PVH Corp.

Good day and welcome to the PVH Q2 2020 Earnings Call. At this time, I would like to turn the conference over to Dana Pearlman. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to the PVH Corp. Second Quarter 2020 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 transmitted 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 to be discussed includes forward-looking statements that reflect PVH's view as of September 2, 2020, of future events and financial performance. These statements are subject to risks and uncertainties indicated in the company's SEC filings and a 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. Significantly at this time, the COVID-19 pandemic continues to have a significant impact on the company's business, financial condition, cash flow and results of operations. There is significant uncertainty about the duration and extent of the impact of the pandemic. The dynamic nature of the circumstances means what is said on this call could change materially at any time. Therefore, the operation of the company's business and its future results of operations could differ materially from historical practices and results or current descriptions, estimates, and suggestions. PBH does not undertake any obligation to update publicly Any forward-looking statement, including without limitation, any estimates or suggestions regarding revenue or earnings. Generally, the financial information and projections to be discussed will be on a non-GAAP basis, as defined under SEC rules. Reconciliation to GAAP amounts are included in PVH's second quarter 2020 earnings release, which can be found on www.pvh.com and in the company's current report on Form 8-K, At this time, I'm pleased to turn the conference over to Mr. Manny Tirico, Chairman and CEO of PVH.

Thank you very much. Good morning, everyone. Joining me on the call are Stefan Larsson, our President, Mike Schaefer, our Chief Operating Officer and Chief Financial Officer, and Dana Perlman, Treasurer and Senior Vice President, Business Development and Investor Relations. I want to thank you all for joining us on the second quarter earnings call and also hope that you and your families are healthy and safe. Our better than expected results reflect the hard work, determination, and flexibility of our talented associates across the world. And I can't express how grateful I am for their determination and dedication. I would like to specifically acknowledge the incredible efforts from our store, and Distribution Center Associates, who are on the front lines and have kept our businesses running over the last couple of quarters, despite the challenging times and unconventional working dynamics. The current backdrop has changed how we will all live probably forever, from the COVID-19 pandemic and its impacts to our everyday lives and to the social issues that we are embracing to drive positive changes across our communities. We continue to live by our purpose, which is to drive fashion forward for good. One of our most noteworthy recent announcements was the hiring of our first ever Chief Diversity Officer last month. Together with our expanded inclusion and diversity team, we believe that we can continue to accelerate our work to create an inclusive environment where every individual is valued and every voice is heard. We also took key actions to evolve our business and drive an accelerated recovery. We accelerated our digital agenda and reallocated additional resources to drive growth in this critically important channel. We continue to optimize our brick and mortar presence, including announcing the closure of our heritage retail business in mid-2021. We will continue to review our footprint, what our footprint looks like post-COVID, in our owned and operated network and through our wholesale partners. We have focused on every expense line item, including our previously announced headcount reductions in North America, and we will continue to evaluate further measures as we go forward. We managed our inventories prudently by also increasing our inventory buys towards the comfort and casual products that are working exceedingly well with consumers right now. And lastly, we were opportunistic in the capital markets in early July and efficiently raised additional capital to further support our already strong financial and liquidity position. We are confident that these actions will position us well to navigate the COVID-19 pandemic and emerge as a stronger organization. Turning to our second quarter performance, while our second quarter results continue to reflect a significant disruption from the COVID-19 pandemic, They exceeded our expectations both from a top and bottom line perspective. Our revenues declined 33% to $1.6 billion as our own stores and wholesale partner stores were closed for about one month on average during the quarter. And our stores are operating at significantly reduced hours and occupancy levels. We experienced better than expected performance across all markets and channels as the casual brand lifestyles that Calvin and Tommy represent were even more relevant with our consumers spending more time at home. Digital continued to outperform, with total digital sales up 50%, including almost 90% growth in our own e-commerce sites. We continue to believe that digital sales can reach 20% of our sales in the next couple of years, while also contributing favorably to profits. In our stores, while traffic was down, particularly in international tourist locations in North America, our conversion was very strong. Those margins were up 80 basis points, driven by the mixed shift benefit to our international market. as well as more favorable markdown rates compared to what our expectations had been. As we expected, our SG&A deleveraged versus last year. However, there was a significant sequential improvement versus the first quarter due to the higher revenue base as well as the full quarterly benefit of our cost initiatives. All in all, we were quite pleased with our second quarter results with us delivering EPS of 13 cents a share. Before I pass things over to Stefan, I'd like to address how we're approaching the second half of the year, particularly holiday. This will clearly be a unique holiday season, and we are highly strategic in our approach to be competitive and gain share during this period. We are also being conservative in our sales outlook for the fourth quarter given all the uncertainties resulting from the potential impact from the COVID-19 virus. We believe we are in excellent position given our inventory position and our sourcing date to be able to meet any sales demand that comes that will be over our expectations. While our brands and positioning are strong, We expect that the second half of the year will present itself with a fair amount of volatility, especially with COVID-19 cases resurge. Our assortments will be focused on relevant categories and we are in a position to chase inventory if better than expected demand materializes. We expect that brick and mortar traffic will remain under pressure and are looking into creative ways to work around that. while also driving people into our stores. We will be redirecting resources to digital to support strong growth on our own sites as well as our PurePlay partners and other wholesale partners online. From a regional standpoint, we expect to see continued outperformance in our international businesses. China continues to gain momentum for both Calvin and Tommy. and we are pleased to see positive growth in the region reflecting our brand health and successful consumer engagement initiatives. Europe, which has been our strongest market over the past few years, continues to demonstrate a strong recovery and we believe that we can continue to gain market share for holiday with our best seller capsules planned and leverage our compelling brand proposition. We expect the most pressure to continue to be felt in our North America businesses for several well-telegraphed reasons. First, the resurgence of COVID-19 cases in states significantly impacted consumer shopping and spending patterns. We expect store traffic will be pressured where the virus resurges. Secondly, while back to school was never a big business for PVH, It was a traffic driver for outlet centers and department stores that we are not experiencing at the same level this time this year. And lastly, international tourist traffic to the United States, which typically represents about 30% to 40% of our revenues, is down over 90% so far this year. And we do not expect it to come back during the second half of 2020. That said, the domestic consumer is shopping our stores and is excited and invigorated with our brands. Our efforts for holiday in the U.S. will be focused on engaging with the local consumer in the United States, leading with our hero products and offering compelling price value propositions. We are also prepared to begin the holiday sales season early. as a number of our retail partners, including Amazon Prime, which will now be held in October instead of its usual timing in the summer, are all beginning their holiday selling at an earlier time. Overall, I am opportunistic about the opportunities ahead for PDH, both for the balance of this year and as we look into the next few years. We have a very powerful business model led by our incredible people, our iconic global brands, and our strong business and financial fundamentals. And I believe these competitive advantages will position us to deliver long-term sustainable growth. And with that, I'd like to turn it over to Stefan to go into some more detailed business perspectives.