PVH Corp.

Good morning everyone and welcome to today's PVH third quarter 2024 earnings conference call. At this time all participants are in a listen only mode. Later you will have an opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and one keys on your telephone keypad. Please note this call may be recorded and that I will be standing by should you need any assistance. It is now my pleasure to turn today's program over to Cheryl Freeman, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to the PVH Corp. Third Quarter 2024 Earnings Conference Call. Leading the call today will be Stefan Morrison, Chief Executive Officer, and Zach Coghlan, Chief Financial Officer. 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 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 December 4, 2024, 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 include PVH's right to change its strategies, objectives, expectations, and intentions, and the company's ability to realize anticipated benefits and savings from divestitures, restructurings, and similar plans, such as the headcount cost reduction initiative announced in August 2022, the 2021 sale of assets of and exit from its Heritage Brands menswear and retail businesses, the November 2023 sale of the Heritage Brands women's intimate apparel business to focus on its Calvin Klein and Tommy Hilfiger businesses, and its current multi-year initiative to simplify its operating model. PVH does not undertake any obligation to update publicly any forward-looking statement, including without limitation any estimates 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 third quarter 2024 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 Stephon Larson.

Thank you, Cheryl, and good morning, everyone, and thank you for joining our call today. I want to start by thanking our teams around the world for all the hard work you do every day to bring our two globally iconic brands, Calvin Klein and Tommy Hilfiger, fully to life with the consumer. Through our disciplined execution of our brand building growth plan, the PVH Plus plan, For the third quarter, we again delivered on our revenue guidance with stronger than expected profitability and EPS. We drove significant cross-margin expansion, up 170 basis points year over year, and we continued to drive strong expense discipline across the company. Consistent with our plan, direct-to-consumer revenue was flat on a reported basis and down 1% in constant currency. As we shared last quarter, We came out of the summer season with less old season clearance inventory, and our new season inventory didn't fully yet compensate on the total top line. Since then, as planned, in September and October, our D2C trends have come back up to positive for both months. And now, coming into peak holiday season, We have a very good inventory composition with less old and more new season inventory than the same time last year. For wholesale, as a result of our proactive quality of sales actions, revenue declined 4% on a reported basis and 5% in constant currency, excluding the 4% negative impact of the heritage brand sale. We are in a really good sell-through position with our key partners. which is driving sequential improvements in forward-looking orders. We continue to demonstrate that where we lean in to execute, we deliver. And in everything we do to drive the business here and now, we also position our brands for long-term, increasingly profitable sales growth. One powerful example is our fall 2024 product season, which was the first season where we could fully influence product execution globally for both brands. We are seeing significantly stronger sell-throughs and a higher conversion for the fall season product across both brands and all regions versus last year. As an example, our sell-throughs in Europe for fall product is up over double digits across all channels. We just came out of Thanksgiving and the Black Friday week, one of the most important consumer moments of the holiday. This year, we saw consumers start their holiday shopping earlier than last year, and I'm pleased to share that we are on plan for our holiday performance in all regions. Looking ahead, for the full year, we are reaffirming our revenue and non-gap EBIT margin guidance, and we are narrowing our EPS guidance to reflect the impact of recent exchange rate shifts. and we remain well positioned to deliver strong EPS growth on a non-gap basis. And looking out to 2025, we expect to return to modest growth and take another step towards our long-term 15% operating margin target. We now have important building blocks in place to make this happen. We can see it in the strongest sell-throughs for fall 24 product season for both brands, which enabled improved D2C trends. And then we combined that with improved inventory composition and the inventory levels needed to drive even stronger seasonal transitions. And finally, we continue to see sequentially improved European order books. We're starting to turn the brand building flywheel. where we'll keep the clarity of our direction in bringing Calvin and Tommy into their full potential and driving constant improvements within the consumer facing parts of our brands in product, marketing, and the marketplace combined with further building out our data and demand driven supply chain. And we will amplify this by investing in growth and driving efficiencies. Now, Let me share some highlights from the third quarter on how we executed across our two iconic brands and three regions, starting with Calvin Klein. The brand continues to drive strong category offense that comes to life with high-impact, culturally relevant marketing campaigns amplified by mega talent like Jeremy Allen White in iconic Calvin underwear and hero denim styles, Greta Lee in signature underwear, Bollywood actress Disha Patani in modern cotton and K-pop stars new jeans in denim and transitional outerwear. These are campaigns that repeatedly cut through in the marketplace. This fall, we also dressed Jeremy Allen White and Idris Elba at the Emmys in classic Calvin Klein suiting. And in a special moment driven by product innovation, Calvin launched a limited edition collaboration with Nancy Dujaka during London Fashion Week with an underwear-focused capsule that drove strong engagement and sellout. For holiday, we are showcasing seasonal Calvin essentials across all consumer touchpoints, from social and e-commerce to stores, all amplified by global mega-talent like Alexander Skarsgård and Kendall Jenner. And today I'm excited to announce that Calvin Klein will open a flagship store here in New York, in the heart of Soho, one of the best brand building and foot traffic locations in the world, as part of Calvin's brand building strategy in key markets. We look forward to sharing more details with you about this in coming months. Turning to Tommy. When we last spoke, we were just a few weeks out from hosting our Spring 25 fashion show, which drove record engagement. Tommy ranked number one at New York Fashion Week, accounting for almost half of the total earned media value from the whole week, and ranked second highest in earned media value across all participating brands of all of the four global fashion weeks combined. Over 150 global talents sat front row, all dressed in Tommy Fall 24 product, amplifying the show message and driving our consumers globally to want to shop their looks. We could see this cut through commercially, driving traffic to both e-commerce and stores. Tommy is always evolving with culture by tapping into its unique brand DNA and making it current. partnering with the most relevant talent across fashion, art, music, entertainment, and sports, as some of the most exciting cultural moments around the world. Highlights of the fall campaign included actor Patrick Schwarzenegger and model Abby Champion, Olympian and gold medalist Mondo Duplantis, and Formula One superstars Lewis Hamilton and George Russell. In addition, K-pop superstar Stray Kids, and Jisoo are driving very strong engagement for our iconic hero products as global brand ambassadors. Tommy continues to be highly engaged in sports, both in Formula One and most recently as a key partner to the U.S. sale GPT. For Holiday, our campaign starring Sofia Ricci and Damson Idris puts a new twist on a Hilfiger holiday delivering classic American style and sophistication with the spirit of giving. Now, let me turn to our regional performance, starting with North America. The significantly improved profitability for the region continues to be a great proof point of our PBH Plus execution. In the quarter, our Calvin and Tommy businesses together delivered a 13% EBIT margin, our fifth consecutive quarter of a double-digit EBIT margin in the region, both on a non-gap basis. The tougher macro, combined with our focus on driving more full-price sales and less clearance, led to revenue in the quarter for our combined Tommy and Calvin businesses to decrease low single digits in D2C, with a high single-digit decline in wholesale, which was driven by the timing of shipments last year. We expect the full year of North America wholesale revenue to be up low single digits compared to 2023. B2C store revenue in the quarter declined on lower traffic, although conversion continued to improve and e-commerce grew double digits. Fall 24 product was up double digits too, as we continue to drive strength in our category offense for both brands. and our D2C trends improved to positive in October. Within wholesale, our fall product performance was strong, and we see that what cuts through with the consumer is refined style icons made current. We continue to work closely with key accounts to elevate the product and in-store experiences in key doors and are generating outperformance as a result. A key leader behind the region's strong performance is Donald Kohler. And I'm excited to share that he has been promoted to CEO of PBH Americas. Donald has done a great job over the past two years unlocking profitable brand accretive growth as president of Calvin Klein North America. And I'm excited to see him step into this expanded role as we unlock the full growth potential of both brands in the region. All three regions now have a consistent leadership structure led by one regional CEO. Turning to our international business, in Europe, our next level PVH plus execution underpinned by our quality of sales initiative has translated into significantly improved performance. Overall revenue declined minus 1% on a reported basis and minus 4% in euros, which included a 6% impact from our quality of sales actions. As a reminder, for the full year, we continue to expect the revenue impact from our quality of sales initiative to be approximately 5%. For our fall product, we continue to see very strong performance across all channels and both brands, supported by newness and innovation, improved delivery timing, and global marketing campaigns. We drove strong sell-out performance, as I mentioned earlier, up over double digits year over year across all channels. D2C declined low single digits with growth in stores offset by declines in e-commerce due to our quality of sales actions. The quarter featured a very successful fall members' week focused on customer acquisition, engagement, and conversion. We saw strong performance, exceeding targets in new member sign-ups, driving increased traffic and increased spend across all channels. Building on our Spring 25 order book, which finalized down low single digits, as we previously shared, when we look ahead to Fall 25, we are well positioned to drive further sequential improvements. with our wholesale partners continuing to share positive feedback about the improved product assortment across both brands. On Monday this week, we welcomed our new CEO of Europe, Fredrik Olsson, who will build on this momentum and further strengthen our market leading position in the region. Fredrik, who spent over 15 years as a key leader on the team that doubled the size of H&M globally, and most recently served as the CEO at Max Fashion, was our top choice for this important role. Together with the entire Europe team and our key partners, Frederick will lead the region's next growth chapter. Finally, I want to thank David Sandman for stepping in to lead our Europe business in the interim and doing an incredible job taking our PVH execution there to the next level. Moving on to Asia Pacific, In the third quarter, we delivered mid-single-digit growth for the region on a reported basis and low single-digit growth in constant currency, with growth for both brands and in all channels. Growth was led by Japan, while China increased 7% in local currency, benefiting from an earlier and very well-executed 11.11 activation. From a channel perspective, we delivered double-digit e-commerce growth in the region and low single-digit increases in stores. We continue to drive strong consumer engagement with regionally relevant mega-talent. Both brands announced new brand ambassadors for this quarter, New Jeans for Calvin and Jisoo for Tommy, bringing continued energy and engagement with our consumer and strengthening our brand positioning to drive sustainable growth across the region looking ahead we are well prepared for the upcoming holiday consumer moments where we have a number of strong activations planned for both brands before i close i would like to briefly mention the investigation of pvh by china's ministry of commerce which was announced in september since then we have cooperated fully including as requested submitting our written response back to them within the deadline. And at this point in time, it's not known when it will be concluded. What's important for us to share is that PVH has operated in China for more than 20 years, proudly serving our Chinese consumers and contributing to the Chinese economy. And we look forward to doing that for many years to come. As a company, Our policy is to conduct business in compliance with both local and international laws and regulations, and in line with established industry standards and practices. We look forward to continuing to engage with MOFCOM and our business partners in China. In the meantime, we remain committed to drive our business forward in China. where we generated approximately 6% of our revenue and approximately 16% of our EBIT in 2023. We appreciate your understanding that given that this matter is ongoing, we are limited in the details we can share at this time. In closing, for the third quarter, we again delivered on our plan. We continue to strengthen our PVH Plus execution across both Calvin and Tommy, highly visible in our improved fall 2024 product sell-throughs and improved D2C trends with strong gross margin rate improvements. We have taken North America to a new level of consistent delivery and profitability on an annual basis. And our quality of sales execution in Europe is working very well. leading to sequential improvements of forward-looking wholesale demand. And in Asia, in a tough macro, we are focused on driving strong consumer engagement to winning key shopping moments. Going into 2025, we expect to return to modest growth and are steadfast in our PVH Plus plan execution focus, and step-by-step building Calvin and Tommy into the most desirable lifestyle brands in the world, and making PVH one of the highest performing brand groups in our sector. And before I turn the call over to Zach, I would like to again thank all our associates and partners for all your hard work and important contributions this year. And I wish everyone a happy and healthy holiday season.