PVH Corp (PVH) 2014 Q4 法說會逐字稿

Good morning, everyone, and welcome to the PVH Corp.

full-year and fourth-quarter 2014 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 anything you say appear on any transcript or replay of this call.

The information being made available includes forward-looking statements that reflect PVH's view as of March 25, 2015, of future events and financial performance.

These statements are subject to risks and uncertainties indicated in the Company's SEC filings and the Safe Harbor statement included in the press release that is 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 or any forward-looking statement including without limitation any estimate regarding revenue or earnings.

Generally the financial information and guidance 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 in the Company's current report on Form 8-K furnish to the SEC in connection with the release.

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

Thank you, Hannah, good morning, everyone.

Joining me on the call this morning is Mike Shaffer, our Chief Financial Officer; Dana Perlman, our Treasurer and Senior Vice President in charge of Business Development and Investor Relationships; and Ken Duane, the CEO of our Heritage businesses and our North American wholesale businesses.

Overall we were quite pleased with our fourth-quarter results which match the top end of our earnings guidance despite the highly challenging market environment and foreign currency headwinds.

In the fourth quarter on a constant currency basis revenues increased 5% and EPS grew 30%.

Mike Shaffer will take you through the details of the financials for the quarter and our guidance and will also highlight some of the issues surrounding foreign currencies which I know there is a lot of interest in.

I am going to get into the business right now and talk about Calvin Klein.

In the fourth quarter revenues on a constant currency basis increased 6% while earnings increased about 9% driven by strong sales performance in our North American business and higher international operating margins due to the elimination of clearance and off-price sales in Europe and Asia.

Moving into the first quarter, we have seen a significant improvement in our international sales trends.

Retail comp store sales are running ahead of plan in the first quarter and trending up high-single-digits in Asia with particular strength in China and Southeast Asia.

We are also seeing high-single-digit increase in our European businesses on a comp store basis.

So both regions really performing much stronger for us.

In Europe the CK Wholesale business continues to improve with our 2015 spring and fall order books, excluding Russia, up about 10% over the prior year.

In North America our CK Retail comps are running on plan, up low-single-digits.

We are seeing strong sales in our domestic permanent population stores while ours stores located in international tourist destinations like Miami, Orlando, New York and Las Vegas are feeling the pressure from the weaker international tourist traffic, which we believe is a direct result of the strengthening US dollar's impact on international travel to the US.

Focusing now on some of the Calvin Klein brand initiatives and update.

Our Calvin Klein jeans and underwear marketing initiatives have focused on reaching new consumers over the last 12 months.

We have increasingly invested in and focused on our digital outreach through our #myCalvinKleins campaign and our subsequent extension of that campaign with our spring 2015 Calvin Klein jeans and underwear campaign featuring Justin Bieber and Lara Stone, which launched in January.

We have seen a significant increase in the number of fans since the launch and we have generated while over 13 million fan interactions to date.

From a business perspective this has allowed Calvin Klein to engage with our existing and new customers and has helped to drive purchases of the brand.

Further to the initial My Calvin's campaign, the spring 2015 campaign featuring Justin Bieber was the number one global trending topic on Twitter at launch.

We have seen traffic more than double on CalvinKlein.com and the campaign in the first two weeks achieved over $350 million of publicity value.

We believe the campaign has helped to continue to fuel the momentum that we are seeing in our jeans and underwear businesses globally.

From a product point of view, I'm going to focus on Calvin Klein underwear first.

We have delivered new core product along with significantly improved and elevated packaging.

We have launched two new men's programs globally, Intense Power and Air Fx for spring 2015 and have seen very promising initial selling results.

As a reminder, Intense Power is what Justin Bieber was featured in and has sold well at retail.

Air Fx is more of a performance underwear which taps into what is happening more broadly in the active arena.

In the women's area our Modern Cotton logo initiative leverages the best of what Calvin Klein underwear does for men and translates it for women with an active appeal.

Modern Cotton continues to drive the improvement in our women's business in North America and Europe.

We have also continued investing in our point-of-sale presentation with new graphics and new fixtures.

In addition, we have upgraded and installed new shops in key markets in the US in New York, Miami, the West Coast and California, San Francisco.

Additionally, we have installed new shops in stores internationally in key markets throughout Europe and Asia.

In the US over the last six months our men's and women's businesses have picked up market share across the department store landscape.

Average unit retails continue to be up about 10% year over year driven by full price selling of the new product launches.

Overall underwear sales are running up high-single-digits at retail in the first quarter.

In Europe men's continues to outperform with the women's performance driven by elevated fashion components added to the business.

Overall sales in the first quarter are running up mid-single-digits at retail.

In Asia we continue to see great performance on the elevated Black Label product across both men's and women's.

Our women's bra business in Asia continues to outperform every other region and the Perfectly Fit collection for women is ranked as the number one or number two performing collection in all key Asian regions.

Overall sales in the first quarter are running up high-single-digits at retail.

Moving to our Calvin Klein jeans, in the jeans area new product has been delivered and we are seeing good reaction from consumers, particularly where we have installed new jean shops.

In North America we have installed 225 shops in 2014, 150 men's shops and 75 women's shops.

In the newly installed shops we have experienced a 40% retail sales increase over the prior year.

Fall 2014 AURs were up about 15% and that trend has continued into the first quarter of 2015.

We are targeting 150 new shops installations in North America for fiscal 2015.

In Europe we are in early stages of a turnaround in the jeans business.

We have installed over 60 new jean shops throughout Europe.

We have significantly improved the quality level of our jeans line with better fabrics, trims and packaging.

We are effectively out of all off price retailers in Europe beginning in the first quarter of 2015.

We have closed approximately 40 underperforming stores over the last 18 months.

We have opened 11 Calvin Klein jeans freestanding stores in the second half of 2014.

During the first quarter of 2015 we are renovating our stores in London, Rome, Venice and Milan to our new jeans concept shops and we expect them to open in the second quarter of 2015.

The jeans business in Europe is seeing improved sell-throughs and higher AURs in the first quarter with growth across all markets with the exception of Russia.

At wholesale our 2015 European order books, excluding Russia, are up about 10% over the prior year.

Moving on to Tommy Hilfiger.

On a constant currency basis revenues for the Tommy Hilfiger business increased 9% for the fourth quarter while operating earnings on a constant currency grew 10%.

In North America we posted a 1% comparable store sales increase.

And as we have moved into the first quarter, comp sales trends have basically continued at this level, running about flat to date primarily driven by lower international tourist traffic in those key centers while domestic permanent population centers are running up low-single-digits as well.

At wholesale our European business continues to outpace the competition.

As an indicator our 2015 European order book ex Russia is running up about 5% compared to the prior year.

Internationally we have seen growth on a constant currency basis throughout our International business.

The growth in the fourth quarter was driven by our strong European business both at wholesale and retail.

The European retail comp stores increased 6% in the fourth quarter.

As we have moved into the first quarter comps are on plan running up low-single-digits quarter to date.

From a brand perspective for the Tommy Hilfiger brand we continue to focus on driving the brand globally through elevated product development and engaging marketing campaigns.

In 2014 we successfully launched our new Tommy Hilfiger e-commerce site which we believe effectively integrates commerce and brand experience.

Since the new site has launched we have seen a significant increase in traffic and consumer engagement on our site, which has resulted in strong growth in our fourth-quarter e-commerce sales.

We continue to evolve our consumer engagement through increased digital marketing and media spend.

As we focus on driving some of our key brand initiatives, including growing our underdeveloped Tommy Tailored business and our Tommy underwear business, we recently announced that Rafael Nadal will be our brand ambassador for the fall marketing campaign.

This campaign will focus on those two key product categories, tailored and men's underwear, which we believe we have significant growth opportunities to capture.

Moving to our Heritage business, our Heritage business had a difficult fourth quarter with revenues down 3% principally driven by poor performance of our dress shirt business.

Operating income declined $12 million in the fourth quarter as clearance markdowns were required to balance inventories and clear excess goods.

We believe this dress shirt issue is behind us as we enter 2015 and we will begin to see this business turn around in fiscal 2015.

Moving into the first quarter, our sportswear businesses have continued to perform with retail comps running up about mid-single-digits quarter to date.

Before I turn it over to Mike I just want to focus on the key initiatives as we move forward.

As we move in over the next three years our key objective will be capturing the long-term revenue and profit opportunities for our Calvin Klein and Tommy Hilfiger brands.

There are really five key initiatives that we hope to accomplish over the next three years and that you should be monitoring as we go forward.

The first is to continue to invest in product, presentation and the marketing of the Tommy Hilfiger and Calvin Klein brands.

Second, we continue to invest in our global operating platforms to support our growth strategies including key investments in our digital commerce systems and platforms.

Third, significantly improving the operating results of the Calvin Klein European business over the next three years so it is comparable to the strong operating performance of our Tommy Hilfiger business in Europe.

Fourth, continue to invest in the expansion of our presence in Asia and Latin America for both Tommy Hilfiger and Calvin Klein as we see these markets as our greatest growth opportunities for the brand.

And finally, assuming more direct control over our Calvin Klein and Tommy Hilfiger license businesses over the next three years where we can maximize our core competencies to increase sales and our overall profitability.

And with that I would like to turn it over to Mike to quantify the fourth-quarter results and to put more color on some of the guidance that we gave.

Thanks, Manny.

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

I'm going to briefly touch on the fourth quarter of 2014 then move on to 2015.

Our overall 2014 revenues were close to plan excluding the impact of foreign currency.

The strong growth in our Calvin Klein and Tommy Hilfiger businesses was offset by a decline in our Heritage business.

Tommy Hilfiger revenues were up 9% on a constant currency basis in the quarter with strong wholesale performance in North America.

In Europe Tommy Hilfiger Retail posted 6% comps combined with square footage expansion while the wholesale business recorded mid-single-digit growth.

Calvin Klein also had a strong quarter with revenues of 6% on a constant currency basis driven in large part by North America wholesale, in particular our underwear business.

In addition, both Tommy and Calvin experienced increases in the fourth quarter operating margins versus the prior year.

Heritage revenues were down 3% for the quarter due to poor performance in our dress shirt division.

Within our dress shirt business the shortfall in revenue was coupled with a decline in gross margin due to heavy markdowns as a result of excess inventory levels which significantly lowered our Heritage operating margins.

Benefiting the fourth quarter versus the prior year and our guidance was a decrease in the tax rate driven by discrete items.

Overall we delivered earnings per share growth of 23% even with the $0.10 per share negative impact from foreign currency exchange.

As we look to 2015 we need to take a moment to understand the mix of our business' revenues and earnings and the impact of the strengthening US dollar.

As we called out in our press release, our earnings before unallocated US corporate expenses are about two-thirds international which heavily exposes us to exchange rate fluctuations on both the transaction and translational basis.

Our exposure at a transactional level is mostly due to our international divisions purchasing their inventory in US dollars.

To partially protect against this we buy forward exchange contracts about 9 to 12 months out for about 80% of our projected inventory purchases made by our international divisions in US dollars.

Our exposure at a transition level is due to converting the revenue and earnings of our international division into US dollars.

Like most companies we do not hedge translation and we don't believe we should be gambling on currency fluctuations.

In 2015 we are anticipating, based on current exchange rates, that we will be impacted negatively by about $1.20 of earnings per share for foreign exchange.

The $1.20 impact is approximately two-thirds driven by translation and one-third driven by transaction.

Our largest currency exposures are the euro, the Canadian dollar and the Brazilian real.

In addition to the impact of the strengthening dollar, the turbulent economic and political issues in Russia are projected to reduce earnings in our Russian business by about $0.10.

The business remains profitable but at a much lower level than in the prior year.

Go forward we will be discussing these impacts when material and offering a constant currency few of our operations to measure the true health of our business.

For the full year 2015 we are projecting earnings per share at $6.75 to $6.90.

If we exclude the negative impact of FX in Russia of $1.30 we have earnings per share growth of 10% to 12% over the prior year.

Overall we are projecting revenues of approximately $7.9 billion, which includes a negative impact of over $500 million related to foreign currency.

On a constant currency basis we are projecting revenues to increase about 3%.

Overall operating margins are expected to increase about 20 basis points to 30 basis points, excluding the negative impact of about 60 basis points due to FX.

Driving the growth when excluding foreign currency is continued improvement in the Calvin business which is projecting revenues to grow 5% on a constant currency basis.

We are also planning Calvin Klein operating margins to increase 30 to 50 basis points excluding a negative impact of 20 basis points of FX.

Tommy Hilfiger revenues are planned to increase 3% on a constant currency basis with operating margins [being] relatively flat excluding a negative impact of approximately 100 basis points of FX.

Our Heritage businesses plan to have a revenue decrease of 4% due mostly to exiting the IZOD retail business in 2015.

Operating margins in our Heritage business are planned to increase about 60 to 80 basis points as our wholesale business continues to show gross margin improvements particularly in dress shirts.

The impact of foreign currency on our Heritage business is immaterial.

Interest expense for the year is planned to be between $100 million and $125 million compared to the prior year amount of $139 million due to our average lower debt balances.

Also favorably impacting interest for 2015 is the debt refinancing we did in the second half of last year's first quarter.

Our tax rate for the year is planned at about 22%, which is mostly in line with the prior year.

First quarter earnings per share are planned at $1.35 to $1.40 and include $0.30 of estimated negative impact for foreign exchange and the decline in our Russian business.

Excluding this impact we are expecting earnings per share to increase 12% to 16% for the first quarter.

Revenue in the first quarter is projected to increase 2% on a constant currency basis.

Tommy Hilfiger's revenues are planned at 2% constant currency increase and Calvin Klein is planned at a 3% constant currency increase.

Heritage Brands revenues are projected to decrease 1%.

Interest expense is projected to be $30 million and taxes to be about 25% to 26% in the first quarter.

And lastly, we currently expect debt pay down to be at least $425 million in 2015.

And with that we will open it up for questions.

(Operator Instructions).

Bob Drbul, Nomura.

Manny, on the Calvin Klein jeans business, can you elaborate a little bit more in terms of like the progress that you have seen?

Like what the response has been from both consumers and from the retail partners?

And as we sort of go through this year, like the biggest milestones that we should be focused on around pricing, around off price and just around the product standpoints?

So, Bob, I think it will be -- I think in North America the real focus for the next 12 months will be improving the profitability of that business as we really focus on selling full price merchandise here in North America, which heretofore had been a challenge for that business particularly over the last three or four years.

So we really are turning the percentages upside down.

We are really trying to drive growing full price selling and at the same time taking market share.

I believe when you look at the business, where you will see that manifest itself in the Calvin Klein North America business is on a constant currency basis seeing operating margins continue to improve in that business as we go forward.

And we will be reporting at retail with our key department store accounts the fact that we are seeing strong sell-throughs of that product.

Hopefully you will also be seeing -- because I know you shop -- you will also be seeing in North America a much more elevated presentation at retail with our key accounts, Macy's, Lord and Taylor, Dillard's both in the jeans and the underwear area.

And overall you should be seeing higher average unit retails going out the door.

In our international business it is probably even more transparent because a bigger component of that business for us is direct-to-consumer where we are in control of both the environment and selling space and we report those results on a retail basis.

So I think there the business, particularly in Asia which is a highly profitable business model, there it should be on top-line growth in both of those categories as we go forward.

And we are starting to see that in the first quarter this year with a real enhancement a product.

As we have rebalanced more of our selling into the full price area away from clearance and promotional sales, that comparison in Asia is pretty much behind us now.

So we are really getting an apples-to-apples comparison beginning in 2015.

So for us that will be the driver.

In Europe, continuing to focus on the order book, continuing to see our price points increase at retail and our presentation across the board on the Calvin Klein brand.

So I think that profitability will be very transparent when we report results.

And, Manny, when you think about like the five-year plan that you have talked about on the Calvin Klein Jeanswear business, where are we in sort of the profitability and the game plan that you have laid out?

Like where did we end 2014, how do we think about it for 2015 from your five-year perspective?

So I think fundamentally when you look at the business in Asia and in Brazil, that business is running at an optimal level from an operating margin point of view.

Mid-teens operating margins, very healthy business being impacted obviously by what is going on with foreign currencies.

But when you really get into the on the fundamentals of the business, what is really driving it, that is a very healthy business both jeans, underwear, all product categories in those two regions of the world.

So I believe the enhancements that you will see will be -- hopefully on a local currency basis you will see some continued operating margin improvement, but what you really should start to see beginning in 2015 is some top-line growth as we have eliminated the off-price clearance sales that existed in the business.

In the US and European businesses, both of those businesses are basically a break even for jeans business model for us today.

So we clearly believe that we have the opportunity there to bring those margins over the next four to five years to approach 10%.

Every other Calvin Klein business that we run in Europe and in North America are running at double-digit operating margins for us.

So it is really cleaning up the problems of the past, getting the brand presented, making those investments the last 18 months and continuing that into this year.

But each year seeing an improvement in the operating margins of those businesses as we go forward so that when we get over the next three to four years we will start to approach those double-digit operating margins for jeans in Europe and North America.

Got it.

And, Manny, just one quick question.

On the marketing front, can you just (inaudible).

There is a lot of discussion in social media around the Justin Bieber campaign.

Was there airbrush work (technical difficulty) done or not?

Could you just say the last part, Bob?

You broke up on the phone, I am sorry.

The Justin Bieber marketing campaign, could you just talk about the amount of airbrushing that went on in that campaign?

It was his head on my body, John (laughter) -- Bob.

No, look, that campaign was totally legitimate, there was a lot -- you know Justin Bieber is a controversial figure which we love.

It created so much buzz; just that whole controversy around the campaign.

It is right up the heritage of the brand, it's what we really want to stand for getting parodied on Saturday Night Live.

So all of that I just think created marketing buzz around the brand.

He is a terrific young man.

He is really turning his career around and we are trying to be as supportive as possible as he moves forward.

Great, Manny, thanks very much.

Good luck this year.

David Glick, Buckingham Research Group.

Great, I get to follow that up (laughter).

Manny, first question -- a couple questions.

First, Tommy Hilfiger business obviously has been very strong since you acquired it and the revenue outlook a little bit shy of where Calvin is.

I just was wondering if you could give us some color on why the top line in Tommy is planned a little bit below Calvin.

Are there any issues or challenges underlying that or maybe just a function of a tougher comparison?

You know, David, it is a great question.

I think from a macro point of view we have -- we are really dealing with some headwinds going forward.

The Tommy business -- the strength of the Tommy business has been its geographic diversity and the strong brand positioning and the strong operating and financial characteristics that the European business carries.

I think fundamentally when you think what is going on with currencies around the world -- in Europe in particular but Brazil as well, two big markets for both Calvin and Tommy, but in particular for Tommy in Europe -- there is a reason those currencies are under so much pressure.

The underlying economic statistics there are just feeling the pressure.

So it's -- the fact that our order book is running up mid-single-digits 4% to 6% depending on the season, in and of itself is disappointing to us when we look on it on an historic basis where we have had double-digit increases in 2010, 2011 and 2012.

But clearly from what is going on from a macro point of view we feel we are substantially gaining market share during the same timeframe.

But that doesn't change the dynamic that is going on that we are only planning our comps to grow low-single-digits in Europe and we are planning the wholesale business to also grow in that 2% to 4% range for the second half of the year.

So Tommy has consistently surprised us on the upside with their results.

And we are in a little bit of a period of now being up against some really tough comparisons last year and prior years and going into the headwinds of just a really challenging market.

So I think that is the biggest issue that is facing us there.

I think as things start to improve there is no reason why that business doesn't get back to a blended growth rate of closer to 6% to 7% to 8%, which we think we are very comfortable with.

And really for that brand there continues to be substantial opportunities for us to really directly control some of the emerging markets throughout Asia and in Latin America as well.

So those are real opportunities for us as we go forward and none of that is really factored into the financial guidance that we have given.

Great, thanks.

Second question, obviously premature to talk about how FX is going to impact you beyond this year.

But can you talk about what strategies that you are contemplating, whether it is pricing, average cost -- your cost reduction, expense cuts to offset some of the transactional impact you have going forward?

Sure, Dave.

I think fundamentally we are dealing with somewhat of an unprecedented situation in -- given the volatility and the speed of some of these declines.

The euro moved from parity at one point in 2002 to $1.35 and has -- in four months has gone from $1.35 to just above parity just a couple of days ago.

So it has been a shockingly fast move, which you don't usually expect to see in currency markets.

So we are really trying to pull all the levers as we think about 2016.

We are also trying not to overreact to the situation.

So we are clearly looking at the potential in certain markets for more local production.

That would be particularly for Europe where we would like to see a 1,000 basis point increase potentially in some of our local production that goes on.

So instead of being around 30% potentially moving to 40%.

That does come with higher average costs than we experienced in 2014 and 2015, but at the same time gives us speed to market and efficiencies that we might be able to take advantage of.

Leveraging off our overall purchasing power with our vendor base, trying to be more efficient there, that will clearly be a level we will look at.

Opportunistically increasing average unit retail, that is one that we are really focused on, we are looking at, we are trying to understand the competitive set there.

We're also trying to understand market by market where we have the potential to raise prices.

Given the fragility of the European market, especially some of the big markets that we are in, it feels in the short-term like we need to move cautiously as we really start to experiment with raising prices.

But we will be looking at it very closely.

And then lastly looking at expense controls across the board everywhere.

We clearly understand the situation we are in and we need to manage against that.

So I think we are really trying to focus on all of those points us we roll forward with a real balance to say we need to continue to invest in our brand so that we can drive long-term growth as this starts -- as hopefully some of this currency headwind starts to turn around over the next two years.

Great.

Last question.

Your Heritage business obviously has been a headwind which is a bit ironic given the improvement we have seen particularly in the mid-tier department store channel.

I am just wondering what are you seeing in that channel and the department store channel overall that might -- in terms of trends and is that an opportunity for you guys as you start to turn around your Heritage business.

Yes, look, our sportswear businesses, I will talk about that specifically.

We continue there to see good results, particularly with the IZOD business, the launch at Kohl's continues strongly.

I think you'll see operating margin improvement there and some sales increases.

The retail trends right now, first six months -- six weeks of the quarter have been very satisfying to see what has been going on in our own stores and at retail that we are seeing.

Our dress shirt business, for us that was just a huge disappointment.

That is just not an area where we should be missing.

I mean we are the dominant player, it is a tough category, but we got caught with some inventory and some movement of excess goods that we shouldn't have gotten caught with.

That's been addressed, that is behind us and I think you will start to see that business in 2015 getting back to its historical levels of profitability.

The real challenging business in that whole Heritage component has historically been our retail direct-to-consumer business in North America.

And we've addressed that over the last two years with the close down of the Bass business and now the close down of the IZOD retail business, both representing a little bit over $300 million in sales at breakeven operating businesses.

So the efficiency that we are gaining from that will start to manifest itself in 2015 and in 2016.

So a much more efficient business model.

Historically our wholesale businesses have been at 10%-11% operating margins.

Even last year in a very challenging market we were over 8% and believe we will get closer to 9% this year with a hope to reach that double-digit level second half of this year.

So it is a focus area for us.

We clearly manage that business from a cash flow point of view.

There is little investment going into the Heritage businesses besides working capital and some minor support for the brands that is required.

And we're able to take that cash flow from those businesses and reinvest it back into a high-margin, higher growth Calvin Klein and Tommy Hilfiger business.

So that strategy just continues.

Thank you very much for the color.

Good luck.

Joan Payson, Barclays Capital.

So could you talk a little bit specifically about the Calvin Klein North American wholesale business?

It looks like it was performing very strongly.

So maybe if you could just touch on what the growth was for Calvin North America wholesale in the quarter and also what you are seeing in terms of the order book right now.

Sure.

You know, Joan, I am very cautious whenever I talk about a North American order book because given the customer composition and the immediate cancellation of orders and margin support.

So suffice it to say it is very strong, it should continue.

But I don't like quoting percentages because sometimes I am not -- it is not -- unlike the international businesses where an order is really something that is stood behind and moves out, I think here it is really it is more like a retail business for us, we really have to manage it.

So I will just focus on how we are doing at retail and how that has manifested.

I think the Calvin Klein business overall in North America was up double-digits from a sales point of view in the fourth quarter.

That's really been a strong performance for us and it is really being driven by outsized performance of the underwear business.

The men's -- as the bigger business just driving that, but also women's also coming on very strong and really enhancing the overall brand presentation has been a big winner for us.

So the underwear business double-digit increases in our wholesale business, the jeans business overall and the men's sportswear business up mid- to high-single-digits for us as we move forward.

That trend hopefully will continue.

It is going to be driven principally out of a lot of reorder replenishment business that we are -- the supply chain is set up this way to really react to that today and fulfill at a greater -- at a higher percentage as we go forward.

So I think we are positioned really well.

At retail where we see the shops go in I think I mentioned we are looking at between 30% and 40% store-on-store kind of retail increases.

That doesn't translate fully into wholesale sales increases, but it does higher margin, higher profitability, less markdown and allowance support as we go forward.

At the same time what you are seeing when you look at the overall business is that we are really eliminating both in the off-price channel -- not eliminating but significantly reducing the amount of off price and clearance goods that are going to the off-price channel, but also the sell-in of promotional items into the full price strategy as well.

So we are really trying to enhance that overall business and it is the only way to then drive the profitability of that business.

So as we keep our inventories clean and with an ability to react on an EDI basis on core product, I think it is all very healthy for us as we go forward.

Great, thanks, Manny.

And then also just touching on the Tommy license opportunity and taking some of those licenses in house, could you talk about which region or regions might be the nearest term targets?

And also how those license regions have been trending more recently?

Sure.

I think when you say -- it is really the international markets that we would focus on.

I don't want to get into specificity on the retail market, but I would say the Tommy Asia business has a royalty percentage increase which is comparable to what the business is growing, that international royalty has been growing in the double-digit rate for us throughout Asia driven particularly by the strength of the China business.

The only region that has been soft in Asia or Tommy as well as Calvin has really been the Korea market, which has had its own economic issues surrounding it.

So really the opportunity in Southeast Asia, the opportunity in China and clearly even more long-term the opportunity in Latin America for the Tommy brand potentially -- to be running those businesses more directly either through direct operations or potentially with a strategic partner in a joint venture situation -- really gives us a tremendous amount of flexibility and we believe the best way to capture the growth in those regions.

Great, thank you.

Erinn Murphy, Piper Jaffray.

Manny, I was hoping you could talk a little bit more about kind of your forecast for Calvin Klein over the next three to five years.

How should we thinking about the pace of constant currency revenue growth now that you are just starting to see some more traction both in the jeans and outerwear business?

And then, secondly, as it relates to Calvin within Europe.

When do you think it's going to be an appropriate time to revisit developing the Calvin Klein bridge opportunity in that market?

Okay, let me -- let me take the first -- the last part first because it is the easier part of the question.

On the bridge opportunity, particularly on the women's side, which is the -- which would be the big sales opportunity potential.

I think the strategy in-house has been reestablish the jeans business, reestablish our casual sportswear business throughout Europe, get that operating on a level that we are comfortable that we can deliver against.

And then when that is at a level begin to introduce the bridge product.

You really want to introduce that product when the brand is at strength -- full strength at retail, when you have the operating platform in place to support it.

And we don't want to get ahead of ourselves and start to create short-term losses in a business that will be even -- that is very challenging in that market.

So I believe there is a real opportunity there, I think it is an easier road on the men's side than the women's side.

So our focus will be in the next three years underwear, jeans, accessories and then men's sportswear.

Along with a tailored component in men's dress shirts, suitings, comparable to what we do in Tommy.

After that the business is much more secure and established we will look at the bridge opportunity in Europe.

As far as forecasting the growth, I don't think -- again, I can't deal with when I say this is I can't forecast to you with all the currencies ups and downs.

But when we look at the underlying fundamentals of the business we continue to target high-single-digit growth, somewhere between 7% and 8% top-line growth, any kind of growth like that on a local currency basis will drive double-digit revenue growth.

Have to deal with the vagaries of each of the markets, the macro dynamics that are going on, but fundamentally looking at the opportunity for the Calvin Klein brand is no reason that the brand, given its growth prospects globally, that that brand shouldn't continue to grow at that kind of level overall.

I think North America will be somewhat smaller just because it is as well developed as it is and where the opportunities are.

And clearly the opportunities in Europe, Asia and Latin America are closer to double-digit kind of growth.

When you put it together I think that is where we get that 7% to 8% target that we talk about that really should drive double-digit EBIT growth for the segment.

Okay, that's helpful.

And then just a second question.

On the strength of the order books that you are seeing in Europe in the back half, where are using the most traction from a regional perspective with Calvin Klein tracking towards that 10%, and then also with Tommy Hilfiger tracking towards that 4% to 5% range?

Sure.

For Calvin, the strength is really -- the biggest growth that we are seeing on a percentage basis is the UK, France, and to an extent the German market.

Even though the German market is challenging overall as a market, we are just significantly underdeveloped there.

So the opportunity to take advantage of our infrastructure in Germany where Tommy is by far the largest sportswear business in Germany, we really are able to take advantage of that strength to move Calvin Klein into that market.

So I would say those are the three key markets for Calvin.

Where we are seeing challenges continues to be Italy and Russia, which for Calvin in particular, the Russia market, Moscow, that whole surrounding area, we had a very strong franchisee partner there and it was just a very strong business for us.

That business in 2015 is under pressure.

So it is muting some of the growth, but even with that you could see the kind of sales growth that we are talking about for the brand moving forward.

On the Tommy side of the business, the most challenged market is Italy, followed by one of our bigger markets which is Germany, which is flattish right now, given its extraordinarily high market share that we have there.

I think we are actually, on a market share basis, growing.

I have seen statistics that talks about German apparel sales overall down about 3% last year.

In that same period, our Tommy Hilfiger business was up about 2% to 2.5%.

So I think we are growing.

And as that economy hopefully improves we should start to see some results there.

So that's -- the two brands, that is how I would describe what is going on.

Great, thank you, guys, and best of luck.

John Kernan, Cowen and Company.

Congrats on the elevated product and marketing in Calvin Klein; clearly starting to see some of the benefits of that.

Thank you.

Can you remind us how far below peak you are for Calvin Klein AUR specifically in the jeans business, and how big this opportunity is?

I know you talked about being at a breakeven rate in terms of profitability at North America and Europe.

But is it really just a matter of getting back a certain level of AUR to get back to that double-digit operating margin?

Yes.

The brand in 2013, 2014, was operating with average unit retails out the door of $23 to $25, which is horrific.

We are -- percentagewise, I can quote you we are up 20%.

But the reality is in that business we are approaching $30 today, both men's and women's, which is very good progress to where we are, but we need to be closer to $40.

Our AURs in our men's sportswear business, to just put it in comparison, is about $45 out the door.

That is a full seasonal AUR, including clearance, markdown, zeroing out, the whole shebang.

You would expect the jeans to be slightly less than that, more casual, much more of a T-shirt business driven there.

So anywhere between $38 to $40 for Calvin Klein would be a healthy business.

So we need to move AURs 30% to 35% over the next three years to get to that level of profitability that we have achieved in every other product category that we operate in.

So I always want to reiterate that the issue that we have in North America is not a brand issue.

It is a product category issue that is under pressure on a macro basis and has been really mistreated as a product category from a quality level and a presentation.

And we are just starting to make those investments and seeing -- we are just starting to see the turnaround in those businesses.

And where we -- not to belabor it -- but where we get the presentation, where we are able to show the product, we are clearly -- in Herald Square where we have the shop presentation that is comparable to everything else we have, we are clearly already delivering that $40 to $45 AUR.

So for us, that is what we are going back to our retail partners and demanding more square footage, better doors, really improving our EDI replenishment capabilities with jeans to really have a supply chain that supports our jeans business.

So a lot of building blocks that are there and some still getting there, but I believe over the next 12 months we are really making headwind.

And hopefully, as each quarter progresses, I can continue to be optimistic about where we are heading with that business.

Thanks, that is really helpful.

Then can you just remind us the size of the licensed Tommy business in Asia and how this would affect -- bringing some of these licenses back in-house how that would affect your financials over the next few years?

Sure.

At retail, that business is about $1 billion, and that includes -- I'm sorry, that is the international piece.

That is Asia and our Latin American pieces.

So we kind of look at those two markets together.

So the opportunity for us is to bring that business in-house.

It is not all retail business; it's probably about 50-50 retail wholesale.

So I would say the sales base probably closer to $650 million.

And we believe that our licensing partners are operating in the range of somewhere around at least a 10% operating margin.

We believe we probably could enhance that just given scale and size and the synergies that would exist with the existing Calvin Klein businesses in those territories from a clearly a back-office synergy point of view, not a front of house synergy.

So those are -- that is the opportunity that we potentially see.

We believe those businesses can be bought at attractive prices considering where the market is and considering where currencies are today.

So we think obviously those would be accretive transactions with two brands that we clearly understand in markets that we clearly understand as well.

So from a risk profile I think would be a lower risk kind of acquisition as well.

So I think that is where our focus on the use of our cash over the next three years will really be.

Okay, that is really helpful, thank you.

Michael Binetti, UBS.

So, on the Calvin business you have spoken to the longer-term guidance for that.

But I'm curious, with the guidance for this year at 5% on the revenue line, I think you've spoken about that longer-term at 7% or 8%.

And I guess it's not intuitive to me why it would be below that in the early phases of the turnaround considering all the momentum you guys have putting assets in the ground to accelerate that business.

And the same I guess point on the margin guidance this year for 2015 at 30 to 50 basis points of improvement as you have talked about how far below what you think the opportunity is on the jeans side for Calvin Klein.

Are there things that hold the margin back or is there an inflection point on the horizon that you look at to say this is what actually starts accelerating it beyond the margin improvement rate for this year?

I think, Michael, you know us well -- and we try to be prudent when we are projecting the business and we are projecting top-line growth in particular.

I tried to touch on the first-quarter trends which are internationally better than what we have seen -- were better than what the plans would indicate.

Before we start projecting that we'd like to see a little bit more time.

It's really six weeks, seven weeks and we'd like to see a little bit more time understanding Easter shift, what is going on.

Understanding -- in North America one of the biggest challenges we are dealing with, and I think you will probably hear more of this as more retailers start to report, is how this international tourism is really impacting our retail sales, particularly if you have big stores in key cities in the United States be it the Northeast, Florida, Vegas, the West Coast.

I think you are going to probably hear from every major retailer that attracts an international tourist in North America that that business in those markets will be under pressure.

While it seems at the same time the permanent population sectors, the Midwest, the Mid-Atlantic, the West Coast outside of LA and San Francisco and then the whole Southern Tier of the country, Texas and [wherever], those businesses are actually pretty strong indicating the local consumer there is doing well.

So, it is balancing that in North America as well as we go forward.

Especially with this Easter shift it is very hard to read, I'm not going to -- the weather, everything that has gone on.

We are really trying to just understand more and trying to build a projection for this year that hopefully we can outperform.

And is it -- I guess the other part of the question was is there an inflection point on the horizon where you guys start seeing an accelerating trend in the margin based on maybe some of the headwinds this year as you continue to put assets in the ground, become less intense over time?

Well, Michael, it would be a lot easier -- if we were dealing with so much currency noise, both translation and transaction it would be a lot easier to be bullish about everything.

And I find myself, before I am checking retail sales in the morning, I am checking currency on CNBC.

So as crazy as it is it is just -- that has kind of got everybody's head spinning.

If we can get -- again, if we could just get some stability.

Nobody is looking for dramatic improvement.

With some stability I think it would give us a better sense as we start to look at cost of product going out for the fourth quarter of 2015 and beyond.

That story hasn't been written yet and we are in the midst of that as we go forward.

Particularly since we are a January year end.

So that is -- all those things are really stopping us at this point from potentially if the world was normal and we were talking -- instead of talking about currency this way we were just talking about $8 plus of earnings per share growth, if currencies were level I think you would see a different posture from the management team.

And I don't think it would just be us a big it would be a number of people.

So that has got everybody really just sitting back trying to evaluate what it all means and trying to manage against it as well.

Right.

So one final question since you brought up CNBC.

On TV last night you mentioned share repurchases.

In the past when we have spoken it hasn't really seemed like a priority for you, you have always preferred something strategic like the licenses you mentioned.

Maybe just some thoughts on capital deployment this year.

Do you see yourself saying like we might buy back some shares this year?

Or if we look back at your transcripts to pre-Warnaco, there is just a lot of velocity around the licenses that you guys were rolling out back in the day.

Do you see that business going back towards that over the next year or two instead as you think about how to deploy cash?

Thanks.

Look, it is a great question.

I think we are at a moment in time and 2015 is really that transition year, that we really need to look at that as we go forward.

And where we are in this moment in time is the priority has been, given the acquisition of Warnaco, pay down debt.

And we have done that for two years, exceeded our expectations of paying down debt and targeting to pay down about $425 million of debt again this year.

Which I think is really critical and important to position ourselves to grow to make those acquisitions that we were talking -- that I have been talking about this morning.

At the same time the free cash flow of the business after the investment spending in -- for systems and platforms and our CapEx expenses and our retail growth.

And even if you coupled in debt repayment and a level of licensing acquisition that was rational year-by-year as opposed to a major acquisition in one chunk, if you did it that way we're generating, once all the integration and restructuring now is behind us, we'll probably generate $500 million plus a free cash flow after those investments to pay down debt as we go out.

So this year I think the number will be $500 million and it really gives us the opportunity to look at potentially looking at stock buyback end of 2015 going into 2016 depending what the opportunities are that are out there from a strategic point of view.

Our first priority will be to pay down -- will be to invest and invest in licensing acquisitions once the balance sheet is squared away, which I think it will be in 2015.

So I hope that gives a little color on where we are.

Very helpful, thank you.

Okay this will be our -- operator, we will take this as our last question, please.

Eric Tracy, Janney Capital Markets.

I guess if I could turn to the Tommy Hilfiger strategy.

You guys seem like you are focused on not getting caught up in the promotional environment, particularly in Europe.

That translated to really nice both top- and bottom-line growth for that business.

As we think about maybe the tougher environment generally speaking as evidenced by the sort of 3% growth outlook, how are you going to manage through that business?

And what is the sort of health of the landscape from a channel perspective that you guys have to deal with?

I think that is really the balancing act, it's trying to drive healthy growth not necessarily just to drive growth at the expense of brand -- our brand positioning in the market or authenticity with the consumer.

We want to be a full price -- particularly in Europe we want to be a full price retail resource.

There is a lot of competitors out there that are trying to grow in that market and you are seeing an over expansion into the outlet business and an over expansion into the off-price and promotional business.

And I think -- that feels good in the short-term because that could be a really profitable business.

And we saw what happens with that -- Warnaco deployed that strategy in 2006 and 2007 and reported great financial results and really just completely damaged the Calvin Klein jeans business in Europe and in North America.

So there's short-term gains to be gotten by doing that, but that is not a game we want to play in Europe or internationally at all.

We are not really (inaudible).

We understand how to make money.

We understand what our responsibilities are.

But going overboard in that area just to drive some incremental growth that will come back to bite us later is not an area where we want to be.

Yes.

And so in that same vein, as we think about the domestic jeans wear category -- and you guys have clearly made great strides, PVH and CK specific.

But speak to again the health of that category from a competitive standpoint and the potential restraints you have to continue to migrate those AURs higher.

Look, the denim business the last three years has been a category that has been under pressure, particularly in the active performance inspired area.

So if you look at the Calvin Klein performance business, at retail that is approaching a $150 million business in North America.

The G-III just does an outstanding job of operating for us and we believe internationally where we -- where PVH controls that business that is a growth area for us as we move forward both in men's and women's.

I think on the denim side -- on the men's side in denim the business has stabilized from a category point of view.

And I believe you are starting to see some positive trends in men's denim.

I can't say that for women's.

We are seeing some growth and we are seeing some positive results, but I think as a category at best the business is flattish overall.

And we see most competitors -- I think they really continue to talk about negative growth and what is going on.

So space is being reallocated in some cases, so it is critical that as -- given our historical position in denim with Calvin Klein jeans, the brand that started the designer jeans craze, we need to really be an authority on department store floors in America.

And I think we are reestablishing ourselves in that area on the men's side and on the women's side.

And I think the load is -- has got some challenges in North America on the women's side because of the category, but I believe on the men's side we will really start to see some overall improvement.

Okay, perfect.

Thank you, guys, (inaudible).

Okay, everyone, I really appreciate the time this morning.

Allow us to get back to focusing on the business.

We look forward to speaking to you in May on the first-quarter press release, so -- and updating you on business trends.

Have a great day.

Thank you.

That concludes today's conference.

Thank you for your participation.