PVH Corp.

Good day and welcome to the PVH Q4 2020 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Dana Perelman. Please go ahead, ma'am.

Thank you, operator. Good morning, everyone, and welcome to the PVH Corp's fourth quarter and full year 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 in any transcript or replay of this call. The information to be discussed includes forward-looking statements that reflect PVH's view as of March 30th, 2021, 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. 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. PVH 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. Reconciliations to GAAP amounts are included in PVH's fourth quarter 2020 earnings release which can be found on www.pvh.com and in the company's current report on Form 8K furnished to the SEC in connection with the release. At this time, I'm pleased to turn the conference over to Mr. Stefan Larsen, CEO of PVH.

Thank you, Anna, and good morning, everyone. Joining me on the call today are Mike Schaefer, our COO and CFO, and Dana Perlman, our EVP Chief Strategy Officer and Treasurer. It's a true pleasure to be leading the call this morning and an honor to lead this great company as we drive towards an accelerated recovery from the COVID-19 pandemic and at the same time start to build our next growth chapter to win in the new normal. Pre-COVID, there was already an unprecedented amount of change taking place in the apparel industry, driven mostly by technology and the consumer, which the pandemic only accelerated. The new normal will not be a static state, rather an ever-increasing rate of change that we will be ready to compete and win in. 2020 will be remembered as one of the most challenging moments for our industry, from a geopolitical economic, and public health perspective due to the pandemic. Our teams not only came together to successfully navigate the crisis, we also positioned PVH to emerge in a stronger position. I would like to thank all our associates for their hard work, resilience, and ability to rise up to any challenge we have encountered. In particular, our dedicated retail store and distribution center associates who have managed to keep our business running throughout the toughest of COVID times. Before the pandemic hit, I was fortunate to spend time traveling and visiting many of our teams and partners around the world. I saw firsthand many of the underlying strengths that we are now focusing in on and connecting closer to where the consumer is going than any time before. all in an effort to drive sustainable, profitable growth. Our focus is on winning with the consumer, driving brand relevance, taking profitable market share, and building further strength in our platform capabilities, and over time, to do that more efficiently. To accomplish this, we will work with a strong consumer focus become even more demand and data driven and create value in a systematic repeatable way where we will continuously learn and improve. We have taken this time to proactively evolve our business with special focus on capturing where the consumer is going. We have been accelerating our digital businesses and reallocating additional resources to drive growth in this highly important channel. We also continue to shift our product towards the comfort and casual categories that are working with consumers today. And lastly, we doubled down on our international businesses where we continue to see a very strong recovery and significant revenue opportunity for both Calvin and Tommy, while also contributing a higher operating margin. Our increased and sustained focus on these aspects of the business will drive long-term revenue and margin growth for our shareholders, driven by gross margin expansion and SG&A leverage. And importantly, I will continue to live our strong corporate values, including our unwavering commitment to empower our people and help drive the fashion industry forward in sustainability and making a real and lasting positive impact within inclusion and diversity. I will now share some key insights on how we drove performance in the fourth quarter and in our first quarter of 2021 so far, and how we are progressing towards an accelerated recovery. Mike will then share more financial details. Even though our fourth quarter results faced greater than expected challenges due to virus resurgences and lockdowns throughout multiple regions, we were able to deliver on our expectations from a top line cross margin and EBIT perspective. We focused our execution around our strategic priorities and drove an above plan performance for the holiday period. And we are pleased that we have successfully sold through our seasonal inventory, allowing us to enter spring 2021 in a very clean inventory position. I'd like to share some proof points demonstrating our progress against the three value creating areas that we have shared with you previously. First, we continue to supercharge our e-commerce channel. We are rapidly growing our overall digital penetration by both expanding our D2C digital business, as well as deepening our strong relationships with third party digital partners. Fiscal 2020 represented our strongest ever digital sales performance, up over 40%, including nearly 70% growth on our own sites. And we doubled our penetration to close to 25% of total company revenue, all while driving a significant improvement in the channel's profitability. Looking ahead with robust new user growth, our most significant opportunity is to drive continued conversion and leverage our data capabilities to further engage, personalize, and simplify the shopping experience. Secondly, we continue to increase our focus on driving product relevance across our brands and regions. Our teams have taken proactive measures to tighten and refocus assortments, as well as rationalizing unproductive skills to improve overall sales rates. We are optimizing our product development processes and leaning further into our key essentials and hero products, which is driving positive initial results, including generating higher average unit retail prices. For Calvin, we are building on our global leadership in underwear and intimates with hero products such as the Modern Cotton program, while growing in casual categories, including denim, tees, and sweatshirts. For Tommy, we are expanding on the brand's casual lifestyle through our hero products, supported by collaborations for each lifestyle, Tommy Hilfiger and Tommy Jeans. We also have a meaningful opportunity to further advance our supply chain capabilities and react faster as consumers' needs continue to change. resulting in shorter lead times that will benefit our overall margin structure. Thirdly, we are continuing to evaluate our cost structure in the context of our evolving revenue base. Over the summer, we announced the exit of our heritage branch retail business and a reduction of our North American workforce. In addition, we will be executing on additional cost reduction efforts in certain international markets. while also right-sizing our real estate footprint. We also see a notable opportunity to optimize our internal processes by further scaling our digital and data capabilities. As we realize the benefits from these strategic actions, we will over time enhance our overall profitability while allowing for investments in our strategic growth areas. While our regions are all in various stages of their recovery, these focus areas continue to guide our teams with clear objectives to operate against to drive an accelerated recovery. Turning to our regional update, let me start with Asia and specifically with China, which has emerged first in the recovery. We remain very pleased with our performance in the market, where D2C sales trends continue to be positive, with double-digit growth in the fourth quarter and full year. The lack of travel and tourism continues to benefit local spending in the market. Our team has been successful in accelerating our performance through a number of initiatives, including the following. With supercharged e-commerce, synced online and offline initiatives, driving conversion of sales growth in full-price stores when online key events were taking place. We also leaned into our most successful or relevant casual categories and hero products for both Tommy and Calvin, better matching inventory with demand, which drove higher full-price sell-throughs and lower markdowns. With respect to the first quarter, we are pleased with our trends to date, highlighted by a very successful Chinese New Year, including very strong sell-throughs of over 50% for our holiday capsules. We also generated strong performance during International Women's Day, generating nearly full sell-throughs on exclusive SKUs while modern crosswind gift sets sold out. In addition, we are currently experiencing encouraging consumer responses to our spring collections. Overall, while we have seen some virus-related headwinds in certain parts of the region, specifically in Japan, we remain confident in our Asia region overall. Moving on to Europe. Despite the much more aggressive lockdowns across the region during the fourth quarter, our teams drove impressive execution, which continued to generate profitable market share gains, underscoring the strength in Tommy Hilfiger and Calvin Klein. Given the virus resurgence, 70% of our stores in Europe were temporary closed proportions of the quarter, which was significantly worse than what we had been planning when we spoke with you in early December. Still, we were able to navigate through this difficult time and gain market share through the following. Driving the digital business, both on our owned and operated sites, as well as with pure players, coupled with our CRM efforts, remained an important focus. This is especially important as many stores are closed and we are very well positioned relative to the market. Total digital sales grew by over 60% for the fourth quarter, with even stronger performance on our own and operated sites. Given temporary store closures, our investments in digital and omni-channel capabilities enabled us to fully leverage our connected retail inventory to serve our digital demand. We also continue to win through product, where we saw great performance across both brands in key essentials and casual sportswear with an improvement in AUR. In addition, as part of Calvin's expansion as a lifestyle brand, we are pleased with our newly in-house footwear division, which represents a big long-term opportunity for the brand and region. Future order book demand remains strong, with fall 2021 planned up high single digits versus the prior year and up significantly versus fall 2019, coming off strong double-digit order books for spring 2021. It's important to note that our customers continue to take in spring 2021 goods despite extended lockdowns in certain markets. We also continue to invest in important growth areas. And at the same time, we're also controlling discretionary spend and achieving cost efficiencies in Europe. Lastly, turning to North America. During the fourth quarter, we showed strong growth in our digital business while capitalizing on better traffic trends in stores during the holiday period to sell through seasonal inventory. The absence of international tourism and some wholesale bankruptcies continue to challenge our North America business. As I shared with you on our last earnings call, we still have work to do in the region in order to pivot more towards the domestic consumer and operate with the same strength as our international businesses. However, we do see positive developments in the region. Digital remains an important driver of our results, with sales on our own sites up 75%. even with increased promotional activity from the competition and our tight overall inventory position, which partially offset additional headwinds in our stores from lockdowns in Canada. Similar to international trends, consumers continue to gravitate to key hero products in comfort, casual, and at leisure categories for both Tommy and Calvin. Our fourth quarter marketing efforts continue to be focused to support our digital expansion. We created an interactive virtual holiday-themed shop on Tommy.com, which generated significant new consumer acquisition, while Calvin leveraged its global assets and campaigns to reinforce brand relevancy and hero product affinity. Lastly, I'd like to welcome Trish Donnelly, who recently joined the PVH team in the newly created role of CEO of PVH Americas. Chris joined PVH following nearly seven years with Urban Outfitters. As a global CEO for Urban Outfitters, Chris successfully led the business to win with a younger consumer, rapidly scaled e-commerce to an industry-leading penetration while driving very strong connected retail and consumer engagement. We look forward to her leadership in unlocking the region's growth potential, where we see significant opportunity across consumer engagement, product, and distribution. Our teams continue to take a very thoughtful approach to managing our iconic brands, and I'd like to share a few brief global brand highlights, beginning with Calvin Klein. Global brand health remains strong at over 85% aided brand awareness with strong growth across our social channels. Responses to our Spring 21 campaign has been positive with growth in relevancy and consideration. Continuing the momentum on the hashtag MyCalvary's platform for creativity and self-expression, the campaign featured established and emerging talent including recent Grammy winner Megan Thee Stallion and Euphoria star Jacob Lorley. In addition, the brand partnered with LA-based PJ Lang and launched a first-of-its-kind content series which authentically engaged new audience networks that was very positively received. We are excited about the activations that we have planned. In the coming weeks, Calvin Klein will launch a global product collaboration, which will be an important first one with more to follow, where we use Calvin Klein's iconic brand and hero products as the canvas for creative exploration. Moving on to Tommy. Similar to Calvin, Tommy continues to generate strong global brand equity with increases across all key measures, including awareness, which reads reached 78%. In December, we launched Tommy's Drop Shop, our newest platform for pop culture focused on limited edition releases, which has been received very well. In addition, our Tommy Jeans and Zalando exclusive European brand campaign produced 64 million views across multiple platforms and influencer channels with very strong double-digit increases in brand consideration and purchase intent. We are pleased with the launch of our first circular denim collection, a significant milestone in our forward fashion journey to build towards a more circular and inclusive fashion industry. In addition, we continue to build upon our strong Tommy team to bring our global brand vision to life, including welcoming our new chief marketing officer. And finally, to our heritage business. Our heritage brands business continues to face challenges in the fourth quarter. The exit of our brick-and-mortar retail business remains on track to be completed over the next few months. We are focused on increasingly shifting towards casualization with a recent focus on outdoor activity. We are continuing to actively address the business challenges, managing inventory, lowering our cost base, and reviewing additional ways to optimize and streamline the business. Before I hand it over to Mike, I would like to reiterate that the actions we are taking now will make PVH come out even stronger to compete within the new normal. As we plan and execute 2021, near-term visibility is limited by virus uncertainty, especially within Europe, and extended lockdowns in certain countries. However, we are cautiously optimistic as we continue to lean in what's within our control to drive the business forward, specifically intensifying our focus on our core strength and executing against our strategic priorities, including supercharging e-commerce and leaning further to our product strength to drive revenue growth, pricing power, and gross margin expansion. Our international businesses are recovering faster than North America, and we are building on our strong performance in both Asia and Europe. We remain very confident in the recovery of these regions, given the underlying strength and momentum of our brands, product, and distribution, and expect revenues to exceed pre-pandemic levels in the first half year as we continue to take profitable market share. We are prudently planning our North America business, given ongoing pressures from a lack of foreign tourism, which we do not expect to return in any meaningful way until the end of the year. In the meantime, we're actively focusing on further improving our execution with a local consumer, amplifying our digital efforts, as well as right-sizing our brick-and-mortar footprint under the region's new leadership. As we further leverage the power of PVH, I'm confident that we will drive brand relevance, cost efficiencies, and deliver long-term sustainable growth while driving fashion forward for good. We look forward to sharing details with you on the long-term plan for PVH's next chapter of growth at our upcoming investor day later this year. And with that, I would like to hand it over to Mikey.