PVH 1Q17 Earnings Call Notes

Manny Chirico – Chairman, Chief Executive Officer

*I feel confident that a border tax is not going to occur

“I feel more confident today that the likelihood of the border tax, particularly the way it was initially drafted is not going to recur. And I don’t have a crystal ball. I have been in Washington. My entire career, before this year, before this last 12 months, I think I have been in Washington three times. In the last 12 months, I have been in Washington multiple times. And I don’t know if it’s six, seven times meeting with different members of Congress and meeting with the administration when possible to really try to take a leadership position on this topic because I just think it’s so bad, not only for our industry but I think it’s just so bad for the economy in general. Since the consumer represents two-thirds of the economy, I think the last thing we want to do is put an import tax and start picking winners and losers as a country as we go forward. So I really tried to be front and center about it.”

Inventories in excellent position. Outlet has become more promotional

“Inventory levels globally are in excellent position in just about every market. I am not going to micro manage into each one. But overall, when you look at international inventories, fantastic shape. When it comes to the United States, I think it’s a little bit more mixed. But on balance, I think you are seeing is with the contraction of open to buy dollars that has well significantly exceeded the negative comp store trends that I think on balance inventories are in good shape in the channel. A lot depends in the next couple months, how we see the Father’s Day and how we see that will progress, but there is not bi callouts right now about any inventories in the channel. Outlet, in general, our inventories are in fine shape. I would say that’s become a highly promotional channel today and I think because there has been such contraction in the open to buy dollars, there is a lot more availability of merchandise in the outlet channel which has put pressure on margins overall.”

PVH 4Q16 Earnings Call Notes

Manny Chirico – Chairman and CEO

US is still challenged

“Sure, I guess I’d just take a step back more from a more micro and maybe more focusing on the short-term is as you would expect as we’re looking out at the U.S. retail landscape the U.S. market is continues to be almost challenged market. And because of that we are planning that business conservatively and based on current trends that we’re seeing in the market today.”

Growth for us is happening internationally

“The growth for us, I mean I’ve tried to cover in my opening comments is really happening internationally”

Retailers have kept inventory leaner

“Sure, I think there is always pockets, but right now I would say is I think the retailers have done a very good job in department store sector in particular about keeping inventories clear. We came out of the fourth quarter, I think they reacted strongly to some of the softer sales trends both from a tightening open to buy dollars and moving inventory out in the fourth quarter.”

Really keeping inventory lean

“The other pressure that’s coming from that sector is significant pressure is being put on inventory turn. So inventory open to buy dollars have been constructed. Whatever they’re planning be it flat sales or slightly negative comps sales, the buy plan is even lower than that. So I think that bodes well for gross margin as we go through the first quarter and into the second quarter of this year. And I think even the way they projected to buy third and fourth quarter has been very tight as well given the trends that are in the business.”

Retail space is much lower in Europe. Department stores in Europe are much more fragmented

“I think you know brick and mortar in general is under pressure, but I think one of the benefits that exist in Europe and in Asia even to a greater extent is the level of retail square footage on a per capita basis is just significantly lower, 50% lower than it is in the United States. So I think some of the challenges with — the challenges that we’re facing in brick and mortar in the United States has to do with there is too many stores. I don’t believe that issue to the level that it exist in the United States exist in Europe and in Asia.”

“So that’s point one, point two is the retail landscape particularly on the department store side and specialty multi-brand stores, it’s just much more fragmented than in the United States, the United States has gone through a tremendous consolidation in the department store sector where Europe have had minimal consolidation. There is no Pan European department store, it’s really regional department stores most times country specific, but sometimes regionally specific.”

Currency situation favorable in the UK

“So I think that’s the dynamic that changes, I think traffic trends are healthier obviously there. I think the currency situation particularly in the UK is very favorable and they are benefiting from a significant amount of European tourism into the UK as well as Asia and U.S. tourism into the UK. And I can say the same thing about Continental Europe where we are seeing from the credit card data that we look at every month that particularly Chinese stores given the euro’s lack of strength is also a place that there is a lot of tourism going on and a lot of shopping going on, so really benefiting from that.

PVH 2Q16 Earnings Call Notes

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. “

Andrew Sohn Notes: BBY, PVH, SDRL, DG

Consumer demand for technology products growing

“Our first observation is that overall consumer demand for technology products and services including appliances and mobile phones is growing. This growth is driven by technology and product innovation and by micro factors such as population growth, the housing recovery and healthy living trends that are driving momentum in our appliance, home theater, connected homes and health and wearables business, which, we believe, will remain positive catalyst in quarters to come.” –Best Buy (BBY)

Customer service from brick and mortar stores might still be relevant


“the investments that we’ve made in our Renew Blue strategy to offer advice, service and convenience at competitive prices are paying off. This is evidenced by the market share gains we have achieved in the NPD-tracked categories, our growth in appliances and mobile phones and the overall positive domestic comps and expanded operating income rate that we have delivered both last year and year-to-date this year.”-Best Buy (BBY)


Efforts to work upstream


“In some cases, we actually work very much upstream, including in terms of product design and the choice of feature functionalities, and then this co-designing, the customer experience and in the marketing. In some cases, it’s more about the merchandising and the marketing. So there’s a whole range, but it’s – in general, what I would highlight is that it is – it happens earlier on. It’s more strategic, it’s more integrated and it’s working.”-Best Buy (BBY)


Online and mobile part of a general selling process


“we report online sales and it’s an important part of our business, but we believe that online and mobile are a much bigger part of the business than just the online sales, because it’s really front door to the store. This is where we all notice. This is where the customers start the research.”-Best Buy (BBY)


Greater use of online research has decreased store traffic in addition to online purchases


“Because when the customer gets to the store, she has done a lot of research and she’s much more educated than maybe a few years ago. And so it’s maybe that in some cases we see fewer trips to the store, because so much time has been spent before the store. And so the focus in the store is on the customer experience.”-Best Buy (BBY)


Affordable luxury prevails in China


“We’ve seen how the luxury market has been hit from the sales point of view. We haven’t experienced anything like that. I think our brands are – both Calvin and Tommy are very well positioned in that market as premium brands, affordable luxury.” -Phillips-Van Heusen (PVH)


Added boost fourth quarter form early Chinese New Year


“we are going to benefit in the fourth quarter like everyone else from early Chinese New Year, which really impacts a lot of the Asia markets. It’s about two weeks to three weeks earlier this year and you’ll get – you get two things happening; you’ll get earlier actual retail sales in the stores that we are operating, but also because of the early Chinese New Year, wholesale shipments are falling into January out of February.” -Phillips-Van Heusen (PVH)


Currency impact is minimal


“Well, the Chinese currency impact has been relatively small. It’s about a 3% reduction. So, I mean, that is what – at this point, what that might portend as the world – as you extrapolate that and if there’s more pressure on the Chinese currency, clearly that might make an opportunity for fall 2016 and beyond. But right now, at this point, with the pressure you’re seeing on labor rates offset by some currency benefit, it’s very marginal, just on that particular front.” -Phillips-Van Heusen (PVH)


Europe looking good, but need to address growing concerns over costs


“we’re actually seeing positive sales trends in Europe. We believe that economy is coming back and that consumer is re-engaging. The challenge we are facing in Europe for 2016 will be cost increases that are double-digit cost increases, and how much of that is reasonable in one or two seasons to pass on to the consumer. That’s the biggest challenge we’re facing in Europe.” -Phillips-Van Heusen (PVH)


European performance driven my stifled US tourism


“I think a lot more Europeans are staying home. And by staying home, I mean, I think they’re vacationing this summer within Continental Europe and UK where their euros are buying more, where if they come to the United States, forgetting everything else, their hotel and food, just from a currency point of view, is up 20% to 25%.”-Phillips-Van Heusen (PVH)




Amazon a great partner


“Our Calvin Klein Underwear business in particular is by far the largest selling underwear on the Amazon site, as you would expect giving them that product category. So they’re a great partner. We really manage that very closely from – making sure it’s brand enhancing. We just don’t want goods on the site. We want the brand experience on the site. And they’ve been very good at getting us that.” -Phillips-Van Heusen (PVH)


Commodities down again, drilling can’t get a break


“Following the recovery in oil prices during the first quarter, commodity prices have again moved lower and are now approaching the lows we show in the beginning of 2015. This continued low commodity prices environment’s reductions in oil companies spending plans and an increased over supply of drilling units, continues to have a negative impact on utilization and pricing.” -Seadrill (SDRL)


Hardships will continue for a while


“Subsequently dayrates remain at or below breakeven levels for both the floater and jack-up markets. We believe this challenging market will continue through 2016 and the visibility for 2017 and beyond is depended upon commodity prices stability, oil companies realizing the benefits of the capital spending rationalization programs and continued fleet attrition.” -Seadrill (SDRL)


No growth till 2018


“In light of the likely continued cold scrapping, stacking and new build delays, they remain at the high likelihood that there will be limited or no growth in the marketed fleet between now and 2018.” -Seadrill (SDRL)


“Haven’t reached the bottom yet, not M&A and distressed assets right now”


“Well, there will be M&As and there will be distressed assets and what have you. I don’t see it come right now, it will come and, I think, well we will talk again in the quarter, and nothing will happen now in the quarter.” -Seadrill (SDRL)


Macroeconomic headwinds subsided


“What we saw was once we got through the month of June and into July, the weather patterns normalized, the heat returned and those torrential rains in Texas and Oklahoma and other areas subsided. And we saw a return to a little bit of a normal pattern where our consumable and non-consumable businesses both did very well as we moved into the weeks of July to the end of July.” -Dollar General (DG)



Customers need to see stability before confidence to spend goes back up


“I think it’s way too early to have seen and we really haven’t seen any indication that the consumer is spending anything more because she has additional wage money in her pocket. But again, our core consumer is a little different in that before she starts to spend, she really needs to have confidence and see a sustained ability that income will continue to come her way. So, she is a little bit slower on pulling the trigger on spending a little bit more money.” -Dollar General (DG)


Back-to-school looking good


“Now the great thing here at Dollar General that we’ve seen is that where school has already started, our back-to-school comps are hitting and/or exceeding our expectation.” -Dollar General (DG)





PVH 2Q15 Earnings Call Notes

Strong performance in Europe and China, weak performance in Korea and Brazil

“By region, we are seeing very strong performance for Europe and China for both brands. In Korea and Brazil, where we have a large Calvin Klein business, sales trends continue to be challenging as we are being negatively impacted by the macroeconomic environment for each of those countries.”

Later back to school is making it difficult to read the wholesale business

“In North America, we are dealing with a later back-to-school selling season, due to a weak later Labor Day Holiday, which is making it more difficult to read the business. Our retail same-store sales are running negative low-single digit at Calvin Klein and negative mid-single digit at Tommy Hilfiger. Those two businesses are running on plan given the later back-to-school season and are continue to be impacted by international tourist traffic and spending”

You can’t help but be a little bit more conservative watching what’s gone on with the stock market

“The challenge is – trying to operate that business is, trying to get beyond a lot of the noise that’s going on from the stock market point of view and where we see the business moving and going. So you can’t help, but look at that business and be a little bit more conservative about how we project that business out both through the balance of this year and then moving into 2016 and beyond. So it just gives us pause.’

Valuations are high but we still want to buy the Hilfiger license that we don’t own in China

“on Tommy, potentially we’re acquiring the 55% of the Tommy Hilfiger license business that we don’t own throughout China…I think from a valuation point of view, although that market has taken hits – if you look at PEs or valuations (23:28), they’re still relatively high. So we will be diligent as we look at that. But, clearly, one of our goals would be to own that business sooner rather than later”

It’s tough to read how back to school is going

“I think – geographically, I think it’s much more of a Northeast, Southeast phenomenon with the whole back-to-school being somewhat later. I think as you move across the country, some of those schools come back earlier. And since most of our retailers and ourselves have a concentration of business in those regions, it’s having a significant impact on trying to read business. I think when we get to September 15 or whatever, we’ll have a real clear understanding of how this back-to-school period is trending”

Favorable shift in Chinese New Year for Q4

“we are going to benefit in the fourth quarter like everyone else from early Chinese New Year, which really impacts a lot of the Asia markets. It’s about two weeks to three weeks earlier this year and you’ll get – you get two things happening; you’ll get earlier actual retail sales in the stores that we are operating, but also because of the early Chinese New Year, wholesale shipments are falling into January out of February.’

How do you raise prices in a world facing deflationary pressure

“the challenge, the biggest challenge we’re looking at is, how aggressive to raise prices particularly in a world, as you look out there that is facing extraordinary deflationary pressure in just general terms across a – the ways most economists speak, the biggest concern is deflation, not inflation.”

The biggest headwind we face is currency

“the biggest headwind we face, cut through it all, is currencies. ”

We’re seeing positive trends in Europe but also cost increases

“Europe. It has gone through some macro issues, but we’re actually seeing positive sales trends in Europe. We believe that economy is coming back and that consumer is re-engaging. The challenge we are facing in Europe for 2016 will be cost increases that are double-digit cost increases”

Planning to grow China mid single digits

Clearly, this is not the heydays of three years ago [in China] where, from 2007 to 2010, the business grew 15% topline. We are planning the business to grow more mid-single-digits. I think that’s reasonable.”

Biggest thing we’re dealing with is uncertainty

“I guess the biggest thing we’re dealing with is uncertainty and what that does to – potentially does to the consumer, how that forces us to plan our business, and reacting to the macro-environment”

60% of our marketing budget is directed at digital

“I would say between Calvin and Tommy, 60% of our marketing budget are directed at digital marketing, and connecting with the consumer there, converting them to our in-store platforms, our wholesale customers’ in-store – online platforms or our own brick-and-mortar stores as well.”

Important to get into other retailers besides department stores to connect with younger consumers

“I don’t think it’s any surprise to anyone that department stores tend to skew somewhat older…
So the opportunity with some of the retailers you talked about, Urban Outfitters, with Topshop, particularly The Buckle as we move forward, some other players Opening Ceremony, you mentioned, it’s as much – it’s as important as it is commercially. It’s also very important from a brand positioning point of view how we connect with the younger consumer, how we connect digitally, how we sell online for that consumer.”

European tourism is booming with the weak Euro

“our Chinese consumer or Asia consumer instead of being in the United States is more so in Europe. And as you – I was in Paris and I was in Amsterdam this last month, you could see the tourism boom that’s going on there and helping their economy.”

When you go on that show with Cramer it does get a little crazy at times

“when you’re on that show with Jim Cramer, it does get a little crazy at times.”

Amazon is good about getting us the brand experience on their site

“Our Calvin Klein Underwear business in particular is by far the largest selling underwear on the Amazon site, as you would expect giving them that product category. So they’re a great partner. We really manage that very closely from – making sure it’s brand enhancing. We just don’t want goods on the site. We want the brand experience on the site. And they’ve been very good at getting us that. ”

50% of outlet sales are going to be from tourists?

“if you’re a global player that really attracts a global consumer, in those centers like Orlando or Harriman, your customer base in those centers for those brands, 50% of the credit card sales are international tourists from South America, Europe and Asia. “