Q1 2021 PVH Corp Earnings Call

June 3, 2021

[music].

True get back on the Oh.

Good day and welcome to the PVH Corp, first quarter 'twenty 'twenty 1 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Dana apartment. Please go ahead maam.

Thank you operator.

Everyone and welcome to the PVH Corp, first quarter 2021 earnings Conference call. This webcast and conference call is being recorded on behalf of PVH and consist of copyrighted material. It may not be recorded rebroadcast or otherwise transmitted without PVH has written permission.

Participation in the question and answer session constitutes your consent to having anything you say appear on any transcript or replay of this call.

The information to be discussed includes forward looking statements that reflect pvh's of view as of June 2nd 2021 of future events and financial performance. These statements are subject to risks and uncertainties indicated on the company's SEC filings and the Safe Harbor statement included in the press release that is the subject of this call.

These risks and uncertainties include PVH 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 COVID-19 pandemic continues to have a significant impact on the company's business financial condition cash flow and result of.

Of operations.

There is significant uncertainty about the duration and extent of the impact of the pandemic. The dynamic nature of the circumstance of means what is said on this call could change materially at any time, therefore of the operation of the company's business and its future results of operations could differ materially from historical practices and results or current descriptions estimates.

And suggestions.

PVH does not undertake any obligation to update publicly any forward looking statement, including without limitation any estimates of our suggestions regarding revenue or earnings.

Generally the financial information and projections to be discussed will be on a non-GAAP basis as defined under SEC rules reconciliations to GAAP amounts are included in PVH as first quarter 2020 earnings release, which can be found on www dot PVH dot com and in the company's current report on form 8-K furnished to the SEC.

In connection with the release at this time I am pleased to turn the conference over to Mr. Stefan Larsson CEO of PVH.

Good morning.

Thank you for joining with me on the call today are Mike Shaffer, our CEO and CFO and Dana Perlman, our EVP and Chief strategy Officer and Treasurer.

I look forward to sharing the progress we're making in building our next growth chapter as we drive tourists on accelerated recovery post COVID-19 to win in the new normal.

Before I do that I would like to thank our entire of PVH team for an incredible job in successfully navigating the company through the pandemic and delivering a very strong start of the year.

This quarter, we moved from navigating through the pandemic to increasingly coming into an accelerated recovery phase.

This has been driven by the disciplined execution of our key strategic focus areas.

Led by Calvin Klein, and Tommy Hilfiger, our international markets.

<unk> strength and winning in the marketplace supercharged by E Commerce.

We had a very strong first quarter, we over delivered our revenue gross margin rate and EPS versus our expectation.

And the most important part of the strong performance is the.

Underlying drivers behind it.

Each of our important proof points for what we set the altra achieved through our strategic focus areas.

As we are connecting closer to where the consumer is going the strength and value, creating potential of our global growth brands, Calvin Klein and Tommy Hilfiger is real and already starting to deliver results.

You will remember from our last call that of our focus is to win with the consumer by driving brand relevance.

Taking profitable market share and further strengthening our platform capabilities.

And over time doing that more efficiently.

We're also becoming even more demand on data driven enabling us to create value in a more systematic and repeatable way.

We believe that our increased and sustained focus on these aspects will drive long term revenue and margin growth for our shareholders driven by gross margin expansion and SG&A leverage.

Having had the opportunity to see a number of our important markets reopen and having been out walking stores again, I'm optimistic by 1 of them, saying, while the consumer continues to lean into digital the consumer is also our shopping in stores.

There is a general feeling of optimism and excitement.

We are seeing signs of the real shift in consumer sentiment, where the consumer is excited to come out of COVID-19 restrictions, reflecting of new hybrid and lifestyle.

Consumers are revolving the castle and comfort focus to include more elements of self expression through bolder colors increasingly influenced by the nineties pop culture.

This combination of stay at home comfort with the joy of being able to socialize again is reflected as consumers mix and match cash on the central categories like underwear lounge active and day wear and we see an increased interest in denim.

These consumer trends are positive for the fashion sector overall and for us in particular.

Looking ahead based upon our strong underlying performance, we are increasing our full year outlook.

We are prudently managing our business as we navigate the ongoing effects of the pandemic, including Lockdowns in certain markets and supply chain disruptions in countries that are being tragically affected such as India and Sri Lanka.

We are confident in our ability to navigate the some certainties and continue to drive and accelerate the recovery.

Let me now turn to some of the key proof points on how our key strategic focus areas.

Positively drove our performance in the first quarter.

Mike will then share of financial details.

First we continue to supercharge, our ecommerce channel with digital revenue growing approximately 95% in the quarter, including 66% growth in our owned and operated sites as we leverage our multichannel business model to meet the.

Consumer where they wanted to shop.

Next we continue to increase our focus on driving product relevance across all brands of regions across the board our focus on key growth categories hero products and cutting the unproductive assortment tail yielding strong results.

And we see increased pricing power of margin expansion in both Calvin and Tommy across our largest markets and channels.

Lastly, we continue to drive cost efficiencies across our businesses globally through the initiatives, we have underway and we will continue to efficiently manage our cost structure.

Turning to our regional update despite continued of COVID-19 related challenges in the quarter, including closed stores. Our teams drove performance significantly above plan in both revenue and profitability across our businesses globally.

We delivered particularly strong results in our international business, which returned to pre pandemic revenue levels at a faster pace than expected.

Let me start with Asia, we remain pleased with our performance in the markets. Our performance was led by the strength in China and despite COVID-19 restarted the emphasis in important markets like Japan, Singapore and Korea, our revenues were relatively in line with pre pandemic levels.

Our Asia and China teams continue to accelerate performance through a number of focused and well executed initiatives.

China is the furthest along in this recovery overall and we continue to see increased traffic to our stores. In addition to our growing digital business overall revenues were above pre pandemic levels.

Our more focused strategies to strengthen product coupled with better operational excellency of stores on driving higher conversion and strong full price selling we are continuing to realize gross margin expansion from higher AUR.

We also continue to supercharge the ecommerce by successfully capturing key consumer moments around important holidays, we had positive responses for new see some product launches, which are resonating both online and in stores.

We are prepared and looking forward to several upcoming important selling periods. The next being for 6 to 18, which will be supported by strong product and channel execution.

Overall, we remain optimistic of the long term opportunity to grow our brands in Asia as we expand the awareness and continue to invest in the market.

Moving on to Europe, our performance in the quarter was truly outstanding we experienced earlier and much stronger than expected demand from our wholesale partners, who came out of the holiday season, with very strong sell throughs and low inventory levels for both Tommy and Calvin.

And wanted to be ready for the reopening of Europe.

This led to the positive timing related impact of earlier than expected wholesale shipments during the first quarter versus our plans for the second quarter.

However.

The underlying business performance in Europe was very strong driven by our team's disciplined execution of our accelerated recovery of priorities, including consistent and very strong product execution across both Tommy and Calvin combined with the market presence.

That allowed us to very closely follow where the consumer wanted to shop, which in this quarter meant supercharging, our digital channels through our connected inventory, enabling us to meet demand from all channels.

We generated strong digital sales growth of over 100% driven by both our own and operated sites as well of sales to our digital partners, particularly pure players and this growth also benefited from the store closures.

It is important to note that as markets have reopened the consumer has come back to our stores with better than expected traffic.

For both Tommy and Calvin we continue to gain market share driven by strong consumer demand for our products, resulting in increased pricing power and margin expansion.

For Tommy we continued to see strength for both men's and women's sportswear across multiple product categories, including a strong and rising trend for denim.

For Calvin underwear, and cashless Essentials remain key performance drivers in addition to new denim silhouettes.

Footwear, our newest category, which was recently brought in house is seeing strong consumer acceptance across all markets.

The momentum in our future order book continues to be very strong with fall holiday 2021, now finalized and it's up double digits versus the prior year and pre pandemic levels.

We remain very confident in our team's ability to continue to drive sustainable profitable growth in Europe for the remainder of the year and beyond however, given the positive timing impacts in the quarter, we are not expecting to see the same level of outperformance.

<unk> in the coming quarters.

Turning to North America.

During the first quarter, our inventory levels were very clean and we bought conservatively, which led to improvements in AUR and gross margin. However, sales were still down significantly in the quarter compared to pre pandemic levels of <unk>.

<unk> mentioned previously the lack of tourism in North America, which pre pandemic accounted for 30% to 40% of our revenues in the market has negatively impacted our business we.

We expect to see tourism come back gradually over time, although this is very much dependent on the pace of vaccinations in the rest of the world and the loosening of travel restrictions.

Lastly, during the quarter, we had 50% of our stores in Canada closed due to COVID-19 restrictions.

In the meantime, we are leveraging our learnings and leaning in to build more strengths with our domestic consumer.

From this focused work, we already see a number of important initial proof points.

We grew digital over 60% with growth on both our own and operated sites as well as sales to our key wholesale partners, including digital pure players.

In the stores, we saw increases in traffic with the domestic consumer although not enough to offset the lack of international tourism.

Importantly, though this improved domestic consumer performance came in the result of less discounting increased pricing power and strong margin improvement.

From a product perspective, our inventory position is very good and we have started to see the positive effects of our key category and hero product focus as well as from cutting the unproductive assortment of tail.

So even though the top line is still very challenged by the tourism effect the law.

Low the surface, we're seeing strong positive comps for important hero products that perform significantly above pre pandemic levels.

While we are pleased to see these early positive signs from our accelerated recovery of focus we recognize that we still have much work to do to unlock the regions full potential.

Even if it's still early days for Trish, who just joined US a few months ago in the role of CEO for PVH Americas on.

I am very encouraged by how she and her team are starting to drive product strengths with pricing power on margin expansion of.

As well as doubling down on the ecommerce growth in both direct to consumer channels and through our wholesale partners and we see significant opportunity for the region.

Next I would like to share a few brief global brand highlights beginning with Calvin Klein.

Global brand health remains strong with consistently strong high level of awareness as well as the increased purchase intent.

During the quarter Calvin launched its first global product collaboration with Heron Preston the.

Collection focuses on reinvent that essentials true to the Calvin Klein brand DNA and connected to our culture is today.

The response to date has been very positive and we have a number of encouraging learnings.

Mobile is the collaboration has attracted a new younger and very valuable consumer.

We have seen strong consumer demand across product categories, starting with underwear. However, the fastest to sell our product categories, where denim trucker jackets, hoodies T shirts, which demonstrates the Calvin Klein strength and potential as a true multi.

Category of lifestyle brands.

Through this collaboration we are also seeing higher AUR us on average order value than any time before in recent history.

We will continue to build out collaborations and campaigns to fuel brand heat and cultural relevance.

1 important campaign right now is sell price capsule, which cuts across social e-commerce and stores.

Moving on to Tommy Hilfiger, we continue to generate increases across all brand health kpis, including awareness.

This ability and consideration as well as strong search interest.

In Europe, Tommy drove strong sell through for our spring capsules, including our collaboration with Potter the Amsterdam based streetwear brands, which was very well received.

Additionally, the brands made another step towards circularity with the launch of our first limited edition Upcycle collection.

The remix collection is part of the Tommy for life program and the pioneering circle of business model using pre loved the Tommy Hilfiger, and Tommy jeans products and marks another milestone in our sustainability vision.

We also launched the third installment of Thomas drop shop, with an artist capsule co designed with London based creative Stevie G featuring limited edition Hoodies and Ts.

And finally, turning to our heritage business.

While we saw some improvements in our heritage brands this quarter the business continued to face challenges.

We remain on track to exit the remaining heritage brands retail stores. This summer.

Our intimates business performed well during the quarter with solid revenue growth compared to both last year and pre pandemic levels all while still under pressure. We have started to see some early signs of improvement in our dress shirt business as people reengage and social activity.

<unk> and return to offices.

For the heritage brands, we are continuing to actively review additional ways to optimize the business.

In closing I feel very good about the strong performance, we drove in the quarter and I am confident in our ability to continue to execute on increasingly strong recovery.

As reflected in our increased full year guidance in.

In addition, I'll feel particularly pleased with the discipline way, we achieved a growth in the quarter and how that positions us for sustainable profitable growth for many years to come.

I am proud of how our teams continue to lean in to us within our control to drive and accelerate the recovery and position us as 1 of the winners in the new normal.

Every quarter, we are taking further steps to get even closer to where the consumer is going and I look forward to continuing to share more with you about the progress along the way.

And before I hand, it over to Mike you will have seen that yesterday, we announced a couple of updates regarding our global leadership.

Cheryl the able Hodges will be stepping down as chief Executive officer of Calvin Klein moving to an advisory position on July 1.

Trish Donnelly CEO of PVH Americas, who has had oversight of Calvin Klein will now take full global responsibility for the brands.

I would like to extend my sincere.

Thanks to channel for the valuable impact chefs made during her 15 years with the company in many areas of our business.

And we also share of that after 30 years with PVH, Mike will be leaving to pursue other opportunities.

Mike will be with us through September. So we will have time to celebrate his many contributions to the company. So for today I would like to say Thank you Mike for your partnership and stewardship over the years and for helping US build the strong foundation and strong leaders and teams we have.

Today on which we will continue to bid.

So with 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 overall revenues for the first quarter were up 55% as reported and up 46% on the constant currency basis.

Compared to the prior year and exceeded our prior revenue guidance driven by growth across all regions and channels.

Revenue in the international business exceeded 2019 pre pandemic levels when.

When we think about the comparison of 2021 versus <unk>.

First quarter results to the prior year. It is important to remember that during the first quarter of 2020, virtually all of our retail stores and our wholesale customer stores were closed globally for 6 weeks on average as a result of the pad them.

Of total direct to consumer business was up 66% versus the prior year, including the 66% increase in digital commerce across all regions and brands.

Our retail stores face continued pressure during the first quarter.

Although to a much lesser extent than in the previous year with the significant percentage of our stores temporarily closed in Europe, Canada and Japan.

All regions of brand businesses experienced strong digital growth due in parts of the continued store closures, particularly in Europe.

Though we expect digital penetration to remain consistent for the rest of the year, we expect digital growth will not be as pronounced as stores reopen.

Our wholesale revenue was up 53% versus the prior year, including very strong sales through our digital channels. The increase was driven by strong performance in Europe due in part to an unplanned shift in the timing of wholesale shipments into the first quarter from the second quarter.

Looking at our segments, Tommy Hilfiger revenues were up 63% as reported and 52% on the constant currency basis with international of 78% as reported and 63% on the constant currency basis.

North America was up 25% Calvin Klein revenue was up 65% as reported and 56% of the constant currency basis with international up 91% as reported and 77% on the constant currency basis, North America was up 27%.

Our heritage revenues were up 9%, which included the reduction of 14% of the adult resulting from the sale of our speed on North America business in the April of 2020.

Gross margin was 59, 1% for the quarter as compared to 49, 5% in the prior year, which reflected improvements across all regions of brands due to less promotional selling of favorable shift in regional sales mix and the absence of significant inventory reserves that had been recorded in the prior year we.

<unk> to tightly manage our inventory, which decreased 7% at the end of the quarter as compared to the prior year earnings per share was $1.92 on the non-GAAP basis for the first quarter of 2021 and was a dollar of 9 higher than the top end of our previous guidance. The beat included the impact of the.

The unplanned timing shifts of Europe wholesale shipments into the first quarter from the second quarter that I previously mentioned as well as the shift of advertising and other expenses out of the first quarter into the remainder of the year together. These timing shifts represent approximately 40 of the beat with the balance of <unk>.

<unk> 9 <unk> due to the business outperformance across all regions and brands.

Notably our EBIT margin was very strong of 12% for the quarter the.

This was due to the favorable shift in regional sales mix as our international business generally carry higher operating margins as well as unprecedented strength in our international businesses EBIT margins.

The strength in international was due in part to Europe channel mix as a larger portion of revenue came from the wholesale channel, including sales to our brick and mortar and pure play digital customers, which carry very low expenses the higher proportion of Europe host wholesale was due to a significant percentage of our stores being.

Temporarily closed and the unplanned timing shift of wholesale shipments into the first quarter from the second quarter.

Moving on to our outlook, we are providing of 'twenty 'twenty 1 outlook. Despite the significant uncertainty due to the pandemic and as such it could be subject to material change our outlook does not contemplate new store closures, new lockdowns or extensions of current lockdowns beyond what is already known.

We continue to monitor industry wide supply chain headwinds in our outlook contemplates certain inventory of delays of approximately 4 to 6 weeks on average was <unk>, which is expected to result in the additional air freight and other costs in order to maintain our sales plan in the second half of the year.

While we have been able to successfully react throughout the year to delayed shipments. Thanks of the strength of the on supply chain. The current volatility in the industry may further impact our results in ways that we cannot currently able to predict our actual 2021 results could differ materially from our current outlook as the.

<unk> of the occurrence of any on contemplated events.

We continue to be encouraged by the international businesses, which have exceeded and are expected to continue to exceed pre pandemic levels throughout the remainder of 2021, we expect North America to continue to face the ongoing challenge of reduced international tourism, which is the source of the significant amount of revenue and non <unk>.

It to return to pre pandemic levels within the year of.

Additionally, our outlook reflects an approximately $20 million of estimated operating losses associated with the wind down of the heritage brands retail business in the first half of the year.

For the full year, we are projecting revenue to grow approximately 24% to 26% as reported and approximately 21%, 23% on a constant currency basis compared to 2020.

We expect gross margin will continue to show improvements in 2021 compared to 2020 due to less promotional selling the we do not expect the significant of improvements for the remainder of the year as we experienced in the first quarter due in part to a less favorable shift in regional sales mix as growth in our international businesses.

Which generally carry higher gross margins was more pronounced in the first quarter relative to our lower margin businesses in North America.

We continue to manage our cost structure proactively, including reducing operating expenses and reallocating resources to support growth areas of the business.

We continue to expect the increase in gross margin percent in 2021 versus 2020 and the decrease in operating expenses as a percentage of revenue in 2021 versus 2020 will be relatively similar in magnitude with each worth a few hundred basis points.

We expect EBIT margin will continue to show improvement in 2021 compared to 2020, although we do not expect the significant of improvements for the remainder of the year as we experienced in the first quarter due to a less favorable shifts in regional sales mix. We also do not expect the unprecedented strength, we realized in our international businesses in the.

First quarter to continue at that level for the remainder of the year as stewards of reopened in our wholesale business.

Comes a smaller proportion of the business.

We expect our interest expense decrease in 2021 to approximately $110 million. We are planning debt repayments of the 700 millions of the full year, which is equivalent to the incremental borrowings we took on in 2020 to manage through the pandemic.

As of today, we have already made repayments of 600 million. This includes $500 million of repayments made in the first quarter, an additional $100 million made after the quarter of.

The tax rate for the year is estimated at 17, 5% to 19% as a reminder, when we think about our tax rate by quarter, we expect debt rate for the first 3 quarters will be relatively similar with the fourth quarter expected to benefit from certain discrete items, which bring down the overall rates of the year.

For the full year in 2021, we are projecting non-GAAP earnings per share to be approximately $6.50.

Which is an increase compared to our previous guidance of approximately $6 on.

Our current projection reflects an increase from our previous guidance of approximately 69.

Due to the business outperformance experienced in the first quarter and while we are cautiously optimistic we are prudently planning the balance of the year given supply chain disruptions and overall macro uncertainty.

For the second quarter of revenue is projected to increase 34% to 36% as reported and 29% to 31% on the constant currency basis.

Second quarter non-GAAP earnings per share is planned in the range of $1.15 to $1.18 compared to the 13th and the prior year period, we expect interest expense to be about $27 million and taxes to be in the range of 36% to 38% in the second quarter and with that operator, we'll open it up for questions.

Thank you wish to ask a question at this time, please signal by pressing star 1 on your telephone keypad. Please ensure the mix function on your telephone is switched off to allow your signal to reach our equipment again the star 1 to ask a question.

And we can now take our first question from Erinn Murphy of Piper Sandler. Please go ahead.

Great. Thanks, good morning, and Mike you'll be greatly missed.

My question is for Stephane just on the overall acceleration in denim that you spoke to can you remind us what percent of the overall business does denim and how sustainable is the traction that youre seeing in the overall category.

Yes, so we see higher and good morning, So as I mentioned in my remarks that we see increasing demand consumer demand in denim for both Calvin and Tommy and what we see if the mix between.

We see the mix between the consumer continuing to shop cash of the essential categories for the at home piece of their life and now when especially in the markets where the restrictions are open up from Covid, we see the consumer excited and increasingly going out.

And so it's the mix we see this hybrid lifestyle and denim is an important part there. So we see the strength in cash.

Cash flow of the Essentials, and then we see that name that we see colors.

So we overall as I mentioned.

The strength.

Thats being positive for the industry of shareholder for us.

Sure.

Great and then just a follow up for Mike could you share a little bit more about what youre seeing with input cost right. Now and then are there price increases that need to be contemplated to offset any potential pressure. Thanks. So much.

Yes look the 421, you're seeing low single digit kind of increases, but as we look to spring in the future. We're seeing mid single digit kind of increases so.

The supply chain is under pressure to some degree.

At this point, we're working through it and we're trying to understand what we can do on the product side to mitigate against those costs.

Also looking at what we can do on the on the country of origin side to see where we can go to mitigate those costs. So it's a work in process, but yes, if we don't see the.

If we cannot mitigate those costs, we will have to see some sort of increases as we move through into next year and beyond but for this year I think the impact to be relatively minimal.

Great. That's very helpful. Thank you.

Thank you.

And we can now take our next question from Michael Binetti of Credit Suisse. Please go ahead.

Hey, guys. Thanks for taking the questions and Mike I'll add my Mike Congrats and thanks, so much on on all the help over the years.

We talked about this a bit last quarter, but.

I think that the.

In the U S Tommy and Calvin were lower than first quarter of 19 by roughly 40%. Each I think you pointed of tourism. So maybe that explains some of the downside to that 2019 watermark, but can you talk to us a little bit more about where you see the U S business over the next few years should we think about it as revenue is lower than the 2019 Mark for a few years in the <unk>.

Bigger focus is on profitability or should this really be approaching those 2019 revenues over the next year or 2 maybe some of just your bigger picture thinking on the region and then I'll have a follow up after that.

Okay. Thanks, Michael So starting with North America. So yes to your point, we have the big negative tourists from the effects of a normal year, we have 30% to 40% of our business.

Across Calvin and Tommy drew.

Driven by tourism and a big part of that is temporary gone and we are over time, we will see that come back question is how soon it would come back then we have had 50% of Canada. Its worth mentioning as well that has had a negative effect, but underneath there we have a lot of work to do with the domestic.

Silver at North America, So were already leaning into this opportunity is so big important part was Trish the leadership Trish K Man Trish Donnelly asked our CEO for PVH North America on <unk>.

<unk> has high performance expire range from 6.7 years as the CEO of urban outfitters, winning with the young consumer winning with the product pricing power driving digital to best in class share. So.

On the under the surface of the negative tourists of effect and the counteract flow assurance, we see some important proof points. So we see the digital we were able to drive digital sales of 60% up.

We were able to drive product strength. So we were able to drive sales to the domestic concern with higher <unk>.

Pricing power increased gross margins less discounting, but this is.

This this is an opportunity that we will continue to lean in 2 of them. When it comes to the future years, we will come back to that.

The more clarity, we get from navigating through Covid.

Okay and then.

I guess you raised the operating margin guidance of the year 7.5% to 8% I think that takes about 800.850 basis points above 2020, and I think when we talked you said about half of that improvement will come from gross margin and half from SG&A on the basis points. There that puts gross margin of about 57%, so well above the $54.7 you had in <unk>.

19, but I think thats still points SG&A around $4.4 billion and that's that's maybe just a touch lower than where you were in 2019.

And I think the revenues of planned about 9% lower than 2019, so I want to I'd love to hear your thoughts on the sustainability of that just the cost the cost structure on the level is.

<unk> been very similar to 2019, you mentioned the focus on efficiency and managing cost tightly of few timeshare on the last few conference calls so how do you think about where.

Had a play on the SG&A going forward as that of sustainable budge.

Budget for where you see the revenues over the next few quarters and years.

So when it comes the I'll start and then hand, it over to Mike, but when it comes to the operating efficiencies will start with the recent mix shift.

On the operating efficiency so within each region, we are driving more efficient assist on what you see in the total.

What we already have done is we set out to save $250 million, where on a yearly annualized basis debt we have secured.

We have reinvested $100 million of that so we have of 100 of so far we have 150 million run run rate net yearly savings and we will continue to drive efficiencies and we will find.

<unk> to simplify how we do business, so with that I'll hand, it over to Mike If you want to give some more details.

I think you hit most of it's.

Stefan I think as we grow that into Nash if the international business continues to grow fast in North America business, the higher gross margin higher operating margin higher operating expenses higher operating margin business. So part of the part of what you're seeing is this mix shift.

If the tourism comes back I think youll start to see more of the shift back to North America, and the lower growth and lower operating lower operating expense margin. So it's part of this is significantly driven by the shift in the and where the business is being done.

And just to build on what what Mark.

Mike just said Michael.

We're going to continue to drive efficiencies year over year and reinvest make sure that we at the same time reinvest into growth areas.

Okay. Thanks, a lot of cash will help thank.

Thank you Michael.

And we can now take our next question from Jay sole of UBS. Please go ahead.

Great. Thank you so much in the Mike Let me add my congratulations as well on the great career at PVH.

I wanted to ask a little bit about Europe, because I think.

There's a question about was the strength in Europe, this quarter, driven by restocking or some sort of opportunistic opportunities based on maybe what you were able to deliver versus other companies or was it really about strong sell through.

Product and brand strength and can you tell us of about the order books and how they filled up for fall of 'twenty 1.

Yeah, So I'll start there.

Jay which of thank you so Europe had a re.

Really really strong quarter. So there was a 1 time effect from the timing of the wholesale shipments and Mike will be able to give you a little bit more details around that but when we look underneath that.

Very very strong performance. So the brand relevance that we are able to execute in Europe the product strength.

On the pricing power on the margin expansion and then how we have been able to.

For a long period of time now all of the consumer and how we win in the marketplace. So.

We see Europe strength continue.

And we see Europe opening up again.

After the lockdown from Covid, and we have full confidence in our team's ability to continue to build on the strengths. We already see so with that I'll hand, it over to Mike to describe a little bit more of the 1 time effect, but what excites me. The most of what I'm interested in is what's the long term strength of the.

The business and it's very very strong and when we break it down into the underlying value drivers of what drives profitable market share growth sustainable profitable market share growth.

Europe ticks all.

All of the boxes, there so very very strong performance from the team. Yes look it was it was of great quarter as Stefan said and we beat the top end of our guidance overall by $140 million.

Europe was a big piece of the beat coming into the quarter there were of Lockdowns the store closures.

And there was a lot of uncertainty on how stores would open we had goods planned for early shipment in may is about $40 million worth of product sales that we were pleasantly surprised there was demand and the customers asked for the goods in April so the good shift so.

And that was part of the.

<unk> for the quarter, so out of the 140 about $40 million of the beat was Europe wholesale sales and then for the balance of the year, we basically held to our previous guidance.

Really didn't reflect any changes on revenue and we flow through the other $100 million in revenue for the year.

In Europe and just yes go ahead, Mike just wanted to mentioned in the order books.

The order books for the fall holiday season of up double digits.

As of now frozen so we are really happy with the performance there and just shows continued strength in the beats across really all categories, we're seeing heat the strength in that business.

Just to build on.

Mike was just saying in building out on your question Jay when it comes to Europe performance on the sustainability, we see in the performance and we also see that the accelerated recovery of priorities that we set out of the company to drive when we hit the Covid are really driving the performance now and will.

Continue to drive the performance. So when we have focused in on our core strength Calvin and Tommy is over 90% of our revenues International which Europe is a big part of this over 60% of our business and we see strength in Europe strength in Asia, and then we focus in on product strength and we see.

<unk> growth gross margin rate improvements across the board and then we focused in on connecting even closer to where the consumer is going into the marketplace. In Europe is leading the <unk> you know from an e-commerce contribution, but the overall as a company. We're now of 25% ecommerce contribution and drove the hunger for almost 100%.

So that and then you layer on the efficiencies of $250 million savings. So that's where I keep my focus which is as the management team what we.

How we said we were going to drive the business is how we are driving the business and we see the strength continue and Thats why we take the euro.

Got it thank you so much.

Mike can now take our next question from Paul <unk> of Evercore. Please go ahead.

Good morning, Thanks for all the information, Mike Congratulations and best wishes.

I'd love to ask a broader question for your thoughts on the strong gross margin trends industry wide.

The lower promotions.

It's something we've been hearing consistently and what's your view on the sustainability of that element of the gross margin strength.

As the industry rebuild inventories do you expect the promos to return over time.

And I have a quick follow up thanks.

Yeah. So thanks Omar so.

The way we look at it.

A big part of <unk>.

How we are going to drive the P&L going forward as through the gross margin rate expansion on part of that is mix shift from doubling down on international all of them part of it is the result of how we drive product strength. So that we focus in on key growth categories hero products, we cut the.

So the cut the unproductive skus.

So we see that we are just in the beginning of that Jeremy so over the coming few years, we see that gross margin rates will be a very important component in how we deliver value. Yes normally I would just add on the on the <unk>.

Sector.

All the all plan.

Came out of the pandemic with inventories down not just us, but our customers of competitors I do think there was a significant amount of throughput.

Of clearance that wasn't in the sector.

Do think as time goes on we probably will see some increase in that level of clearance in our customers and how the business. Just operates normally day to day, but I hope that there was a lesson learned about levels of clearance and that we see some opportunities in the future to just have less clearance and higher.

Gross margins.

And that connects to just building on what Mike just said that connects to our focus on planning and buying of inventory closer to demand and that is a journey. We just started on but there is real value, creating potential end up.

Understood that's actually really helpful.

And then what are the what is the role and where are you on data analytics and the ability to use data analytics, not just with the engage with consumers directly but in things like inventory planning and merchandising.

Yes, so we are quite.

Far ahead, when it comes to having the tools and methodologies to use data to become more demand driven than if the.

Jeremy we are on this 2.

To adjust the way.

We create the assortment plan on the assortment by it allocated to really take full advantage of those state of capabilities. So I've been coming into to PVH have been positively surprised by the data capabilities that we have the work we have to do now is to apply that to how we plan.

And by the business.

Thanks Best.

Okay.

And we can now take our next question from Kimberly Greenberger of Morgan Stanley. Please go ahead.

Great. Thank you so much good morning, I wanted to just ask about.

How youre thinking about strategies to manage through the supply chain disruptions that you're seeing I think Mike you mentioned.

Higher use of air freight, but I would imagine.

You've got a sort of wide range of strategies that youre looking at to try to.

Ensure that you can deliver day in as timely a manner as possible. So I was wondering if you could just outline those for us and then secondarily.

Mike just a clarification on your international margin.

The discussion we understand its higher gross margin that comes with higher SG&A is the aggregate EBIT margin internationally higher.

As well thank you.

I'll do the clarification first of all yes, the international businesses typically run with higher growth.

The expense and operating margins being higher.

Thats been Thats typically how we operate.

On the supply side.

We are seeing uncertainty there are delays, but there's just some uncertainty surrounding the supply as well so as we look at some of the countries, where we do significant amounts of business India.

It's in Sri Lanka per underwear those countries around the Lockdowns in India is closed.

We're not allowed to.

The factories are not allowed to operate and in Sri Lanka were.

Partially opened in the factories are operating with capacities and the issue. So it really was.

Concerning to US is when these factories will come out of those lockdowns on how they will open on how fast.

Scheduling is that they will open in the first week of June So it's coming up quickly and we will have greater visibility in the next couple of weeks as the moving goods. It really isn't just air freight we have many different modes of of expedited freight. So we can use faster shifts believing in the out of airfreight.

Have found the airfreight constrained there were not of lot of slides, but we are looking on certain product categories in <unk>, particularly 1 where we can get goods and quicker and the cost is not great. The goods are smaller in scale in terms of size and we can put quite a few into a path of so.

Each order is looked at individually and we manage is by PEO.

Great. Thank you.

And to Mike's point that the.

The projections of how we are taking up the year the <unk>.

<unk> for the year of the project debt whats.

What's in that guidance is the current view, we have on the supply chain.

Situation than if it opens up sooner than what we expect then we have upside.

Sure Okay.

Let's take the last question.

We can now take our final question from Mike <unk>.

Wells Fargo. Please go ahead.

Hi, how are you this as well on for <unk>.

I just wanted to ask about it sounds like you're taking price across across the board across Tommy across Calvin what what inning do you guys think you're in.

What's sort of the average.

On <unk>.

This increase.

For the.

The products.

Well, it's hard to say, we'd share name because I see it sort of continuous.

<unk>, we have to the.

When we continuously drive brand relevance with the young crossover. We are also driving our ability to drive revenue with the increased pricing power and then how we do that.

If that we break it down into the different product categories on different hero products. So that's overall, we are early on the journey of driving pricing power and margin expansion and this is the job that we will continue.

Many years as part of our growth algorithm.

Got it that's helpful and just to dig in a little bit more on on on Mars question.

Honestly have the.

<unk> tailwind.

Right.

It's outside of expansion of <unk> can you just frame how we should think about gross margin going forward how much of.

Of these <unk>.

<unk> are transitory how much of structural as it is it half of it is it half of the 2 thirds can you just sort of frame out how we should think about gross margin and how sustainable this.

Sure the look.

The the guide on gross margins, a couple of hundred basis points up over the prior year.

I think somebody called it out earlier operating margins close to 7.5% to 8% so pretty much flat zero operating margins last year. So half of that is coming through as gross margin improvement.

From the zero to the 8% sort of 350 to 400 basis points kind of improvement so.

For the year.

As you think about it by quarter of the first quarter was a big part, but we're going to be up in every quarter as you work through quarters, 2.3 and 4.

So I think that debt puts in the box volume.

And just building on that is when we look at the gross margin of rate improvements that we plan for the remainder of the year and onwards. This the recent international piece, there is a product strength piece and the rest of planning and buying too.

The closer to demand pace.

Understood. Thank you.

Alright, so with that we thank you all for joining and we look forward to reconnecting in next quarter.

This concludes today's call. Thank you for your participation you may now disconnect.

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Good day and welcome to the PVH Corp, first quarter 2021 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Dana Perlman. Please go ahead ma'am. Thank you operator, good morning, everyone and welcome to the PVH Corp, first quarter 2021 earnings Conference call.

This webcast and conference call is being recorded on behalf of PVH and consist of copyrighted material.

Not be recorded rebroadcast or otherwise transmitted without pvh's written permission of practice.

Participation in the question on the local currency.

Constitutes your consent to having any day appear on any chance that a replay of this call.

The information to be discussed includes forward looking statements that reflect pvh's view as of June 2nd 2020 room of future events and financial performance.

These statements are subject to risks and uncertainties, indicating on the company's SEC filings and the Safe Harbor statement included in the press release that is the subject.

Sure.

These risks and uncertainties of PVH is right.

<unk> objective the expectation volume tension on it.

<unk> has significant cash flow to service debt obligations.

The mill frequently at the COVID-19 pandemic continues to have a significant impact on the company's business financial condition cash flow line results of operation.

The significant uncertainty about the duration and extent of the impact of the pandemic.

I think each of the second point of view like I said on this call could change materially in time.

For the operations of the company's business future results of operations could differ materially on historical practices and results of current.

Descriptions estimates and suggestions.

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

Generally the financial information on projections can you be just first of all day on a non-GAAP basis as defined under SEC rules reconciliations to GAAP amounts on credit and PVH first quarter 2020 earnings release, which can be found on www dot PVH satcom and on the company's current report on form 8-K furnished to the SEC.

In connection with the release.

At this time Im pleased to turn the conference over to Mr. Stefan Larsson CEO of PVH.

Good morning, and thank.

Thank you for joining with me on the call today are Mike Shaffer, our CEO and CFO and Dana Perlman, our EVP Chief strategy Officer and Treasurer.

I look forward to sharing the progress we are making in building our next growth chapter as we drive tourists on accelerated recovery post COVID-19 to win in the new normal.

Before I do that I would like to thank our entire PVH team for an incredible job in successfully navigating the company through the pandemic and delivering a very strong start of the year.

This quarter, we moved from navigating through the pandemic to increasingly coming into an accelerated recovery of space.

This has been driven by the disciplined execution of our key strategic focus areas.

Led by Calvin Klein, and Tommy Hilfiger, our international markets.

<unk> strength and winning in the marketplace supercharged by E Commerce.

We had a very strong first quarter, we over delivered our revenue gross margin rate and EPS versus our expectation.

And the most important part of the strong performance is the underlying drivers behind it which are important proof points for what we've set the hour to achieve through our strategic focus areas.

You will remember from our last call that our focus is to win with the consumer by driving brand relevance.

<unk> profitable market share and further strengthening our platform capabilities.

And over time doing that more efficiently.

We're also becoming even more demand and data driven enabling us to create value in a more systematic and repeatable way.

We believe that our increased and sustained focus on these aspects will drive long term revenue and margin growth for our shareholders driven by gross margin expansion and the SG&A leverage.

Having had the opportunity to see a number of our important markets reopen and having been out walking stores. The cap I'm optimistic by what I'm seeing while the consumer continues to lean into digital the consumer is also our shopping in stores and the.

As a general feeling of optimism and excitement.

We are seeing signs of the real shift in consumer sentiment, where the consumer is excited to come out of COVID-19 restrictions, reflecting of new hybrid and lifestyle.

<unk> of our revolving their cash flow and comfort focus to include more elements of self expression through bolder colors increasingly influenced by the nineties pop culture.

This combination of stay at home comfort with the joy of being able to socialize again is reflected as consumers mix and match cashless central categories like underwear lounge active and day wear and we see an increased interest in denim.

These consumer trends are positive for the fashion sector overall and for us in particular.

Looking ahead based upon our strong underlying performance, we are increasing our full year outlook.

We are confident in our ability to navigate the some certainties and continue to drive and accelerate the recovery.

Let me now turn to some of the key proof points on how our key strategic focus areas positively drove our performance in the first quarter.

Mike will then share of financial details.

First we continue to supercharge, our ecommerce channel with digital revenue growing approximately 95% in the quarter, including 6% to 6% growth in our owned and operated sites as we leverage our multichannel business model to meet the.

The consumer where they wanted to shop.

Next we continue to increase our focus on driving product relevance across all brands and regions across the board our focus on key growth categories hero products and cutting the unproductive assortment tail yielding strong results.

And we see increased pricing power and margin expansion in both Calvin and Tommy across our largest markets and channels.

Lastly, we continue to drive cost efficiencies across our businesses globally through the initiatives, we have underway and we will continue to efficiently manage our cost structure.

Turning to our regional update despite continued COVID-19 related challenges in the quarter, including closed stores. Our teams drove performance significantly above plan in both revenue and profitability across our businesses globally.

We delivered particularly strong results in our international business, which returned to pre pandemic revenue levels at a faster pace than expected.

Let me start with Asia, we remain pleased with our performance in the markets. Our performance was led by the strength in China and despite Covid research emphasis in important markets like Japan, Singapore and Korea, our revenues were relatively in line with pre pandemic levels.

Our Asia and China teams continue to accelerate performance through a number of focused and well executed initiatives.

We also continue to supercharge e-commerce by successfully capturing key consumer moments around the important holidays, we had positive responses for new seed some product launches, which are resonating both online and the in stores.

We are prepared and looking forward to several upcoming important selling periods. The next being for 6 to 18, which will be supported by strong product and channel execution.

Overall, we remain optimistic of the long term opportunity to grow our brands in Asia as we expand the awareness and continue to invest in the markets.

And wanted to be ready for the reopening of Europe the.

This led to the positive timing related impact of earlier than expected in the wholesale shipments during the first quarter versus our plans for the second quarter.

However.

The underlying business performance in Europe was very strong driven by our team's disciplined execution of our accelerated recalibrate priorities, including consistent and very strong product execution across both Tommy and Calvin combined with the market precedence.

That allowed us to very closely follow where the consumer wants to shop, which in this quarter meant supercharging, our digital channels through our connected inventory, enabling us to meet demand from all channels.

It is important to note that as markets have reopened the consumer has come back to our stores with better than expected traffic.

For both Tommy and Calvin.

<unk> to gain market share driven by strong consumer demand for our products, resulting in increased pricing power and margin expansion.

For Tommy we continued to see strength for both men's and women's sportswear across multiple product categories, including a strong and rising trend for denim.

For Calvin underwear, and cashless Essentials remain key performance drivers in addition to new denim silhouettes.

Footwear, our newest category, which was recently brought in house is seeing strong consumer acceptance across all markets.

The momentum in our future order book continues to be very strong with fall holiday 2021, now finalized and it's up double digits versus the prior year and pre pandemic levels.

<unk> in the coming quarters.

Turning to North America.

As I have mentioned previously the lack of tourism in North America, which pre pandemic accounted for 30% to 40% of our revenues in the market has negatively impacted our business.

We expect to see tourism come back gradually over time, although this is very much dependent on the pace of vaccinations in the rest of the world and the loosening of travel restrictions.

Lastly, during the quarter, we had 50% of our stores in Canada closed due to COVID-19 restrictions.

In the meantime, we are leveraging our learnings and leaning in to build more strengths with our domestic consumer from this focused work we already see a number of important initial proof points.

We grew digital over 60% we have growth on both our own and operated sites as well as sales to our key wholesale partners, including digital pure players.

In the stores, we saw increases in traffic with the domestic consumer although not enough to offset the lack of international tourism.

Importantly, though this improved domestic consumer performance came in the result of less discounting increased pricing power and strong margin improvement.

So even though the top line is still very challenged by the tourism effect the law.

Low the surface, we're seeing strong positive comps for important hero products that perform significantly above pre pandemic levels.

While we are pleased to see these early positive signs from our accelerated recovery of focus we recognize that we still have much work to do to unlock the regions full potential.

Even if it's still early days for Trish, who just joined US a few months ago in the role of CEO for PVH Americas on.

I am very encouraged by how she and her team are starting to drive product strengths with pricing power on margin expansion of.

As well as doubling down on e-commerce growth in both direct to consumer channels and through our wholesale partners and we see significant opportunity for the region.

Next I would like to share a few brief global brand highlights beginning with Calvin Klein.

Global brand health remains strong with consistently strong high level of awareness as well as the increased purchasing patents.

During the quarter Calvin launched its first global product collaboration with Heron Preston the.

Collection focuses on reinvent the essentials true to the Calvin Klein brand DNA and connect the 2 where our culture is today.

The response to date has been very positive and we have a number of encouraging learnings.

Mobile is the collaboration has attracted a new younger and very valuable consumer.

We have seen strong consumer demand across product categories, starting with underwear. However, the.

Fastest to sell out the product categories, where denim trucker jackets, hooded T shirts, which demonstrates Calvin Klein strength and potential as a true multi category of lifestyle brands.

Through this collaboration we have also seen higher AUR us on average order value than any time before in recent history.

We will continue to build out collaborations on campaigns to fuel brand heat and cultural relevance.

1 important campaign right now is selling price capsule, which cuts across social e-commerce and stores.

Moving on to Tommy Hilfiger, we continue to generate increases across all brand health kpis, including awareness.

Disability and consideration as well as strong search interest.

In Europe, Tommy drove strong sell through for our spring capsules, including our collaboration with popped up the Amsterdam based streetwear brands, which was very well received.

Additionally, the brands made another step towards circularity with the launch of our first limited edition Upcycle collection.

The remix collection is part of the Tommy for life of program and the pioneering circle of business model using pre loss of Tommy Hilfiger on Tommy jeans products and marks another milestone in our sustainability vision.

We also launched the third installment of Thomas drop shop, with an artist capsule co designed with London based creative Stevie G featuring limited edition Hoodies and taste.

And finally, turning to our heritage business.

We saw some improvements in our heritage brands this quarter the business continued to face challenges.

We remain on track to exit the remaining heritage brands retail stores. This summer.

<unk> and return to offices.

For the heritage brands, we are continuing to actively review additional ways to optimize the business.

In closing I feel very good about the strong performance, we drove in the quarter and I am confident in our ability to continue to execute on increasingly strong recovery as reflected in our increased full year guidance.

In addition, I'll feel particularly pleased with the discipline way, we achieved the growth in the quarter and how that positions us for sustainable profitable growth for many years to come.

I am proud of how our teams continue to lean in to what's within our control to drive and accelerate the recovery and position us as 1 of the winners in the new normal.

Every quarter, we are taking further steps to get the even closer to where the consumer is going and I look forward to continuing to share more with you about the progress along the way.

And before I hand, it over to Mike you will have seen that yesterday, we announced a couple of updates regarding our global leadership.

Cheryl able Hodges will be stepping down as chief Executive officer on the Calvin Klein moving to an advisory position on July 1st true.

Cash dominantly CEO of PVH Americas, who has had oversight of Calvin Klein will now take full global responsibility for the brands I.

I would like to extend my sincere.

Thanks to channel for the valuable impact chefs made during her 15 years with the company in many areas of our business.

And we also share of that after 30 years with PVH, Mike will be leaving to pursue other opportunities.

Mike will be with us through September. So we will have time to celebrate his many contributions to the company. So for today I would like to say Thank you Mike for your partnership and stewardship over the years and for helping US build a strong foundation and strong leaders and teams we have.

Today on which we will continue to bid.

So with 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 on our press release overall revenues for the first quarter were up 55% as reported and up 46% on the constant currency basis.

Compared to the prior year and exceeded our prior revenue guidance driven by growth across all regions and channels.

Revenue in the international business exceeded 2019 pre pandemic levels when.

When we think about the comparison of 2021 versus <unk>.

Of total direct to consumer business was up 66% versus the prior year, including the 66% increase in digital commerce across all regions and brands.

Our retail stores face continued pressure during the first quarter.

Although to a much lesser extent than in the previous year with the significant percentage of our stores temporarily closed in Europe, Canada and Japan.

All regions of brand businesses experienced strong digital growth due in parts of the continued store closures, particularly in Europe, Although we expect digital penetration to remain consistent for the rest of the year, we expect digital growth will not be as pronounced as stores reopen.

Looking at our segments, Tommy Hilfiger revenues were up 63% as reported and 52% on the constant currency basis with international of 78% as reported and 63% on the constant currency basis.

North America was up 25% Calvin Klein revenue was up 65% as reported and 56% on the constant currency basis with international up 91% as reported and 77% on the constant currency basis, North America was up 27% on.

Our heritage revenues were up 9%, which included the reduction of 14% of the doses, resulting from the sale of our speed on North America business in the April of 2020.

Gross margin was 59, 1% for the quarter as compared to 49, 5% in the prior year, which reflected improvements across all regions and brands to the less promotional selling of favorable shift in regional sales mix and the absence of significant inventory reserves that had been recorded in the prior year we.

<unk>, the tightly manage our inventory, which decreased 7% at the end of the quarter as compared to the prior year earnings per share was $1.92 on the non-GAAP basis for the first quarter of 2021 and was a dollar of 9 higher than the top end of our previous guidance. The beat included the impact of the.

9 due to the business outperformance across all regions and brands.

Notably our EBIT margin was very strong of 12% for the quarter.

The strength in international was due in part to Europe channel mix as a larger portion of revenue came from the wholesale channel, including sales to our brick and mortar on pure play digital customers, which carry very low expenses the higher proportion of Europe host wholesale was due to a significant percentage of our stores.

The temporarily closed and the unplanned timing shift of wholesale shipments into the first quarter from the second quarter.

<unk> of the occurrence of any on contemplated to that.

But the 2 return to pre pandemic levels within the year of.

Additionally, our outlook reflects an approximately $20 million of estimated operating losses associated with the wind down of the heritage brands retail business in the first half of the year.

For the full year, we are projecting revenue to grow approximately 24% to 26% as reported and approximately 21%, 23% on the constant currency basis compared to 2020.

We expect gross margin will continue to show improvements in 2021 compared to 2020 due to less promotional selling the we did not expect the significant of improvements for the remainder of the year as we experienced in the first quarter due in part to a less favorable shift in regional sales mix as growth in our international businesses.

Which generally carries higher gross margins was more pronounced in the first quarter relative to our lower margin businesses in North America.

We continue to manage our cost structure proactively, including reducing operating expenses and reallocating resources to support growth areas of the business.

We expect EBIT margin will continue to show improvement in 2021 compared to 2020, although we do not expect the significant of improvements for the remainder of the year as we experienced in the first quarter due to a less favorable shifts the regional sales mix. We also do not expect the unprecedented strength, we realized on our international businesses in the.

First quarter to continue at that level for the remainder of the year of stores have reopened on a wholesale business.

Comes a smaller proportion of the business.

As of today, we have already made repayments of 600 million. This includes $500 million of repayments made in the first quarter, an additional $100 million made after the quarter of.

For the full year in 2021, we are projecting non-GAAP earnings per share to be approximately $6.50.

Which is an increase compared to our previous guidance of approximately $6 on.

Our current projection reflects an increase from our previous guidance of approximately 69.

For the second quarter of revenue is projected to increase 34% to 36% as reported and 29% to 31% on the constant currency basis.

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

Thank you. Thank you wish to ask a question at this time, please signal by pressing star 1 on your telephone keypad. Please ensure the meat function on your telephone is switched off to allow your signal to each of our equipment.

The the star 1 to ask the question.

We can now take our first question from Erinn Murphy of Piper Sandler. Please go ahead.

Great. Thanks, Good morning, and Mike you will be greatly missed.

My question is for Stephane just on the overall acceleration in denim that you spoke to can you remind us what percent of the overall business of denim and how sustainable is the traction that youre seeing in the overall category.

Yes, so we see.

And good morning, So as I mentioned in my remarks that we see increasing demand consumer demand and dynamic for both Calvin and Tommy and what we see if the mix between.

We see the mix between the consumer continuing to shop cash flow the essential categories for the at home piece of their life and now when especially in the markets where the restrictions are open up from Covid, we see the consumer excited and increasingly going out.

So it's the mix we see this hybrid lifestyle and denim is an important part there. So we see the strength in cash.

Cash flow of the Essentials, and then we see that name that we see colors.

So overall as I mentioned.

The strength.

Thats being positive for the industry of shareholder for us.

Sure.

Great and then just a follow up for Mike could you share a little bit more about what youre seeing with input costs right. Now and then are there price increases the need to be contemplated to offset any potential pressure. Thanks. So much.

Yes look for 421, we're seeing low single digit kind of increases, but as we look to spring in the future. We're seeing mid single digit kind of increases so.

The supply chain is under pressure to some degree.

At this point, we're working through it and we're trying to understand what we can do on the product side to mitigate against those costs.

Also looking at what we can do on the on the country of origin side to see where we can go to mitigate those costs. So it's a work in process, but yes, if we don't see the.

If we cannot mitigate those costs, we will have to see some sort of increases as we move through into next year and beyond but for this year I think the impact to be relatively minimal.

Great. That's very helpful. Thank you.

Thank you.

And we can now take our next question from Michael Binetti of Credit Suisse. Please go ahead.

Hey, guys. Thanks for taking the questions and Mike I'll add my Mike Congrats and thanks, so much on on all of the help over the years.

We talked about this a bit last quarter, but.

I think that the.

Okay. Thanks, Michael So starting with North America. So yes to your point, we have the big negative tourists on the effects of a normal year, we have 30% to 40% of our business.

Across Calvin and Tommy drew.

Silver at North America, So were already leaning into this opportunity is so big important part was Trish the leadership Trish came and Trish Donnelly of asked our CEO for PVH North America on <unk>.

<unk> has high performance fixed fair range from $6.7 year of such the CEO of urban outfitters, winning with the young consumer winning with product pricing power driving digital to best in class share. So.

On the under the surface of the negative tourists of effect on the candidate flow share as we see some important proof points. So we see the digital we were able to drive digital sales of 60% to up.

We were able to drive product strengths. So we were able to drive sales to the domestic concern or with higher.

Pricing power increased gross margins less discounting, but this is.

This this is an opportunity that we will continue to lean in 2 of them. When it comes to the future years, we will come back to that.

The more clarity, we get from navigating through Covid.

Okay and then.

I guess you raised the operating margin guidance of the year 7.5% to 8% I think that takes about 800.850 basis points above 2020, and I think when we talked to you said about half of that improvement will come from gross margin and half from SG&A on the basis points. There that puts gross margin of about 57%, so well above the $54.7 you had in <unk>.

19, but I think thats still points SG&A around $4.4 billion and that's that's maybe just a touch lower than where you were in 2019.

And I think the revenues of planned about 9% lower than 2019, so I want to I'd love to hear your thoughts on the sustainability of that just the cost the cost structure on the level is.

<unk> been very similar to 2019, you mentioned the focus on efficiency and managing cost tightly a few times here on the last few conference calls so how do you think about.

How to play on the SG&A going forward as that of sustainable budge.

Budget for where you see the revenues over the next few quarters and years.

So when it comes the I'll start and then hand, it over to Mike, but when it comes to operating efficiencies will start with there is a mix shift.

On the operating efficiency so within each region, we are driving more efficient assist on what youll see in the total.

What we already have done this we set out to save $250 million, where on a yearly annualized basis debt.

We have secured and we have reinvested $100 million of that so we are of 100 of so far we have of $150 million run run rate net yearly savings and we will continue to drive efficiencies and we will find.

<unk> to simplify how we do business, so with that I'll hand, it over to Mike If you want to give some more details.

I think you hit most of the highlights Stefan I think as we grow that into Nash if the international business continues to grow fast in the North America business, Yes, the higher gross margin higher operating margin higher operating expenses higher operating margin business. So part of the part of what you're seeing is this mix shift if the.

Tourism comes back I think you'll start to see more of the shift back to North America, and the lower growth on a lower operating lower operating expense margin. So it's part of this is significantly driven by the shift in the and where the business is being done.

And just to build on what Mike Just said Michael is we're going to continue to drive efficiencies year over year and reinvest make sure that we at the same time reinvest into growth areas.

Okay. Thanks, a lot of cash will help.

Michael.

And we can now take our next question from Jay sole of UBS. Please go ahead.

Great. Thank you so much in the Mike Let me add my congratulations as well on a great career at PVH.

I wanted to ask a little bit about Europe, because I think.

There is a question about was the strength in Europe, this quarter, driven by restocking or some sort of opportunistic opportunities based on maybe what you were able to deliver because other companies or was it really about strong sell through.

The product and brand strength and can you tell us of about of that the order books and how they filled up for fall of 'twenty 1.

Yeah, So I'll start there.

Jay which of thank you.

Europe had a really really strong quarter. So there was a 1 time effect from the timing of the wholesale shipments and Mike will be able to give you a little bit more details around that.

When we look underneath that was the.

Very very strong performance so the.

The brand relevance that we are able to execute in Europe the product strength.

On the pricing power at the margin expansion and then how we have been able to.

For a long period of time now all of the consumer and how we win in the marketplace. So.

We see Europe strength continue.

And we see Europe opening up again.

And it's very very strong and when we break it down into the underlying value drivers of what drives profitable market share growth sustainable profitable market share growth.

Europe ticks all.

All of the boxes, there so very very strong performance from the tape. Yes look it was it was of great quarter as Stefan said and we'd beat the top end of our guidance overall by $140 million.

Europe was a big piece of the beat coming into the quarter there were lockdowns the store closures.

And that was part of the for the quarter. So out of the 140 about $40 million of the beat was Europe wholesale sales and then for the balance of the year.

We basically held to our previous guide.

Really didn't reflect any changes on revenue and we flowed through the other $100 million in revenue for the.

The year.

In Europe and just yes go ahead, just wanted to mentioned in the order books.

On the order books for the fall holiday season of up double digits.

As of in outflows and so we are really happy with the performance there and just shows continued strength in the beats across really all categories, we're seeing the strength in that business.

Just to build on.

What Mike was just saying in building out on your question Jay when it comes to Europe performance on the sustainability, we see in the performance and we also see that the accelerated recovery of priorities that we set out of the company to drive when we hit the Covid are really driving the performance now and will.

Our growth gross margin rate improvements across the board and then we focused in on connecting even closer to where the consumer is going into the marketplace. In Europe is leading the <unk> you know from an e-commerce contribution, but the overall as a company. We're now of 25% ecommerce contribution and drove the hunger of almost 100%.

So that and then you layer on the efficiencies of $250 million savings. So that's where I keep my focus which is as the management team that what.

How we said we were going to drive the business is how we are driving the business and and we see the strength continue and that's why we take the euro.

Got it thank you so much.

Hey, Mike can now take our next question from Omar Saad with Evercore. Please go ahead.

Good morning, Thanks for all the information, Mike Congratulations and best wishes.

I'd love to ask a broader question for your thoughts on the strong gross margin trends industry wide.

The lower promotions.

It's something we've been hearing consistently and what's your view on the sustainability of that element of the gross margin strength.

As the industry rebuild inventories do you expect the promos to return over time.

And I have a quick follow up thanks.

So thanks Omar so.

The way, we look at it as a.

Big part of <unk>.

How we are going to drive the P&L going forward as through the gross margin rate expansion on part of that mix shift from doubling down on the international all of them part of it is the result of how we drive product strength. So that we focus in on key growth categories hero products, we cut the.

The cost of unproductive skus.

So we see that we are just in the beginning of that journey. So over the coming few years, we see the gross margin rates will be a very important component in how we deliver value. Yes normally I would just add on the on the from the <unk>.

Sector.

All the all plan.

Came out of the pandemic with inventories down not just us, but our customers of competitors I do think there was a significant amount of throughput.

Clearance that wasn't in the sector.

Do think as time goes on we probably will see some increase in that level of clearance in our cash.

Customers and how the business just operates normally day to day, but I hope that there was a lesson learned about levels of clearance and that we see some opportunities in the future to just have less clearance and higher gross margins.

Understood that's actually really helpful.

And then what are the what is the role and where are you on data analytics and your ability to use data analytics, not just with the engage with consumers directly but in things like inventory planning and merchandising.

Yes, so we are quite.

Far ahead, when it comes to having the tools and methodologies to use data to become more demand driven than its debt.

Jeremy we are on this.

To adjust the way.

We create the assortment plan on the assortment by it allocated to really take full advantage of those state of capabilities. So I have been coming into PVH have been positively surprised by the data capabilities that we have the work we have to do now is to apply that to how we plan.

And by the business.

Thanks Beth.

Okay.

And we can now take our next question from Kimberly Greenberger of Morgan Stanley. Please go ahead.

Great. Thank you so much good morning, I wanted to just ask about.

How youre thinking about strategies to manage through the supply chain disruptions that you're seeing I think Mike you mentioned.

Your use of air freight, but I would imagine that you've got a sort of wide range of strategies that youre looking at to try to ensure that you couldnt deliver goods on a timely of manner as possible. So I was wondering if you could just outline those for us and then secondarily.

Mike just a clarification on your international margin.

On the discussion.

Understand it's higher gross margin that comes with higher SG&A is the aggregate EBIT margin internationally higher.

As well thank you.

The the clarification, firstly, yes, the international businesses typically run with higher growth.

Spence and operating margins being higher.

Thats been Thats typically how we operate.

On the supply side.

We are seeing uncertainty there are delays, but there's just some uncertainty surrounding the supply as well so as we look at some of the countries, where we do significant amounts of business India.

Our niche in Sri Lanka surround the where those countries around the Lockdowns India is closed.

We're not allowed to.

Our factories are not allowed to operate and in Sri Lanka were.

Partially open in the factories are operating but the capacities in the issue. So it really whats key.

Concerning to US is when these factories will come out of those lockdowns on how they will open on SaaS scheduling is that they will open in the first week of June So it's coming up quickly and we will have greater visibility in the next couple of weeks as the moving goods. It really isn't just air freight we have many different modes of of expedited.

So we can use faster shifts believing in the out of airfreight. We have found the air freight constrained there were not of lot of flights, but we are looking on certain product categories in <unk>, particularly 1 where we can get goods and quicker and the cost is not great. The goods are smaller in scale in terms of size and we can put quite a few into a path.

So.

Each each order is looked at individually and we manage the Po by Po.

Great. Thank you.

And to Mike's point the.

The projections of how we are taking up the year the.

<unk> for the year of the project debt.

What's in the guidance is the current view, we have on the supply chain.

Situation than if it opens up sooner than what we expect then we have upside.

Sure Okay.

Let's take the last question.

Mike will now take our final question from Mike <unk>.

Wells Fargo. Please go ahead.

Hi, how are you this as well on for <unk>.

I just wanted to ask about it sounds like youre, taking price across across the board across Tommy across Calvin what what inning do you guys think garen.

What's sort of the average.

The price increase.

For the products.

Well, it's hard to say, we are changing because I see it sort of continuous.

Our debt we have to the.

When we continuously drive brand relevance with the young consumer we are also driving out of our ability to drive revenue with the increased pricing power and then how we do that.

Is that we break it down into the different product categories on different hero products. So it's.

Overall, we are early on the journey of driving pricing power and margin expansion and this is the job that we will continue from that.

Many years as part of our growth algorithm.

Got it that's helpful and just to dig in a little bit more on on on Mars question.

We had the significant tailwind.

The it's outside of expansion of <unk> can you just frame how we should think about gross margin going forward how much of it.

Of these <unk>.

<unk>.

Transitory how much of a structural as it is it half of it is it half of the 2 thirds can you just sort of frame out how we should think about gross margin and how sustainable this.

Sure the look I think the.

On the guide on gross margins, a couple of hundred basis points up over the prior year.

I think somebody called it out earlier operating margins close to 7.5% to 8% so pretty much flat zero operating margins last year. So half of that is coming through as gross margin improvement.

From the zero to the 8% sort of 350 to 400 basis points kind of improvement so.

For the year.

As you think about it by quarter. The first quarter was a big part, but we are going to be up in every quarter as you work through quarters, 2.3 and 4.

So I think that debt puts in the box volume.

And just building on that is when we look at the gross margin on rate improvements that we plan for the remainder of the year and onwards as the recent international piece. There is a product strengths piece and the rest of planning and buying too.

On to closer to demand the pace.

Understood.

Yes.

Alright, so with that we thank you all for joining and we look forward to reconnecting the next quarter.

This concludes today's call. Thank you for your participation you may now disconnect.

Q1 2021 PVH Corp Earnings Call

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