the next year or so?

And then from a profitability perspective, when should we really start to see the margins for both underwear and jeans start to improve?

Thank you so much.

Okay, I think on the top line, when we get out of 2014, we'd be looking for 8% top-line growth overall.

That will drive the kind of earnings that I have talked about.

I'd like to think if we hit this right that it could be better than that, but as we sit here and project out, it is too early to call that.

There's real opportunities there.

From an operating margin point of view, I just want to be clear, there is absolutely nothing wrong with the operating margins of underwear.

Our operating margins in underwear are above 15% globally.

So I think we can enhance those from some disciplines on inventory management, assortment management and better presentation, but that is a very healthy business, number one position in men's and a top three position in women's globally.

So very comfortable with how we are positioned in the underwear business.

The real opportunity is -- when you really look at where Calvin is underperforming as a business unit, it's in jeans in North America and it's our European business.

It is just about a $500 million business in Europe that is projected to break even this year.

So if you compare that to the Tommy Hilfiger business, which is at least three times as large, but operates at 17% operating margins, our goal is to move Calvin over the next number of years to a 10% operating margin.

That is the track record, that is probably on just a pure performance basis the biggest impact that we can have on our overall operating margins at Calvin.

The fact that Europe is such a strong -- is such a big market for us and the fact that it is so underperforming, it really creates an opportunity for us as we go forward.

So that's it, Erinn.

Great, thank you guys so much.

Best of luck.

Christian Buss, Credit Suisse.

Yes, hello, could you --?

Christian, could you speak up?

I'm sorry.

Yes, could you provide some color on the composition of your inventories and how you feel about inventories at retail?

Sure, I'll make Mike -- Mike Shaffer is going to talk a little bit about that.

So I guess I would say that, at this point, we've got the PVH process and policies around inventory implemented around the globe.

We took some charges last year to clean up.

We worked through some old inventories as a result of the acquisition.

It is behind us.

So as we move into 2014, both in North America and the rest of the globe, we are feeling real good about our inventories, both in our own stores and in the department stores we do business in.

And Christian, what I would just add to that is, in North America, our inventories are in -- we came out of the -- beginning of the month, February, came out very, very clean.

We were really on top of it with our retail partners to make sure permanent markdowns were taken in January; there was no carryover on any of that.

But I guess is when I look at the business, I have to take a step back is my concern is not our inventory levels; my concern is we really need to see the business in North America start to improve, traffic start to improve, hopefully directly involved with the warmer weather that is soon to come and Easter coming because, at department stores in that wholesale channel, the retail channel, our wholesale inventories are starting to build.

After missing sales in January, February and March across the board in the macro environment, I am starting to look at inventory levels that are starting to build in the sportswear areas, men's and women's, and some of the other areas at the store and that is an area that I think we all have to watch and watch the promotional cadence that starts to happen in April and beyond.

That is the -- that would be the one concern that we see as we go forward.

We need to start to see footsteps improving into stores and weather improving.

That's very helpful.

Thank you very much and best of luck.

Thank you.

Omar Saad, ISI Group.

Hey, Manny, thanks.

I wanted to follow-up -- you're seeing this weather problem in certain markets and you are seeing a better business elsewhere.

Is your gut telling you that there is pent-up demand and as the weather improves, you are going to see the return of traffic?

Is that what your gut is telling you or is there too much negative data out there to really make that call?

No, my gut -- okay, I think my gut is telling me that business is definitely being negatively impacted by weather across the board.

It's just a fact.

Just think about the kind of weather that we have experienced here in the Northeast and in the Midwest.

The catalyst for you as a consumer to go out and buy bright-colored short-sleeved knit shirts to go golfing in and most of our courses haven't opened up up here, that is the challenge.

When I look at the southern business in our department store channel, it's running up double digits.

So there's really two stories going on geographically around.

So I think as our product is well-positioned on the floor, we really transitioned strongly to spring and made that move, which I think will save us markdowns in the future, but trying to sell wear-now product in February and with temperatures at 10 degrees I think has been a challenge across the board.

So that is the issue.

So my gut is telling me, based on everything that I see, my 20 years experience in this business, that we are being significantly impacted by weather and a late Easter.

All right, great.

And then I wanted to ask a question about Calvin Klein, if you think about the brand more broadly.

You have got the biggest kind of licenses now in-house.

Maybe there is some more to come in over time, new leadership coming into place.

Are you guys prepared yet, and maybe it is too early as you are going through a lot of the integration things, but are you prepared to kind of articulate what the long-term financial opportunity and timeline is for the brand, the size of it today, the profitability of it today and where it can go over time?

It just seems to a lot of us that the brand is so much stronger and more globally recognized than perhaps the profits it's generating for the Company today.

Or maybe there is an Analyst Day at some point as you think about this.

It sounds like a plea for an Analyst Day.

I think it is a fair callout.

We don't -- I don't disagree with anything you said.

I think the brand clearly has significant upside and opportunity.

I think we will set up an Analyst Day the second half of the year where we can give you a better picture of all that.

I think I have spoken about the overall kind of growth that I think the business can get to.

I think over -- to get to 2016, I think the number we keep talking about is to get to $10 of earnings per share as we go forward and that would just be the math associated with growing -- with the kind of growth I see over the next -- over 2014 to 2016.

So there is clearly that opportunity ahead of us without doing what I would consider anything herculean and without talking about spring in-house some of these businesses that you started to name, that you reeled off.

That opportunity is in front of us.

I think that is 24 months out, but clearly on top of the $10 a share, there is the ability to take in-house a number of licenses, both internationally, both at Tommy and Calvin and domestically, both at Tommy and Calvin, that we really would like to manage more directly ourselves, have better control over and given the short-term nature of most of our license agreements, the ability to bring those businesses in-house on very favorable terms that should be very positive from an earnings point of view.

So again, without going into real specifics, just trying to lay out some of the things that maybe you could think about and how we get to that $10 a share number and how we grow beyond that in -- beyond 2016.

So there is a tremendous amount of growth in the Calvin Klein brand, as well as the Tommy Hilfiger brand with the opportunities that are in front of us.

What is critical in order to get to that and unlock that, the Warnaco transaction was critical because of the size and diversity of the business they control both from a product and a geographic point of view and now having that effectively integrated onto our business platform in order to take advantage of their geographic diversity in order for us to expand directly into those markets.

That is the key execution point that we need to complete in 2014 and I feel very strong about it.

Thanks.

One last quick question.

Did you guys consider going external in the search to replace Tom or was Steve just such an obvious choice?

I think Steve was an obvious choice.

We do a lot of talent management here on succession planning.

We've sat down with each of our divisions with our teams and built succession plans.

We have talked about the Tommy Hilfiger succession plan to Daniel Grieder.

I think that has been laid out for four years since we bought Tommy.

It was well thought out, the plan is well thought out.

That transition is going exceedingly well.

Daniel is really taking charge of the business as we go forward and taking that leadership role.

Still having Fred here as an advisor is a huge benefit to me, in particular and I believe to Daniel as well, but that just does it and the Tom transition was also laid out.

What it really is is probably an 18-month acceleration from where we thought we would be.

And I think Steve was such an obvious choice.

Thanks, Manny.

Good luck.

Lindsay Drucker Mann, Goldman Sachs.

Thanks, good morning, everyone.

Good morning, Lindsay.

I had two questions.

Number one, I just wanted to clarify -- so we have taken a bit of a detour from the original earnings guidance you set when you bought Warnaco.

But it sounds as if your view on the overall potential is unchanged.

I actually was just curious, is that a fair statement and the fact that we have had more of a choppy road to get there is just a function of more upfront reinvestment?

Or are there other areas that you have uncovered in Warnaco that are fundamentally broken in ways that you didn't believe or were value destructive in ways that you didn't believe when you were just looking at it from the outside?

No, I think, Lindsay, I think you have characterized -- I guess the only characterization I would say is the detour that we laid out we laid out 12 months ago and we talked about it in pretty stark detail about what needed to be done and how disappointed we were that we had to come back to all of that.

I think I would characterize -- the balance of what you said is absolutely true.

There is the long-term growth potential, there is nothing that we've seen that really would deter us from where we are.

Just to remind everybody, what Warnaco controlled was jeans and underwear.

The underwear business is very positive, very strong and the jeans business damaged and that is -- and damaged in Europe and North America.

Asia and Brazil, strong businesses with strong product.

So I think those stumbling blocks where we had to deal with were, for us, cost us $0.50 a share or whatever in the last two years each, but we have had to deal with them.

I think those hopefully by the second half of 2014 are behind us and I see nothing ahead of us from a Calvin Klein brand point of view, positioning point of view, from the global growth opportunities presented by the brand that changed any of my thoughts from 24 months ago to where we are today and how we think we can move this business forward.

Great.

And then just a quick two-part follow-up.

I'm sorry if I missed it, but can you give us an update on the sportswear launch in Europe and then secondly the tough macro, the tough conditions in the US?

Are you seeing any agitation for pricing concessions or otherwise from your retail customers for the fall product?

Let me do the first part first.

The short answer is no; we are not seeing any impact at this point on cancellations or pricing pressure or whatever.

When you think about the North American wholesale business that we really manage almost as if it was our own retail business, we are totally on -- we are totally focused in on that business on a weekly daily basis.

So we are making the decisions along with our retail partners about the markdown cadence, the need to move certain product categories that start to build up.

And I guess I would first say, as much as everybody talks how difficult February was as a month, just remember it is the smallest month in the fiscal year.

We are starting to see business in department stores improving as we move through March.

It is always difficult to read when you have holiday shifts like Easter coming later, but, against plan or whatever, the last two or three weeks, business has started to improve and we are really looking for April to be a significant month for us.

So the short answer is no impact on the fall season, no cancellations, no price concessions at this point and just very carefully managing our markdown cadence and promotional cadence to deal with the macro environment overall.

On the platinum sportswear launch in Calvin Klein, it is a relatively small launch second half of the year.

It will be somewhere in the $10 million range overall, with key accounts really focused -- we've gotten very strong reviews on the productline, how the goods are and what we really want to do is place it with some key accounts, keep it relatively tight in some key markets, build brand off of success and momentum as we go forward as opposed to widely distributing it more fragmented.

We want to build a success story there, keep it very tight.

To remind everyone, the launch is really focused on men's.

I would describe it as a sportswear line, tailored clothing, dress furnishings line with real -- what you really would expect from Calvin.

The women's launch will be even smaller and will be second half of 2015.

We are keeping that very tight.

I think the focus for Europe, as we really think that the sportswear could be -- the platinum sportswear could be a significant opportunity for us going forward.

We also think it needs to be done in a way that is very brand-appropriate and brand-building and it is important to build it off of a very strong foundation.

So it will move slowly, but where the real opportunity in Calvin Klein Europe for us financially and operationally is jeans and underwear turnaround.

If we focus on those businesses, almost $500 million in sales just for those two businesses and take a business that is losing or slightly profitable and really focus on those opportunities, jeans, underwear, along with our accessory businesses in jeans and in Calvin Klein overall, those are the opportunities that will really drive performance and better financial results.

Thank you.

John Kernan, Cowen and Company.

Hey, guys, good morning.

Thanks for taking my question.

Thanks, John.

So this is a bit of a follow-up just on the commentary around the jeans and underwear operating margins for Calvin Klein.

As we look at your segment operating margins, where does the normalized operating margin for the Calvin Klein international business reside?

I know Warnaco had lost over 1000 basis points in its European business by the time you had bought it.

I think their Asian and Latin American margins were also coming down.

So as we model that segment out over the next several years, what type of margin, operating margin do you think that business can get to?

Okay, let me take the overall -- let me do it my way, John.

I think the Calvin Klein operating margin should be north -- overall should be north of 15%, probably 16% to 17%, considering the level of licensing revenue that is in that business.

The international margins this year are operating at about 13% this year, the international margins.

I think they will take a step back in 2014 and then they should expand 100 basis points a year going forward for at least the next three years.

So that business -- overall, the international operating margins should probably be in the 15% to 16% range by 2016, 2017.

All right.

That's really helpful.

Thanks.

And then I don't want to get ahead of myself here, but I can't help but look at the leverage ratios on your balance sheet by the end of 2015 will be back below where they were when you bought Warnaco.

So what is the appetite to maybe relever the balance sheet for another acquisition of maybe a lifestyle brand outside of what you currently own in the portfolio?

John, I think the best use of our capital would be continue to invest in Calvin and Tommy acquisitions as opposed to another lifestyle brand.

I say that for a couple of reasons.

I think one is they would be significantly less risk as any acquisition would be since it is our brand, we know the business, we should understand how it is impacted.

We would be layering on businesses that are not foreign to us from the point of view -- if it's an international business, it should be a business in Asia where we are already operating Calvin Klein say in China or Hong Kong that if we were to work out an arrangement to bring in the Tommy businesses there, that is a business we understand, we have an infrastructure in place that we can leverage off of and then finally the kind of multiple that we would have to pay to bring back more of our own businesses I think would be much lower than a multiple we would have to pay for a lifestyle brand.

So I think the next three years, that is what you should think about, besides paying down debt in 2014.

2015 and beyond, if we talk about acquisitions, should be thinking about more Calvin Klein, more Tommy Hilfiger.

That doesn't mean that as we get out there that a third leg to the stool that might be a global brand for us that we could take advantage of our infrastructure and who we are.

I think that is clear, but I think really trying to stay focused to maximize the growth of Tommy and Calvin over the next five years I think is where we can get the best return for our shareholders.

That's very helpful.

Thanks.

Joan Payson, Barclays.

Hi, good morning.

Could you talk a little bit more about the plan for 5% growth in Calvin Klein in 2014?

Maybe what that includes in terms of each region or where you think there could be room for upside?

Sure.

I think we are planning North America to grow in that 5% range, comps in the 3% to 4% range overall.

We are looking at Europe to grow the top line mid-single digits and remember that includes also eliminating some of the secondary sales that were pretty profitable, but were brand-damaging as we go forward.

And in Asia and Latin America, we are looking for high-single digit kind of growth overall.

So when you blend that together, coupled with the fact that we've taken our Australia business from an operated business to now a joint venture where we are enjoying the earnings, but we have taken it off of our books; in South America, the non-Brazil Mexico business in Central South America is now converted to a license model as opposed to an operating model that was losing money.

So I think when you bring it all together, that is why the 5% number is maybe not as high as we would expect in 2015 where I think it will be closer to 7% to 8%.

I hope that gives you some color.

The opportunities would be -- the biggest opportunity would be to outperform the retail estimates in North America, Asia and Latin America.

That is really where I see the big opportunities for top-line growth opportunity going forward.

Okay, great.

And then just to turn to Tommy Hilfiger quickly, what progress have you made in Japan so far and when do you think we could expect to see a turnaround in that business?

I think we are seeing that -- that business clearly has not turned around.

I think we are seeing that business in the first quarter stabilize and level off.

I think it will become -- it will now become not a negative when we talk about our earnings growth.

It is becoming a push for 2014.

We are planning the earnings flat and really trying to manage the business.

That is clearly an area of focus for Daniel and our team in Japan and we are really looking at it not as a top-line opportunity; we are looking at it as a profit opportunity to clean the business up, to really be more efficient there and to position the brand appropriately for the rest of Asia.

So I think that is the mission there.

Keep it in mind it is a relatively small business, about $200 million and I think we have it under control and it will be a slow turnaround as we go forward to get it back to normalized earnings of 10%.

That is a three to four-year goal as we go forward.

So I think that is how you have to think about that business.

Okay, great.

Thank you.

Howard Tubin, RBC Capital Markets.

Hi, this is Courtney Willson in for Howard.

We were just wondering if you can speak a bit more on marketing plans in the US this year?

Thanks.

Sure.

I think on the Tommy Hilfiger side of the business, we are increasing our overall marketing spend globally somewhere in the $8 million to $10 million range.

Partially it's tied into the growth of the business overall and growing our advertising accordingly.

So I think you will see a continuation of the effective marketing that we've had.

We are putting more and more of our marketing not just in media, but going online, but also really at point of sale to really impact in that area as well.

On the Calvin Klein side, we've always spent a significant amount of money.

We have got a huge promotional campaign going on now.

My Calvins, which is an underwear-based campaign, it's 360 at point of sale, it is on the Web, it is in social media as well and we are really connecting I think directly with the millennium customer, a younger customer that we are really targeting there.

We have gotten tremendous press on that coverage, significant amount of traffic.

So that has been a really exciting campaign.

It has gone viral and is really -- we've got a lot of celebrity endorsements that have just come onboard, so that is exciting as well.

And then lastly in Calvin, as always, fragrance is such a big part of it.

We have got a major launch going on for the second half of the year, which we will talk more about as the year has gone on.

Coty will be spending $100 million this year.

So I think there will be some really good marketing going on as well.

And the big increase in spend that you are really seeing happening, it is not in media or there, it is at retail presentation to really connect with the consumer that the store environment and the product that we deliver in that store environment, particularly in the jeans area, is up to the level of what the Calvin Klein brand is globally in all other product categories.

So that is where the investment spend is.

I hope that helps.

Operator, we are running to an investor conference right after this, so we are going to take one more question and then close the call.

Jay Sole, Morgan Stanley.

Hi, good morning.

Thanks for taking my question.

You're welcome.

Can you talk about your CapEx plans for 2014?

How much do you plan to spend and what will you be spending it on?

I guess I will let Mike really focus on that.

Okay.

Our plan for 2014 is about $300 million.

In there is about $40 million to $50 million of carryover from 2013.

Some of the initiatives we had thought about for 2013 we didn't get to get the spending done in 2013, so we will push that into 2014.

CapEx for us this year will be heavy for warehouse construction as we exit some of the older Warnaco facilities and get our facilities up to capacity to handle that business -- office relocations, showroom construction and of course, new stores, which we will be opening all over the globe.

New stores and renovated stores, as I talked on retail presentation, really upgrading a number of our stores, particularly in Europe, also in Asia and really focused in on presentation in department stores with our wholesale business.

We are building shops for jeans and underwear, building fixtures as well to really enhance the presentation.

Most of that will come on back end of the year as we go forward and really building it -- particularly the presence in the top doors with our key accounts, Macy's and Belk's and some of our doors, to really enhance that jeans presentation as we go.

We are really in the process of negotiating right now with Macy's in particular to really expand the space and hopefully improve the profitability.

Terrific.

Thanks so much.

Okay.

I'd like to thank everybody for joining us and look forward to speaking to you in late May with our first-quarter earnings.

Have a great day, everyone and enjoy.

Bye-bye.

Ladies and gentlemen, this does conclude today's conference call and we thank you for your participation.