PVH 2Q16 Earnings Call Notes

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PVH’s (PVH) CEO Manny Chirico on Q2 2016 Results

US market most volatile

“In the second quarter, the US market continued to be our most volatile market that we operate in. Similar to the first quarter, our US wholesale business continued to grow and show improvement. For the first half, we are running well ahead of our wholesale plans and our prior year actual results.

However, our US retail businesses have not seen much improvement in trend from the first quarter and continued to experience soft traffic and higher promotional trends. Specifically, our international tourist traffic and spending continues to weigh on our US retail business. And as we began August, these sales trends have not improved.”

UK business continues to show strong momentum despite short lived slowdown

“Moving to our European business, we saw solid performance in all major European markets, demonstrated by an 8% comp store increase in Europe for our retail business, with strength across all major markets. I think it’s important to comment that our UK business continues to show strong momentum despite a short-lived slow down around the Brexit vote. We continue to be encouraged by the healthy comp trends we have experienced so far in the third quarter, which continue to run up high single-digits throughout Europe.”

No material improvement in US retail business

“Turning to our US retail business, unfortunately, we have not seen a material improvement in this business year to date with comps running down year to date about 8%. The business continues to be under pressure driven by weakness in traffic and consumer spending in the international tourist stores. As a reminder, we’re taking a prudent approach and are not forecasting for the first half trends to improve for the balance of this year.”

Macy’s store closures shouldn’t be too big of an impact

“So I think what’s critical, I guess, first, let’s start with the Macy’s 100-door closure. I think Macy’s spoke to it as a net impact of about $1 billion. I think it’ll be relatively immaterial to our top line as we move forward as that happens over a period of time. I think it may put a little bit of pressure on top line, but from a profitability point of view, these obviously weren’t Macy’s most profitable stores and they weren’t our most profitable margin stores. So I think the opportunity is to have a healthier presentation and healthier profitability in the brick-and-mortar side of the business.”

Expanding digital growth on partner sites like AMZN

“From a positioning point of view, for the last 24 to 36 months, we’ve been really trying to drive our digital growth, both our only site, but also our partner sites, Macy’s.com, our key players there, and also couple – a number of the pure plays globally, be it Amazon, Zalando, Alibaba, Tmall.”

Margin is strong in everything e-commerce except for our own e-commerce

“Sure, I’m not going to speak to specific customer, but I will just say that our e-commerce wholesale business where we are selling to our pure plays and all – where we are selling to our pure plays and to our department store partners is a very profitable business, consistent with all of our other businesses. The only business that is a challenge for us from a profitably point of view is our own e-commerce businesses, which we’re truly running as flagship sites. We don’t over promote on those sites. It’s very event-driven. We don’t do flash sites and flash selling on our own sites. We don’t drive excess product through our sites. We really view that as flagship sites where the consumer comes to our sites, be it Tommy or Calvin. They investigate the brand, better understand the brand. They can buy on our sites or we will drive them to our retail partner’s sites, or they’ll use that investigation to shop in department stores as we move forward. So we see it as a very cohesive strategy that works together.”

E-commerce just lacks scale right now

“And I think from a pure profitability point of view, the only issue we’re dealing with on our own e-commerce sites is scale. As that business continues to grow, we’ve talked about the kind of growth rates we’re seeing, we’re 12 months away from going from a loss position on those businesses to a profit position on those businesses. And each incremental sale that we make online is as profitable as an incremental sale in wholesale on our own retail stores. So from that perspective, we truly are becoming agnostic about where the customer shops.”

Europe is healthy

“Europe seems much healthier as a market to us. I know all the headlines about Europe and what you see. But as far as the consumers being – spending discretionary money, it’s very healthy there. I think the fact that the dollar has strengthened has only made our – the pressure that puts on our US business, I’ve talked about, the flip side of that is it really significantly helps our international businesses as people travel or people stay closer to home in Europe, within Europe and buy when they’re on vacation or on holiday that’s really been a big win for us as well. “