PVH Corp.

Please stand by, we're about to begin. Good morning everyone and welcome to today's PVH first quarter 2025 earnings conference call. At this time all participants are in the 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 touch tone phone. Please note this call may be recorded and that I will be standing by should you require 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, ma'am.

Thank you, Operator. Good morning, everyone, and welcome to the PBH Corp. First Quarter 2025 Earnings Conference Call. Leading the call today will be Stefan Larson, Chief Executive Officer, and Zach Coslin, Chief Financial Officer. This webcast and conference call is being recorded on behalf of PBH and consists of copyrighted materials. may not be recorded, rebroadcast, or otherwise transmitted without PVH's written permission. Your participation 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 June 4, 2025 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 intention, 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, an 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. PDH 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 first quarter 2025 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 am pleased to turn the conference over to Stephan Larson.

Thank you, Cheryl, and good morning, everyone, and thank you for joining our call today. I want to start by thanking our Calvin, Tommy, and PVH teams around the world for their hard work this quarter as we delivered on our plan. Driven by our disciplined execution of the PVH Plus plan, we grew revenue 2% above our guidance, and we delivered stronger than expected non-GAAP EPS, also above our guidance. and we remain on track to drive revenue growth for the full year. In line with guidance, total direct-to-consumer revenue was down approximately 3%, with e-commerce up 3%. We grew wholesale revenue mid-single digits and benefited from earlier shipments, as well as the intake and relaunch of the Calvin Klein women's sportswear and jeans businesses in North America. Since we last spoke, we have seen an increasingly tough macro environment. While we have to recognize this evolved backdrop, all our focus is on what's within our control to strengthen and expand the impact of our own PVH plus actions. And in moments like this, when the external factors gets worse, it's the time to sharpen our focus, get even closer to the consumers, and expand our execution. Based on this, I'll directly go into sharing the concrete examples of what actions we took that drove our performance in Q1, and then briefly cover our outlook. I'll then finish with covering the specific actions we will drive in the back half that are fully in our control and are geared to move the needle. For Q1 drivers, I'll start with Calvin Klein. The world of underwear and jeans is a significant portion of Calvin's global revenues. And when we spoke last, we had just launched our most innovative product franchise so far, the icon cotton stretch underwear for men, with a viral cut-through campaign featuring Bad Bunny. It was built on a unique product innovation, rooted in our biggest product category, and was complemented by very strong product marketing activations, that drove traffic to stores and boosted conversion. This full funnel approach drove a 25% increase in combined sales of icon cotton stretch and cotton stretch styles globally. It's one very powerful example of where we are leaning into our core strength, aligning all the pieces of the PBH Plus plan from brand, product, and marketing, all the way to marketplace execution, then we really cut through. Another key product category for Calvin is denim. In Q1, we put a lot of innovation into our iconic fashion denim offering, expanding fits, washes, and designs to be hyper relevant. And through these actions, we grew that part of the assortment 14% in the quarter. Today, we see a big difference in performance between where we have strategically leaned in to innovate and where we have yet to do so. And in the back half of this year, we will accelerate the impact of these kind of initiatives to cover a bigger part of the total assortment. In addition to the strategic growth initiatives in the main lines, we kicked off the year with Calvin Klein's Return to Runway, which dominated the New York Fashion Week conversations and plays an important role in creating a strong halo for the brand. Top-tier talent, including Dua Lipa, Alexander Skarsgård, and Pedro Pascal, were styling collection looks at cultural defining moments in the season, like most recently at the Cannes Film Festival. Turning to Tommy. Similar to Calvin, what we see in Tommy from a product perspective is that where we innovate and put fashion into our iconic styles, whether it's garment-dyed linen shirts or an evolution of our monogram t-shirts, But when we add seasonal relevance to our iconic cable knit sweaters for men's and women's, we drive much stronger performance. We built our most recent summer lifestyle campaign, Hilfiger Resort, on this learning, where the product is iconic Tommy made current through an infusion of seasonal relevance, amplified by some of our best performing talent, including Patrick Schwarzenegger and Madeline Klein. Earlier this spring, Tommy also launched two new collections, a women's collection with Sophia Ritchie Grange and the Hilfiger Sailing Collection as part of our partnership with SailGP. Both collections were showcased across all key platforms and channels. And going forward, you will continue to see these kind of seasonal collections and new takes on Tommy's iconic style always playing back to our biggest businesses and biggest categories. and activated in our key wholesale doors and stores globally. Finally, on the brand side, Tommy delivered breakthrough fashion attainment at the Met Gala. Actor Damson Idris drove up to the Met steps in the race car from the highly anticipated film F1, wearing a custom Tommy Hilfiger race suit before dramatically revealing a red Tommy tuxedo to walk the red carpet. It became one of the most talked about entrances, both in global headlines and in social media, and it captured Tommy's iconic style and cultural relevance. Now, let me turn to our regional performance, starting with Europe. We kept strengthening our strong brand position in the region, with overall revenue increasing mid-single digits, in line with our plan, and driven by growth in both D2C and wholesale. Importantly, as planned, total D2C turned to growth in the quarter, increasing low single digits, and we delivered our third consecutive quarter of store growth. Despite the continued muted consumer backdrop, we drove better conversion across the region with particular strength in the big consumer moments. At wholesale, we delivered mid-single-digit growth driven by the sequential improvements in order books for the spring 25 season compared to fall 24. We also benefited from earlier spring and summer product shipments compared to the same quarter last year. And as we shared previously, our fall order book in Europe finalized up low single digits versus the prior year, reflecting the strong execution from our teams to improve the overall assortment and the successful quality of sales initiatives we took last year. In the Americas, our team continued to lean into the next level execution of the PVH Plus plan as we worked to unlock the full growth potential of both brands and once again delivered a double-digit EBIT margin. This is a big improvement from when we first launched the PVH Plus plan. Overall revenue increased high single digits above our plan driven by earlier wholesale shipments and supported by the relaunch of the women's sportswear and jeans business at U.S. wholesale, following the take back of this license. D2C store revenue in the quarter declined on lower traffic, although conversion continued to improve, and we grew e-commerce mid-teens. Where we delivered strong spring fashion newness, we drove strong growth, which for Tommy was led by newness in sweaters, linen fabrications, and fashion tees, and in Calvin, the men's new icon cotton stretch underwear and fashion denim. Across both brands, we continue to drive strong performance in e-commerce with higher traffic and higher average order value. Within wholesale, we launched Calvin Klein Women's Sportswear in Macy's in over 150 doors, supported by a special marketing campaign and we invested in building out a new shopping experience. Moving on to Asia Pacific, revenues declined low teens on a reported basis and low double digits in constant currency due to weaker consumer confidence and the earlier timing shift of Lunar New Year into the last quarter. While we delivered e-commerce growth in constant currency, overall performance was more than offset by declines in stores and wholesales. As we shared last quarter, starting in February, we began to face incrementally tougher headwinds in China, which have since continued. While we're optimistic about the opportunities to grow our brands in the regions, we are realistic about the continued headwinds from a challenge backdrop, particularly in China. In this backdrop, we continue to drive product elevation across outerwear, sweaters, polos, and denim. And our strong brand ambassadors, including MinYu, Jisoo, Stray Kids, demonstrated our continued ability to amplify with global talent to excite consumers and remain strong in key consumer shopping moments. Turning to inventory and the build-out of our demand-driven supply chain, For the start of the year, we built up and evolved our never-out-of-stock program of core essentials. We did this as a deliberate effort after multiple seasons of being too low in these products and often missing sales. At the same time, Q1 started with lower than expected demand for basics and essentials. This has led to us leaving the first quarter with higher levels of inventory, and as part of our demand-driven supply chain, we have adjusted future buys, which will align inventory levels to current demand trends in the back half of the year. This is high-quality, fresh inventory of core essentials that we will keep adjusting over time based on demand. On the licensing front, as we discussed last quarter, we have a large and diversified global licensing business, which is a key competitive advantage for us. Our licensing partners help bring our vision to life across multiple complementary categories where they are experts, from watches and fragrance to eyewear, and they're critically important to how we drive sustainable, profitable growth through the PBH Plus plan. In the first quarter for Women's North America Wholesale, as planned, we took back the Calvin Klein sportswear and jeans licenses, which are key to our lifestyle expression. And for spring 26, we will take back our Tommy sportswear license. Included in the licenses we're taking back are specialized wholesale category businesses like outerwear, which are presented outside of our brand-specific lifestyle pads, often on a dedicated section of the store. And this week, for one of these specialized categories, we've entered into a new licensing agreement for men's and women's outerwear with an expected launch in spring 26. As I mentioned, any new licensing partner, we complement our assortment with their specific expertise and be fully aligned with our brand directions. As a reminder, the overall contribution to our total global licensing business from the G3 license take back is only 20% of our expected licensing revenues for 2025. And 80% of our licensing revenues are from long-term brand building partnerships that we are growing together. Now, let me switch gears and talk about our overall outlook. Across the industry, as I mentioned earlier, We're navigating a very uncertain consumer and macro environment that has become increasingly challenged over the past three months. The tougher retail trends we saw in February continued, with consumer sentiment further weakening to some of its lowest recorded levels since the 1950s. This has translated into traffic trends coming down in the U.S. and around the world, and this backdrop has led to increased promotional levels. We're also navigating the impact of tariffs. Based on our latest assessment, we estimate that the unmitigated impact of tariffs creates a headwind of approximately 65 million to our full year EBIT, weighted predominantly in the second half of the year. We're taking a variety of steps to mitigate this impact, which Zach will discuss in more detail. Our business in China also continues to face a dynamic situation. While we remain on Mothcom's unreliable entity list, we continue to engage directly with Mothcom as we work towards a positive resolution. We remain fully committed to serving our Chinese consumers as we have for the past 20 years, and we are investing in our growth in China for the long term. As we navigate these external factors, And as we shared last quarter, we're also working through the Calvin Klein global brand operational challenges that we experienced as we, for the first season, built up the global product creation capability for Calvin Klein in New York. This work was a significant undertaking and absolutely critical to unlock the brand's full potential. With the first globally created product season now in the markets with Spring 25, we now have our arms around the full impact of these challenges. And they all come from the same root cause, in that the team had to spend too much effort getting the new go-to-market process stood up, which constrained product development timelines and forced sourcing delays. Combined, this led to a margin headwind predominantly weighted to the first half, with some carryover into the second half of this year. We have been laser focused on addressing these transitory operational challenges. Last month, we announced new leadership with the appointment of David Sabman as the global brand president for Calvin Klein. David is already fully in with the team, bringing his deep experience driving PVH Plus performance across operations, regions, and our brands. and I'm encouraged by the level of clarity and rigor at which he and the team are working to resolve these challenges and get our execution to where it needs to be. As we shared last quarter, we are seeing sequential improvements already for the fall 25 season, which will further strengthen for spring 26, and we'll be able to start creating the fall 26 product season from a very strong place. Through our PBH Plus execution, We are quarter by quarter building the capabilities we need to build these brands for the long term. This is a process. It takes time. We will continuously learn and improve to become stronger and stronger over time. From a financial perspective, as we look ahead to 2025, although we are reaffirming our revenue guidance of flat to up slightly, we are not yet in a place to fully compensate for the effects of these strong macro forces. And that's why we have to adjust our full year non-GAAP guidance down for both EBIT margin and EPS. Important to note is that we are targeting to exit the year in a stronger margin position, which Zach will share more details about. This will be supported by the business driving actions I just outlined to drive the back half of the year. Our delivery of 200 basis points of cost savings from our previously announced initiative and by having resolved most of Calvin's operational challenges. And with spring 2026 product seasons in both brands on time and with strong gross margins, that positions us for a strong profit start of 2026. Let me just say that this guidance is not what we set out to deliver when we started the year. And as a leadership team, we are leaning into where we have the strength in the PVH Plus execution, and we will expand its impact already for the back half of this year. Globally for Calvin Klein, this means that we will continue to build our iconic cut-through campaigns, amplifying our core strength in the world of underwear and the world of jeans. Building on the successful launch of our Icon Cotton Stretch, we are this fall launching the equivalent in women's underwear, which is our Icon Cotton Modal program. You'll see us activate again with a full funnel, cut-through approach, featuring one of the most current global superstars in music. Next to this, we will also continue to build out our men's iconic underwear campaigns, similar to the Jeremy Allen White and Bad Bunny format that became viral global sensations. and every time we'll add product newness and innovation, this time supported by superstars from the world of sport, music, and including K-pop, where Calvin has so much strength. Along with these underwear anchor campaigns, we will lean in and expand the impact of other big growth categories for the brand, like fashion, denim, and outerwear. Finally, for Calvin, we will also direct more of our media investments to a highly targeted traffic driving media to further amplify these campaigns and further strengthen the wholesale and in-store impact. In TOMI, you'll see us launch a new cut-through fall lifestyle campaign where we will amplify the strength of the fall assortment with a 20% increase in media investment versus last year to drive high quality traffic. And we will build out the top, middle and bottom parts of the consumer funnel for maximum impact. In connection to this, you'll also see the newness in Tommy's fall product assortment with improvement across fabric, function, and fit. This is the product strength that drove the European order books to growth in the fall. And across our icons and key product categories, we're designing into strong newness. We're also doubling down on our F1 program as the sport expands in relevance in the U.S. and globally. You might have already seen that we just announced a new partnership with Cadillac, another American icon where Tommy will be the first lifestyle sponsor of the Cadillac Formula One team, reinforcing Tommy's 40-year legacy of fusing fashion, sport, and entertainment. Later this month, Tommy is featured in the highly anticipated F1 movie with Damson Idris and Brad Pitt, which will be the biggest movie launched this summer globally. We're already seeing the impact of the FilmStrong media campaign, which features Tommy Hilfiger on the mega screen in Piccadilly Circus. And we are starting to see incredible engagement on social media. Across the regions, Our brands are entering fall 25 with a stronger product assortment across both key categories and strong newness and innovation in hero product with a commercial plan that tightly aligns our execution across product, marketing, and the marketplace. And we will in both Calvin and Tommy have very strong fall and holiday cut-through campaigns with regionally relevant talent amplification. In markets around the world, You see us in Calvin further ignite the worlds of underwear and denim. And in Tommy, we'll connect iconic Tommy lifestyle to culture anchored in a strong men's focus. And we'll do it in close collaboration with our partners around the world. To further support our back half execution, as I've mentioned for Calvin and also for Tommy, we're increasing our investment across the marketing funnel to drive high quality traffic. In closing, for the first quarter, we delivered on our plan, driven by our disciplined PVH Plus execution. And we have our sleeves rolled up, focusing 100% on what's within our control to improve the back half of the year by broadening and scaling our successful PVH Plus plan initiatives in both Calvin and Tommy across all three regions. We are on a multi-year journey to unlock the full potential of Calvin, Tommy, and PBH, where it's all about tapping into the global consumer love for both Calvin Klein and Tommy Hilfiger, two of the most iconic brands in the market and step-by-step building them into the most desirable lifestyle brands in the world. We're staying relentlessly focused, learning and improving continuously to build the product strength, consumer engagement, and marketplace execution that over time will tap into the full potential of these incredible brands and make us win repeatedly with the consumer, and as a result, create the most shareholder value over time. And with that, I'll turn the call over to Zach.

Thanks, Stefan, and good morning. My comments are based on non-GAAP results and are reconciled in our press release. As Stefan discussed, we were able to deliver our first quarter results within the backdrop of a highly dynamic and uncertain macro environment, driven by the strength of our two iconic global brands and disciplined execution of the PBH Plus plan. For the first quarter, we delivered revenue above our guidance, largely due to the timing of wholesale shipments in Americas, with operating margin of 8.1% within our guidance range as we navigated an increasingly promotional environment. EPS came in slightly ahead of guidance driven by lower tax and interest expense. Additionally, we returned over $550 million to shareholders during the quarter with the repurchase of 5.4 million shares of our common stock through previously announced accelerated share repurchase agreements and open market purchases. I will now discuss our first quarter results in more detail and then move on to our outlook. As a reminder, As I mentioned during our Q4 2024 earnings call, beginning this quarter, we have evolved our reportable segments to be one, AMEA, two, Americas, three, Asia Pacific, and four, a new standalone licensing segment. We filed an 8K yesterday with the recast quarterly and annual segment data for 2023 and 2024. Revenue for the first quarter was up 2% on both a reported and constant currency basis. Starting from a regional perspective, our EMEA business returned to growth during the quarter with revenue up 4% in constant currency, including mid-single-digit growth in the wholesale business and a low single-digit increase in the direct-to-consumer business. Wholesale growth for the quarter was impacted by a shift in timing of shipments with Q2. Revenue for our European business was up 5% on a reported basis. In America's business, revenue is up 7% driven by high teens growth in the wholesale business, including the impact of Calvin Klein women's sportswear and jeans wholesale transition in-house and a shift in timing of shipments from the second half into the first half of the year. This year wholesale shipments are planned to reflect a more balanced first half, second half weighting versus last year when shipments were more heavily weighted to the back half. In direct-to-consumer, Mid-teens growth in our owned and operated digital commerce business was more than offset by a mid-single-digit decline in our retail stores due to the challenging consumer environment. Traffic trends ended the quarter lower than planned, leading to a more promotional environment. Aligned with our outlook, revenue in our Asia Pacific business was down 11% on a constant currency basis, which included a 3% decrease due to the earlier timing of the Lunar New Year shopping period that I discussed last quarter. The decrease also reflects the challenging consumer environment in the region, particularly in China. Revenue for our Asia-Pacific business was down 13% on a reported basis. Licensing revenue was down 2% versus last year, with the decrease more than explained by the previously mentioned transition of Calvin Klein women's sportswear and jeans in-house during the quarter. In our global brands, Tommy Hilfiger revenues were up 3% on both a reported and a constant currency basis driven by growth in EMEA and Americas. Calvin Klein revenues were flat. From an overall PBH channel perspective, our direct-to-consumer revenue was down 3% both reported and in constant currency. Sales in our retail stores were down 5% as low single-digit growth in EMEA was offset by the declines I mentioned in Americas and APEC. Sales in our owned and operated e-commerce business were up 3% with strong growth in the Americas. Total wholesale revenue was up 7% on a constant currency basis and 6% on a reported basis, driven by increases in EMEA and Americas, due in part to the shifts in timing that I mentioned earlier. In the first quarter, our gross margin was 58.6%, a decrease of 280 basis points compared to a record high in Q1 last year. As we discussed previously, approximately 50 basis points of the decrease was the impact of our North America license transitions. The remaining 230 basis point decrease was a result of three main factors in the quarter. First, a higher mix of wholesale revenue in the first quarter than last year and a change in the mix of shipments within the wholesale channel, which has a negative impact on gross margin but not on our overall profitability. the impact of weakening consumer sentiment and lower retail traffic, which led to higher promotions, and third, incremental freight costs and customer discounts to address the impact of the Calvin Klein product shipment delays. SG&A as a percent of revenue was 50.5%, a 90 basis point improvement versus last year, reflecting our Growth Driver 5 cost savings actions. We are making progress, and we expect the benefit of these actions to grow in impact as we progress through the year. EBIT for the quarter was $160 million, and operating margin was 8.1%. Earnings per share was $2.30, interest expense was $17 million, and our tax rate for the quarter was approximately 17%. On a GAAP basis, we also took a non-cash goodwill and other intangible asset impairment charge of $480 million, which was primarily due to an increase in discount rates. Inventory at quarter end was up 19% compared to Q1 last year. The increase was primarily due to one, as Stefan mentioned, a purposeful investment in best-selling core product categories, two, an increase to support our projected sales growth in the second quarter, And three, earlier receipts of summer season product to improve in-season stock availability. Importantly, the vast majority of our inventory is core and current season. As we progress through the year, we expect inventory will be impacted by tariffs, but otherwise begin to largely align with projected sales growth by the end of Q3. And now moving on to our outlook. I'd like to start by reiterating what Stefan mentioned earlier. We are operating in a highly dynamic and fluid consumer and macroeconomic environment globally. There is significant uncertainty around global trade policies and the impact on the broader macroeconomic environment and consumer spending behavior. As such, our outlook is based on our best assessment of current conditions and assumes no material worsening. Overall, we are reaffirming our four-year revenue outlook, but we are updating our earnings outlook to reflect our revised expectations for the remainder of the year with three main changes versus our prior guidance. The first is the impact of the recently announced tariffs on goods coming into the U.S. We expect the tariffs currently in place will have an overall net negative impact on our earnings in 2025, including an approximately $65 million unmitigated impact EBIT or approximately $1.05 per share, some of which we will be able to mitigate through strategic actions in the second half of the year and some we will need to absorb. The net impact of the tariffs and these actions are embedded within our guidance. We believe we are relatively well positioned to face tariff headwinds. We have a strong globally diversified revenue base with U.S. revenues accounting for approximately 30% of our total revenue. And we have a strong and established network of global sourcing partners across more than 30 countries and are leveraging these deep, long-standing relationships to identify ways we can further optimize our sourcing and production costs, sharing the impact with our partners wherever possible. We will evaluate strategic discount reductions to mitigate the potential tariff impact, And while we are focused on delivering price value for the consumer, we are also ready to take calibrated, targeted pricing actions where we have pricing power. As normal course of business, we continually assess our prices based on a number of factors. In addition to the newly enacted tariffs, the existing macro pressures have created an increasingly challenging consumer environment, particularly in the U.S. The tougher retail trends that emerged beginning in early February have continued. As such, we are already experiencing a more promotional environment across the market, and we have had to increase our promotional levels across both brands. We are now forecasting a more promotional environment to continue for the remainder of the year. Similarly, our business in China continues to face a challenging consumer environment, which is driving more promotional activity there as well. And as Stefan mentioned, we remain on Moffcom's unreliable entity list. And finally, as Stefan discussed, with the first globally created product season for Calvin Klein now in the markets, the full extent of the transitory operational challenges that we discussed last quarter are now apparent, further contributing to our margin headwinds this year. The outcome of these factors are leading us to the following financial outlook. We are reaffirming our overall four-year revenue guidance of flat to a slight increase on both a reported and constant currency basis. Exchange has improved since we last spoke and is driving some favorability to our top line. As such, we now expect our reported revenue is more likely to land at the higher end of that range. Our revenue outlook for EMEA and Americas remains unchanged, with planned growth in both regions in 2025. In Asia Pacific, our outlook for the region overall also remains unchanged, with revenue planned down mid-single digits in constant currency. Gross margin is now expected to decrease approximately 250 basis points versus last year. Our previous guidance was a decrease of approximately 100 basis points, of which approximately half is due to the impact of the G3 transition in North America from licensed to wholesale, and the rest largely explained by the transitory impacts from centralizing the Calvin Klein Global product kitchen. The incremental 150 basis points decline is attributable to higher discounts as a result of the significantly more promotional environment, the impact of the incremental Calvin Klein operational issues, and the net negative impact related to tariffs. This includes an unmitigated impact of approximately 80 basis points, partially offset by the impact of planned mitigation actions, which will primarily take effect in the second half. While we expect the promotional environment to continue all year, within that backdrop, we are planning improvement in the second half related to what is within our control. Specifically, we continue to expect the transitory Calvin Klein issues to have a greater impact to first half gross margins with the impact lessening in the second half. On SG&A, we expect expense to be lower in constant currency in 2025 compared to 2024. As we previously saw macro headwinds gathering, Our SG&A plans for 2025 already included a decrease of approximately 100 basis points as a percentage of revenue. As I discussed last quarter, we expect to drive significant cost savings connected to our Growth Driver 5 actions, with savings showing up more powerfully as we progress through the year. These actions will simplify our operating model to drive more efficient ways of working, focused on our global technology stack, our global distribution networks, our operating model in Europe, and our support functions. We expect these actions to deliver 200 to 300 basis points of operating margin expansion over time and expect to exit 2025 with approximately 200 basis points of this savings realized. As a result of the increased gross margin pressures, our four-year operating margin is now projected to be approximately 8.5%, and EPS is projected to be in the range of $10.75 to $11. While operating margins are lower than last year, we expect to exit 2025 back at double-digit operating margins, with both gross margin and SG&A actions contributing to improvements compared to the first half. Our expectations for interest expense and our tax rate are unchanged from our prior guidance. Turning to the second quarter, we are projecting revenue to be up low single digits on a reported basis and flat to up slightly on a constant currency basis compared to 2024. In EMEA, we expect continued growth in DTC to be offset by a low single-digit decline in wholesale, reflecting the timing shifts with Q1 I mentioned earlier. In Americas, we are planning revenue up high single digits and relatively in line with Q1, driven by an increase in wholesale revenue partially offset by lower DTC sales. And in Asia Pacific, we expect revenue to decline by mid-single digits, with the improvement versus Q1 primarily due to the timing of the Lunar New Year shopping period that negatively impacted Q1. We are expecting our second quarter gross margin to decline approximately 300 basis points, with the Q1 trends largely continuing into Q2, and an approximately 60 basis point impact of tariffs. We don't expect our mitigation strategies to have any substantial impact until the second half of the year. For SG&A, Growth Driver 5 savings will continue to deliver efficiencies, and as such, our SG&A expense as a percent of revenue is expected to decrease approximately 100 basis points compared to last year. Overall, we are expecting our second quarter operating margin to be approximately 6.5 to 7 percent, down approximately 200 to 250 basis points compared to last year. Earnings per share is expected to be in a range of $1.85 to $2. Our tax rate for the second quarter is estimated at approximately 20%, and interest expense is projected to be approximately $25 million. Before we open up for questions, I just want to conclude by saying we're navigating a highly dynamic and uncertain macroeconomic environment. We are facing increased pressures from the significantly more promotional environment, tariffs in the U.S., the challenging consumer environment in China, and transitory operational challenges in Calvin Klein. While operating margins are lower than last year and our previous expectations, as Stefan mentioned, our focus is on taking proactive measures on what is in our control, including specific actions focused on supercharging our trajectory in the second half. With this focus, we expect to exit 2025 back at double-digit operating margins, And we are setting up for a stronger spring 2026 with higher on-time deliveries, increased product go-in margins, and stronger commercial plans amplified by increased marketing investments, all building momentum into 2026 to deliver sustainable and increasingly profitable growth. And with that, operator, we would like to open it up for questions.

Certainly. Thank you, Mr. Coughlin. Ladies and gentlemen, at this time, if you do have any questions or comments, please press star 1. You can always remove yourself from the queue if your question has been addressed by pressing star 2. Additionally, to get to as many questions as time permits, we do ask that you please limit yourself to one question. We'll go first this morning to Jay Soule of UBS. Jay, please go ahead.

Great. Thank you so much. Devon, you mentioned that you've seen decreased traffic across many regions in the world and increased promotional levels. You also mentioned that your brands have strong product assortments and exciting commercial plans, but What gives you confidence that both brands, both Calvin and Tommy, still have good momentum with consumers, that they haven't lost momentum, that part of what maybe is explaining the change in the guide isn't something of that nature? Thank you.

Yeah, thanks, Jay, and good morning. What is so clear to us, and especially when the consumer backdrop and the macro gets worse, is Everywhere where we lean in and tap into the consumer love for Calvin Klein and Tommy Hilfiger, and then we line up through the PVH Plus focus, increase newness and innovation in product, cut through marketing, stronger wholesale and in-store execution, we really win and we win big despite that macro. So take the biggest product innovation in Q1 in Calvin Klein. One of the most promising proof points is the new product innovation in underwear. So if you look at what we did there is we leaned into the biggest category in Calvin Klein, men's underwear. We leaned into one of the biggest product franchises, and then we put unprecedented newness and innovation into it. Innovation that's not existing in the market. We were first. And then we amplify that with one of the most streamed artists on Spotify, Bad Bunny. And yes, it becomes viral. But what's really interesting is in this backdrop, it drove 25% growth within that big franchise. So in one move, we moved one of the top three product franchises for the biggest category and drove 25% growth. Then what might be missed by some, but not by the consumer, is we also increasingly start to introduce denim next to underwear because that's a really big iconic category for Calvin Klein as well. And the improved and innovated fashion denim in Q1 drove growth 14%. So what you see in the back half, what you see us doing, what our focus is 100% is expanding and scaling this across bigger and bigger parts of the business. We are moving from this investor call to an all-hands call with our 20,000 associates. My focus there is about not yet. We are not yet in a position to fully mitigate the macro headwinds, but look at where we lean in and execute. 25% growth biggest franchise, 14% growth on the fashion denim. And then you will see in fall how these actions continue with more product innovation and product franchise introduction for men's. Then we do exactly the same for women's. So one of the biggest underwear franchises for women's for fall is completely reinvented, backed up with one, again, once again, one of the biggest artists in the world. And then we continue, biggest artists in the world, biggest sports, K-pop, and then we continue to build on that. For Tommy, we see the same thing in Tommy. So when we lean into the iconic strengths, of the Tommy lifestyle, the key both categories, and then we infuse newness into those. We win big. So it's all about going back to the iconic DNA, making it current. And then for Tommy, it's the lifestyle setting. So what's really exciting is the Formula One partnership that some of you might saw the launch of that yesterday. So we're coming back big into Formula One. And Formula One, one of the biggest if not the biggest growing sport from a viewership in the world also with especially with a young consumer and there we are combining two American icons Cadillac first US team coming back on the grid with another American icon Tommy Hilfiger who was 20 years earlier than most other lifestyle brands in Formula One so We have the proof points. It's 100% correlated to where we lean in and execute. And coming back to the town hall right after this is talking about the sharpening actions and the scale that we grow this for the backup.

Got it. Thank you so much.

Thank you. We go next now to Michael Benetti of Evercore.

Hey, guys. Thanks for taking our questions here. Nice job with the relaunch of the Formula One business this week. I was wondering, Zach, can you just reorient us a little bit around the buckets and the cost-out efforts that we talked about last quarter? What were they? I think the size of them, if any timing has moved around, and just remind us. I think many of those stretch beyond 2025 into 2026 to help us calibrate the models here. And then just backing up, are there any concerns as you look at some of the unevenness in the operations around Calvin Klein here recently, that some of these cost waves are cutting into the muscle or contributing to operating volatility in the past few quarters?

Yeah, so let's start. Hi, Michael. Good morning. So let's start with the Calvin Klein operational challenges that we experienced from bringing the Calvin Klein global product capabilities together, which is an absolutely critical needed move to unlock the full value of the brand going forward and win with this kind of product newness and innovation we just talked about. What's exciting to see is that the team has worked through it in a way that the biggest effect is soon behind us. We are improving for fall 25 already in the back half of this year which starts now basically we are improving it significantly for spring another really big step up and then Very soon. We start the product season from scratch for fall 26, and then we start from strength so Very clean and the way we see that we are making this progress is that we see that a for spring 26. We see that we're on time on both brands. We see that the go-in margin is improved versus last year significantly. So we see the KPIs. We see that, yes, they had to take too much time in the first season to sort out the go-to-market process, but now I'm very much also amplified by David coming in with a deep operational and brand experience to connect both the creative strength that we already have to scale that, but also secure a systematic, repeatable operating model.

Good morning, Michael. I think maybe on the cost piece, maybe I'll try to put that into the context of the bigger financial picture first. So in the first half, as we take a look at the financial outlook, As we said, it's really a gross margin story. And I say that because in the first half, we are growing revenue, which is a big commitment for us this year. And we're seeing SG&A percent of revenue coming down. So that's a good, strong foundation. So I described in the prepared remarks what's happening around gross margins. So we have that picture. And second quarter is largely going to be consistent with that. So that sets up the baseline. You know, I think for us, and this is where the cost actions come in, and what's important is the bridge to the double-digit operating margins in 4Q. And that's actually pretty simple and very much in our control. The first and most obvious is the general seasonality of our business. So due to holiday sales last year, for example, 4Q revenue, 14% higher than 2Q. So with that, we get really powerful leverage. Beyond that, though, it comes to the value driver five, our cost actions that we've been talking about for a couple of quarters now. So we've made very good progress, no slides on timing. And I think to remind everybody of the pillars, A couple of them that are directly in our control and we're already seeing significant progress on. So a decentralized technology mapping into a single global tech staff, taking advantage of both our scale, getting costs out, and coming out with significantly better outcomes. And also around the global logistics network with a big focus on increasing capacity utilization in the U.S. So we're already seeing some progress on those in the first half. And that is why you're seeing the SG&A deleverage even in the first half. As we move into the back end of the year, the totality of all of the actions, we're still on track to deliver between 200 and 300 basis points of SG&A leverage, reductions out of that, and 200 basis points of that delivered by the fourth quarter of this year compared to the fourth quarter of last year. So the combination of those two leaves us feeling very good about the work we're doing around costs. and where that points us to from a trajectory for the second half and leaving the year with double-digit operating margin again. Okay. Thanks for the detail, guys. Appreciate it.

Thank you. Thank you. We'll go next now to Dana Telsey of the Telsey Group.

Hi. Good morning, everyone. I wanted to dial in on tariffs and how you're thinking about tariff impact as we go through the year. on the mitigation strategies, I believe, and that's $65 million of unmitigated. How are you thinking about it? And what are you seeing in terms of price increases for each brand in the U.S. and impact on margins? Thank you.

Thank you, Dana. Good morning. Let me start by creating some context around what the terrorist situation means for PVH. So it's important to just note that 30% of our business is in the U.S., 70% of our business is international. So we have a much higher international share than most of our competitors. And as Zach mentioned, we have identified 65 million in unmitigated tariff effects for the rest of the year. And just like everyone else, we are working through our mitigating actions in this fluid environment. So We have the strength of having Calvin and Tommy, which is two of the strongest and most beloved brands. So that is strength when it comes to all the different parts of the value chain, all the way from the partnership with our sourcing to the partnership with our retail partners. So, Zach, do you mind giving a little bit more detail on what that means?

Yeah, as Stefan mentioned, our two biggest mitigation advantages are the globally diversified revenue base and our strong global supply base. But beyond that, we are working through several other specific initiatives. So first, we're leveraging this deep, long-standing supply chain relationship to identify ways we can further optimize sourcing and production costs, sharing the impact of tariffs with partners where possible. And then beyond that, as Stephan mentioned, we remain laser-focused on perceived value for our consumers. So we will evaluate to take discount reductions to mitigate potential tariff impact. And lastly, consistent with our normal course of business, we're also ready to take calibrated and targeted pricing actions where we have particular pricing power.

Thank you. We'll go next now to Brooke Roach of Goldman Sachs.

Good morning, and thank you for taking our question. Stefan, you've talked about acceleration of some of the innovative and creative product into the back half, and also the opportunity to take some strategic pricing reductions, pricing increases, whether that's a reduction of discounting or otherwise. Can you help us square that with the outsized levels of promotions that you're expecting in the near term? What do you have to do to make the brand more resilient from a pricing perspective as macro impacts start to weigh on the consumer? Thank you.

Thanks, Brooke. It comes back to doing more and scaling the impact of the PVH Plus execution in how we build strength in the product in the key growth categories in putting innovation into the hero products. And if you look at Tommy, I took a Calvin example before, which is quite powerful with a biggest product introduction in a decade with plus 25%. So that's a great example, plus the 14% increase in debt. So it's doing strategically sharpening our focus to do more and more of that that has a bigger and bigger impact the total business but also for Tommy we see it in key categories like sweaters where we lean into our iconic cableness and we expand that and we put new better fabrication we innovate in colors we connect that then to the lifestyle of Tommy and as Formula One is great great lifestyle a great anchoring point for the lifestyle because then we take the Tommy love for the brand and we connect it to those innovations in key product categories and then we connect it to the sport of Formula One and then we follow up and that's something that's worth saying as well for the back half we are putting more marketing spend in a more focused way to drive traffic to do what you just asked, Brooke, which is to mitigate more and more of those tougher headwinds. Because the way we operate the business is that it's 100% of what's fully in our control and expanding that impact.

Thanks so much.

Thank you. We'll go next now to Matthew Boss of J.P. Morgan.

Great. And thanks for all the color. So, Stefan, maybe to break down the step down in top line trends that I know you cited to start the year and then the leg lower that you cited here in May in the Americas or the need for additional promotional activity to hold the trend line. I guess, how much of this do you attribute to the macro backdrop relative to execution? What's the pace of improvement that you see as reasonable? And then, Zach, Could you just walk through the progression or maybe dig a leg deeper into the embedded gross margin for the second quarter versus the back half of the year and just drivers of gross margin recapture if we think about next year?

Yeah, thank you, Matt. What we have seen over the past three months, as we mentioned, is a tougher consumer and macro backdrop, especially in North America. So we see the consumer sentiment coming down translating in tougher traffic trends to the sector and then impacting us. And impacting us in store traffic more than e-commerce. What we also see is that the China backdrop from a consumer sentiment perspective is continuing to be tough and coming down and even though that we are able to execute with strength in the big consumer moments. And when we look at today how much the North America consumer sentiment and the tariff effect plus the China, we are not yet in a place where we can fully offset that. But why I say not yet is because, one, the actions we're taking in the back half is stronger and is expanding the PVH plus impact. It also connects to what Zach said, that in the back half, we will have most of the 200 basis points of cost savings from the cost initiatives that we have been on now for quite some time, but it's really kicking in in the back half, and we have good good visibility to seeing that that is coming into place. And then we also see that we are resolving Calvin's operational challenges, significantly improved in the back half. And then when I look at 2026 product season, both brands are on time. Both brands have a positive gross margin going margin starting 26. So that's how we see that We are able to keep the revenue growth because we said we were going to drive back to growth this year. We're able to keep the revenue growth going for this year. We're taking a margin hit that we are in the beginning of this not able to fully compensate. And then coming out of the year, we are back out.

Yep. All right, and thank you, Matt, to the second part of your question. Maybe I'll answer it looking at our gross margin percent for the full year. So original plan for the full year, gross margins down around 100 basis points. Half of that was tied to the G3 business model transition, and about half of that original decrease was tied to the transitory Calvin Klein issues we've talked about here. Now as we look to the full year being approximately 250 basis points down, that extra 150 basis points as two main drivers. 50 basis points is due to the mitigated impact of tariffs. And the other 100 basis points is an increase in the promotionality that we were just talking about. So just to put that in context, that 100 basis points includes all three of those components Stefan's mentioned here. So there is an increase tied to the US declining macro consumer sentiment in lower traffic. There is a tougher consumer backdrop in Asia, in our particular. situation in China. And then third is the sort of a bigger impact than we were planning initially around the CK operational challenges. So I think that as we take a look there in the second half, the progression, we do expect to see sequential improvement in the CK operations issues. So that's carrying longer than the second half and will improve significantly, especially in 2026. But we do see expect in second half, we are planning for that promotional activity to maintain through the rest of 2025. So no sequential opportunity there. Then exiting 25 into 26, we do expect to be putting the Calvin Klein challenges fully behind us during 2026. So that's another step forward that we'll see. And beyond that with tariffs over time, we do expect that we'll be able to work towards full mitigation of the unmitigated impact. So that will be improvement over time as well. And then we'll adjust to whatever the broader macro environment is, just like we've done this year.

Great color. Best of luck.

Thank you, Matt. We have time for one more question.

Yes, sir. We'll take that question now from John Kernan of TD Cowan.

Great. Thanks for taking my question. Zach, what are you planning in terms of the promotional impact in gross margin for the back half of the year? It looks like the 60 basis point impact on gross margin from tariffs in Q2 implies a pretty steep impact from promotions and maybe a few other impacts. But I guess, how have you reserved room for a higher promotional environment in the back half of the year within the current gross margin guidance?

Yeah, you know, I think, thank you for the question. I would say consistent with what we just talked about a little bit. We've got the impact for the full year we've put in is around 100 basis points tied to the increased promotional environment. That impact is sort of, we've saw through the first quarter, we planned through into the second quarter, and we've assumed that that level remains for the rest of this year. You know, we have overall over the last couple of years been quite consistent with And the uncertainty of potential outcomes, we've maintained where we are, called the broader macros there, and that includes assumptions around promotional environment. And so I think we are planning for that to continue the trend that we've seen so far this year through the rest of the year.

Understood. Thank you.

All right. With that, we want to thank you for following along on the multi-year journey that we are on to tap into the full potential of Calvin Klein and Tommy Hilfiger. And we want you to know that we are responding to the moment. We're leaning in to sharpen and expanding our very strong PVH-plus impact. Because when we tap into that iconic brand love for Calvin and Tommy, and then we do it super focused with connecting innovation in product, cut through marketing campaign, investing behind it, driving efficiencies behind the scenes, but then letting the consumer feel that, we really cut through. And that's what we're continuing to do. Thank you.

Thank you again, ladies and gentlemen. That will conclude today's PBH first quarter 2025 earnings call. Again, thanks so much for joining us, everyone, and we wish you all a great day. Goodbye.