Q3 2020 PVH Corp Earnings Call

[music].

Please standby.

Good day, everyone and welcome to the PVH third quarter 2020 earnings call. Today's call is being recorded and at this time I would like to turn the call over to Dana Perlman. Please go ahead.

[noise]. Thank you operator, good morning, everyone and welcome to the PVH Corp. third quarter 2020, <unk> earnings Conference call. This webcast and conference call is being recorded and on behalf of PVH and consists of copyrighted material. It may not be recorded rebroadcast.

That's true otherwise transmitted without PVH is written permission your participation and 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 shouldn't view as of December 2nd 2020, and future events and financial performance. These statements are subject to risks and uncertainties indicated and the company that you see filings and the Safe Harbor statement included in the press release that is the subject of this call.

Oh yeah.

These risks and uncertainties include PVH is 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 cold and 19 Tenda and it continues to have a significant impact on the companys 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 me and go to 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.

Really from historical practices and results or current descriptions estimates and suggestions TV.

PVH does not undertake any obligation to update publicly any forward looking statements, including without limitation and he estimates or suggestions regarding revenue or earnings.

Generally other financial information and projection to be discussed will be on a non-GAAP basis as defined under FCC rules.

Reconciliations to GAAP amounts are included in PVH. Its third quarter 2020 earnings release, which can be found on www dot PVH dotcom and on the company's current report on form 8-K furnished to the FCC and connection with the release at this time and pleased to turn the conference over to Mr. Manny Cherico.

Chairman and CEO of PVH.

Hi, good.

Good morning, everyone. Joining me on the call this morning, and stuff from Washington, or President Mark Musreau, Chief operating officer, and CFO and Dana Perlman ahead, and Treasurer treasuries and senior Vice President who runs the goals and and Investor Relations.

And first of all I don't want to draw on and go from third quarter call. It's hard to believe that this is the third earnings call since depends on its daughters and on our associates and sort of imports from the world I've been working remote and global knowledge on loans now.

I'm truly losses on or associates for their hard work and flexibility.

And the secular or the other to the retail store and distribution Center associates, who and managed to keep one and more business as usual despite the backdrop, which is far from normal.

Our third quarter results were very strong and significantly outperformed our top and bottom on expectations across all markets and channel despite the challenging in volume.

I'm also very pleased and those that all four quarter is off to a very strong store and we are outperforming on plans for our global holiday kick off events, including singles Day, you know, Israel and Black Friday, which is now being observed in many markets outside the U.S. and we feel great about.

At the moment and behind all brands.

[noise], there's clearly a non from unprecedent pins on.

On mountains change happening and the apparel industry, which depends on which was only accelerated per navigations backdrop. Our teams have been evolving our business model to compete and the new world of retail and in particular talk to your the younger consumer generation, while continuing to.

For our core consumer.

We also address near term truck challenges were true with a long term approach.

To drive sustainable profitable growth.

Including some difficult business decisions as we recognize the need to adapt quickly to the realities with cold and 19 is presented to us.

And then Wisconsin context, and we have been accelerating our digital and Joe gender and reallocating additional resources to drive growth and is highly important channel.

I see and strong revenue growth and then also pleased that our EBIT margins fall and digital business or as long as those are low overall business, which as we continue to scale the business should continue to improve.

We also continue to evolve our business towards the comforts intelligible categories that are working with the consumer today, especially the younger generations.

And lastly, we continue to pivot towards our international businesses, where we continue to see a very significant revenue opportunities for both our Calvin Klein and Tommy Hilfiger businesses, while also contributing a higher overall operating margin.

We believe that our focus on these aspects of the business will drive long term revenue and margin growth for our stockholders driven by gross margin expansion and SDN and leverage.

Stephen and Mike will get into the specifics of the third quarter as well as the current fourth quarter sales and margins trends withdraw very positive on.

We're also extremely pleased with the tremendous liquidity that we have in place in order to expense and any potential disruption from the pandemic.

We are cautiously optimistic about this year's unique holiday season.

Clearly the shift to digital is the narrative for this holiday season and.

And we are positioned on business to succeed in this context.

With strong digital events planned inventory investments to fuel demand and the channel and adjustment to the in store experience to adapt to the GAAP capacity constraints in stores.

We believe that we are positioned to capture market share for holiday, while also selling through and carried over inventories.

And we'll continue to monitor how the virus ebbs and flows as well as its impact on our business.

Before passing over to scrap and.

I'd like to just and not acknowledge what a privilege and there's been.

To lead PVH Osiev CEO for the last 15 years.

Truly want to size, the PVH board and all our amazing associates worldwide for all their contributions and most importantly, their partnership and support.

On quite amazed at how PVH has grown and try and transform during my 15 year career at PVH we've evolved.

From over from on North America based dress shirt business with sales of $1.5 billion to a portfolio of global iconic brands with about 70% of our EBITDA coming from outside the us over 40000 associates employed worldwide and.

Close to $10 billion in revenues last year.

We've also developed one of the industry's leading corporate responsibility price platforms and our vision to drive fashion forward for good motivates and guidance the way we operate on business every day.

And my new role as Chairman I look forward to seeing PVH continue to drive this vision forward and deliver the company's next chapter of growth and profit recovery.

I have great confidence and stuff and as he assumes the role of CEO and February his global experience consumer focus and high performance track record, especially in this on precedent on of disruption our tremendous assets for PVH.

The staff and continues to partner with our incredible team of senior leaders. Many that have been here for over a decade, I believe that their expertise and collective knowledge of our industry and consumer base will have help maximize the growth potential for PVH.

Overall, I'm very optimistic about future opportunities ahead for PVH, we have unique competitive advantages are incredible people are iconic global brands and our strong financial and operating fundamentals, which I believe will position us to continue to deliver sustainable long.

On term growth for all of our stakeholders.

With that I turn it over to staff and for comments about the quarter and the core.

Thank you, Matt and good morning, everyone first and that they start by saying that I'm deeply honored and humbled by the opportunity to succeed non named the CEO role for this great company and I would like to thank Mike and the board for their confidence and Trust and me.

As well as for a very strong partnership.

Non is one of the few iconic leaders of our industry and having had the opportunity to work side by side with him over the last year and on half has given me unique insights into how he and our team over the last 15 years have build PVH into one of the largest apparel groups in the world.

My focus will be to build on the core strength that brought us here and connecting them closer to where other consumer is going and and anytime before which will form the foundation to successfully deliver our next chapter of growth.

And coming in and the CEO I will continue to build up on the people first values. Many houses building PVH with.

With a critical stores for the holiday season, now underway. Our teams have been doing a great job and pivoting to optimizing our consumer offering because its very different kind of environment, where supercharge and digital and our omnichannel capabilities and leaning into our Cashel essential products led to ours.

Strongest ever digital holiday sales results and and above plan on performance for the additional holiday period overall.

Our strong execution, including our events for on the phone.

Prime Day singles day, and Black Friday in Asia, and Europe, and North America reflects the hard work and flexibility of our talented teams around the world and I would like to thank everyone for their critical contributions.

I will now share some key insights on how we drove performance in the third quarter and fourth quarter to date and as Manny mentioned, Mike will then share more financial details and current trends.

The focus for our brands and regions has remained to successfully navigate through the pandemic capture market share and the holiday period and selling through seasonal inventory to enter spring 2021, with a clean inventory position and.

In parallel to the focus on driving the business here and now we continue to lead and to drive and accelerated recovery to win with our customers coming out of coated.

I'd like to start by sharing some proof points, demonstrating our progress against three value, creating areas that we outlined last quarter.

First we continue to supercharge the ecommerce channel through our owned and operated as well as third Party Digital third party digital partners as a result for the quarter, we growth total digital sales by 36%, including 70% growth on our on site.

We are seeing strong and new user growth particular with the younger consumers as we expanded our casual assortment and offer digital innovation, such as live streams and targeted activations with a pure players.

Improved in stock levels and enhancement to our own sites or also resonating well, including ship from store and additional payment options, which are all important to attract and convert the younger crossovers and.

Next we continue to increase our focus on driving product relevance, which led to stronger than expected demand and margin in our key cash on categories. Within these categories key categories. We increased our focused on the essential products that have the highest amount and at the same time, we rationalized unproductive.

Skews, resulting in higher a yours and many of our most important products.

Lastly, we are realizing the savings from our recent workforce reductions in North America, and we continue to evaluate further measures to drive cost efficiencies across the company.

While our reagents are all in various stages of the recovery.

These focus areas continued to guide our teams with clear objectives to operate against to drive and accelerated recovery as I provide the regional update you will see that our third quarter operating environment had stores soap and for the majority of the quarter. However in late October the virus research.

Adjusted intensified, resulting and temporary store closures in Europe, and further weakening of our store traffic in North America.

Let me start with Asia, specifically with China on.

Overall, China remains the furthest ahead in terms of the recovery with sales up 6% in the quarter and the third quarter and total digital sales up 63% as well as improving traffic and our brick and mortar stores.

Our teams in Asia has been doing a great job planning and executing the back half of this year. They have supercharge, the commerce leaned into our big cash or categories. The most relevant cash on hand at leisure products and based on our selling trends cuts many on productive styles on.

Leading to improved sell throughs and markdown rates they.

They have also been effective with our brand marketing and consumer engagement.

During the third quarter, we experienced very strong performance in China during Golden week, and we were also pleased with the start of the fourth quarter, including singles day sales, which now spans several weeks, where we grew over 50% on T mall and drove positive comp store sales and our brick and mortar.

Stores at the same time, all with increased pricing power, our strong execution, including live streaming activations with top Chinese lives streamer via resulted in market share gains against the competition with Thomas ranking and T Mall flagship store rising from.

14 places and lastly, our marketing Activations resonated very well with the consumer including Charvis virtual events with ambassador laid Chung, which we live stream from our Shanghai dining store, resulting and plus 48% growth that day on T Mall and 2.6 million.

He was on the way though.

Overall, while there has been some effects from resurgence in Japan and parts of Southeast Asia. We continue to make good progress towards our continued strong recovery in the region as a whole driven largely by China and digital strength.

Moving on to Europe or.

Our business across both brands outperformed despite the tough backdrop with revenues declining only 4% versus last year in local currency.

Just like in Asia, Our management team in Europe has been very effective in taking sustainable profitable market share in a very difficult environment. We drove a very strong recovery for the majority of the quarter, including in our brick and mortar stores. However, since late October we have been negatively.

Effected by the resurgence of the virus with an increasing number of lockdowns imposed towards the end of the quarter.

Overall strong brand product and channel execution drove higher consumer retailer demand for our Tommy Hilfiger, and Calvin Klein products to the point, where we were chasing goods and select categories to fuel the consumer demand, while also achieving strong margins.

Our well developed scalable digital distribution network continues to be a real competitive advantage. We grew total digital sales by 33% as we continue to post outside growth through our owned and operated sites as well as true our partnerships with Salon, though a.

Source and about you.

With approximately 40% of our stores temporary closed in Europe. During November we quickly pivoted our operations to best leverage our digital distribution network and we're also able to leverage our connective store inventory to meet the stronger than expected inventory demand on line and.

In recent weeks the Lockdowns have started to raise and we expect all doors to built on within the next 10 days assuming no further government restrictions.

We feel very good about our future order book for spring and summer order books Actualized up high single digits versus last year and the first indication for pre fall 2021, a very positive all these factors make us have great confidence in our ability to continue to gain.

Market share in Europe.

Lastly, our north American business continued to feel the most pressure relative to our other regions driven by a combination of the lack of international tourism, increasing resurgence of the virus across the region and bigger dependency on brick and mortar than our other regions.

Our teams in North America are working very hard and navigating through the cobot related challenges.

While our overall sales in North America declined 38% digital remained a true highlight with our own sites growing over 100% and enabled by our site enhancements inventory investments and logistical improvements to fuel demand.

We had another strong quarter with Amazon, including Calvin and Tommy posting their highest prime day sales ever achieved with a significant increase in new customers.

At the same time tourism is currently down 95% and not expected to return in and while presenting a significant challenge for our brick and mortar business.

Loosing the tourist business Thats, usually 35, 40% of our total retail business in North America has put pressure on clearing through inventory, which in combination with an unusually early start of the holiday season led us to be more proactive with driving early promotions moving some of them from Q4.

Or to Q3, our main focus remains to enter spring clean from an inventory perspective.

Moving on to our fourth quarter outlook, we have so far performed better than expected over black Friday week cyber Monday across all channels in North America, while we still have significant amount of business ahead of us from holiday, we're expecting the current business trend to continue through the final holiday strides.

So looking ahead for North America, having navigated through the most challenging parts of the pandemic by the lack of tourists and by far is the biggest challenge. We are facing it's clear that we have our own work to do coming out of the pandemic, we will increase our focus on our domestic consumer.

We will continue to take on this significant opportunities to further expand our ecommerce business, both our own and operated and third party and we will also improve how we plan and by inventory to demand.

As our performance across regions demonstrates we have taken a very deliberate approach for each brand to get even closer to the consumer as we continue to enhance our brand relevance and positioning I'd like to share a few brief global highlights from the quarter beginning with Calvin we're seeing Calvin Klein from.

Continued to register strong, 86% global brand awareness with increasing consumer consideration to purchase across all regions.

Our increased focus on creating product consumers desire was captured through Calvin Klein underwear collaboration with kits featuring Gigi how did we sold our 75% of the collection in just four days highlighting incredible results with John Deere consumers, both from an engagement and sales perspective.

Which we will continue to build up on as we head into 2021.

Lastly, I am excited to say that with strength and Calvin's Global brand leadership team during the quarter announcing our new key hires across design merchandising and marketing, which will enable the execution and product and marketing of Calvin simple transition.

Moving on to Tommy I am excited to welcome Avery Baker back to Tommy and the newly established role of President and Chief brand Officer with global responsibility for the brands products marketing and experiences.

Every was the driving force behind many of the brands transformational programs, including Tommy now and has experience and a real strength and connecting the Tommy DNA to culture, and what the consumer desires today.

Tommy also celebrated its 35 anniversary as an iconic brand with global editorial coverage and the brand activation on T Mall, and we continue to see improving global awareness, including in key growth markets like China.

The brand also continued to further its sustainability agenda, launching and Tommy jeans recycle denim line for fall 2012.

Finally to our heritage business, our heritage brands business continued to be under pressure during the third quarter of the mid tier department stores experienced traffic challenges and dress furnishings categories remains under pressure.

We are continuing to actively address the business challenges by managing inventory levels aggressively 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 were taking now to successfully navigate the pandemic and drive and accelerated recovery are also positioning us to win with a consumer coming into a new normal pulse Corbett.

The proof points that I just share with you from our strong digital growth tower, increasing brand engagement and enhanced product strategies to our strong performance internationally demonstrate the global brand power behind Calvin Klein and Tommy Hilfiger, and the strong relationships that we're building with our consumers.

Particularly the next generation.

As we leverage the power of PVH.

Focusing in on our core strength and connecting them to where the consumer is going I am confident that we will drive brand relevance cost efficiencies and deliver long term sustainable growth, while driving fashion forward for growth look.

Looking ahead, we are working on our long term plan for PVH next chapter of growth and we look forward to sharing more details with you as on.

Investor Day, we're planning for mid 2021, and by that I would like to hand, it over to Mike.

Thanks Stefan.

The comments from about to make are based on non-GAAP results and are reconciled in our press release and.

Im going to discuss our third quarter 2020 results and move on to the current state of the business and our fourth quarter expertise expectations.

While our business continued to be negatively impacted compared to last year by COVID-19 pandemic overall results from an improvement compared to the second quarter and exceeded our expectations driven by strong outperformance in Europe and China.

Overall revenue was down 18% as reported and 21% on a constant currency basis from last year, Tommy Hilfiger revenues were down 12% as reported and 16% on a constant currency basis with international flat as reported and down 6% on a constant.

On currency basis, and North America down 37% cash.

Calvin Klein revenues down, 18% as reported and 21% on a constant currency basis with international flat as reported and down 4% on a constant currency basis, and North America down 39%, China continued to show positive year over year results and both Tommy Hilfiger and Calvin Klein.

And our heritage revenues were down 36%.

Our third quarter reflected a 22% decline in revenues to a wholesale distribution channel and an 11% decline and revenue from our total direct to consumer businesses, including a 70% increase and sales through a digital commerce biz business driven by strong growth across all brands and regions the low.

Lack of international tourist traffic coming to the US continues to challenge on North America brick and mortar retail business.

While we continue to be negatively impacted by the pandemic our earnings exceeded our expectations and our earnings per share was one dollar and 32 cents on a non-GAAP basis for the third quarter of gross margin reflected heavy promotional selling in the us as we advance Mark downs from the fourth quarter into the third quarter.

Later in order to maximize the earlier holiday selling season.

Inventories ended the quarter down 16% from last year as of the end of fiscal 2020, we are now projecting to carry approximately $100 million of basic inventory into spring 21, which is a reduction compared to our prior projection of about $125 million.

Earnings from the third quarter benefited from cost savings, resulting from the North America workforce reduction announced in July 2020, and coated related government payroll subsidy programs and international jurisdictions as well as reductions and all discretionary spending categories, partially offsetting these savings were.

Increased ongoing expenses associated with health and safety measures to protect our associates and customers and business partners. These safety measures are expected to continue we.

We ended the quarter with 2.7 billion of liquidity consisting of approximately 1.5 billion of cash on.

On hand, and over 1.2 billion of available borrowings under our revolving credit facilities.

Moving on to the current state of business and the expectations for the fourth quarter overall.

Overall for the fourth quarter to date is running down approximately 20% versus last year and.

And we currently expect that revenue for the full fourth quarter will be down approximately 20% versus last year as well.

We continue to see strong growth and our owned and operated digital commerce business and experienced a strong positive consumer response to singles day promotions and the holiday season kickoff events globally.

Additionally, we see continued overall positive trends in Asia, particularly in China.

However, our retail stores in Europe, and North America continue to face significant pressure as a result of research and of course and 19 cases approach.

Approximately 40% of stores and Europe will close for the majority of November as a result of fourth quarter to date direct to consumer business has declined compared to the third quarter running down approximately 25% overall compared to last year.

When we look at the total direct to consumer business by region, we are running up low single digits for total Asia.

Down high Twentys for North America.

And running down low thirtys in Europe, including the impact of the closed stores I mentioned.

As of today, only about 10% of our stores in Europe are still close and within the next 10 days all of our stores and plan to reopen.

We expect the trend in Europe to improve considerably as a result.

Also through November all of our regions are running ahead of our current plans.

We expect that our fourth quarter gross margin percentage will be relatively flat compared to last year and our expenses as a percent of revenue will be in the mid fiftys.

Overall for the second half our gross margin percentage is in line with our previous expectation and our expenses as a percentage of revenue have improved by approximately 250 basis points.

We're not in a position to issue the details guidance due to the uncertainty related to the duration and severity as depends on it.

And with that operator, we'll open it up for questions.

Thank you, Sir and would like.

That's a question on the phone lines today, you can press star one on your telephone keypad and you are on a speaker phone. Please make sure your and your plans turned off to low your signal for each other.

Again, Thats star one well.

Our first question from Erinn Murphy with Piper.

Great. Thanks, good morning, and Manny it really isn't and have anywhere else and wishing you all the best and whatever the next chapter holds for you.

I can answer your question.

You're welcome I guess my question first is just on your own digital margin Manny you spoke to and your prepared remarks and its now in line with over on margin can you just speak to some other changes that you've made to see that materialize and then where should digital margins go over time.

Yes, and it's Mike I'll take it I am.

Look I think one other benefits we've seen this year has been the scaling of the business. So in each region, we've seen increasing gains on the top line.

And we've got and significant benefit to leverage and the expenses we have on deep dives. We've reviewed expenses and every region. We look at how we ship, how we manage where we do free shipping and her teams with getting a cadence and rhythm around business, which they didn't have before so it's all those things put together its truly detail.

Over the truly getting the benefit of that scaling of the business on Ashley.

As we look forward the business in terms of digital is overall across our regions is now approaching the profitability level of our brick and mortar business. So we're really happy with the way that business is evolving and.

Where we felt pressure in North America and.

We're now seeing significant improvement there on the bottom line and just a reminder, that Europe and Asia are and have been profitable businesses for us and continue to be.

Be very profitable for us.

Got it Okay, and and I guess my second question is really just on your comments I guess, maybe more per stephane or managed to tag team you talk about supercharging ecommerce and that is definitely a thread throughout the day.

Comment this morning, and there is on.

Also been a lack of tourism here domestically and I'm curious, how you're thinking about reevaluating your store fleet, particularly in the domestic market, but if you had any comments on Europe as well that would be most helpful. Thank you.

Thanks share and as Stephane.

As as you mentioned correctly, we have been very successful and pivoting towards E. Commerce, and then parallel to that we are working on rightsizing, the brick and mortar fleet to match, where the consumer is going it's an extreme case now given that we are in the middle other pandemic. So we are true.

King, where we are going on right now and optimizing what we can here and now and then we are following by other consumer ASCO and coming out of the new norm and it's going to be an important work for us to make sure that we have right sized the brick and mortar portfolio.

North America.

Asia Europe and.

What we do see though in this quarter, which is very exciting and in both Asia and Europe is when we execute really well and.

Cross channel and the consumer shops Cross channel. So during the T mobile activation and where we drove a 50% comp. We were also at the same time able to drive EPS.

And the stores and the same in Europe that when we see pivoting.

And extreme pivoting to 40% of the stores closed we are able to connect to use our connected inventories. So we see a future where the consumer continues to shift more and more into digital that's very much on omnichannel customer and and there and its Mike go does that and North America. Just a reminder, our leases tend to be relative.

Sure and.

Average three years with with lesser performance as being less than that so we do us and significant flexibility.

Thank you.

Well take our next question from Guggenheim.

Good time.

Good morning.

Manny I have to say look it's been a real honor and pleasure.

I think you talked about a 15 year period, just as CEO, but you go back to your CFO days and and how far it's come in and where we've been together and going to Miss you. Congratulations you've been and amazing leader over the last 20 plus years, Stefan you guess and big shoes to fill and wish you luck.

Thank you Bob I agree with you.

And so many of the first question and I do have is for you and your agreement as chairman.

Have you.

A range like an exclusivity with Jim Cramer and Mad money could be the gas for PVH ongoing on the quarters.

No no, but I think maybe on the adjusted part of our return on general not PVH, specifically on these actually staff and Dana Mike when you see.

Thanks for the Klein was balance is really nicely.

And I guess the second question and then is can can you guys talk about I think you talked about the improvement in the European Order book and just wondering if you can elaborate a little bit with that.

The business to trends to date and with the store closures and how much the store closures have impacted the fourth quarter, how it should shift when they reopen and then and just real curious on the order book over the next few quarters any spring definitely firmed up from the last time, you talked about it some comments on summer.

And for if you could just talk to how the retailers are planning and or envisioning, the coming quarters as and as things hopefully come back to some sort of normalization. Thanks.

Yes, Bob its staff on I'll start and and handed over to Mike. So we we experienced very strong performances strong market share gains in Q3 until the temporary store closures hits, So Mike and give you more of the details of those trends.

But then when we look at the order books, what's exciting to US is that they are very strong and they kept strong throughout the resurgence and it keeps coming back to our team is very very good at executing in terms of brand relevant product strength.

Working driving their own and operate and ecommerce their own stores and also strong partnerships weighted third players and and other wholesale partners. So zone.

Very strong trends and and then disrupted by 40% of the stores being closed and then very strong indications on on the order book.

Mike I'll leave it for you to to provide some additional detail yes sure. So.

So I guess, Bob just some color on the third quarter. This those were all costs, we were running up 7% for all of Europe, and even with 40% of the stores close we were down 30%. So what we actually have seen is the stores that will remaining open we're actually running plus comps and the stores that.

Opening on opening strong actually think this pent up demand and we may get some and business back from the closures so that will be the hope.

Great. Thank you.

Our next question comes from Michael Binetti with Credit Suisse.

Hey, guys from many let me first of all thank you so much for dialogue. All these years also it's been a pleasure and obviously wish you the best and the next chapter and society cannot wait to pick it up with you here as you start and actually venture and year career. This will be very fun.

We're excited to work with you.

And I just wanted to ask you quickly on the.

Many are focused on who wants to jump on this but whats the revenues down today, and 20% and in a day to see down 25, but 40% of the stores and Europe closed scenario opening is there is there a piece of the business that you expect to slow from here that holds you and negative 20% revenues and its fourth quarter. If youre, if you're if stores are going to be opening and a contract.

And should be improving I'm just curious.

Curious, what you're what you're thinking about or if it's just conservatism on.

I had a follow up.

I'll start and then that step on Japan.

I guess from my perspective, it's it's just an incredibly on certain time. So we had stores that were closed we've obviously seen most of those stores open and and hope balance and our planning the balance open over the next and days, we've seen resurgence in the us pretty much no closures are very very few so it's Joe.

On the uncertainty and the business.

While we are outperforming our plants to day, we were just prudent and how we projected.

I agree on when Mike is looking at Europe US as an example, we were on fire and and within a few weeks, 40% on the stores were closed down and now within a few weeks later, we are fully open again, so the underlying trends are very strong in both Europe and Asia.

And it seems pretty easy to navigate sit on it on our uncertainties.

And just.

Can you help me.

Okay and you. Thank you.

And it can you help us understand a few other pieces of the puts and takes on the gross margin and <unk> in the third quarter and any numbers you could give us to understand that the 260 basis points and pressure in the quarter.

And most curious on how that the pull forward of Mark Downs as you saw the incremental store.

Closures coming and you said you move some markdowns in the third quarter any number you can help on that would be helpful. I think thats. The most important thing to understand.

And then any of the analyst day other relative buckets, you just nine rank ordering them for us as far as where you know what the pressures mark.

Yes, so look I think it's.

It really was driven by North America, we we have work to do here and we were promotional on the business. So we got we advanced markdowns. We were slow this holiday season being earlier on but clearly paid off we were able to deliver an increase to the year in terms of price.

But we remain consistent and our gross margin plan.

As we reported from last quarter to this quarter. So I think we're feeling good about the business. We're feeling good about the decision we made and we think we got rewarded for doing it. So that was really what the change was.

Thanks again guys.

Our next question comes from Dana Telsey with cash.

[music].

Hi, good morning, everyone and many congratulations on a wonderful career and.

Have a wonderful next chapter and hopefully we can I'll still stay connected Stefan as you think about the business and as Harry mentioned Supercharging E Commerce with each other brands of Tommy and Calvin and your.

Auto is that sustainable repeatable process, how do you see that for each of those brands and continuing to capture the younger consumer and a session solid basis, and then Mike just on the inventory levels, how you're thinking about and ending the fourth quarter going into 21. Thank you.

Yes, Thank you day and on the.

It's an important and question and this year coming back to serve pandemic here, so, but what's exciting is that our pivot to E. Commerce. Following the consumer is really really work. So in one year, we we have grown penetration from roughly 10% to over 20%. So.

And the growth rate continues this way probably not on the stores, but this is the long term growth potential coming back to systematic repeatable value creation and E commerce it'd be on 20% and penetration absolutely and and I have the benefit of spending a year and next to non and really.

Learning in depth and looking at our core strength and I see.

Very big opportunities over the long term to continue to grow in E Commerce.

Okay and Dana on inventories, we quoted on the release the third quarter were down 16% and that includes about $100 million carryover product that we have now chosen to pull ins and next year basic product no liability.

As we look at the fourth quarter. The year end I think what we'll see is inventory reduction call and mid single digits, and then that carryover inventories worth about six or 7% so something in the low teens in terms of a reduction excluding the $100 million of carryover inventory.

Our inventories are very clean obviously with the beat we had on the topline and third quarter and where the business is trending ahead of our plans were in a very good and associated at the moment.

Thank you.

Our next question comes from Jason Yes.

Great. Thanks, so much. So my question is about.

What percent of the business you think has been impacted.

By comment in terms of the category. So if you think about fragrance or women's dresses or bottoms or some other things and maybe consumers are shifting away from just and the stay at home environment can you give an idea of what's been impacted and sort of with an eye towards you know.

Next year and those business is probably coming back as things get back to normal. Thank you.

Well before I hand, it over to Mike, who might have more and more facts and details behind it I mean, the biggest change is the formal wear to cash on the day co bid on having everybody work from home around the whole world is a big move to cash realization. Thus the biggest trend change we see.

Yes and Thats.

Sure I am I.

I think it's I think it's clearly going to be.

We're going to be chasing inventories, we don't know minister and so we'll play is cautious.

We buy more the casual product less of the dresser product and I think we're moving as quickly as we can the categories that are outperforming.

Got it and maybe one more and you mentioned that you expect current business trends continue in North America, if I heard that right.

How did you see the business trend as you went from.

September October and November and sort of what does that imply about where the current business stands today.

So right now and North America, running down and high Twentys on which is ahead of our plan and if you think about it the beginning of this black Friday season is where I think we still have the most risk and the business the capacity issues the stores not opening for the for the and post Thanksgiving period.

And opening Friday, instead, so I I think a lot of that risk is behind us.

So that's where we are today.

Got it okay. Thank you so much.

Our next question comes from Jamie Merriman.

Thanks, very much and [laughter].

So on and and Manny I Wonder you know you talked about and that these omni channel initiatives can you give us a sense of where you are in terms of debt capability is what you would still like to deal on that front on that could potentially be.

And another try and for that customer acquisition and then you know to what extent are you working with net your ecommerce partners, whether it's you know that that platforms like and and the sonic window or something on your larger you know brick and mortar partners Q has on more.

Integrated inventory position like you worked on Mike here on this channel. Thank you.

Thank you Jamie it's it's it's a continuous work to to follow the consumer and the consumer shops, our owned and operated sites that you could see we drove a 70% growth and then day shop increasingly with the big platforms as well so our partnership.

With them and us on Salon donor T Mall is very very close and also with the traditional department stores and their E commerce platform capabilities. So we see the consumer increasingly shopping and.

And browsing through the branded sites are owned and operated and third party. So that's the work that we will continue to do we saw it pay off.

And T mall, the collaboration with T mall that we really doubled down on.

A year ago, roughly and we planned into this.

Singles Day event, which is now two three weeks and we plan on day in and and and and came together with them and really what and with the consumer and then when it comes to Salon Delaware.

And.

Very strong partnership with them and also connect our inventory in store. So we were able to pivot when the stores were closed with respect and driving significant sales through fulfilling on life. So this is continuous work and we have some ship from store capabilities that we were able to.

Stand up within just a few months coming into the the crisis. We it's a continuous work, but those are just a few a few examples of what we are doing and what we will continue to do and the most exciting without this that it resonates with the consumer.

Thank you.

Our next question comes from Kimberly Greenberger with Morgan Stanley.

Great. Thank you so much good morning, and stuff and I heard you say that this year. Your digital penetration is is going to run over 20% I think thats and.

And partner digital could you just remind us within that what piece is is the only piece of digital commerce.

And then I I was looking at your international business, both Calvin Klein and Tommy Hilfiger performed.

Fairly consistently and aggregate internationally I'm wondering if you look at each geography, Europe and Asia are they performing similarly, as well within those geographies on and then Mike and any sort of color you might have on the Q4 gross margin and how we ought to think about that thank you so much.

So let's start with the free with the Tailend on your questions. One when it comes to our brands and and the geographical performance, so when and where we see strength in both Europe and Asia predominantly in driven by China in Asia, we see strength in both growth.

And Mike in terms of the percentage our own business is about 10% of the total business this year.

And it is the fastest growing piece of the business.

And and it's over double the size and from the prior year.

I believe you had a gross margin question on the fourth quarter. When you think about the fourth quarter I. We are right now planning the gross margin basically flat to the prior year from the overall company and if the trends continue there is an opportunity there to outperform.

[noise] and Capex. Thank you.

Our next question comes from Heather Balsky with Bank of America.

Hi, Thank you Mike Olson.

On Oh, Yeah, as you step into your role and as you see now what are you most excited about it and what do you view it.

Okay, Yes.

So thank you and other what I'm. Most excited about is by far again coming back to that I've had the opportunity to work a year next to him on is the strength of the many strengths that we have and the strength of our brands the strength of our global brands the strength of our and below.

From capabilities, the strength in Europe, and Asia, and and the opportunity to continue to grow with where the consumer is going so that's what excites me. The most is the opportunity to take the strength, we have really sue main to the core strength and connect them closer to other consumers go and then.

Underlying all of that is the strength of our people so connecting to two where money has always being consistent is speaking about our biggest strength being our people our team and our brands is the combination of those two.

Great. Thank you.

All right and we have time for one last question.

All right. Thank you and we'll take our last question from Matthew Boss with Jpmorgan.

Great. Thanks stuff on you mentioned one of the Companys Creek key priorities is further improvement and the product offering and increased relevant maybe could you just elaborate on the opportunity you see to improve the product and the assortment across both Calvin and Tommy multiyear.

Yes, so high level, we live in the most disruptive time of our industry at least I've seen and I've been around for over 20 years.

And.

The consumer has more choice than any time before so the strength of having iconic brands with global brand awareness is a tremendous asset and then that strength was our job based on the execution side is to take the brand awareness on the brand love and and execute relative.

Sales in products, so being and very focused on the core essentials and we call. It the hero products that the products that really makes a difference that sets us apart from our assist a sea of generic products that are out there and the market.

And that that's what we are going after.

Great and then on maybe just as a follow up and you dug into the cost structure and the organization, where do you see opportunity for continued cost efficiencies and any material investments that you see necessary to drive the next chapter of growth and as you take the helm.

Yes, as we mentioned we the the consumer has shifted more in the last 12 months than in the previous four or five years. So.

When it comes to the cost side, we have to make sure that we.

Run leaner and more data driven and with more speed than any time before so there, but when I look at cost and investments going forward. The first priority is to connect the investments and the cost to what really drives winning with the consumer and and continuously drive efficiency.

Yes.

Great Best of luck and congrats on a great on Manny.

Thank you listen I know that that closes the other third quarter earnings conference call and want to thank everyone for joining us.

I'd like to take a moment and thank the analyst community. This followed us over the years me personally. Thank you for the time spent on this and tedious business model and the times and into really work with us and Jeff.

And John to share.

Wish everyone, a safe and healthy holiday season.

And is honestly coming up enjoy and your families and wishing you all the best happy healthy and prosperous.

Prosperous new year, so have a great day, everyone. Thanks.

And that does conclude today's presentation. Thank you for your participation you may now disconnect.

[music].

[music].

Good day, everyone and welcome to the PVH third quarter 2020 earnings call. Today's call is being recorded and at this time I would like to turn the call over to Perlman. Please go ahead.

[noise]. Thank you operator, good morning, everyone and welcome to the PVH Corp. third quarter 2020 earnings Conference call.

Webcast and conference call is being recorded on behalf of PDH and consists of copyrighted material. It may not be recorded rebroadcast or otherwise transmitted without PVH has written permission your participation in the question and answer session constitutes your consent to having anything you say appear on any transcript or replay.

And then.

The information to be discussed includes forward looking statements that miseq PVH and deal as of December 2nd 2020, and future events and financial performance.

Statements are subject to risks and uncertainties indicated and the company that you see filings and the Safe Harbor statement included in the press release that is a subject on this call.

These risks and uncertainties and click pvhs right to change its strategies objectives expectations and intentions and its easy to use significant cash flow to service its debt obligations.

And then secondly at this time, because it 19 canned and it continues to have a significant impact on the companys business financial condition cash flow and results of operations. There is significant uncertainty about the duration and extent and the impact of the pandemic the dynamic nature of the circumstances and like I said on this call <unk>.

Materially at any time, therefore, the operations of the company's business and its future results of operations could differ materially from historical practices and without our current description estimates and suggestions from.

On the age does not undertake any obligation to update publicly any forward looking statements, including without limitation and he estimates or suggestions regarding revenue or earnings.

Generally other financial information and projection to be discussed will be on a non-GAAP basis as defined under FTC world.

Reconciliations to GAAP amounts are included in PVH. Its third quarter 2020 earnings release, which can be found on www dot PVH dotcom and on the company's current report on form 8-K furnished to the FCC and connection with the release at this time and pleased to turn the conference over can you share many cherico.

Chairman and CEO of PVH.

Thank you and.

Good morning, everyone. Joining me on on the call this morning, and stuff and Larson, our President Mike Shaffer, Our Chief operating officer, and CFO and Dana Perlman, our head of treasure Treasurer, and senior Vice President and business development and Investor Relations.

First of all I would like to thank you all for joining us on the third quarter call. It's hard to believe that this is the third earnings call since the pandemic started and our associates and certain parts of the world had been working remotely from over nine months now.

I'm truly like to thank all our associates for their hard work and flexibility in particular, our dedicated retail store and distribution Center associates, who have and managed to keep running more business as usual despite the backdrop, which is far from normal offer.

Our third quarter results were very strong and we significantly outperformed our top and bottom on expectations across all markets and channels. Despite the challenging in volume.

I'm also very pleased to note that our fourth quarter is off to a very strong start as we are outperforming our plans for our global holiday kick off events and.

Moving on singles day in Asia, and Black Friday, which is now being observed in many markets outside the U.S. and we feel great about the momentum behind our brands.

There is clearly an and unprecedented amount of change happening and the apparel industry, which depends on that is the only accelerate and free navigate this backdrop. Our teams have been evolving our business model to compete in the new world of retail and in particular tax.

For the younger consumer generation, while continuing to serve our core consumer.

We also address near term traffic challenges, which will with a long term approach to do to drive sustainable profitable growth.

Including some difficult business decision and we recognize the need to adapt quickly to the realities and COVID-19 is presented to us.

And then this constant context, we have been accelerating our digital agenda gender and reallocating additional resources to drive growth and these highly important channel.

We are seeing strong revenue growth and are pleased that our EBIT margins for our owned digital business are in line with those are low overall business, which as we continue to scale the business should continue to improve.

We also continue to evolve our business towards the comfort and casual categories that are working with the consumer today, especially the younger generations.

And lastly, we continue to pivot towards our international businesses, where we continue to see a very significant revenue opportunity for both our Calvin Klein and Tommy Hilfiger businesses, while also contributing a higher overall operating margin.

We believe that our focus on these aspects of the business will drive long term revenue and margin growth for our stockholders driven by gross margin expansion and ask DNA leverage.

Stephanie and Mike will get into the specifics of the third quarter as well as the current fourth quarter sales and margins trends, which are all very positive and.

I'm also extremely pleased with the tremendous liquidity that we have in place in order to withstand any potential disruption from the pandemic.

We are cautiously optimistic about this year's unique holiday season.

Clearly the shift to digital is the narrative for this holiday season and.

And we have positioned on business to succeed in this context.

And with strong digital events planned inventory investments to fuel the demand in the channel and adjustments to the in store experience to adapt to the GAAP capacity constrained in stores.

We believe that we are positioned to capture market share for holiday, while also selling through any carry over inventories.

We'll continue to monitor how the virus ebbs and flows as well as its impact on our business.

Before I pass things over to staff and I'd like to just and I acknowledge what a privilege and there's been.

To lead PVH is see CEO for the last 15 years.

I truly want to thank the PVH board and all our amazing associates worldwide for all their contributions and most importantly, their partnership and support.

I'm quite amazed at how PBS has grown and trend transform during my 15 year career and PVH we've evolved.

From over from a North America based dress shirt business with sales of $1.5 billion to a portfolio of global iconic brands with about 70% of our EBIT coming from outside the U.S. over 40000 associates employed worldwide and close.

And to $10 billion in revenues last year.

We've also developed one of the industry's leading corporate responsibility price platforms and our vision to drive fashion forward. So good motivator and guides the way we operate our business every day.

And my new role as Chairman I look forward to seeing PVH continue to drive this vision forward and deliver the company's next chapter of growth and profit recovery.

I have great confidence and staffing as he assumes the role as CEO in February his global experience consumer focus and high performance track record and especially in this unprecedent on of disruption our tremendous assets the PVH.

And staff and continues to partner with our incredible team of senior leaders. Many that have been here for over a decade, I believe that their expertise and collective knowledge of our industry and consumer base will help maximize the growth potential for PVH.

Overall, I'm very optimistic about future opportunities ahead from PVH. We have unique competitive advantages are incredible people are iconic global brand and our strong financial and operating fundamentals, which I believe will position us to continue to deliver sustainable long.

Term growth on.

All of our stakeholders.

With that I turn it over to staff and for comments about the quarter and four quarters Mike.

Okay.

Thank you Manny and good morning, everyone first let me start by saying that I'm deeply honored and humbled by the opportunity to succeed and I am the CEO role for this great company and I would like to thank Manny on the board for their confidence and trust and me as well as for a very strong part.

Ownership.

Non is one of the few iconic leaders of our industry and having had the opportunity to work side by side with him over the last year and and have has given me unique insights into how he and our team over the last 15 years have build PVH into one of the largest apparel groups in the world.

My focus will be to build on the core strength that brought us here and connecting them closer to where other consumer is going and then anytime before which will form the foundation to successfully deliver our next chapter of growth.

And coming in as the CEO I will continue to build up on the people first values. Many houses building PVH with.

With the critical stars for the holiday season, now underway. Our teams have been doing a great job and pivoting to optimizing our consumer offering to this very different kind of environment, where supercharge and digital and our omnichannel capabilities and leaning into our Cashel essential products led to our.

Strongest ever digital holiday sales results and and above plan on performance for the additional holiday period overall.

Our strong execution, including our events for on the phone.

Prime Day singles day, and Black Friday in Asia, and Europe, and North America reflects the hard work and flexibility of our talented teams around the world and I would like to thank everyone for their critical contributions.

I will now share some key insights on how we drove performance in the third quarter and fourth quarter to date and.

And as Manny mentioned, Mike will then share and more financial details and current trends.

The focus for our brands and reach of house remain to successfully navigate through the pandemic capture market share and the holiday period and selling through seasonal inventory to enter spring 2021, with a clean inventory position.

In parallel to the focus on driving the business here and now we continue to lead and to drive and accelerated recovery to win with a consumer coming out of coated.

I'd like to start by sharing some proof points, demonstrating our progress against three value, creating areas that we outlined last quarter.

First we continue to supercharge the E Commerce channel through our owned and operated as well as third Party digital third party digital partners.

As a result for the quarter, we growth total digital sales by 36%, including 70% growth on our on site.

We are seeing strong and new user growth, particularly with the younger consumers as we expanded our cash will assortments and offered digital innovation, such as live streams and targeted activations with a pure players.

Improved in stock levels and enhancement to our own sites or also resonating well, including ship from store and additional payment options, which are all important to attract and convert the younger crossovers.

Next we continue to increase our focus on driving product relevance, which led to stronger than expected demand and margin in our key cash all categories. Within these categories key categories. We increased our focused on the essential products that have the highest amount and at the same time, we rationalized unproductive.

Skews, resulting in higher a yours and many of our most important products.

Lastly, we are realizing the savings from our recent workforce reductions in North America, and we continue to evaluate further measures to drive cost efficiencies across the company.

While our regions are all in various stages of their recovery.

These focus areas continue to guide our teams would clear objectives to operate against to drive and accelerated recovery and.

As I provide the regional update you will see that the third quarter operating environment had stores sold on for the majority of the quarter. However in late October the virus resurgence intensified, resulting and temporary store closures in Europe and further weakening of our store traffic in North America.

Let me start with Asia, specifically, China overall, China remains the furthest ahead in terms of the recovery with sales up 6% in the quarter and the third quarter and total digital sales up 63% as well as improving traffic and our brick and mortar stores.

Our teams in Asia has been doing a great job planning and executing the back half of this year. They have supercharge the commerce leaned into our big cash all categories. The most relevant cash and on that leisure products and based on our selling trends cuts many on productive styles.

All leading to improved sell throughs and markdown rates.

They have also been effective with our brand marketing and consumer engagement.

During the third quarter, we experienced very strong performance in China during Golden week, and we were also pleased with the start of the fourth quarter, including singles day sales, which now spans several weeks, where we grew over 50% on T mall and drove positive comp store sales and our brick and mortar store.

Force at the same time on.

All with increased pricing power.

Our strong execution, including live streaming Activations, we talk Chinese livestream via resulted in market share gains against the competition. We told me its ranking and T mall flagship store rising and 14 places.

And lastly, our marketing Activations resonated very well with the consumer including Calvin virtual event, we'd ambassador laid Chung, which we live streamed from our Shanghai dining store, resulting and plus 48% growth that day on T Mall, and 2.6 million views on the way though.

Overall, while there has been some effects from resurgence in Japan and parts of Southeast Asia. We continue to make good progress towards our continued strong recovery in the region as a whole driven largely by China and digital strength.

Moving on to Europe, our business across both brands outperformed despite the tough backdrop with revenues declining only 4% versus last year in local currency.

Just like in Asia, Our management team and Europe has been very effective in taking sustainable profitable market share in a very difficult environment. We drove a very strong recovery for the majority of the quarter, including in our brick and mortar stores. However, since late October we have been negative growth.

Effected by the resurgence of the virus with an increasing number of lockdowns imposed towards the end of the quarter.

[noise] overall strong brand product and channel execution drove higher consumer and retailer demand for our Tommy Hilfiger, and Calvin Klein products to the point, where we were chasing goods and select categories to fuel the consumer demand, while also achieving strong margins on.

Our well developed scalable digital distribution network continues to be a real competitive advantage. We grew total digital sales by 33% as we continued to post outside growth through our owned and operated sites as well as true our partnerships with Salon, though ace.

Gross and about you.

With approximately 40% of our stores temporary closed in Europe. During November we quickly pivoted our operations to best leverage our digital distribution network and we're all sable to leverage our connective store inventory to meet the stronger than expected inventory demand on line and.

In recent weeks the loft hours have started to raise and we expect all doors to be open within the next 10 days assuming no further government restrictions.

We feel very good about our future order book for spring and summer order books Actualized up high single digits versus last year and the first indication for pre fall 2021, a very positive all these factors make us have great confidence and our ability to continue to gain.

On market share in Europe.

Lastly, our north American business continued to feel the most pressure relative to our other regions driven by a combination of the lack of international tourism, increasing resurgence of the virus across the region and bigger dependency on brick and mortar than our other regions.

Our teams in North America are working very hard and navigating through the cobot related challenges.

While our overall sales in North America declined 38% digital remained a true highlight with our own sites growing over 100% enabled by our site enhancements inventory investments and logistical improvements to fuel demand.

We had another strong quarter, we'd armistice on including Calvin and Tommy posting their highest prime day sales ever achieved with a significant increase in new consumers.

At the same time tourism is currently down 95% and not expected to return in a while presenting a significant challenge for our brick and mortar business.

Loosing the tourist business Thats, usually 35, 40% of our total retail business in North America has put pressure on clearing through inventory, which in combination with an unusually early start on the holiday season led us to be more proactive with driving early promotions moving some of them from Q4.

For two to three our main focus remains to enter spring clean from an inventory perspective.

Moving on to our fourth quarter outlook, we have so far performed better than expected over black Friday week cyber Monday across all channels in North America, while we still have significant amount of business ahead of us for holiday. We are expecting the current business trend to continue through the fight on the holidays stretch.

So looking ahead for North America, having navigated through the most challenging parts of the pandemic why the lack of tourists and by far is the biggest challenge. We are facing it's clear that we have our own work to do coming out of the pandemic, we will increase our focus on our domestic consumer.

We will continue to take on this significant opportunities to further expand our ecommerce business, both our owned and operated and third party and we will also improve how we plan and by inventory to demand.

As our performance across regions demonstrates we have taken a very deliberate approach for each brand to get even closer to the consumer as we continued to enhance our brand relevance and positioning I'd like to share a few brief global highlights from the quarter beginning with Calvin we're seeing Calvin Klein.

Continued to register strong, 86% global brand awareness with increasing consumer consideration to purchase across all regions.

Our increased focus on creating product consumers desire was captured through Calvin Klein underwear collaboration with kit featuring Gigi how did we sold out 75% of the collection in just four days highlighting incredible results with junger consumer both from an engagement and sales perspective.

Which we will continue to build up on as we head into 2021 lastly, I'm excited to say that we strengthened Calvin's global brand leadership team during the quarter announcing our new key hires across design merchandising and marketing, which will enable the execution improve.

Product and marketing on child and civil ambition.

Moving on to Tavis I am excited to welcome a free Baker back to Tommy and the newly established role of President and Chief brand Officer with global responsibility for the brands products marketing and experiences and.

Every was the driving force behind many of the browse transformational programs, including told me now and has experienced a real strength in connecting the Tommy DNA to culture, and what the consumer desires today.

Tommy also celebrated its 35 anniversary as an iconic brands with global editorial coverage and the brand activation on T mobile and we continue to see improving global awareness, including in key growth markets like China. The.

The brand also continued to further its sustainability agenda, launching and Tommy jeans recycle denim line for fall 2012.

Finally to our heritage business, our heritage brands business continued to be on the pressure during the third quarter as the mid tier department stores experienced traffic challenges and dress furnishings categories remains under pressure.

We are continuing to actively address the business challenges by managing inventory levels are aggressively 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 were taking no two successful and navigate the pandemic and drive and accelerated recovery. We're also positioning us to win with a consumer coming into a new normal post Corbett.

The proof points that I just share with you from a strong digital growth to our increasing brand engagement and enhanced product strategies to our strong performance internationally demonstrate the global brand power behind Calvin Klein and Tommy Hilfiger, and the strong relationships that we're building with our consumers.

Particularly the next generation.

As we leverage the power of PVH, focusing in on our core strength and connecting them to where the consumer is going im confident.

And that we will drive brand relevance cost efficiencies and deliver long term sustainable growth, while driving fashion forward for good looking.

Looking ahead, we are working on and our long term plan for PVH next chapter of growth and we look forward to sharing more details with you at on.

Investor Day, we're planning for made 2021 and by that I would like to hand, it over to Mike.

Thanks Stefan.

The comments I'm about to make are based on non-GAAP results and are reconciled in our press release.

Im going to discuss our third quarter 2020 results and move on to the current state of the business and our fourth quarter expertise expectations.

Well, our business continued to be negatively impacted compared to last year by COVID-19 pandemic overall results from an improvement compared to the second quarter and exceeded our expectations driven by strong outperformance in Europe and China.

Overall revenue was down 18% as reported and 21% on a constant currency basis from last year, Tommy Hilfiger revenues were down 12% as reported and 16% on a constant currency basis with international flat as reported and down 6% on a cost.

And currency basis, and North America down 37% cash.

Calvin Klein revenues down, 18% as reported and 21% on a constant currency basis with international flat as reported and down 4% on a constant currency basis, and North America down 39%, China continued to show positive year over year results from both Tommy Hilfiger and Calvin Klein.

And our heritage revenues were down 36%.

Our third quarter reflected a 22% decline in revenues to a wholesale distribution channel and an 11% decline and revenue from our total direct to consumer businesses, including a 70% increase and sales through a digital commerce biz business driven by strong growth across all brands and regions does.

Lack of international tourist traffic coming to the US continues to challenge on North America, and brick and mortar retail business.

While we continue to be negatively impacted by the pandemic our earnings exceeded our expectations and our earnings per share was one dollar and 32 cents on a non-GAAP basis for the third quarter of gross margin reflected heavy promotional selling in the us as we advance Mark downs from the fourth quarter into the third quarter.

In order to maximize the earlier holiday selling season.

Inventories ended the quarter down 16% from last year as of the end of fiscal 2020, we are now projecting to carry approximately 100 million. The basic inventory into spring 21, which is a reduction compared to our prior projection of about 125 million.

Earnings from the third quarter benefited from cost savings, resulting from the North America work Force reduction announced in July 2020, and covert related government payroll subsidy programs and international jurisdictions as well as reductions and all discretionary spending categories, partially offsetting these savings were.

Increased ongoing expenses associated with health and safety measures to protect our associates and customers and business partners. These safety measures are expected to continue we.

We ended the quarter with 2.7 billion of liquidity consisting of approximately 1.5 billion of cash on.

On hand, and over $1.2 billion, other though borrowings under our revolving credit facilities.

Moving on to the current state of business and the expectations for the fourth quarter overall.

Overall for the fourth quarter to date is running down approximately 20% versus last year and.

And we currently expect that revenue for the full fourth quarter will be down approximately 20% versus last year as well.

We continue to see strong growth and our owned and operated digital commerce business and experienced a strong positive consumer response to singles day promotions and the holiday season kickoff events globally.

Additionally, we see continued overall positive trends in Asia, particularly in China.

However, our retail stores in Europe, and North America, and continue to face significant pressure as a result of research and of Cold and 19 cases a.

Approximately 40% of stores and Europe were closed for the majority of November as a result, our fourth quarter to date direct to consumer business has declined compared to the third quarter running down approximately 25% overall compared to last year.

When we look at the total direct to consumer business by region, we are running up low single digits for total Asia.

Down high Twentys for North America.

And running down low thirtys in Europe, including the impact of the closed stores I mentioned.

As of today, only about 10% of our stores in Europe are still close and within the next 10 days all of our stores the plan to reopen.

We expect the trend in Europe to improve considerably as a result.

Also through November all of our regions are running ahead of our current plans.

We expect that our fourth quarter gross margin percentage will be relatively flat compared to last year and our expenses as a percent of revenue will be in the mid fiftys.

Overall for the second half our gross margin percentage is in line with our previous expectation and our expenses as a percentage of revenue have improved by approximately 250 basis points.

We're not in a position to issue the detailed guidance due to the uncertainty related to the duration and severity as the pandemic.

And with that operator, we'll open it up for questions.

Thank you Sir.

I guess the question on the phone lines today, you can press star one on your telephone keypad. If you are on a speaker phone. Please make sure. Your mute button is turned off to low your signal from each arclight.

I guess Thats star one.

I'll take on first question from Erinn Murphy with Piper Sandler.

Great. Thanks, good morning, and Manny it really isn't and have anywhere and so wishing you all the best and whatever the next chapter holds for you.

I can answer your question.

You're welcome I guess my question first is just on your own digital margin Manny you spoke to in your prepared remarks and its now in line with overall margin can you just speak to some other changes that you've made to see that materialize, and then where should digital and margins go over time.

Yeah, Eric It's Mike I'll take it I am low.

Look I think one other benefits we've seen this year has been the scaling of the business. So in each region, we've seen increasing gains on the top line and we've got and significant benefit to leverage and the expenses. We had on deep dives. We've reviewed expenses and every region. We look at how we should how we manage.

Where we do free shipping and her teams with getting a cadence and rhythm around business, which they didnt have before so it's all those things put together its truly detailed work to truly getting the benefit of the scaling of the business.

As we look forward the business.

In terms of digital is overall across our regions is now approaching the profitability level of our brick and mortar business. So we're really happy with the way that business is evolving and.

Where we felt pressure and North America and.

We're now seeing significant improvement there on the bottom line and just a reminder, that Europe and Asia are and have been profitable business for us and continue to.

Be very profitable for us.

Okay, and and I guess my second question is really just on your comments I guess, maybe more first step on or managed to tag team you talk about Supercharging ecommerce and I was definitely a thread throughout the day.

Comment this morning, and there's also been a lack of tourism here domestically. So I'm curious, how you're thinking about reevaluating your store fleet, particularly in the domestic market, but if you had any comments on Europe as well that would be my top on thank you.

Thank you, Sir and as Stephane.

As as you mentioned correctly, we have been very successful in pivoting towards E. Commerce, and then parallel to that we are working on rightsizing, the brick and mortar fleet to match for other customers going if an extreme case now given that we are in the middle other pandemic. So we are true.

King, where we're going on right now and optimizing what we can here and now and then we are falling by other consumer it's going coming out of the new and old I mean, it's going to be an important work for us to make sure that we have right sized the brick and mortar portfolio.

North America.

Asia Europe and.

What we do see though in this quarter, which is very exciting and in both Asia and Europe is when we execute really well and cross channel the consumer shops Cross channel. So during the T mobile activation and where we drove a 50% comp. We were also at the same time able to drive.

And the stores and the same in Europe that when we see pivoting.

And extreme pivoting to 40% from the stores closed we are able to connect to use our connected inventories. So we see a future where the consumer continues to shift more and more into digital but it's very much an omni channel customer and and there and its Mike go does that and North America. Just a reminder, our leases tend to be relative.

Sure.

Average three years with with lessors performs as being less than that so we do us and significant flexibility.

Thanks.

Well take our next question from Guggenheim.

And time.

Good morning.

Manny I have to say look it's been a real honor and pleasure and.

I think you talked about a 15 year period, just as CEO, but you go back to your CFO days and and how far it's come in and where we've been together and going to Miss you Congratulations you've been and amazing leader over the last 20 plus years Stefan you get some big shoes to fill and wish you luck [laughter]. Thank you Bob.

I agree with you.

And so many of the first question and I do have is for you and your agreement as chairman.

Have you.

On a range like an exclusivity with Jim Cramer and Mad money could be the gas for PVH ongoing on the quarters.

No no, but I think maybe other debt coupled with our retail in general and not PVH, specifically I'll leave that to staff and Dana Mike.

On the team.

Thanks for the Klein waterfall design and nice of you.

And and I guess the second question and then is can can you guys talk about I think you talked about the improvement in the European Order book I'm. Just wondering if you can elaborate a little bit with that.

The business did trends to date and with the store closures and how much the store closures have impacted the fourth quarter, how it should shift when they reopen and then just real curious on the order book over the next few quarters any spring definitely firmed up from the last time, you talked about it some comments on summer.

And for if you could just talk to how the retailers are planning and or envisioning, the coming quarters as low as things hopefully come back to some sort of normalization. Thanks.

The above and stuff on I'll start and and handed over to Mike. So we we experienced very strong performances strong market share gains in Q3 until the temporary store closures hits, So Mike and give you more of the details of those trends.

But then when we look at the order books, what's exciting to US is that they are very strong and they kept strong throughout the resurgence and it keeps coming back to our team is very very good at executing in terms of brand relevance product strength.

Working driving their own and operate and ecommerce their own stores and also strong partnerships weighted third players and and other wholesale partners. So very.

Very strong trends and and then disrupted by 40% of the stores being closed and then very strong indications on on the order book.

Mike and leave it for you to provide some additional detail yeah sure. Yeah. So I guess, Bob just some color on the third quarter. This those were all Clos, we were running up 7% for all of Europe, and even with 40% of the stores close we were down 30%. So well we actually have seen is that.

Stores that will remaining open we're actually running plus comps and the stores that are opening and opening strong actually think there's pent up demand and we may get some and business back from the closures so that would be the hope.

Great. Thank you.

Our next question comes from Michael Binetti with Credit Suisse.

Hey, guys from many many first of all thank you so much for the dialogue. All these years also it's been a pleasure and obviously wishes and the best in the next chapter and verse on cannot wait to pick it up with you here as you start to next adventure and your career. This will be very fun and are excited and work with you.

And I just want to ask you quickly on the and how many are on who wants to jump on this but whats the revenues down today, and 20% and in a day to see down 25, but 40% of the stores and Europe closed now reopening is there is there a piece of business that you expect to slow from here that holds you and negative 20 per.

And revenues and its fourth quarter, if youre, if you're if stores are going to be opening and a contribution should be improving I'm just curious.

Curious, what you're what you're thinking about or if it's just conservatism and I had a follow up.

I'll start and then let step underpin it.

I guess from my perspective, it's it's just an incredibly uncertain time. So we had stores that were closed we've obviously seen most of those stores opening and balance and our planning the balance open over the next and days, we've seen resurgence in the U.S. pretty much no closures are very very few so it's just.

On the uncertainty and the business, while we are outperforming our plants to day, we were just prudent and how we projected.

No I did not and Mike is looking at Europe US as an example, we were on fire and then within a few weeks, 40% of the stores were closed down and now within a few weeks later, we are fully open again, so the underlying trends are very strong in both Europe and Asia.

[noise] seems pretty easy to navigate sit on I don't know what the uncertainties.

And just get.

Can you help me [laughter] can you I. Thank you for that can you help us understand a few other pieces of the puts and takes on the gross margin and <unk> in the third quarter and you know any numbers you could give us to understand that the 260 basis points and pressure in the quarter and most curious on how that the pull forward of Mark Downs as you saw the incremental store.

Closures coming and you said you made some markdowns in the third quarter any number you can help on that would be helpful. I think thats. The most important thing to understand.

And then any idea you notice the other relative buckets. If you just mind rank ordering them for us as far as where you know what.

Pressures Mark.

Yes, So look I think it's it really was driven by North America. We we have work to do here and we were promotional on the business. So we got we advanced Mark Downs, we were slow this holiday season being earlier on but clearly paid off we were able.

To deliver an increase to the year in terms of profit.

We remain consistent and our gross margin plan.

As we reported from last quarter to this quarter. So I think we're feeling good about the business. We're feeling good about the decision we made and we think we got rewarded for doing it. So that was really what the change was.

Thanks, guys.

Our next question comes from Dana Telsey Tag.

[music].

Hi, good morning, everyone and many congratulations on a wonderful career and.

Have a wonderful next chapter and hopefully we can all still stay connected Stefan as you think about the business and as Harry mentioned Supercharging E Commerce with each other brands of Tommy and Calvin and your.

Model and that's sustainable repeatable process, how do you see that for each of those brands and continuing to capture the younger consumer on a fashion forward basis, and then Mike just on the inventory levels, how you're thinking about and ending the fourth quarter going into 21. Thank you.

Yes, Thank you day and on the.

It's an important question and this year coming back to serve pandemic here, so, but what's exciting is that our pivot to E. Commerce. Following the consumer is really really works. So in in one year, we we have grown penetration from roughly 10% to over 20%. So.

And the growth rate continues this way probably not one of the stores, but this is the long term growth potential coming back to systematic repeatable value creation and E commerce.

If it be on 20% and penetration, absolutely and and I have the benefit of spending a year and next to non air really learning in depth and looking at our core strength and I see very.

Very big opportunities over the long term to continue to grow in E Commerce.

Okay and Dana on inventories.

We closed it on the release the third quarter were down 16% and that includes about $100 million carryover product that we have now chosen to pull into next year basic product no liability on.

As we look at the fourth quarter. The year end I think what we'll see is inventory reduction call and mid single digits, and then that carryover inventory is worth about six or 7% so something in the low teens in terms and a reduction excluding the $100 million of carry on our inventories are.

Free clean obviously with the beat we had on the top line and third quarter and where the business is trending ahead of our plans were in a very good in tuition at the moment.

Thank you.

Our next question comes from Jason.

Great. Thanks, so much. So my question is about what percent of the business you think has been impacted.

By comment in terms of the category. So if you think about fragrance or women's dresses or bottoms or some other things and maybe consumers are shifting away from Justin to stay at home environment can you give an idea of what's been impacted and sort of with an eye towards you know.

Next year and those business is probably coming back as things get back to normal. Thank you.

Well before I hand, it over to Mike who might have more and more factual details behind it I mean, the biggest change is the formal wear to cash on the coal bid on having everybody work from home around the whole world is a big move to cash utilization. That's the biggest trend change we see.

Yes and Thats.

Sure I am I.

I think it's I think it's clearly going to be.

We're going to be chasing inventories, we don't know concern so we'll play and cautious.

We buy more the casual product less of address other products and I think we're moving as quickly as we can the categories that are outperforming.

Got it and maybe one more and you mentioned that you expect current business trends continue in North America, if I heard that right.

How did you see the business trend as you went from.

September October and November and sort of what does that imply about where the current business stands today.

So right now and North America, running down and the high Twentys on which is ahead of our plan and if you think about it the beginning of this black Friday season is where I think we stood on the most risk and the business the capacity issues the stores not opening for the for them and post Thanksgiving period.

But opening on Friday, instead, so I think a lot of that risk is behind us.

So that's where we are today.

[music].

Got it okay. Thank you so much.

Our next question comes from Jamie Merriman.

Thanks, very much and.

[laughter] on and and Mandy and Wonder you know as you talked about and that these omni channel initiatives can you give us a sense of where you are in terms of debt capabilities.

You would still like to deal on that front on that.

Potentially yes at.

And another driver of that customer acquisition, and then you know to what extent are you working with net your ecommerce partners, whether it's you know the platforms like and Amazon or window or some other larger you know brick and mortar on partners Q has on more from you know.

Integrated inventory position like you worked on with your on each channel. Thank you.

Thank you Jay and it's it's it's it's a continuous work to to follow the consumer and the consumer shops, our owned and operated sites that you could see we drove a 70% growth and then day shop increasingly with the big platforms as well so our partner.

And Thats on cylinder T Mall is very very close and also with the traditional department stores and their E commerce platform capabilities. So we see the consumer increasingly shopping.

And browsing through the browser sites are owned and operated and third party. So that's the work that we will continue to do we saw it pay off and T Mall. The collaboration we T mall that we really doubled down on a year ago.

Roughly and we planned into this.

Singles Day event, which is now two three weeks and we plan on day in and and and and came together with them and really one with the consumer and then when it comes to Salon Delaware.

And.

Very strong partnership with them and also connect our inventory in store. So we were able to pivot when the stores were closed we were still driving significant sales through fulfilling on lives. So this is continuous work and we have some ship from store capabilities that we were able to.

Stand up within just a few months coming into the the crisis. We it's a continuous work, but those are just a few a few examples of what we are doing and what we will continue to do and the most exciting without this that it resonates with the consumer.

Thank you.

Our next question comes from Kimberly Greenberger with Morgan Stanley.

Great. Thank you so much good morning, and stuff and I heard you say that this year. Your digital penetration is is going to run over 20% I think that's and.

And partner digital could you just remind us within that what piece is is the only piece of digital commerce.

And then I I was looking at your international business, both Calvin Klein and Tommy Hilfiger performed.

Fairly consistently and aggregate internationally I'm wondering if you look at each geography, Europe and Asia are they performing similarly, as well within those geographies on and then Mike and any sort of color you might have on the Q4 gross margin and how we ought to think about that thank you so much.

So let's start with the tail end of your questions. One when it comes to our brands and and the geographical performance, so when and where we see strength in both Europe and Asia free.

The dominant in driven by China in Asia, we see strength in both brands.

And Mike in terms of the percentage our own business is about 10% of the total business this year.

And it is the fastest growing season.

And it's over double the size and from the prior year.

I believe you had a gross margin question on the fourth quarter. When you think about the fourth quarter I. We are right now planning the gross margin basically flat to the prior year for the overall company and if the trends continue there is an opportunity there to outperform.

[noise] and Capex. Thank you.

Our next question comes from Heather Balsky with Bank of America.

Hi, I'm, taking my question.

On Oh, Yeah, as you step into your role and I can see how what are you most excited about it and what do you view it.

Okay, and you need Lucky kids.

So thank you and other what I'm. Most excited about is by far again coming back to that I've had the opportunity to work a year next to them on is the strength of the many strengths that we have and the strength of our brands the strength of our global brands the strength of our and below.

Volume capabilities, the strength in Europe, and Asia, and and opportunity to continue to grow with where the consumer is going so that's what excites me. The most is the opportunity to take the strength, we have really sue main to the core strength and connect them closer to where the consumers go and then.

Underlying all of that is the strength of our people so connecting to two where money has always being consistent is speaking about our biggest strength being our people our team and our brands. It's the combination of those two.

Great. Thank you.

All right and we have time for one last question.

All right. Thank you, we'll take our last question from Matthew Boss Jpmorgan.

Great. Thanks.

On you mentioned one of the Companys Creek key priorities is further improvement and the product offering and increased relevant maybe could you just elaborate on the opportunity you see to improve the product and the assortment across both Calvin and Tommy multi year.

Yes, so so high level, we live in the most disruptive time of our industry at least I've seen and I've been around for over 20 years.

And and.

The consumer has more choice than any time before so the strength of having iconic brands with global brand awareness is a tremendous asset and then that strength what our job is on the execution side is to take the brand awareness and the brand love and and execute relative.

And in products, so being very focused on the core essentials and we call. It the hero products that the products that really makes a difference that sets us apart from our assess the sea of generic products that are out there and the market.

And that's that's what we're going after.

Great and then on maybe just as a follow up and you dug into the cost structure of the organization, where do you see opportunity for continued cost efficiencies and any material investments that you see necessary to drive the next chapter of growth as you take the helm.

Yes, as we mentioned we the on the consumer has shifted more in the last 12 months than in the previous four or five years. So.

When it comes to the cost side, we have to make sure that we.

Run leaner and more data driven and with more speed than any time before so there, but when I look at cost and investments going forward. The first priority is to connect the investments and the cost to what really drives winning with other consumer and then continuously drive efficient.

Yes.

Great Best of luck and congrats on a great on Manny.

Thank you listen I know that that closely and third quarter earnings conference call and want to thank everyone for joining us.

I'd like to take a moment design from the analyst community. This followed us over the years new personally. Thank you for the time spent to understand PVH business model and its on extensions, we really work with us.

And John to our shareholders.

Wish everyone, a safe and healthy holiday season Christmas honestly tell me I'll enjoy it with your family and wish you all the best.

Happy healthy and.

Prosperous new year, so have a great day, everyone. Thanks.

And that does conclude today's presentation. Thank you for your participation you may now disconnect.