Q3 2021 PVH Corp Earnings Call

[music].

Good day and welcome to the P V H Q treat 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, third quarter 2021 earnings conference call.

The call today will be Stefan Larsson, PTH, as Chief Executive Officer, and Jim homes, EVP interim Chief Financial Officer, and corporate controller.

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's 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.

The information to be discussed includes forward looking statements that reflect pvh's view as of December 1st 2021 are future events and financial performance. These statements are subject to risks and uncertainties indicated in the company's SEC filings and the Safe Harbor statement included in the press release that is the subject of this call.

Risks and uncertainties include Pvh's right to change its strategies objectives expectations and intentions and its need to use significant cash flow to service its debt obligations significantly at this time. The COVID-19 pandemic continues to have a significant impact on the company's business financial condition cash flow and results of <unk>.

<unk> there is significant uncertainty about the duration and extent of the impact of the pandemic. The dynamic nature of these circumstances means what is said on this call could change materially at any time and therefore, the operation of the company's business and future results of operations could differ materially from historical practices and results.

Current descriptions estimates and suggestions.

PVH does not undertake any obligation to update publicly any forward looking statements, including without limitation any estimates or suggestions regarding revenue or earnings generally the financial information and projections to be discussed will be on a non-GAAP basis as defined under SEC rules reconciliations to GAAP amounts are included in <unk>.

<unk> third quarter 2021 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'm pleased to turn the conference over to Stefan Larsson.

Thank you Dana good morning, everyone and thank you for joining our call today.

For the third quarter, we delivered another strong quarter of high quality growth driven by the disciplined execution of our accelerated recalibrate priorities across both Calvin Klein and Tommy Hilfiger, driving brand and product strength with increased pricing power.

Supercharging e-commerce to win in the digital marketplace, where we are on track for 25% digital penetration of our total business for the full year double pre pandemic levels, all while increasing our discipline and driving cost efficiencies and investing in growth.

All of this has resulted in much better than expected EBIT margins, and EPS, which significantly exceeded our guidance with EBIT margins for the quarter above pre pandemic levels and our gross margin rates up 300 basis points versus 2019.

Our international businesses continued to execute very well across brands with increased product strength and strong consumer engagement, both online and in stores. This resulted in strong sales growth significantly increased pricing power and margin expansion compared to.

Both last year and to pre pandemic levels.

In North America, despite worsening logistics disruptions, including U S port delays towards the very end of the quarter, which shifted revenues from the third to the fourth quarter. The region is still on track to deliver against our full year plants.

Without this shift in revenues to Q4, we would have exceeded our overall revenue guidance for the quarter.

Looking ahead at the full year. Despite the Covid related disruptions. We are all currently navigating based on the strength of our underlying performance trends and most recently through early positive reads of the start of our holiday season, we are affirming the upper end of our <unk>.

The new guidance and are increasing our earnings guidance for the full year, we are raising our EBIT margin guidance to nearly 10%, which is above 2019 and pre pandemic levels.

Our guidance is based on the knowledge, we have of the Covid situation today, and how we have successfully navigated through previous COVID-19 resurgence as yet we are carefully monitoring developments around the new Covid variant.

The impact of the consumer.

Let me now turn to our regional update starting with Europe, Our Europe team delivered another very strong quarter with continued market share gains both Tommy and Calvin generated strong double digit revenue growth compare to pre pandemic levels with gross margin expansion.

And above 2019 levels, driven by strong full price sell throughs, which combined with ongoing cost efficiencies drove significantly higher operating margins well above pre pandemic levels.

The region strong results highlight how we are successfully meeting the consumer through a digitally led omnichannel approach and continuously elevating the brand positioning through having the best hero products in the market for both Tommy and Calvin.

Continued demand for our brands and products drove higher conversion and sell throughs with strong sales in both our owned and operated channels as well as our wholesale channels.

We generated digital sales growth of 23%, which included double digit growth for both our owned and operated channels and third party partners, especially with digital pure players our investments in building direct digital consumer connections through our own digital business.

Senior to drive engagement and fuel high quality growth.

Our brick and mortar retail business significantly outperformed our plan and impressively delivered double digit growth above pre pandemic levels.

Demand in our core replenishment business remains strong on top of future order books for spring 2022 across brands, which just a reminder are up double digits.

I visited over 40 stores across four countries in Europe, this past quarter and it was incredibly exciting to see the key drivers behind the regions performance and to meet and learned from the teams that are directly driving these strong results. The way we focus on the consumer drive.

Brand elevation products strength pricing power and winning across the marketplace led by digital all serve as a blueprint for the type of top tier execution and financial performance that we will over time be able to deliver for Calvin and Tommy across all our regions.

While we are closely monitoring the recent COVID-19 resurgence in multiple markets in Europe. Our business. There has demonstrated a strong resilience during previous Covid research businesses with our ability to pivot to where the consumer is going faster than most of our competitors by leveraging our connected.

Retail capabilities.

Moving on to Asia.

I remain excited about the progress and the underlying performance in the region results were led by China, which outperformed our plan while the revenues for the region overall were in line with pre pandemic levels and trends were consistent with the prior quarter.

This is despite facing additional COVID-19 resurgence is across markets, which was particularly pronounced in Australia for a significant portion of the quarter over half of our stores in Australia were closed and we are now pleased that strong consumer demand has returned us to markets has been.

<unk> to open up again.

In Asia, we continue to invest in driving growth and building awareness for all brands focusing on key consumer moments strengthening product storytelling for key categories and hero products and enhancing the consumer experience in our stores.

With our focus on driving brand and product relevance, our regional and local marketing campaigns are resonating with consumers as we saw strong performance of our fall and winter collections and we continue to build brand heat and strong engagement, particularly around key holidays for AXT.

Sample, China, 11, 11, Singles' day outperformed our plan with double digit sales increases for both Tommy and Calvin with strong full price selling which follows a nice improvement of traffic in the market.

We also continue to further enhance the consumer experience.

<unk> online as well as offline through new concepts ahead of singles day, we hosted a CK jeans house of denim pop up in Shanghai. This event showcased brand storytelling and featured interactive consumer engagement activities driving significant social media exposure with over.

300 million impressions.

Online our interactive experiences from Tmall and live streaming events are achieving high viewership and engagement and we're excited about the upcoming special product capsules and $3 six did digital activations in honor of the Chinese lunar new year.

In addition inventory levels continue to be very lean as we are buying inventory closer to demand.

Turning to North America.

The region continued to face pressure from the lack of tourism, which pre pandemic accounted for 30% to 40% of our total revenues in the market.

In addition towards the end of the quarter as I mentioned earlier, we experienced worsening U S port delays in October which pushed some of our revenues from Q3 to Q4.

Inventory receipt delays have also impact that our retail business in this region, especially for Tommy Hilfiger, which has a higher penetration of seasonal product offerings.

However, there are some early green shoots and we sold borders start to reopen in the quarter I had the opportunity to visit 30 stores in five regional markets in North America, and I remain very encouraged about the multi year opportunity to unlock a.

<unk> increasingly profitable business for both brands.

Given the lack of tourism due to Covid. Our teams are leaning into our accelerated recovery priorities with a much increased focus on the domestic consumer, particularly with the Gen Z and millennials and driving tourists and increased product strengths with pricing power and Super.

Charging ecommerce, while winning in the whole marketplace in a balanced and sustainable way.

Some proof points of our progress. This quarter include we continue to drive less discounting and higher AUR is S. Domestic consumer responded well to newness in our fall product, especially in our focus categories and iconic hero products such as knits sleeve.

Denim underwear.

For example ahead of the holiday season, Calvin parted with Amazon fashion, Amis alive, and Amazon music to deliver a shopper Bowl livestream holidays special with platinum selling hits wrappers, Sweden there.

The event drove the highest traffic day on the CK brand store on Amazon fashion outside of Prime day.

Overall, unless we have shared before we know we have the most work to do in the North America region to unlock the multiyear opportunity ahead. This is something we are leaning into with full force and we will keep you updated along the way.

Next I'll share a few brief global brand highlights beginning with Calvin Klein Global brand health remains strong with a recent increase in purchase intent along with continued strong global awareness.

This past quarter was great globally for hero products in our key focus categories with double digit growth in sales and much higher AUR us.

Our global fall campaign, the language he'll Calvin Klein resonated very well with our consumers featuring regionally relevant ambassadors, including journey, Kim Samsung I address and kayak Garber and focus on hero products in support of key seasonal categories like underwear and jeans.

<unk>.

We also continue to connect our iconic Calvin Klein, Brian two people, who shaped culture by launching the second chapter of the brand's collaboration with designer Heron Preston. The response has been very positive and as we saw with the first drop many styles sold out very quickly.

Celebrities and Influencers, including Squid game Star wholly owned Zhang continue to wear and organically post our products. The collection continues to deliver higher AUR is higher sell throughs high conversion and highlighting the strength and relevance of our collaborations.

<unk> when we connect our brand to culture and the younger consumer.

We're looking forward to the upcoming holiday season, and we have a strong social media based campaign planned for this key selling period.

Moving on to Tommy Hilfiger.

Consumer connection brand awareness and brand relevance remains strong with a unique DNA of Tommy as our COO.

Key growth engine for our business globally.

<unk> responded very positively to our seasonal collections for menswear the expansion of hero product programs, such as the 1985 menswear Essentials collection continued to drive strong results.

Our recent collaboration with Timberland has been very well received this unique iconic collaboration drove brand heat and exceeded expectations in traffic and sell through with an authentic focus on sustainability and inclusivity.

In Europe, we saw strong double digit increases in traffic inactivate the stores and on <unk> Dot com and we achieved 100% sell through within two weeks.

Elaboration is subtracting new audiences with 40% of site visits being made by new users and we experienced a significant increase in average spend.

In North America. The capsule is gaining momentum over 200 million consumer impressions were generated across media in two weeks and significant bus was generated at complex call through a dedicated brand activation during the bad.

Lastly, the brand recently kicked off this world of Hilfiger holiday campaign, which when it comes to the holiday spirit embracing traditions fresh beginnings and Nebraska, New York City routes.

In closing as I have shared previously when the pandemic hit we first set out to successfully navigate through the initial phase of the Covid crisis, which we did and to do that in a way that sets us up to drive an accelerated recovery, which we are now driving.

All while positioning us to win in the new normal coming out of it.

We look forward to sharing more of how we will win in the new normal when we present, our multiyear growth plan at our upcoming Investor day in mid April.

It will be the first investor day for PVH in over 10 years and it will be an important moment for us to take you through our strategy and long term performance targets as we look ahead to tapping into more of our full potential.

Focusing in on our core strength.

<unk> them closer to where the consumer is going than any time before all with the goal to win with the consumer drive long term profitable growth, while driving fashion forward for good.

On the Investor Day, I look forward to introducing Utah regional and brand leaders, who are key drivers on this journey.

Before I turn the call over to Jim I would like to thank all our associates around the world for your hard work and critical contributions this year and I wish everyone, a happy healthy and safe holiday season, and with that I would like to hand, the call over to Jim.

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 third quarter were up 10% compared to the prior year, but below our previous guidance due to worsening logistics disruptions in October including significant U S port delays, which resulted in a 4% negative impact from an unplanned shift and the timing of U S wholesale shipments.

From the third quarter into the fourth quarter.

Absent this shift our revenues for the third quarter would have exceeded our guidance.

Third quarter revenue also reflects a 4% reduction from the sale of the heritage brands business.

Which closed on the first day of the third quarter and also the exit from the heritage brands retail business that was substantially completed in the second quarter of 2021.

Our retail stores face continued pressure during the third quarter with the majority of stores temporarily closed in Australia for most of this year's quarter owned and operated digital Commerce increased 21% and our overall revenue through our digital channels grew approximately 15% on top of exceptionally strong growth.

In the prior year.

The impact of foreign currency translation on our revenues was immaterial for the quarter.

Looking at our segments, Tommy Hilfiger revenues were up 12% with international up 11% and North America up 13% versus third quarter of 2020, Calvin Klein revenue was up 22% with international up 19% and North America up 27%.

Our heritage revenues were down 36%, which included a 40% decline from the heritage brands transaction and the exit from the heritage brands retail business.

Gross margin was very strong at 57, 7% for the quarter as compared to 52% in the prior year and an increase of over 300 basis points compared to 2019 pre pandemic levels, which drove operating margin expansion.

The improvement was primarily due to increased full price sales and a favorable shift in regional sales mix, which more than offset higher freight costs, including an increase in airfreight.

Inventory was down 7% at the end of the quarter compared to the prior year, primarily due to the heritage brands sale and the exit from the heritage brands retail business. However, within our total inventory on hand levels were down mid teens versus last year, while our in transit inventory levels increased over <unk>.

50% due to extended lead times from supply chain, and logistics disruptions, including U S port delays, which drove the shift in timing of U S. Wholesale shipments from the third to fourth quarter that I mentioned earlier.

Despite the unplanned shift of timing of the U S wholesale shipments, we significantly exceeded our earnings guidance for the third quarter.

Notably the shifted shipments were lower margin seasonal goods that we did not use air freight to transport it.

Earnings per share was $2 67 comp.

Compared to $1 32 in the prior year period.

Beating the top end of our previous guidance by <unk> 67.

The beat was primarily due to business outperformance for approximately 50.

Driven by gross margin and expense improvements.

Also included in the B is an approximately 17% favorable impact from taxes due to our mix of earnings.

Notably our EBIT margin continued to be very strong at 11, 4% for the quarter.

<unk> 2019, pre pandemic levels, driven by continued strength in our international business.

Additionally, we made over $100 million of voluntary term loan payments in the third quarter, bringing voluntary payments to over $800 million for the first nine months of 2021.

We repurchased approximately $149 million of common stock and reinstated our cash dividend.

Moving on to our outlook, we are providing our 2021 outlook. Despite the continued significant uncertainty due to the pandemic, including the omicron variant and related supply chain and logistics disruptions globally.

We continue to be encouraged by our international businesses, which are expected to continue to exceed pre pandemic levels in the fourth quarter. We expect North America to continue to face the ongoing challenge of reduced international tourism, which was the source of approximately 30% to 40% of prepay endemic revenue for the region.

Higher for Tommy Hilfiger, then for Calvin Klein.

We are not planning for international tourism to return to any significant levels in the fourth quarter.

In addition, North America has been and continues to be the region, most challenged by supply chain disruptions, including higher airfreight costs and lower than optimal inventory levels on hand in stores.

For the full year, we are reaffirming the top end of our revenue guidance range and are projecting revenue to grow approximately 27% to 28% as reported and approximately 25% to 26% on a constant currency basis compared to 2020.

We expect gross margin will continue to show significant improvement for the remainder of the year due to more full price selling and a favorable shift in regional sales mix compared to the prior year with our higher margin international businesses, making up a larger portion of total revenue.

We expect our fourth quarter gross margin rate will be relatively in line with the prior two quarters.

We now expect our full year EBIT margin will exceed our 2019 pre pandemic level and will reach nearly 10%.

However, our EBIT margin in the fourth quarter. It is expected to be below 2019 levels and also through the first nine months of 2021 as the fourth quarter is more heavily impacted by incremental air freight as well as planned increases in marketing and other investments.

We expect our interest expense to decrease in 2021 to approximately $105 million compared to $116 million in 2020.

Our tax rate for the year is estimated at 16% to 17%.

For the full year in 2021, we are projecting non-GAAP earnings per share to be approximately $9 25.

Which is an increase compared to our previous guidance of $8 50, and compares to a loss per share of $1 97 in 2020.

The increase versus previous guidance was primarily due to better than anticipated gross margin expansion and operating expense efficiencies worth approximately 60, along with an improvement in taxes of approximately 15.

For the fourth quarter, our revenue is projected to increase 11% to 14% as reported and 16% to 19% on a constant currency basis compared to the prior year.

Compared to our fourth quarter previously implied revenue guidance. This reflects the positive impact of the shift of U S. Wholesale shipments from the third quarter into the fourth quarter and a 2% negative impact of foreign currency translation, primarily due to the recent strengthening of the U S dollar compared to the euro.

The underlying business performance has not changed compared to our previously implied guidance.

Fourth quarter non-GAAP earnings per share is expected to be approximately $1 94 compared to a loss per share of <unk> 38 in the prior year period, our fourth quarter guidance reflects an incremental 10.

As expected airfreight costs versus our prior expectations and with that operator, we would like to open it up to questions.

Thank you, ladies and gentlemen, if you would like to ask a question. Please signal by pressing star followed by one.

The star one if you wish to queue for a question.

Take our first question from Bob Triple of Guggenheim. Please go ahead, Sir your line is open.

Hi, good morning.

Two questions from me if I could the first one is.

I don't know if this is for Jim or Stephane, but can you talk a little bit about you mentioned price increases really.

Really what you've seen so far.

From a consumer receptivity are your wholesale partners on either prices that you have taken higher at this point or plans that you have sort of in the.

In the coming months and quarters.

Yes, so good morning, Bob.

We definitely are moving into an inflationary.

Period end.

Coming back to our accelerated recovery of priorities, where we have leaned into this since the beginning of the pandemic on brand relevance product strength, and we really see the results of that coming through in pricing power. So we see increased AUR as we see increased gross margin rate. So.

Looking forward, Jim can give you a little bit more of the details. So what we expect in terms of AUC increases, but we are confident from.

Products strength perspective that we will continue to drive AUR increases.

Then overall looking at the inflationary environment, we are moving into.

We are looking at both pricing power.

Sourcing mitigation and.

And we're looking at cost efficiencies overall, so Jim.

Yeah, Bob just to add to what Stephane alluded to you know as.

As we head into spring 2022, some of the cost increases we're starting to see is about mid single digits, but we do see great strength in our products. So we'll be looking to mitigate that Joe difference supply chain initiatives, but also through increasing pricing, particularly in key categories, where we see a lot of strength in the business.

Great. Thank you and I guess the other question I have is can you talk a little bit about denim trends that you're seeing within the brands and how you feel your position in some of the denim cycle commentary that we see out there.

Yes, definitely so we see denim, so we see denim and trending up.

In the markets with the consumer we are excited by that because we have strength in denim in both Tommy and Calvin seem the DNA of the brand. It's one of those power categories that we are leaning into so it's an exciting consumer trend that we are leaning into and you will see that increase.

I think that going forward.

Thank you very much.

Thanks, Paul.

We will now move onto our next question from Michael Binetti of Credit Suisse. Please go ahead. Your line is open.

Hey, good morning, guys. Thanks for all the detail here and thanks for taking our questions.

Just a quick one on the on the near term I think we had before coming into today, we had a fourth quarter implied guidance.

You had talked about stepping up marketing in the back half. So we knew about that but then you know excluding the wholesale shifts in the FX changes it looks like the underlying sales for fourth quarter pretty much where you thought they'd be but the SG&A. It looks like it's stepped up a little bit more for fourth quarter, maybe help us think about.

If that's right it might have stepped up and then Stefan as we as we spoke through this year, we talked a little bit about how much opportunity you see to realign work streams and accelerate product lead times are different brands.

As the as the shift moved away from just navigating COVID-19 here globally, maybe you could just help us think about the size of the opportunity you see there where the companies add on some of those processes and what are the biggest.

The initiatives that you think we'll see as we talk over the next year or so.

You will start working on it as far as like the biggest opportunity for the financials as you start to kind of put some of those changes into play.

Yes, Michael I'll start I'll take your Q4 question and then turn it over to Stephane really in Q4 could you just start with the revenues. The first thing. We did is we narrowed the revenue guidance and really we increased at the bottom end of the range and we reaffirmed at the top in Q.

Q4 with revenues of the business.

Underlying business is pretty much held or and we were able to cover some weakening of the euro.

The euro did weaken against the U S dollar, particularly we saw that in the last month as far as when you get below revenue really the main changes we had current additional 10 10.

$10 million.10 of airfreight costs in Q4, but really everything underlying we're still we're still generating very strong gross margins just like in Q3 continue to gain access expense efficiencies the marketing that I alluded to was always planned to always be very heavily.

Weighted to the second half of the year, particularly to Q4, we really wanted to connect does that spending to some of the consumer moments that we have particularly black Friday and singles day.

Yes, Thanks, Jim and when it might go when it comes to your product question.

There are multiple.

Multiple components that would drive coming back to our accelerated recovery of priorities, which will lead into our long term strategy, which is about focusing in on the key categories, where we have the right to play to win with the consumer within that then develop an increased focus on hero products. The most essential.

Products in their consumers wardrobe.

Single product has to have an intent than cutting the assortment tail. So we have done a good first job on that we will looking ahead coming back to your question.

We see opportunities to continue to.

Cut the unproductive assortment tail and then there is a big value unlock over time climbing and buyer closer to that amount.

Okay. Thanks, I appreciate it guys.

We will now move on to our next question from Erinn Murphy of Piper Sandler. Please go ahead. Your line is open.

Great. Thank you. Good morning. My first question is for Stefan I would love if you could share a little bit more about your outlook for China, and then specifically what's the current dynamic on the ground there between global versus National brand.

Yes, good morning, Erin and thanks for your question when it comes to Asia, We had.

Another strong quarter in Asia, we see it more than what you see because of the Covid risk sorry, Joseph we keep going in and out of different countries in Asia. When it comes to China. This quarter, we outperformed our plan.

It's very much driven by leaning into our Calvin and Tommy and connecting them even closer to the consumer.

Digital.

Key part there so when we look at 11 11.

Example.

Single stay that's no way beyond the day, we performed really really strongly and then.

So digital is an important component leaning into the different consumer moments like the 11 11, and then it's the product focus on making sure that we play in to the right big categories that matters. The most and then we see that the.

The hero products that we have been developing over the last year, it's really resonating in China with the Chinese consumer and leading to a higher sell throughs and higher AUR.

That's great to hear and then maybe just one for Jim and following up on <unk> question. If you were to see upside in the fourth quarter relative to your plan with that kind of more from sales or the margin front. Thank you so much.

Yes.

We see great strength right now in the gross margins we had we started.

Fourth quarter pretty strong we're very pleased with our performance in singles day, and Black Friday on the topline, but our inventories are leaner than we would ultimately like so we're seeing really continued strength in AUR is that pricing power that we're seeing flow through in gross margin. So I think the opportunity is even more so in <unk>.

Gross margin than they had been in the past.

Great. Thank you so much and happy holidays to you all.

You too thank you.

We will now move on to our next question from Jay sole of UBS. Please go ahead. Your line is open.

Great. Thank you so much I guess I just wanted to follow up on the gross margin.

Is it within the guidance I mean do you have a sense of what how you feel like the gross margin should land in port you and within that with the changes in the heritage business. In Q3 can you just talk about what impact that had on.

On gross margin and SG&A. Thank you.

Yes, so Jay just in my notes I alluded to our gross margin percent in Q2 was 57, 7% our gross margin in Q3 was 57, 7%.

We're right now anticipating Q4 to be about the same so really about three quarters of that sustainable pretty pretty high gross margins. So we feel feel pretty good about that.

You don't really talk about heritage.

Yes. It has helped the gross margin somewhat.

Smaller the hardest business was a much smaller base. So it is not moving at PVH needle that much but it is a slight improvement, but also just maybe some of the offsets to that that improvement in Q3, and particularly in Q4 as the airfreight costs. So we called out about $45 million of additional air freight costs.

Which is all hitting in the second half so.

Able to cover that as well, which would be more impactful than any benefit.

That we would get from heritage and what's exciting Jay what's what's exciting from this is Stefan from my perspective from a straw.

Strategy perspective is that when we lean aimed to calvin and Tommy and into product strength and hero products. We see that we are able to drive higher AUR and that's that's a sustainable path and that drives the sustainable path towards increased gross margin rates. So that's very exciting from my standpoint.

Got it thank you for that and if I can ask one more the company paying.

Paying down some debt buying back some stock and what's the plan for the balance sheet going forward because the long term debt levels are back down to it.

Pre pandemic levels and Theres still a lot of cash on the balance sheet.

What's the what's the outlook for that.

Yes, Jay.

Really pleased with our liquidity position and the strength of our balance sheet.

First and foremost we're going to use our cash to invest in ourselves that's always going to be our priority.

Absent that.

Debt paydown, so far more than the debt we took out during the pandemic. So now we're able to also we want to continue to pay down debt, but also.

We reinstated our share repurchases so were pulling out about we will have about $350 million of share repurchases for the year. We've also reinstated a cash dividend. So we feel really really good about the strength of our balance sheet and how we're really turning inventory reason and using our working capital and turning it into cash.

Okay.

Got it thank you so much.

We will now move onto our next question from Brooke Roach of Goldman Sachs. Please go ahead. Your line is open.

Great. Thank you and good morning.

Well, maybe just seemed particularly strong profitability in both brands internationally.

Wondering if you could perhaps talk to the drivers of the increases that you've seen this year and your outlook for those margins in a perhaps somewhat more inflationary environment, where demand and supply are in better alignment going forward.

Yes.

Thanks Brook, absolutely in this quarter.

I spend a lot of time on the road.

I so over 40 stores in four different countries in Europe as I mentioned in my remark.

And what's so exciting there is to see the consumer focus the brand focus continuously elevating the brand position.

Driving a very strong product execution, and AUR coming out of that and then having.

Our multichannel omnichannel approach to winning with the consumer so when we see European markets resurgence in Covid.

We see that we have been better than most in the market to pivot to where the consumer then how the consumer apps because the consumer is resilient and the consumer is strong so even though we have a fall.

Wave now we see that.

In countries, where we have COVID-19 restrictions coming in we start to see a pattern from having navigated successfully through a number of ways. So we see brick and mortar foot traffic slightly come down, but we see conversion go up in brake and water and then we see the consumer immediately pivot to digital because when I look at that.

<unk> over in Europe, and overall is that the consumer is starting to get.

Back to life.

We knew it so we are a year and a half almost two years into COVID-19 and so we see the consumer continues to shop and in Europe. We are very good at meeting the consumer where the consumer shops. So.

Those are some of the key drivers we see and those are also the key drivers for our accelerated recovery priorities across the regions.

Thank you and it sounds like there's a lot of momentum and confidence in the gross margin and AUR, we mentioned that the brands driven by a hero product strategy, perhaps I can take it a little bit to the SG&A cost structure. As you look forward can you talk to the puts and takes the best as you look ahead, where do you see the most leverage on your cost.

And where are the opportunities to optimize our expense structure.

As you continue to roll out the strategy.

Yes, roughly.

<unk>.

Cost efficiencies and fighting continued cost efficiencies as it is one of the key priorities on our accelerated <unk>.

Covering priorities that Stefan had alluded to really we see opportunities everywhere.

<unk>.

As our international revenues really are sort of we're seeing outsized growth we may start to see some.

Real leverage there.

To go along with those revenues, but the expense actually efficiencies and be optimal and really play our investments too.

The growth vehicles.

So really across the board across both brands and across all regions.

And it's to build on what Jim said broke it's about the way we drive cost efficiencies as we start with what it takes to win with the consumer and the consumer has moved over the last few years. So we could we need to make sure that we invest and where the consumer is going and driving our XL.

The rate of recovery of priorities and then we have to divest to invest so we are increasingly going to lean into cost efficiencies to make sure that we invest enough in where the consumer is going and that we free up cost efficiencies to do that and that we flow through some of that to the bottom line.

Thank you so much I'll pass it on.

Well now move on to our next question from Kimberly Greenberger of Morgan Stanley. Please go ahead. Your line is open.

Great. Thank you so much good morning.

Stefan I wanted to ask you about the ways in which you're changing how you work with your wholesale accounts.

To improve the full price sell through of Calvin and Tommy.

And can you just remind us how youre augmenting your wholesale strategy, both domestically and internationally.

To help your profit improvement initiatives. Thanks, so much.

Yes. Thank you Kimberly definitely so it starts with the assortment strength and he starts too.

Inviting our wholesale part of the journey for Calvin and Tommy and say.

Here are the key kind of degree of secure the hero products and curious how we bring those to life and the experience and E. Commerce is an increasingly important component that we bring.

<unk> to life through our wholesale partners increasingly well in E Commerce, and then we do it as well.

Welding break in water and that we just like we look through continuously to cut the unproductive assortments tailored. We also look at the productivity the door productivity with wholesale partners, but overall, it's a partnership that builds on.

Our core strength and focus areas around assortment of product and pricing power and then.

It's tapping into their strengths and.

We have deep experience of doing this over time.

It's just great to see in the digital opportunity for US is big in terms of owned and operated and it's equally big when it comes to.

Wholesale E commercial opportunity.

Okay, great. Thanks, so much and just one follow up on the gross margin if I could.

Could you just quantify for us Jim the amount of total airfreight in basis points or dollars in gross margin here in the third quarter and I know that the fourth quarter is coming in at 10 cents.

More freight impact, but if you could just give us that total air freight impact also either in basis points or dollars for the fourth quarter. That's embedded in your plan that would be helpful.

Yeah, Kimberly we were call it out and so in total this year and really all in the second half an additional $45 million of airfreight and how you think about it by quarter, it's pretty almost evenly split.

<unk>.

Which is which is.

To add just one thing just to add and during the last quarter. We had called out 35. So we have an additional $10 million now than we than we thought we would have last quarter.

Very clear thanks, so much and good luck.

Thank you.

We will now move onto our next question from Omar Saad of Evercore. Please go ahead. Your line is open.

Good morning happy holidays.

I wanted to ask a question on the inventory situation you mentioned plus 50 in transit.

Is it an elevated number how do you guys said you have visibility into the timing of the shipments and the receipts in.

When these goods are going to flow through to the retail to the consumer or is there.

Any chance that they're going to come too late and may need markdowns to deal with after the season and help us understand.

Your visibility into the receipts and the timing of inventory flow.

Yeah Omar so so.

Some of the challenges that we saw a worsening in October, particularly due to the U S port delays.

The shift of shipments from Q3 into Q4 those goods are out now we got back in line with them. They went out in November so we feel pretty good.

Inventories are still generally pretty lean.

But as we work through the year it'll start to get a little better still challenge, but as we move through.

We should be getting better position, we don't see.

If things where you would have to have heavy markdowns, because we generally lean to begin with and we feel pretty good and also that's why we are deploying so much airfreight we want.

Pretty much ensuring that the goods are getting here in time for the holidays.

Great. That's Super helpful. And then maybe Stephane could you talk about little bit about this kind of demand for denim and fashion and broader the apparel.

Are we at peak levels here or do you think do you have any early thoughts on demand levels into 2022.

The room for your consumers to spend more on Tommy Hilfiger, and Calvin Klein.

Thank you Omar Yes, we are we are confident in the strength of the consumer and the strength of our brands with consumers. So.

Back to the denim trend, we see that starting to grow in denim has always been important to the consumer and we see that trend continuing into 2022.

Thanks, Good luck look forward to the Investor day.

Thank you very much Omar.

Once again, if you would like to ask the question that is star followed by one Star Wars.

And we'll move to our next question from Matthew Boss of Jpmorgan. Please go ahead. Your line is open.

Great. Thanks, Stefan but by region. So you mentioned work remaining in North America, and you mentioned leaning into this with full force could you just elaborate on the unlock opportunity you see in the region, maybe across each brand and how best to think about the timeline from here.

Yes, so when it look.

When we look at North America first and foremost we have the authority of 40% of the business that used to be a tourism.

For the last year and a half.

We haven't seen much of that tourism overtime that we would come back and this quarter. We were also hit by the shift from the U S ports situation from Q3 to Q4, so thats.

That's macro we are focusing on what we can impact which is to win more with the domestic consumer so what the green shoots that I mentioned that I'm excited about is that we're leaning into.

Product strength hero products strength pricing power is up so we see pricing power.

We see North America, right now driving up pricing power on discounts down and we see increasing strength in our focus categories and hero product execution, and then we are driving and we're leaning in to drive high quality e-commerce growth as well.

So it's the same accelerated recovery of priorities, it's just a tougher macro given the tourism and in Q3, given the port situation.

Great and then Jim just multiyear on sustainability of gross margin as we think about next year are there any give backs at all to consider or should we think about this year's gross margin of the new foundation to build on from here.

Yes, Matt.

We're projecting even with Q4, we're going to have three quarters in a row of sustainable gross margins at that very high 57% range. So we're not necessarily giving guidance going out to next year, but we feel pretty good about so far the sustainability of our gross margins.

Okay.

And just to build on what Jim just said and the reason why we feel good about the sustainability of the gross margin is.

How we execute.

Product strength and pricing power.

We see that across both brands and across all regions.

And operator, we will have to ask for the next question to be the last question for this call. Thank you.

And our final question comes from Paul <unk> of Citigroup. Please go ahead. Your line is open.

Thanks, It's Tracy Kogan filling in for Paul I had a follow up on the wholesale business I was wondering.

How your partners are reacting to the delays have you seen any material increase in cancellations are our partners really just taking basically whatever inventory. They can get at this point and then I do have one follow up thanks.

Yes, yes, so I'll take that Jason so as far as we are not seeing any cancels and one of the things with the delays we had in the shift of our shipments is it was it was really season less goods.

Not deploy air freight and lower margin goods.

So what we got hung up in the ports, but since it's seasonally it's out already we are not seeing Kansas and we are really in a situation Tracy where demand outpaced supply, which is a good place to be.

Mhm.

And then my second question was just looking at your your business or your customers internationally versus the U S. Just wondering what the demographics are like.

Are your customers internationally versus in the U S. You've got the local the local customer obviously not mature.

We have a similar consumer base for Tommy and Calvin across.

Across the world in.

It's the strength so when I was out in <unk>.

All of these markets are so all the stores in Europe and all of these stores in North America, just gets so encourage because having two of the most iconic brands in our sector and seeing the consumer we have it's all in our hands when it comes to executing making sure that we execute those brands too.

Highest possible relevant through the product strength through the consumer engagement collaborations and through the disciplined channel execution.

Great. Thanks very much.

Well, thank you very much Tracy and thank you everyone for joining us for this call. This morning, and I want to wish you all and we want to wish you all a happy healthy and safe holidays looking forward to catching up again 2022.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

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Yeah.

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Good day and welcome to the P V H Q3, 2021 earnings call.

Today's conference is being recorded at this time I would like to turn the conference over to Dana Perino. Please go ahead ma'am.

Thank you operator, good morning, everyone and welcome to the PVH Corp, third quarter 2021 earnings conference call, leading the call today will be Stefan Larsson, PTH as Chief Executive Officer, and Jim homes, EVP interim Chief Financial Officer, and corporate controller.

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

Paul.

The information to be discussed includes forward looking statements that reflect pvh's view as of December 1st 2021 are future events and financial performance. These statements are subject to risks and uncertainties indicated in the company's SEC filings and the Safe Harbor statement included in the press release that is the subject of this call.

These risks and uncertainties include Pvh's right to change its strategies objectives expectations and intentions and its need to use significant cash flow to service its debt obligations significantly at this time. The COVID-19 pandemic continues to have a significant impact on the company's business financial condition cash flow and results of <unk>.

Operations, there is significant uncertainty about the duration and extent of the impact of the pandemic. The dynamic nature of these circumstances means what is said on this call could change materially at any time, therefore, the operation of the company's business and future results of operations could differ materially from historical practices and results.

Current descriptions estimates and suggestions PV.

PVH does not undertake any obligation to update publicly any forward looking statements, including without limitation any estimates or suggestions regarding revenue or earnings generally the financial information and projections to be discussed will be on a non-GAAP basis as defined under our SEC rules reconciliations to GAAP amounts are included in PV.

<unk> third quarter 2021 earnings release, which can be found on www dot PVH dotcom 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 Stefan Larsson.

Thank you Dana good morning, everyone and thank you for joining our call today.

The third quarter, we delivered another strong quarter of high quality growth driven by the disciplined execution of our accelerated recalibrate priorities across both Calvin Klein and Tommy Hilfiger, driving brand and product strength with increased pricing power Supercharging eco.

To win in the digital marketplace, where we are on track for 25% digital penetration of our total business for the full year double pre pandemic levels, all while increasing our discipline and driving cost efficiencies and investing in growth.

This has resulted in much better than expected EBIT margins, and EPS, which significantly exceeded our guidance with EBIT margins for the quarter above pre pandemic levels and our gross margin rates up 300 basis points versus 2019.

Our international businesses continued to execute very well across brands with increased product strengths and strong consumer engagement, both online and in stores. This resulted in strong sales growth significantly increased pricing power and margin expansion compare.

To both last year and to pre pandemic levels.

In North America, despite worsening logistics disruptions, including U S port delays towards the very end of the quarter, which shifted revenues from the third to the fourth quarter. The region is still on track to deliver against our full year plans.

Without this shift of revenues to Q4, we would have exceeded our overall revenue guidance for the quarter.

Looking ahead at the full year. Despite the Covid related disruptions. We are all currently navigating based on the strength of our underlying performance trends and most recently through early positive reads of the start of our holiday season, we are affirming the upper end of our <unk>.

Revenue guidance and are increasing our earnings guidance for the full year, we are raising our EBIT margin guidance to nearly 10%, which is above 2019 and pre pandemic levels.

Our guidance is based on the knowledge, we have all the COVID-19 situation today and how we have successfully navigated through previous COVID-19 resurgence as yet we are carefully monitoring developments around the new Covid variant.

Impact of the consumer.

Let me now turn to our regional update starting with Europe, Our Europe team delivered another very strong quarter with continued market share gains both Tommy and Calvin generated strong double digit revenue growth compared to pre pandemic levels with gross margin expansion.

And above 2019 levels, driven by strong full price sell throughs, which combined with ongoing cost efficiencies drove significantly higher operating margins well above pre pandemic levels.

The region strong results highlight how we are successfully meeting the consumer through a digitally led omnichannel approach and continuously elevating the brand positioning through having the best hero products in the market for both Tommy and Calvin.

Continued demand for our brands and products drove higher conversion and sell throughs with strong sales in both our owned and operated channels as well as our wholesale channels.

We generated digital sales growth of 23%, which included double digit growth for both our owned and operated channels and third party partners, especially with digital pure players our investments in building direct digital consumer connections through our own digital business.

<unk> to drive engagement and fuel high quality growth.

Our brick and mortar retail business significantly outperformed our plan and impressively delivered double digit growth above pre pandemic levels.

Demand in our core replenishment business remains strong on top of future order books for spring 2022 across brands, which as a reminder are up double digits.

I visited over 40 stores across four countries in Europe, this past quarter and it was incredibly exciting to see the key drivers behind the region's performance and to meet and learned from the teams that are directly driving these strong results. The way we focus on the consumer drive.

Brand elevation product strength pricing power and winning across the marketplace led by digital all serve as a blueprint for the type of top tier execution and financial performance that we will over time be able to deliver for Calvin and Tommy across all our regions.

While we are closely monitoring the recent COVID-19 resurgence this in multiple markets in Europe. Our business. There has demonstrated a strong resilience during previous COVID-19 resurgence this with our ability to pivot to where the consumer is going faster than most of our competitors by leveraging our connected.

Retail capabilities.

Moving on to Asia I.

I remain excited about the progress and the underlying performance in the region results were led by China, which outperformed our plan while the revenues for the region overall were in line with pre pandemic levels and trends were consistent with the prior quarter.

This is despite facing additional COVID-19 resurgence across markets, which was particularly pronounced in Australia for a significant portion of the quarter over half of our stores in Australia were closed and we are now pleased the strong consumer demand has returned as the market has been.

Well to open up again.

In Asia, we continue to invest in driving growth and building awareness for our brands focusing on key consumer moments strengthening product storytelling for key categories and hero products and enhancing the consumer experience in our stores.

With our focus on driving brand and product relevance, our regional and local marketing campaigns are resonating with consumers as we saw strong performance of our fall and winter collections and we continue to build brand heat and strong engagement, particularly around key holidays for it.

Sample China's 11, 11, Singles' day outperformed our plan with double digit sales increases for both Tommy and Calvin with strong full price selling which follows a nice improvement of traffic in the market.

We also continue to further enhance the consumer experience both online as well as offline through new concepts ahead of singles day, we hosted a CK jeans.

So denim pop up in Shanghai. This event showcased brand storytelling and featured interactive consumer engagement activities driving significant social media exposure with over 300 million impressions.

Online our interactive experiences on T mall and live streaming events are achieving high viewership and engagement and we're excited about the upcoming special product capsules and 360 <unk> digital Activations in honor of the Chinese lunar new year.

In addition inventory levels continue to be very lean as we are buying inventory closer to demand.

Turning to North America.

The region continued to face pressure from the lack of tourism, which pre pandemic accounted for 30% to 40% of our total revenues in the market.

In addition towards the end of the quarter as I mentioned earlier, we experienced worsening U S port delays in October which pushed some of our revenues from Q3 to Q4.

Inventory receipt delays have also impacted our retail business just in this region, especially for Tommy Hilfiger, which has a higher penetration of seasonal product offerings.

However, there are some early green shoots and we sold borders start to reopen.

In the quarter I had the opportunity to visit 30 stores in five regional markets in North America, and I remain very encouraged about the multi year opportunity to unlock a sustainable increasingly profitable business for both brands.

Given the lack of tourism due to Covid. Our teams are leaning into our accelerated recovery of priorities with a much increased focus on the domestic consumer.

Particularly with the Gen Z and millennials and driving tourists and increase product strength with pricing power and supercharging ecommerce, while winning in the whole marketplace in a balanced and sustainable way.

Some proof points of our progress. This quarter include we continued to drive less discounting and higher aur's as domestic consumer responded well to newness in our fall product, especially in our focused categories and iconic hero products such as knits fleece.

Denim underwear for.

For example ahead of the holiday season, Calvin partnered with Amazon fashion, Amis alive, and Amazon music to deliver a shopper ball livestream holiday special with platinum selling hit Trapper Sweetie.

The event drove the highest traffic day on the CK brand store on Amazon fashion outside of Prime day.

Overall as we have shared before we know we have the most work to do in the North America region to unlock the multiyear opportunity ahead. This is something we are leaning into with full force and will keep you updated along the way.

Next I'll share a few brief global brand highlights beginning with Calvin Klein Global brand health remains strong with a recent increase in purchase intent along with continued strong global awareness.

This past quarter was great globally for hero products in our key focus categories with double digit growth in sales and much higher AUR us.

Our global fall campaign, the language Ho Calvin Klein resonated very well with our consumers featuring regionally relevant ambassadors, including journey, Kim Samsung I address and kayak driver and focus on hero products in support of key seasonal categories like underwear and jeans.

<unk>.

We also continue to connect our iconic Calvin Klein brand to people, who shaped culture by launching the second chapter of the brand's collaboration with designer Heron Preston. The response has been very positive and as we saw with the first drop 90 styles sold out very quickly.

Celebrities and Influencers, including Squid game Star wholly on Zhang continue to wear and organically post our products. The collection continues to deliver higher AUR is higher sell throughs high conversion and highlighting the strength and relevance of our collaborations.

<unk> when we connect our brand to culture and the younger consumer.

We're looking forward to the upcoming holiday season, and we have a strong social media based campaign planned for this key selling period.

Moving on to Tommy Hilfiger.

Consumer connection brand awareness and brand relevance remains strong with a unique DNA of Tommy.

Key growth engine for our business globally.

Consumers responded very positively to our seasonal collections for menswear the expansion of hero product programs, such as the 1985 menswear Essentials collection continued to drive strong results.

Our recent collaboration with Timberland has been very well received this unique iconic collaboration drove brand heat and exceeded expectations in traffic and sell through with an authentic focus on sustainability and inclusivity.

In Europe, we saw strong double digit increases in traffic inactivate the stores and on <unk> Dot com and we achieved 100% sell through within two weeks.

Collaboration is attracting new audiences with 40% of sites visits being made by new users and we experienced a significant increase in average spend.

In North America. The capsule is gaining momentum over 200 million consumer impressions were generated across major in two weeks and significant bus was generated that complex call through a dedicated brand activation during the event.

Lastly, the brand recently kicked off this world of Hilfiger holiday campaign, which when it comes to holiday spirit embracing traditions fresh beginnings and Nebraska, New York City routes.

In closing as I have shared previously when the pandemic.

<unk> kit, we first set out to successfully navigate through the initial phase of the Covid crisis, which we did and to do that in a way that sets us up to drive an accelerated recovery.

We are now driving all while positioning us to win in the new normal coming out of it.

We look forward to sharing more of how we will win in the new normal when we present, our multiyear growth plan at our upcoming Investor day in mid April.

It will be the first investor day for PVH in over 10 years and it will be an important moment for us to take you through our strategy and long term performance targets. As we look ahead to tapping into more of our full potential focusing in on our core strengths.

Next thing them closer to where the consumer is going than any time before all with the goal to win with the consumer drive long term profitable growth, while driving fashion forward for good.

On the Investor day, and look forward to introducing Utah regional and brand leaders, who are key drivers on this journey.

Before I turn the call over to Jim I would like to thank all our associates around the world for your hard work and critical contributions this year and I wish everyone, a happy healthy and safe holiday season, and with that I would like to hand, the call over to Jim.

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 third quarter were up 10% compared to the prior year, but below our previous guidance due to worsening logistics disruptions in October including significant U S port delays, which resulted in a 4% negative impact from an unplanned shift and the timing of U S wholesale shipments.

From the third quarter into the fourth quarter.

Absent this shift our revenues for the third quarter would have exceeded our guidance.

Third quarter revenue also reflects a 4% reduction from the sale of the heritage brands business.

Which closed on the first day of the third quarter and also the exit from the heritage brands retail business that was substantially completed in the second quarter of 2021.

Our retail stores face continued pressure during the third quarter with the majority of stores temporarily closed in Australia for most of this year's quarter.

Owned and operated digital Commerce increased 21% and our overall revenue through our digital channels grew approximately 15% on top of exceptionally strong growth in the prior year the.

The impact of foreign currency translation on our revenues was immaterial for the quarter.

Looking at our segments, Tommy Hilfiger revenues were up 12% with international up 11% and North America up 13% versus third quarter of 2020, Calvin Klein revenue was up 22% with international up 19% and North America up 27%.

Our heritage revenues were down 36%, which included a 40% decline from the heritage brands transaction and the exit from the heritage brands retail business.

Gross margin was very strong at 57, 7% for the quarter as compared to 52% in the prior year and an increase of over 300 basis points compared to 2019 pre pandemic levels, which drove operating margin expansion.

The improvement was primarily due to increased full price sales and a favorable shift in regional sales mix, which more than offset higher freight costs, including an increase in airfreight.

Inventory was down 7% at the end of the quarter compared to the prior year, primarily due to the heritage brands sale and the exit from the heritage brands retail business. However, within our total inventory on hand levels were down mid teens versus last year, while our in transit inventory levels increased over <unk>.

50% due to extended lead times from supply chain, and logistics disruptions, including U S port delays, which drove the shift in timing of U S. Wholesale shipments from the third to fourth quarter that I mentioned earlier.

Despite the unplanned shift of timing of the U S wholesale shipments, we significantly exceeded our earnings guidance for the third quarter.

Notably the shifted shipments were lower margin seasonal goods that we did not use air freight to transport it.

Earnings per share was $2 67 <unk>.

Compared to $1 32 in the prior year period, beating.

Beating the top end of our previous guidance by <unk> 67.

The beat was primarily due to business and our performance for approximately 50.

Driven by gross margin and expense improvements.

Also included in the B is an approximately 17% favorable impact from taxes due to our mix of earnings.

Notably our EBIT margin continued to be very strong at 11, 4% for the quarter exceeding 2019 pre pandemic levels driven by continued strength in our international business.

Additionally, we made over $100 million of voluntary term loan payments in the third quarter, bringing voluntary payments to over $800 million for the first nine months of 2021.

And we repurchased approximately $149 million of common stock and reinstated our cash dividend.

Moving on to our outlook, we are providing our 2021 outlook. Despite the continued significant uncertainty due to the pandemic, including the omicron variant and related supply chain and logistics disruptions globally.

We continue to be encouraged by our international businesses, which are expected to continue to exceed pre pandemic levels in the fourth quarter. We expect North America to continue to face the ongoing challenge of reduced international tourism, which was the source of approximately 30% to 40% of pre pandemic revenue for the region.

Higher for Tommy Hilfiger, then for Calvin Klein.

We are not planning for international tourism to returned to any significant levels in the fourth quarter. In addition, North America has been and continues to be the region. Most challenged by supply chain disruptions, including higher airfreight costs and lower than optimal inventory levels on hand in stores.

For the full year, we are reaffirming the top end of our revenue guidance range and are projecting revenue to grow approximately 27% to 28% as reported and approximately 25% to 26% on a constant currency basis compared to 2020.

We expect gross margin will continue to show significant improvement for the remainder of the year due to more full price selling and a favorable shift in regional sales mix compared to the prior year with our higher margin international businesses, making up a larger portion of total revenue, we expect our fourth quarter gross margin rate will be rare.

<unk> in line with the prior two quarters.

We now expect our full year EBIT margin will exceed our 2019 pre pandemic level and will reach nearly 10%.

However, our EBIT margin in the fourth quarter. It is expected to be below 2019 levels and also to the first nine months of 2021 as the fourth quarter is more heavily impacted by incremental air freight as well as planned increases in marketing and other investments.

We expect our interest expense to decrease in 2021 to approximately $105 million compared to $116 million in 2020.

Our tax rate for the year is estimated at 16% to 17%.

For the full year in 2021, we are projecting non-GAAP earnings per share to be approximately $9 25.

Which is an increase compared to our previous guidance of $8 50, and compares to a loss per share of $1 97 in 2020.

The increase versus previous guidance was primarily due to better than anticipated gross margin expansion and operating expense efficiencies worth approximately 60.

Along with an improvement in taxes of approximately 15.

For the fourth quarter, our revenue is projected to increase 11% to 14% as reported and 16% to 19% on a constant currency basis compared to the prior year.

Compared to our fourth quarter previously implied revenue guidance. This reflects the positive impact of the shift of U S. Wholesale shipments from the third quarter into the fourth quarter and a 2% negative impact of foreign currency translation, primarily due to the recent strengthening of the U S dollar compared to the euro the underlying busy.

This performance has not changed compared to our previously implied guidance.

Fourth quarter non-GAAP earnings per share is expected to be approximately $1 94 compared to a loss per share of <unk> 38 in the prior year period, our fourth quarter guidance reflects an incremental 10.

As expected airfreight costs versus our prior expectations and with that operator, we would like to open it up to questions.

Thank you, ladies and gentlemen, if you would like to ask a question. Please signal by pressing star followed by one.

Star One if you wish to COO for a question.

We'll take our first question from Bob <unk> of Guggenheim. Please go ahead, Sir your line is open.

Hi, good morning.

Two questions from me if I could the first one is.

I don't know business for Jim or Stephane, but can you talk a little bit about you mentioned price increases.

Really what <unk> seen so far.

From a consumer receptivity are your wholesale partners on either prices that you have taken higher at this point or plans that you have sort of in the.

In the coming months and quarters.

Yes, so good morning, Bob.

We definitely are moving into an inflationary.

Period end.

Coming back to our accelerated recovery of priorities, where we have leaned in since the beginning of the pandemic on brand relevance product strength, and we really see the results of that coming through in pricing power. So we see increased AUR as we see increased gross margin rate. So.

Looking forward, Jim can give you a little bit more of the details. So what we expect in terms of AUC increases, but we are confident from.

Products strength perspective that we will continue to drive AUR increases.

Then overall looking at the inflationary environment, we are moving into.

We are looking at both pricing power.

Sourcing mitigation and.

And we're looking at cost efficiencies overall, so Jim.

Yeah, Bob just to add to what Stephane alluded to.

As we head into spring 2022.

Cost increases we're starting to see is about mid single digits, yes, but we do see great strength in our products will be looking to mitigate that Joe difference supply chain initiatives, but also through increasing pricing, particularly in key categories, where we see a lot of strength in the business.

Great. Thank you and I guess the other question I have is can you talk a little bit about denim trends that youre seeing within the brands.

How you feel your position.

Some of the denim cycle commentary that we see out there.

Yes, definitely so we see denim, so we see denim and trending up.

In the markets with the consumer we are excited by that because we have strength in denim in both Tommy and Calvin seem the DNA of the brand. It's one of those power categories that we are leaning into so.

It's an exciting consumer trend that we are leaning into and you will see that increasing going forward.

Thank you very much.

Thanks, Paul.

Sure.

We will now move onto our next question from Michael Binetti of Credit Suisse. Please go ahead. Your line is open.

Hey, good morning, guys. Thanks for all the detail here and thanks for taking our questions.

Just a quick one on the on the near term I think we had before coming into today, we had a fourth quarter implied guidance.

You had talked about stepping up marketing in the back half with you about that but then excluding the wholesale shift in the FX changes it looks like the underlying sales for fourth quarter pretty much where you thought they'd be but the SG&A. It looks like it's stepped up a little bit more for fourth quarter, maybe help us think about.

If that's right it might have stepped up and then Stefan as we as we spoke through this year, we talked a little bit about how much opportunity to realign work streams and accelerate product lead times are different brands.

As the shift moved away from just navigating COVID-19 here globally, maybe you could just help us think about the size of the opportunity you see there where the companies add on some of those processes and what are the biggest.

She lives that you think we'll see as we talk over the next year or so.

You will start working on it as far as like the biggest opportunity for the financials as you start to kind of put some of those changes into play.

Yes, Michael I'll start I'll take your Q4 question and turn it over to Stephane really in Q4, if you just start with the revenues. The first thing. We did is we narrowed the revenue guidance and really we increased it to bottom end of the range and we reaffirmed at the top in Q4 with revenues of the business the underlying business is pretty much held or.

And we were able to cover some weakening of the euro the euro did weaken against the U S dollar, particularly we saw that in the last month.

Far as when you get below revenue really the main changes we had to current additional 10 cents 10.

$10 million.10 of air freight cost in Q4, but really everything underlying we're still we're still generating very strong gross margins just like in Q3 continued to gain expressed expense efficiencies the marketing that I alluded to was always planned to always be very heavily.

Weighted to the second half of the year.

Particularly to Q4, we really wanted to connect does that spending to some of the consumer moments that we have particularly black Friday and singles day.

Thanks, Jim and when it might go when it comes to your product question then.

Yes.

<unk>.

Multiple components that would drive coming back to our accelerated recovery of priorities, which will lead into our long term strategy, which is about focusing in on the key categories, where we have the right to play to win with the consumer within then develop.

An increased focus on hero products, the most essential products in their consumers wardrobe.

Single product <unk>, an intent than cutting the assortment tail. So we have done a good first job on that we will looking ahead coming back to your question.

We see opportunities to continue to.

Cut the unproductive assortment tail and then there is a big value unlock over time climbing and buyer of closer to the Mt.

Okay. Thanks, I appreciate it guys.

We will now move on to our next question from Erinn Murphy of Piper Sandler. Please go ahead. Your line is open.

Great. Thank you. Good morning. My first question is for Stefan I would love if you could share a little bit more about your outlook for China, and then specifically what's the current dynamic on the ground there between global versus National brand.

Yes, good morning, Erin and thanks for your question when it comes to Asia, We had.

Another strong quarter in Asia, we see it's more than what you see because of the Covid risk sorry, Joseph we keep going in and out of different countries in Asia. When it comes to China. This quarter, we outperformed our plan.

It's very much driven by leaning into our Calvin and Tommy and connecting them even closer to the consumer.

Digital.

Key part there so when we look at 11 11.

Sample.

Single stay that's now way beyond the day, we performed really really strongly and then.

So digital is an important component leaning into the different consumer moments like the 11 11, and then it's the product focus on making sure that we play into the right big categories that matters. The most and then we see that the.

The hero products that we have been developing over the last year, it's really resonating in China with the Chinese consumer and leading to a higher sell throughs and higher AUR.

That's great to hear and then maybe just one for Jim and following up on <unk> question. If you were to see upside in the fourth quarter relative to your plan with that kind of more from sales or the margin front. Thank you so much.

Yes.

We see great strength right now in the gross margins we had we started.

Fourth quarter pretty strong we're very pleased with our performance in singles day, and Black Friday on the topline, but our inventories are leaner than we would ultimately like so we're seeing really continued strength in AUR is that pricing power that we're seeing flow through in gross margin. So I think the opportunity is even more so in <unk>.

Gross margin than they had been in the past.

Great. Thank you so much and happy holidays to you all.

You too thank you.

We will now move on to our next question from Jay sole of UBS. Please go ahead. Your line is open.

Great. Thank you so much I guess I just wanted to follow up on the gross margin.

Is it within the guidance I mean do you have a sense of what how you feel like the gross margin should land in <unk> and within that with the changes in the heritage business. In Q3 can you just talk about what impact that had on.

On gross margin and SG&A. Thank you.

Yes, so Jay just in my notes I alluded to our gross margin percent in Q2 was 57, 7% our gross margin in Q3 was 57, 7%.

We're right now anticipating Q4 to be about the same so really about three quarters of that sustainable pretty pretty high gross margins. So we feel feel pretty good about that.

You don't really talk about heritage.

Yes. It has helped the gross margin somewhat.

The smaller the heritage business was a much smaller base. So it is not moving to PVH needle that much but it is a slight improvement, but also just maybe some of the offsets to that that improvement in Q3, and particularly in Q4 as the airfreight costs.

So we called out about $45 million of additional assay class, which is all hitting in the second half so.

Been able to cover that as well, which would be more impactful than any benefit that.

That we'd get from heritage and what's exciting Jay what's exciting from this is Stefan from my perspective from a straw.

Strategy perspective is that when we lean into Calvin and Tommy and into product strength and hero products. We see that we are able to drive higher AUR and that's that's a sustainable path and that drives the sustainable path towards increased gross margin rates. So that's very exciting from my standpoint.

Got it thank you for that and if I can ask one more the company paying.

Paying down some debt buying back some stock and what's the plan for the balance sheet going forward because the long term debt levels are back down to it.

Pre pandemic levels and Theres still a lot of cash on the balance sheet.

What's the what's the outlook for that.

Yes, Jay.

Really pleased with our liquidity position and the strength of our balance sheet.

First and foremost we're going to use our cash to invest in ourselves that's always going to be our priority.

Absent that.

Debt paydown, so far more than the debt we took out during a pandemic. So now we're able to also we want to continue to pay down debt, but also we reinstated our share repurchases. So were pulling out about we will have about $350 million of share repurchases for the year. We've also reinstated a cash dividend. So we feel Joe.

Really really good about the strength of our balance sheet.

We are really turning inventory reason.

Using our working capital and turning it into cash.

Got it thank you so much.

We will now move onto our next question from Brooke Roach of Goldman Sachs. Please go ahead. Your line is open.

Great. Thank you and good morning.

Well, maybe just seemed particularly strong profitability in both brands internationally.

If you could perhaps talk to the drivers of the increases that you've seen this year and your outlook for those margins in a perhaps somewhat more inflationary environment, where demand is supplier and better alignment going forward.

Yes.

Thanks Brook, absolutely in this quarter.

I spend a lot of time on the road.

So over 40 stores in four different countries in Europe as I mentioned in my remark.

And what's so exciting there is to see the consumer focus the brand focus continuously elevating the brand position.

Driving a very strong product execution.

Coming out of that and then having.

Our multichannel omnichannel approach to winning with the consumer so when we see European markets resurgence in Covid we.

We see that we have been better than most in the market to pivot to where the consumer then how the consumer apps because the consumer is reset and the consumer is strong so even though we have a <unk>.

Fourth wave now we see that.

In countries, where we have COVID-19 restrictions coming in we start to see a pattern from having navigated successfully through a number of ways. So we see brick and mortar foot traffic slightly come down, but we see conversion go up in brake and water and then we see the consumer immediately pivot to digital because when I look at the.

<unk> over in Europe, and overall is that the consumer is starting to get.

Back to life.

We knew it so we are a year and a half almost two years into COVID-19 and so we see the consumer continue to shop in.

In Europe, we are very good at meeting the consumer where the consumer shops. So those are some of the key drivers we see and those are also the key drivers for our accelerated recovery priorities across the regions.

Thank you and it sounds like Theres, a lot of momentum and confidence in the gross margin and AUR, we mentioned that the brands driven by our hero product strategy, perhaps I could pivot a little bit to the SG&A cost structure. As you look forward can you talk to the puts and takes the best as you look ahead, where do you see the most leverage on your cost.

Based on where are the opportunities to optimize our expense structure.

As you continue to roll out the strategy.

Yes, roughly.

Yes.

Cost efficiencies and fighting continued cost efficiencies as it is one of the key priorities on our accelerated <unk>.

Covering priorities that Stefan had alluded to really we see opportunities everywhere.

Particularly you know as we as our international revenues really are sort of we're seeing outside stroke, we may start to see some real leverage there.

To go along with those revenues, but the expense actually efficiencies and be optimal and really play our investments too.

The growth vehicles.

So really across the board across both brands and across all regions.

And it's to build on what Jim said broke it's about the way we drive cost efficiencies as we start with what it takes to win with the consumer and the consumer has moved over the last few years. So we we need to make sure that we invest and where the consumer is going and driving our access.

The rate of recovery of priorities and then we have to divest to invest so we are increasingly going to lean into cost efficiencies to make sure that we invest enough in where the consumer is going and that we free up cost efficiencies to do that and that we flow through some of that to the bottom line.

Thank you so much I'll pass it on.

Okay.

Now move onto our next question from Kimberly Greenberger of Morgan Stanley. Please go ahead. Your line is open.

Great. Thank you so much good morning.

Stefan I wanted to ask you about the ways in which you're changing how you work with your wholesale accounts.

To improve the full price sell through of Calvin and Tommy.

And can you just remind us how you're augmenting your wholesale strategy, both domestically and internationally.

To help your profit improvement initiatives. Thanks, so much.

Yes. Thank you Tim related definitely so it starts with the assortment strength and it starts to ease.

Biting our wholesale part of the journey for Calvin and Tommy I'd say.

Here are the key category of secure the hero products and curious how we bring those to life and the experience and E. Commerce is an increasingly important component that we bring our brands to life through our wholesale partners increasingly well in E Commerce and then we do it.

S welding break in water and that we just like we look through continuously to cut the unproductive assortments tailored. We also look at the productivity at the door productivity with wholesale partners, but overall, it's a partnership that builds on.

Our core strength and focus areas around assortment of product and pricing power and then.

Tapping into their strengths and.

We have deep experience of doing this over time.

It's just great to see in the digital opportunity for US is big in terms of owned and operated an equally big when it comes to.

Our wholesale E commercial procurement.

Okay, great. Thanks, so much and just one follow up on the gross margin if I could.

Could you just quantify for us Jim.

Amount of total airfreight in basis points or dollars in gross margin here in the third quarter and I know that the fourth quarter is coming in at.

10 cents.

More freight impact, but if you could just give us that total air freight impact also either in basis points or dollars for the fourth quarter. That's embedded in your plan that would be helpful.

Yes, Kimberly we were call it out and so in total this year and really all in the second half an additional $45 million of airfreight and how you think about it by quarter, it's pretty almost evenly split.

50 50.

Which is which is to.

To add just one thing just to add and during the last quarter. We had called out 35. So we have an additional $10 million now than we than we thought we would have last quarter.

Very clear thanks, so much and good luck.

Thank you.

We will now move onto our next question from Omar Saad.

Evercore. Please go ahead your line is open.

Good morning happy holidays.

I wanted to ask a question on the inventory situation you mentioned plus 50 in transit.

Is it an elevated number how do you said you have visibility into the timing of the shipments and the receipts.

And when these goods are going to flow through to the retail to the consumer or is there.

Any chance that they're going to come too late and may need markdowns to deal with after the season and help us understand.

Your visibility into the receipts and the timing of inventory flow.

Yeah Omar so.

Some of the challenges that we saw a worsening in October, particularly due to the U S port delays.

Which closed the shift of shipments from Q3 into Q4 those goods are out now we got back in line with them. They went out in November so we feel pretty good.

Inventories are still generally pretty pretty lean.

But as we work through the year it'll start to get a little better still challenge, but as we move through.

We should be getting better position, we don't see.

If things where you would have to have heavy markdowns because generally we're lean to begin with and we feel pretty good and also that's why we are deploying so much airfreight we want.

Pretty much ensuring that the goods are getting here in time for the holidays.

Great. That's Super helpful. And then maybe Stephane could you talk about little bit about this kind of demand for denim and fashion and broader the apparel.

Are we at peak levels here or do you think do you have any early thoughts on demand levels into 2022.

The room for your consumers to spend more on Tommy Hilfiger, and Calvin Klein.

Thank you Omar Yes, we are we are confident in the strength of the consumer and the strength of our brands.

Consumers so and.

Back to the denim trend, we see that starting to grow in denim has always been important to the consumer and we see that trend continuing into 2022.

Thanks, Good luck look forward to the Investor day.

Thank you very much Omar.

Once again, if you would like to ask the question that is star followed by one Star Wars.

And we'll move to our next question from Matthew Boss of Jpmorgan. Please go ahead. Your line is open.

Great. Thanks.

But by region. So you mentioned work remaining in North America, and you mentioned leaning into this with full force could you just elaborate on the unlock opportunity you see in the region, maybe across each brand and how best to think about the timeline from here.

Yes, so when it look when we look at North America first and foremost we have the authority to 40% of the business that used to be a tourism.

For the last year and a half.

We haven't seen much of that tourism overtime that we would come back and this quarter. We were also hit by the shift from the U S ports situation from Q3 to Q4, so that's that.

That's macro we are focusing on what we can impact which is to win more with the domestic consumer so what the green shoots that I mentioned that I'm excited about is that we're leaning into.

Product strength hero product strengths pricing power is up so we see pricing power, we see North America, right now driving up pricing power and discounts down and we see increasing strength in our focus categories and hero products to execution and then we are driving and we're leaning in.

To drive high quality e-commerce growth as well.

So it's the same accelerated recovery of priorities, it's just a tougher macro given the tourism and in Q3, given the port situation.

Great and then Jim just multiyear on sustainability of gross margin as we think about next year are there any give backs at all to consider or should we think about this year's gross margin of the new foundation to build on from here.

Yes, Matt.

We're projecting now even with Q4, we're going to have three quarters in a row of sustainable gross margins at that very high 57% range. So we're not necessarily giving guidance going out to next year, but we feel pretty good about so far the sustainability of our gross margins.

Okay.

And just to build on what Jim just said and the reason why we feel good about the sustainability of the gross margin is how.

How we execute.

Product strength and pricing power.

We see that across both brands and across all regions.

And operator, we don't have to ask for the next question to be the last question for this call.

Yes.

And our final question comes from Paul <unk> of Citigroup. Please go ahead. Your line is open.

Thanks, It's Tracy Kogan filling in for Paul.

Follow up on the wholesale business I was wondering.

How your partners are reacting to the delays have you seen any material increase in cancellations are our partners really just taking basically whatever inventory. They can get at this point and then I do have one follow up thanks.

Yes, yes, so I'll take that Jason so as far as we are not seeing any cancels and one of the things with the delays we had in the shift of our shipments is it was it was really season less goods that we would not deploy error rate and lower margin goods.

So we got hung up in the ports, but since it's seasonally it's out already we are not seeing Kansas and we are really in a situation Tracy where demand outpaced supply, which is a good place to be.

Mhm.

And then my second question was just looking at your your business or your customers internationally versus the U S. Just wondering what the demographics are like.

Are your customers internationally versus in the U S. The local the local customer obviously not mature.

We have a similar consumer base for Tommy and Calvin across.

Across the world in.

It's it's the strength so when I was out in <unk>.

All of these markets are so all the stores in Europe and all of these stores in North America I, just get so encouraged because having two of the most iconic brands in our sector.

Seeing the consumer we have it's all in our hands when it comes to executing making sure that we execute those brands to the highest possible relevant through the product strength through the consumer engagement collaborations and through the disciplined channel execution.

Great. Thanks very much.

Well, thank you very much Tracy and thank you everyone for joining us for this call. This morning, and I want to wish you all and we want to wish you all a happy healthy and safe holidays looking forward to catching up again 2022.

Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.