PVH Corp (PVH) 2015 Q1 法說會逐字稿

Good morning, everyone, and welcome to the PVH Corporation first-quarter 2015 earnings conference call.

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

It may be 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 June 1, 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 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 statements, 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 referenced earnings release which can be found on www.pvh.com and in the Company's current report on Form 8-K furnished 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, Dana.

Good morning.

Joining me on the call are Mike Shaffer, our Chief Financial Officer; Dana Perlman, our Treasurer and Senior Vice President on Business Development and Investor Relations.

Overall we were quite pleased with our results for the first quarter which exceeded our earnings guidance by $0.10 per share.

In the first quarter, on a constant currency basis, revenues increased 3% and EPS grew 20%.

This outperformance was driven by strong underlying results in our international Calvin Klein and Tommy Hilfiger businesses.

At the same time, we did see softness in our US Calvin Klein and Tommy Hilfiger businesses where a strong US dollar negatively impacted international tourist spending.

Moving on to Calvin Klein, on a constant currency basis, revenues increased 5% while operating earnings increased 25% in the first quarter, driven by the strong performance of our international businesses.

The Calvin Klein brand initiatives are taking hold and we continue to be pleased with our latest Justin Bieber spring campaign and our recently announced denim series featuring Kendall Jenner.

We believe we are beginning to connect with a much younger consumer.

Moving into the second quarter, our international businesses continue to put up strong sales gains.

International retail comp store sales are running ahead of plan in the second quarter and are trending up high single digits in Europe while our Asia business is posting mid-single-digit increases.

We're seeing particular strength in China, France, the UK, and the Middle East.

In Europe, Calvin Klein 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 in the second quarter, our Calvin Klein retail comps are running flat and on plan.

We're seeing strong sales in our permanent population stores while stores located in tourist destination locations like Miami, Orlando, New York and Las Vegas are feeling the pressure from weaker international tourist traffic and spending.

Speaking on some product initiatives, on Calvin Klein underwear globally we continue to drive our iconic basics while delivering new elevated product.

In men's, we have launched two new programs globally for spring: Intense Power and Air Fx.

And we have seen very strong first-quarter selling which has continued into the second quarter.

Overall the Calvin Klein North America men's underwear business has gained 300 basis points of market share in the first quarter.

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

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

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

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

Overall, our Calvin Klein North America women's intimate business has gained over 200 basis points of market share in the first quarter of 2015.

We continue to see great performance from our elevated Black Label product across both men's and women's in Asia and Europe.

Our women's bra business in Asia continues to outperform the competition through the tailored bra category in both the push-up and solutions category.

Overall sales for Asia in the first quarter ran up mid-single digits at retail and that strong sales trend has continued into the second quarter.

Moving into Calvin Klein jeans, the new product we have delivered we are seeing a strong reaction from the consumer, particularly where we have installed new jean shops.

We continue to see men's outpace women's across North America and Europe, but women's continues to see an improvement.

In North America, in the newly installed shops, we experienced a 25% retail sales increase over the prior year.

First quarter overall AURs were up about 10% and that trend continues into the second quarter of 2015.

We are targeting 150 new jean shops installations in North America for FY15.

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

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

This has resulted in strong sellthroughs and higher AURs in the first quarter with growth across all European markets, excluding Russia.

Second-quarter jeans sales trends in Europe have continued to improve and are running up high single digits.

Moving to our Tommy Hilfiger business, revenues on a constant currency basis increased 1% in the first quarter.

The increase was driven by solid performance in our international business, including a 2% increase in European retail comp store sales.

In North America, revenues declined 1% resulting from a 3% decrease in retail comp store sales.

As with Calvin Klein, we experienced a decline in international tourist traffic and spending in our Tommy US stores.

Operating earnings on a constant currency basis decreased 6% in the first quarter, due to weak international tourist traffic in the US which drove more promotional selling and higher markdowns.

Moving into the second quarter we have seen significant improvement in our Tommy Hilfiger sales trends.

Retail comp store sales at Tommy have accelerated in the second quarter with international comps up mid-single digits and North America comp store sales up low single digits.

In Europe, we have seen a significant improvement on our men's side of the business across all key categories; in particular, in our largest market, Germany.

We believe we can continue to outperform in men's and denim relative to the market and our women's wear business is also seeing improvement in orders to date.

At wholesale, our Tommy European business continues to outperform the competition.

As an indicator, our 2015 full-year European order books, excluding Russia, are running up about 5% for the year.

The strongest performing regions continue to be Germany, France, and the Middle East.

Moving to our Heritage business, first-quarter revenues for the Heritage business increased 5% while operating earnings increased $5 million over the prior year.

This increase is principally driven by a shift in the timing of shipments into the first quarter of 2015 from the second quarter of this year.

And also driven by a strong retail comp store increase for our Van Heusen business of about 14%.

Our Heritage sportswear business continues to perform very well, both at wholesale and retail.

We expect that our dress shirt business will continue to under perform through the first half of 2015; however, we believe that this business will significantly improve in the second half of the year.

Finally, we were very pleased to announce a $500 million, three-year stock buyback program, which reflects our confidence in our ability to generate strong free cash flow.

Our first priority will be to continue to strategically invest in our two global powerhouse brands in order to fully maximize our organic growth opportunities.

That said, given our strong balance sheet and growing free cash flow, which we estimate to be [up] $450 million in 2015, we are confident we have the financial flexibility to, one, acquire and take more direct ownership in certain Calvin Klein and Tommy Hilfiger licensed businesses; continue to pay down debt and return capital to our shareholders through our new stock buyback program.

With that, I'm going to turn it over to Mike Shaffer, our CFO, to quantify further some of these results.

Thanks, Manny.

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

On a constant currency basis, revenue for the first quarter was up 3% versus the prior year and ahead of our guidance.

Driving revenues was our Calvin Klein business, which delivered a 5% increase over the prior year, fueled by an 8% increase in our Calvin Klein international business, with comps of 10% benefiting in part from the timing of Chinese New Year.

On a normalized basis, international comps were mid-single digits.

Also favorably impacting the current quarter at Calvin Klein was the timing of wholesale shipments.

Our Calvin Klein strategies are taking hold and we're seeing improved performance, particularly in our international businesses.

Our Heritage business revenues were up 5%, also ahead of plan, but heavily influenced by earlier-than-planned wholesale shipments.

Tommy Hilfiger revenues were up 1% and missed plan due to softness in the US, where a strong dollar negatively impacted international tourist spending.

Earnings per share for the first quarter was $1.50 and included a $0.27 negative impact related to foreign currency and expected weakness in our Russian business.

Excluding this negative impact, EPS would have increased 20% over the prior year.

Our quarter one EPS was $0.10 ahead of the top end of our guidance.

The $0.10 [beat] versus our guidance was driven by $0.02 of taxes, $0.02 of favorable foreign currency, and $0.06 related to the business performance, which was predominantly Calvin Klein and favorably impacted by the timing of shipments.

For the full-year 2015 we raised our guidance and are now projecting earnings per share of $6.85 to $6 95.

If you exclude the negative impact related to foreign currency and weakness in our Russian business of $1.25, our earnings-per-share growth is projected to be 11% to 12% over the prior year.

Overall, we are projecting revenues of approximately $8 billion, which includes a negative impact of about $500 million related to foreign currency.

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

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

Driving the growth when excluding foreign currency is the continued improvement in the Calvin Klein business which is projecting revenues to grow 6% on a constant currency basis.

We're also planning Calvin Klein operating margins to increase 70 to 80 basis points, excluding the negative impact of approximately 30 basis points of FX.

Tommy Hilfiger revenues are planned to increase 3% on a constant currency basis, with operating margins planned slightly down excluding a negative impact of approximately 80 basis points of FX.

Our Heritage businesses plan to have a revenue decrease of 3% to mostly our exiting of the IZOD retail business in 2015.

Operating margins in our Heritage business are planned to increase about 60 to 80 basis points driven by the second half planned turnaround of our dress shirt business.

The impact of foreign currency on our Heritage businesses was relatively immaterial.

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

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

We currently expect to generate approximately $450 million of free cash flow in 2015 which would be used to pay down debt of about $350 million and allow for license buybacks and stock repurchases under our newly announced plan.

Our tax rate for the year is planned at about 21.5% to 22%, which is in line with the prior year.

Our revenue and earnings comparisons for the second quarter are heavily impacted by launches in the prior year for our Calvin Klein underwear business, which had a major repackaging initiative in last year's second quarter, as well as the initial selling of IZOD at Kohl's in our Heritage businesses.

In addition, we saw earlier shipments in this year's first quarter versus the prior year and recognized about 25 shipments in quarter one that shipped in quarter two of last year.

These launches were coupled with earlier shipments are driving flat overall revenues in the second quarter on a constant-currency basis.

By business, we're estimating second-quarter revenues on a constant-currency basis to increase 3% for Tommy, flat for Calvin and to decrease 8% for Heritage.

Second quarter earnings per share is planned at $1.25 to $1.30 and includes approximately $0.30 of estimated negative impact for foreign currency and a decline in our Russia business.

Excluding this negative impact, EPS is projected to increase 3% to 6% over the prior year.

Interest expense is projected to be $30 million and taxes in the quarter about 19% to 20%.

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

(Operator Instructions)

Bob Drbul, Nomura.

Good morning.

Manny, when you think about the jeans business and some of the performance we are seeing and the improved performance that we're seeing, when you look at the women's business, can you talk a little bit about what else needs to happen there?

What you are most optimistic about in terms of the overall jeans business, but how can the women's business continue to improve?

What needs to happen there?

Sure, Bob.

The thing I'm most optimistic is about the product improvements that I see in the pipeline.

I think we have consistently talked about the fact that we felt that the men's product initiatives around quality, fit were six months ahead of where the women's initiatives were.

So I really feel, as we get into the second half of this year, into 2017, into 2016 as well, you will see more dramatic improvements in that business because of those initiatives.

In addition, I think when you think about the overall market, the women's denim category has been under greater pressure around this whole active at-leisure trend in the market.

I think that has also pressured the women's business in a much stronger way.

And we are starting to really better understand our consumer on the women's side, what drives their purchasing decisions.

And I think our marketing campaigns are really starting to align with that, particularly with the Kendall Jenner campaign that just kicked off in the last month or two.

I think that's really starting to connect even more directly with our female consumer.

So I feel very optimistic about what's going on, but clearly we're seeing bigger improvements on the men's side of the business today.

And, Manny, with the Kendall Jenner marketing, do you have any plans to include Caitlin Jenner in any of the marketing programs?

No, Bob, thanks.

One more question.

When you think about 2016 and you look at the foreign exchange pressures, can you give us an update on how you are thinking about pricing and some of the transactional pressures as we look forward?

Sure, we are raising prices.

I think now the question is to what degree?

What opportunity that presents?

What's the competitive positions that are out there?

I think there's two things that go on.

First is you raise ticket prices, sit down with your retail partners, and that's what we are really in significant discussions with our key retail partners about what they are seeing and where we are.

And then off of that, particularly in North America, but around the globe in Europe, in particular, how much do we have to promote off of that and how much regular price selling will come off of that.

So there's a number of levers to press and we're really going to determine that over the next three to six months as it plays itself out and we're trying to give ourselves as much flexibility as we go forward.

We will also be testing in fall and holiday some price increases as we go forward to see how the market is receiving that.

Competitively, we know a number of our competitors, particularly in Europe, are starting to move prices up for fall.

We're following that trend and watching it very carefully, but we also want to make sure, as a market leader and in a turnaround situation with Calvin Klein, market share gains are critical to us.

We want to make sure that we are not overpricing ourselves in the market.

We are really trying to bring a balance to it.

But clearly there will be an opportunity to raise prices in the spring 2016 timeframe, given what's going on competitively.

Great.

Thank you very much, Manny.

David Glick, Buckingham Research Group.

Thank you.

Manny, just to start off on the Tommy Hilfiger business, obviously the Calvin business had a very strong quarter, a little softer on the Hilfiger side, you talked about some of the issues in North America.

What's driving the improvement in Q2?

And how are you feeling about the potential to re-accelerate the Hilfiger growth as you close 2015 and head into 2016?

I think a couple of things, David.

Let's talk about Europe first.

I think we have, on the Tommy side of the business, in our own retail stores, each month in the first quarter, as we move through the quarter, the retail comp performance improved.

And as we have moved into May and just finished the month of May, that was by far the strongest month.

So I think we are really starting to see improvements in the European overall environment.

Our men's business is really working very strongly, both on the sportswear side and the denim side of the men's category.

And I think we're getting paid real dividends, given our strong position in the market.

Inventories are very clean, there's not a need to be overly promotional.

In Europe, given what's gone on in the external environment, Tommy's significant exposure to that European market is by far our largest market for Tommy.

It is about 45% of our sales.

So it has a much bigger impact to the business as we went through what I would describe, in 2014, a softer kind of environment, second half of the year into the beginning of this year.

The overall economic backdrop seems to be improving and our business seems to be capturing that.

Hopefully that continues.

In North America, I think we are going to potentially struggle with this international tourist spending.

The Tommy business has such a strong following internationally in the United States that that business, I think, particularly in our biggest, most profitable stores, we're seeing traffic trends down in the 8% to 10% area in the Tommy Hilfiger business.

And I think that -- although in the second quarter, that trend improved and I think some of that has to do, we believe, with the World Cup that we were up against last year where we saw a softer second quarter, I think that trend will probably continue into the third quarter of this year.

As we get into the fourth quarter, which is by far our largest quarter for our retail business, the comparisons start to get easier.

The differential, from a currency point of view, also starts to balance out a little bit.

So we're hopeful as we get into the late third quarter and into fourth quarter that that trend will start to improve.

We've gotten a little bit more promotional in those tourist destination locations and we've seen a reaction to that and have been able to drive the comps on a very profitable basis there.

From the first quarter where our retail comps in the US and North America were down about 3%, we're actually seeing them up 2% to 3% in the second quarter.

So hopefully that's a sign that we're starting to see an inflection point, but we will have to watch for a little bit more data as we move forward.

The timing of this improvement in Europe, Manny, I guess you will be working this month with your European wholesale partners.

So does that give you an opportunity, potentially, to see an acceleration in your wholesale order book for this next booking period?

Yes, we go on sale in about two weeks.

I think there is -- in general, I would say the European market, there is more optimism at the consumer level.

And I guess you know you have to go country by country.

There is a story everywhere.

But I think clearly the backdrop is better today than it was six months ago, so we're more optimistic as we go forward.

The retailers are still being cautious, I believe, as they buy.

Our [At Once] business, both in Calvin and Tommy, Europe, continues to be very strong.

We have gotten behind those businesses with inventory even more significantly in order to try to drive opportunities that we see.

So clearly I think there is opportunity in the second half of the year.

And we're more optimistic about the business in general in Europe than we have been for the last nine months.

And one last follow-up, on the transactional pressure you are going to be feeling into next year.

You talked about pricing.

Are there other strategies you can employ such as pushing down AUCs, maybe controlling SG&A, so you could potentially offset perhaps up to half of that transactional pressure?

Yes, I think that's a good callout and I should have mentioned that on the last question.

There's three key areas.

One is raising prices and doing it in a very thoughtful but aggressive way.

Two is looking at the supply chain from both logistically and also with our partnership with our key sourcing partners and vendor base throughout the world.

We believe there's opportunities on the core side of that business and we're also looking at potential expense savings that might exist.

We're targeting to try and offset 50% of that transactional problem in those three areas.

We will see where that takes us, at this point.

But again it's a little too early to get ahead of it, but we're feeling good about the initiatives we have in place and also the way the market seems to be addressing the issue.

There's a clear understanding that retail prices need to move up and that's what seems to be happening.

Great.

Thank you very much; good luck.

Joan Payson, Barclays.

Hi, good morning.

Good morning, Joan

Could you talk maybe a little bit, Manny, about the Calvin Klein margin expansion, because there was some, I think, strong margin expansion there despite the currency headwinds, particularly internationally.

And based on how the business is trending at this point, are your expectations changing at all for how the overall Calvin EBIT margin could ultimately look, but also how the European margins could ramp up?

Sure.

I think the European -- just purely on an operating basis, operating margin basis, I think the biggest opportunity is Europe to see a significant improvement in the Calvin Klein margins.

We had a $500 million Calvin Klein European business that is marginally profitable today from money losing over the last two years.

So our long-term target in Europe is to get that to about a 10% operating margin within the next four years.

I think we are on track to deliver against that.

The currency headwinds are just causing us some caution on that as we continue to look at the pressures that it's going to put from a costing point of view.

But clearly there's opportunities from pricing and better sellthroughs to significantly improve the Calvin Klein European operating margins.

Putting it into perspective, Tommy Hilfiger European operating margins for full-year of 2014 were at 14% operating margins, so it's clearly, with a well-run business of some scale, there should be the opportunity to get to double-digit operating margins in Europe.

Overall, I think we continue to talk about 15% operating margins for the Calvin Klein business.

And as we bring in some of the licensing businesses which carry almost 100% operating margins today, convert those into much larger direct control businesses, in those parts of the world, you would expect that our operating margins in Latin America and Asia should be in the high teens as we go forward.

So again I think there continues to be that opportunity and overall goal to get our operating margins in Calvin Klein to about 15% and then take it from there.

Okay, great.

And then in the context of the overall denim category in North America, it sounds like maybe trends are improving a little bit.

So could you talk about what you are seeing in the category more broadly and how Calvin Klein jeans compare to the rest of the marketplace?

Sure.

I think on the men's side you see the category has improved.

The negatives have now turned to low positives; the bleeding has stopped and I think the business feels better.

I think retailers have planned it more tightly, so it's becoming a category that should be nicely profitable because there's not a real issue for us.

We are focused on fall with all the retailers on the denim area, so I think you will see a lot of marketing around denim, and by retailers and the wholesale community, and I think there is appetite on the consumer side in men's to really refill their closets.

Some real fashion statements that are going on there that I think that category overall will start to improve over the next two or three years and see significant improvement in 2015.

Calvin men's business, in particular, I think I quoted the numbers, we are seeing double-digit increases.

So clearly we're gaining market share, but we have to be honest with ourselves, our market share -- we've lost about 50% of our market share from where we were four or five years ago.

So really recovering that, getting new doors that are opening in North America and larger footprints in some of the key doors in North America I think will be critical as that business goes forward.

On the women's side, I think the improvement from a category point of view has not been as strong as on the men's side, but it has been an improvement.

I think it's kind of flattish at this point.

The best data that I see is -- you hear different things when you talk to different retailers, but I think there the pressure from the activewear athleisure side has been more intense on the women's side.

And I think we're really seeing that business start to turn around on the women's side, but I think it's going to be behind the men's turnaround as we go forward.

On our women's business, we're really seeing a lot of improvement.

Were seeing it in denim bottoms, but we're also seeing it in non-denim bottoms with the jeans construction.

So really seeing a big change there.

And we're trying to really take advantage of that, both from a supply chain and a logistics point of view, to really capture some of that innovation that's going on, on the women's side of the floor.

So it's better than it has been, but I still wouldn't characterize the jeans denim area as a hot category at this point.

It's just not bleeding like it was and it seems to actually be slightly growing.

Great.

Thank you.

Erinn Murphy, Piper Jaffray.

Great, thanks, good morning.

I guess, Manny, on the buyback, I do believe this is the first buyback you guys have done since the end of 2007.

And can you talk about your philosophy behind that?

And then does that change the interest in pursuing bringing back some of the global licenses?

And then maybe remind us where you're at from a priority perspective on some of those international license takebacks?

Thank you.

Sure.

I think, one, philosophically, I don't think anything has really changed, with the one caveat that over the last 27 months, since the acquisition of Warnaco, we have paid back about $1 billion in debt and I think that's just given us more financial flexibility as we have gone forward.

We really look at it as a balanced approach to return capital to our shareholders as appropriate, and to also take advantage of what we see as the growth, both in our Kelvin and Tommy Hilfiger businesses.

The opportunity to bring back license business, we think is our number one priority that we really have to go after.

The way that lays itself out, given the nature and length of some of our license agreements, the buyback calls that we have in those license agreements, I think the triggering point to that is really 2016 that you really would see an impact for that.

So we're working on that diligently.

The opportunities, from a geographic point of view, continue to be Asia and, to some degree, Latin America.

Those are both growth regions for both brands, both Calvin and Tommy, and they give us the greatest opportunity to take advantage of our operating platforms in those regions to really see some outsized growth as we move forward.

So that would be our priorities.

We're also looking at some product categories that would make some sense to either bring in-house directly or to take a joint venture ownership position in those businesses, depending on the category and the region, what vehicle would make the most sense?

But there has been no change in that being our number one strategic priority, along with investing in the organic growth of the two global powerhouse brands.

Great, that's very helpful.

And if I could just add a follow-up on Europe to one of your former responses, can you elaborate a little bit more on what you are seeing in southern Europe in particular?

I'm curious in Italy, just given how Calvin indexes there?

Are you seeing pressure continue from doors being closed from some of the ma and pa independent retailers there?

Would love an update there.

Thanks

Sure.

Southern Europe, it's two big markets: Italy and Spain.

The Italian market continues to be soft.

It's not as soft as it was.

It's not as negative as it was the last 24 months.

So we're seeing a deceleration of the negative trends.

And I think a bottoming out of that region, of that country's retail situation as we go forward, so we're starting to feel a little better about Italy.

We are still not looking to make major investments there at this point, but I think, as the year progresses and we turn into 2016, we are optimistic that we can actually see some small increases as we go forward there and really stop the bleeding in that country.

In Spain, which is our other big southern market, there has clearly been a change in the direction of the consumer spending habits there.

And we're seeing it with our biggest retail partner, El Corte Ingles, our business in Spain is more of a wholesale or concession- driven model.

We have some stores, but not really that significant.

It's really driven through El Corte Ingles, and that business has improved significantly over the last six months.

We are actually seeing the business in our order book grow in Spain and I would expect that would continue to happen.

We're seeing it in the mid-single-digit kind of range, so I think the bleeding there has stopped and that gives us -- that's been our big market, particularly for Calvin and Tommy.

So I think, hopefully, as we get into 2016, we should start to see improvement there as well.

Great.

Thank you, guys, and congrats on a great first quarter.

Thanks

Eric Tracy, Janney Capital.

Hey, guys, good morning.

I guess, if I could, a quick follow-up as to the timing of the pricing increase.

It sounds like spring 2016, but maybe talk through when some of the transactional impact to currency hits, when the hedges potentially roll off, is it a lag or should they relatively align with some of those moves to offset?

Well, I think you are going to see fourth quarter, as the euro -- just to remind everyone, the euro, in particular, fell out of bed probably September 2014.

So as we were buying contracts at that point and hedging as we go forward, that's kind of when I think you will start to see some of the impacts.

We have talked about that this year, FY15, that 70% or thereabouts of the foreign currency hit was translation and transaction was about 30%, but that 30% really sat predominantly in the second half of 2015.

So there is going to be some pressure third, fourth quarter.

We are trying to increase some prices there and to adjust some coursing there.

But I think that's where you will start to see some of the pressure associated with it and not be able to really significantly offset some of the cost increases, since they happen so quickly at that point.

So early fall deliveries, we are not touching our retail prices at this point.

As we get into resort deliveries that hit November, December, I think there we are trying to really change some of our pricing as we move forward and then to be even more aggressive as we get into 1-25 deliveries.

And switching gears a bit, you discussed the pulling in of the licenses.

Manny, is there anything beyond just the timing of the contracts, but is there anything from any management capacity perspective that would limit or prohibit the ability to pull those in?

And I guess as it relates to all the investments and those being made on the CK business, do you feel there's any sort of constraints that would limit the ability to do that?

There is just an acquisitions, bringing them in-house; whether they are $2 billion acquisitions or $200 million acquisitions, there's a level of integration that goes on that size matters but it's not geometric.

So there is a capacity issue.

And that's one of the reasons I don't see us being able to execute all of these in a 12- or 18-month period.

These are going to have to be stretched out over a three- to four-year period, beyond when the contracts come up.

So clearly we are looking at the opportunities that we feel we can execute best and that would deliver the most strategically and from a financial point of view.

So we are doing that together with our Management teams.

I think it's important for us to be diligent and prudent about how we bring these in.

That will be the key to success.

I think rushing, especially where we have strong strategic partners in these regions, it's not like these are areas that are being mismanaged or the brand is not being treated appropriately, or we are not seeing appropriate growth.

This is really an opportunity to just capture more of that growth internally.

So we're not under the pressure of we have a bad licensee or a bad strategic partner and we have to take them out.

So I think the urgency that that might have created is not there.

We clearly had that situation in India and Australia and South America, with the Warnaco acquisition, and we moved very quickly to deal with that by replacing licensees or taking a more direct control of those businesses.

So I think that answers the question.

Absolutely, perfect.

Thanks, guys, best of luck.

Michael Binetti, UBS.

Good morning, guys.

Congrats on a great quarter.

Manny, let me ask you some back-of-the-napkin math here on the guidance.

It looks like you are expecting Calvin Klein brand revenue growth to accelerate to high single digits in the back half of the year versus a low single-digit growth rate in the first half blended to get to your 6% constant-currency guidance for the year.

Could you maybe talk through some of the components of what accelerates in the back half from the trends you just mentioned, which are actually already very good.

So I'm curious what you see accelerating in the second half?

Okay.

Hold on, I want to make sure your math is right as opposed to -- I'm taking a look at (multiple speakers).

One second as I do that.

I think what we're seeing really is the second half of the year -- not necessarily second quarter but second half of the year, we're seeing a significant improvement in business.

We're seeing the Calvin Klein underwear business really significantly start to go, particularly on the women's side of the business.

The Modern Cotton business really starts to take off second half of the business.

Our bra business, in general, the opportunity getting our supply chain in order to meet the demand.

As we start to roll those new programs out with our key retail partners, I think we feel very strongly about that and that's what's driving a big piece of the growth.

Continuation of the jeans progression as we move forward is really starting to pay off.

We have some significant store openings throughout Asia that's driving the business.

And as we get into the second half of the year, we are not up against a number of the launches that we had last year from a wholesale point of view.

We have a significant fixture sell-in and that's first half of 2014 had a lot of fixture sell-ins.

We saw the improvement in the Calvin Klein businesses because of that and we're up against it, but still putting up increases.

As we get into the second half of the year, that fixture fill-in is behind us, both in North America and in Europe.

And I think our -- we really think there's a big opportunity for our direct EDI replenishment business, never out of stock businesses, particularly in underwear but also basic denim categories, that we should be able to capture on the Calvin Klein side of the businesses.

So that's really what's driving it.

We think a big opportunity is really third and fourth quarter.

Okay, thanks.

And as a follow-up, having proven your ability to do math quickly, I'll follow up with that.

If you add back the $25 million shift, that implies the second-quarter revenue growth is maybe 1.5%.

And you are telling us that most of the same-store sales from the businesses around the world are running better than that for maybe everybody except for Calvin Klein North America.

So it seems to imply the guidance is set for second quarter below the trends you are seeing today.

Maybe you could just elaborate on why you wanted to bake in some conservatism there?

There are two things.

I tried to be as -- we always try to be as transparent as possible and I think you are right.

The May trends overall are better than the implied retail sales guidance that we are using for the quarter.

But it's one month and, to be honest, it's just too early to really get too far ahead of ourselves.

But if the trends were to continue, obviously if the kind of sales retail comps we're seeing right now continue, there is clearly upside in the second quarter and, obviously, for the year as well.

But I'd like to see a little bit more of that as we go forward.

We'll see how that all plays itself out.

But yet clearly there is an opportunity as we go forward.

But my back-of-the-envelope math also is that that piece for the Calvin Klein side of the business is worth about 2.5%.

So just to put it in perspective, the timing of the shipments.

Thanks again; great quarter.

Thank you.

John Kernan, Cowen.

Good morning, guys.

Congrats on some of the green shoots you seem to be seeing in Calvin Klein Europe.

Just coming back here to the states, I think, Manny, you said North America, you are seeing 25% retail sales increases at some of the new jean shops that you have opened and that there is 150 planned for 2015.

Over the next few years, how many more of those shops do you think you can open?

I think as we move -- I think for the next two years, somewhere in the neighborhood of about 100 shops in the year.

I think what's more important is that we need to get bigger square- foot presentations, particularly in the top 150 doors in the United States.

If you were to walk the floors in some of the best department stores in the United States, and when you walk into a Macy's or if you walk into a Belk's or a Dillard's and look at the Calvin Klein presentation, I think it's as strong as any brand in the market.

But when I compare our presentation in men's sportswear, tailored clothing dress shirts with our jeans presentation, I would say it's 25% of the presentation that we get in sportswear on jeans and that's not logical if we execute.

We should be -- with a brand like Calvin with its heritage in jeans on the men's side, our jean shop should be as big as our men's sportswear shops around the country.

And they are currently running about 25% of that size.

So performance will dictate getting more square footage, taking it -- they are not building bigger stores, it's going to be taking it away step-by-step from some of our competitors.

But over the last five years, we've given it up.

It's the same thing on the women's side of the floor.

If you look at the amount of space that G-3 has captured in the major department stores in the United States with Calvin Klein and the kind of growth that they have experienced with the Calvin Klein brand, which has been high double digit teens kind of growth, and if you look at our presentation in jeans, it's not 25% of what it is in some of the other categories.

It's more like 10% or 15%.

So although we have gotten position, and now we are in the game and we have presentation to compete, we clearly have an opportunity to grow the square footage in North America.

And that is going to be the key to driving the success of the Calvin Klein business in jeans in this part of the world.

All right, that's helpful.

And then you've seen a lot of ebbs and flows to the global consumer.

Given the significant move we've seen in FX rate, we start lapping that in holiday of this year.

Do you think some of that tourist consumer comes back or do you think the exchange rate relative to the dollar at these levels permanently impair some of those tourist stores in the market area there?

I'm not sure if it comes back.

What I think happens is it reaches equilibrium, so if it's [off].

And I want to just be -- at this level, when I talk about that the Tommy business under some more pressure than even the Calvin business and with comps in these tourist destination locations and Tommy down 8%, let's say.

Those stores are still the most profitable businesses of the entire chain.

So I just want to be careful when we use words like impair; this is still a huge significantly profitable business.

There may be some rightsizing as currencies are under pressure, but I think that levels out.

And as you get that behind you, unless there's another drop in currencies again, but I think at this level I think that consumer finds their footing.

And I think the strength of the Tommy Hilfiger and the Calvin Klein business globally really allows us to capture that international tourist that travels to the United States consistently.

And I think we should be in a better profit position.

We should be better in 2016, late 2015, in managing the flow of the inventory into those stores, getting it right, less need to be maybe as promotional as we were in the first quarter of this year.

So I think that presents an opportunity as well.

And if I could sneak one more in for Mike.

Will you only plan to buy shares back with free cash flow after debt paydown?

The leverage ratio, if we look at it on the balance sheet, is coming down pretty significantly, and maintained leverage on the balance sheet for a long time now.

So is the share buyback only going to get done with cash flow that's left after debt paydown or would you potentially keep the leverage ratio elevated to buy back some stock?

So right now what we're talking about is generating $450 million of cash flow, and we're talking about paying $350 million down in debt.

And then with that balance that's left, we have opportunities to look at license [takebacks] and look at buying shares.

Okay, all right, thank you.

I think as we look out, I think the point being is after we pay down this $350 million of debt in 2015, I think the leverage ratio is at a point where we are more comfortable than we are today at the current level.

And I think we would potentially be more aggressive as we move into 2016 and 2017, really balancing out the strategic acquisitions and the ability to buy back stock and looking at those as we move forward.

Sounds good; thanks, guys.

Dave Weiner, Deutsche Bank.

Great.

Good morning, everyone.

Just two questions, if I may.

Number one, I was hoping, Manny, you could talk about what you are seeing in the US department stores.

There's been a lot of talk about maybe a bump-up in inventories there over the last couple of months, probably in part due to the port situation.

But just kind of your view and if you have seen higher inventories, if you think those are coming down or normalizing?

And then also if you could talk a little bit about your accessories business.

It's something you guys don't talk about that often, so I'm curious where you are in terms of a percentage of your business and how you think that can help your revenue and margin profile going forward?

Thanks.

I think you know, inventory levels, it's really a story retailer-by-retailer.

I think some of the places we have seen softer business that may have been more impacted by the international tourist, I think those retailers are aggressively moving to get inventories down.

We don't really have any bulge in inventory sitting anywhere.

We've been very diligent about moving goods.

Our flow of goods hasn't really been impacted by the port situation.

We got ahead of that and really we're moving goods to the Northeast and are really now just getting back to our normal balance of how goods are coming into the country.

We don't specifically see it.

I think there are -- I think it continues to be promotional at retail.

I think it's going to be a promotional Father's Day and as we get into June and July, so nothing is really changing.

But I don't see anything that would directly impact our business or the trends we are seeing at retail.

So I think it's a little higher in some places than people would like, but I think they are taking steps to deal with it.

And I feel pretty good about that overall.

Accessories, we always tend to just pull that together with our apparel businesses when we talk about comps and we talk about trends, only because we don't want to confuse people and start talking about big increases on what I would say three years ago were relatively small numbers, but has become big businesses for us over the last three years.

Both at wholesale here North America our business is growing double digit with department stores, with both Calvin and our Tommy Hilfiger business with department stores.

And in our own retail stores, we have really grown the square footage associated with accessories.

And that business has been healthy for us overall.

I think the accessories, in general -- I think there is -- what I would say is the category is not as robust and I'm not speaking now about our business.

I'm speaking just in general terms.

I don't think we are as significantly exposed as some of our competitors for that category.

We have a big, healthy business there that is doing well and I think there's run rate and growth for us, particularly as we are price- positioned in the market.

But I think the kind of growth that has been experienced the last four or five years, I think that growth, be it watches and jewelry or be it handbags directly, I think it's starting to level out in general.

It still is a healthy business as long as you don't get into inventory problems and margins, particularly in a business for PVH Calvin and Tommy, where clearly accessory margins are much higher than our apparel margins.

And we're an apparel company that has a complementary accessory business as opposed to an accessory business that's trying to develop some type of a lifestyle brand or apparel business.

I think that's a much harder formula to navigate, given the high operating margins in accessory versus probably half those kind of margins when you talk about apparel.

That's really helpful.

If I may, can I just sneak in one other quick one?

You had also commented that you expect an improvement in the dress shirt business in the second half of the year.

Could you just talk a little bit about is that based on some new product or something else?

What is the expectation there?

There is some exciting new product going on there, but we're not counting on that for huge increases.

This whole flex collar technology that is coming out.

We haven't really spoken about it that significantly.

It's really a second-half launch and I will probably talk about it on the second-quarter call.

It has had very good sell-ins, and we have to see, now we're testing it with the consumer for their reaction, but we think it has a real chance to have some legs to the business at slightly higher margins and price points.

What we are counting on for the turnaround in the business is just getting the inventories completely right-sized and getting the business right-sized.

If you recall, we had a very tough third quarter in dress shirts and a disaster in the fourth quarter.

So to be honest, all we are counting on is that we are going to [roam] the business as we normally do and comparatively you will see an improvement, particularly in the fourth quarter.

Very helpful; thank you.

Given the timeframe, this is going to be our last question, operator.

Eric Beder, Wunderlich.

Congratulations on a good quarter.

Thanks for squeezing me in.

Could you talk a little bit about the licensing business?

I see that was up on a year-over-year basis, even with the currency.

And could you talk about where you are in the evolution in the off-price channel?

I know you have been reducing your dependence upon that.

Thank you.

Eric, you just broke up.

The last piece of that about the dependence, just say that again?

On the off-price channel, I know you been cutting back on the off-price channel and where are you in that evolution?

Where do you want to be in the off-price channel?

Okay, let's talk about the licensing business.

It was healthy both for Calvin and for Tommy.

The Tommy business just continued good performance with a number of key businesses, particularly internationally is where we really soared.

Our Asia business continuing to do well and our South America business doing well.

On the Calvin side, the real growth driver has been G3.

That continues.

Also the men's tailored side of the business for both Calvin and Tommy continues to do very well for us, that's Peerless and Marcraft.

G3, on the women's side, they will speak probably tomorrow, I think, on their call, so they will put more color on that, but we're seeing really healthy growth there.

They are a great licensing partner and just do a fantastic job for us.

On the off-price channel, we talked about it, the Warnaco business was overly dependent on the business in Europe and North America.

In Europe, we are exactly where we want to be and the only business being done in the off-price channel is selling off clearance at the end of the season, which is normal, as opposed to selling in business in season and treating it as if it was a department store account.

That's behind it.

On the underwear business, we are exactly where we want to be, from a channel and distribution diversification, very well-balanced; 80% of our business is being done in the regular price channel of distribution exactly like we would want it to be.

Premium positioning, both in North America and Europe; that's very healthy.

The jeans businesses continue to be a story.

We have the -- in North America we're at the right sales level at this point as we particularly turned into the second half of this year, so the comparisons will be fine.

But what we really need to do is to grow the department store business to a healthier level.

So I think there the financial hits that we have had to take by eliminating profitable off-price sales, that is behind us, particularly as we get out of this first quarter.

And that's completely behind us and shouldn't be a real topic of discussion as we go forward.

So feel good about where we are and I think as we grow that jeans regular price business, it will be in balance with the rest of the Calvin Klein businesses over the next two years.

Great; thank you.

Okay, thanks, Eric.

I would like to thank everybody for joining us.

We look forward to speaking with you at our second-quarter earnings call which will be in late August of this year.

Everyone enjoy their summer and have a great day.

Bye-bye.

That does conclude today's presentation.

We thank you for your participation.