Q1 2023 PVH Corp Earnings Call
I.
and welcome to today's PBH First Quarter 2023 earnings conference call.
At this time, all participants are in a listen-only mode.
Later you will have an opportunity to ask questions during the question and answer session.
You may register to ask a question at any time by pressing the star and one key on your touchtone phone.
Please note this call may be recorded and then I will be standing by if you should need any assistance.
It is now my pleasure to turn today's program over to Cheryl Freeman, Senior Vice President of Investor Relations. Please go ahead.
Thank you, operator. Good morning, everyone, and welcome to the PVH Corp. 1st quarter, 2023 earnings conference call. Leading the call today will be Stefan Larsen, Chief Executive Officer, and Zach Cogland, Chief Financial Officer. This webcast and conference call is being recorded on behalf of PVH and consists of copyrighted material.
It may not be recorded, rebroadcast, or otherwise transmitted without PVH's written permission. Your participation constitutes your consent to having anything you say appear on any transcript or replay of this call.
The information to be discussed includes forward-looking statements that reflect PVH's view as of June 1st, 2023 of future events and financial performance. These statements are subject to risk and uncertainties indicated in the company's SEC filings and the State-Purpose Statement included in the press release as the subject of this call. These include PVH's right to change its strategies, objectives, expectations and intentions.
and the company's ability to realize anticipated benefits and savings from divestitures, restructuring some similar plans such as the planned cost efficiency action announced in its second quarter earnings release and its 2021 sale of assets of and its exit from its heritage brand's business to focus on Calvin Klein and Tommy Hill figure businesses. PVH does not undertake any obligation to update publicly any forward-looking statements.
and then the company's current report on Form 8K furnished to the SEC in connection with the release. At this time, I am pleased to turn the conference over to Stefan Larson.
Thank you Cheryl, good morning everyone, and thank you for joining our call today.
We had a strong start to 2023, delivering performance ahead of expectations for both the top and bottom line, driven by our discipline execution of the PVH class plan.
We grew first quarter revenue up 5% in constant currency and up 2% on a reported basis despite the challenging macroeconomic environment.
Looking ahead, we are reaffirming our guidance for the full year, reflecting the confidence we have in our ability to continue to execute with impact while being prudent given the choppy macro. We are well positioned to deliver solid top-line growth in addition to double-digit EPS growth.
at the same time making strategic investments in areas such as marketing, the shopping experience and the supply chain to drive long-term brand accretive growth.
I'm starting to see leaders all around the company leveraging the clarity of direction from the PVA++.
and drive progress in their areas.
progress that is repeatable and scalable. And some of it contributes to drive the performance here and now, and some you will see the results come over time. But as a leader having done this a few times, I know that when I see my leaders, whether it's significant product and marketing improvements in common.
igniting the influence of marketing and D2C for Tommy in North America, or a new global brand campaign for Tommy connecting back to the brand's DNA, or supply chain improvements globally, or a new level of cost efficiency work led by our finance team, then I know that we're on the way to transform this company.
I feel very good about how we deliver on our near-term commitments while maintaining a strong focus on our long-term vision to build Calvin Klein and Tommy Hilfiger into the most desirable lifestyle brands in the world and position PVH as one of the best performing brand groups in our sector.
The first is winning with product. The second is winning with consumer engagement. The third is winning in the digitally-led marketplace. The fourth is developing a demand and data-driven operating model. And the fifth is to drive efficiencies and investing growth. Let me start by sharing an update on how we deliver against each.
Everything starts with winning with product. It's the most important part of the brand promise, driving brand desirability and building consumer loyalty over time. Having the best product in the market gives us pricing power and drives margin expansion. In the first quarter, we made significant strides here. We continued to make significant strides in the first quarter. We made significant progress in the first quarter.
Even though we're already driving increasing strength in Hero products, we're just in the beginning of tapping into our full potential.
We then win with consumer engagement by connecting our hero products with culturally relevant aspirational talent.
the power of our influencer engine and third we elevate the consumer experience at every touch point. In Q1 you saw this executed really well in both Calvin and Tommy generating very strong consumer engagement with billions of impressions across both brands.
I'll share more specific proof points in my brand update in a moment.
What I want to emphasize here though is that these campaigns form a powerful brand halo and ignite our talent and influence ranging globally.
As we shared with you last quarter, we are stepping up our investments here in a very targeted way.
In addition to increasing our strategic investments in marketing, we are enhancing the brand experience across all consumer touchpoints to win in the digitally-led marketplace.
for the quarter on a constant currency basis.
We drove double digit growth in our D2C businesses.
which included double digit growth in our stores and high single digit growth in our own and operated e-commerce.
Overall, we're focused on driving our direct to consumer office while at the same time deepening our relationships with key wholesale partners.
We continue to make early progress to res building a demand and data-driven operating model that connects the planning, buying, and selling of inventory much closer to demand. In the quarter, we executed excellent on-time delivery performers, shortening transit and production lead times, and improving forecasting and buying.
We're getting closer to the consumer with a more responsive replenishment model that ensures that we're never out of stock on core essentials and hero products, already in Q1 having significant comp increases in many of those products.
As we're investing to fuel growth, we also remain focused on driving cost efficiencies and improving our overall cost competitiveness. We continue to make progress to align our organization to the PVH Plus Plan through the cost actions we have shared previously. Pogenea. Pigeas tech beta betue rates of?? as we run tips to offer our customers a The
Next, I'll share some highlights that demonstrate how we are connecting our brands with the consumer and driving brand desirability around the world.
Starting with Calvin Klein, we generated some of the highest consumer engagement in the history of the brand, driven by the most impactful version of our Calvin's or Nothing campaign to date. The campaign on its own had incredible impact, 1.7 billion impressions across PR and social media.
The brand trend of for multiple days on Twitter and expanded its social following with 1.6 million new followers. And we saw significant increases in traffic to our own and operated e-commerce sites.
This highly successful campaign was developed around our core principles of creating cut-through campaigns, igniting our influencer engine, and elevating the brand across every consumer touchpoint.
We expanded our already strong brand ambassador group for the spring campaign.
which included Kendall Jenner, Michael B. Jordan, Jennie Kim, and the introduction of Jungkook, who is a massive K-pop star.
When we last spoke, Kevin had just announced John Cook as brand ambassador.
Consumer reaction has been incredibly strong globally with a plus 39% increase in site visits across all regions and a visible lift in sales which were up 150% compared to the weeks prior to launch.
In China, the denim shirt he wore sold out on T-Maul in just 30 minutes.
We also had the highest reaching post of all times of social with our campaign video on Instagram generating 21 million in reach.
The brand also recently launched Jennie for Calvin Klein, a unique limited edition capsule collection designed in partnership with Jennie Kim of BLACKPINK.
The collection is focused on Jennie's personal take on hero products and style essentials in denim, underwear, and other key categories.
Together with a cut-through campaign that ran globally, it generated nearly 700 million social media impressions.
along with key products that sold out within two days of release. And we grew our consumer base with 65% of consumers being known to the brand.
For Tommy, with its unique DNA of classic American cool, the brand continues to drive strong visibility and relevance among target consumers.
Generating approximately 5.5 billion impressions and 56 million social engagements globally during the quarter. Our classics reborn spring campaign celebrates the brand-style icons made relevant for today. And it's really cutting through with consumers.
Across the APAC, for example, our collaboration with pop culture sensation and singer Henry Lau helped drive polisher sales up 68% year over year during the campaign period.
Our collaboration with Shawn Mendes continues to drive brand heat globally.
Personal appearances by Tommy Hilfiger and Sean Mendez in London, Berlin, Milan, Mexico City resulted in huge crowds, day-long lines at the stores and an elevated consumer experience. For summer, we are focused on high visibility collaborations to celebrate key consumer moments.
As part of our long-term partnership with the Mercedes-AMG Formula One team, the brand co-created a capsule collection ahead of the Formula One Miami Grand Prix in collaboration with Awake New York. The collection combined Awake street-style sensibility with Tommy's signature prepper static.
The campaign feature talent like Louis Hamilton, George Russell and Mick Schumacher, and was amplified by multiple aspirational influencers.
The capsule was one of the best performing of the year, with a 62% self-serving the first week. We're also excited to share the news about our upcoming collaboration with Disney, connecting Disney's iconic characters into the world of Tommy Prep. We're thrilled to be part of Disney's 100 year milestone anniversary. We're excited to share the news about our upcoming collaboration with Disney, connecting Disney's 100 year milestone.
and look forward to celebrating with Cosermus worldwide with a special focus on the Asia.
Now turning to our regional performance and how we are connecting our brows and executing the PVH Plus plan across each region, starting with Europe . We continue to fuel our strengths and delivered mid-single digit year-over-year growth for the first quarter in euros, adjusted for our rush exit.
on a significantly bigger business than pre-pandemic. A testament to our team's execution in the face of a continued challenging macro backdrop. We are further strengthening brand desire and our leading brand positioning in Europe for both Tom and Calvin through hero products and culture campaigns.
For Tommy, our 1985 program now represents over 25% of the total Tommy men's the parallel business, up 70% year over year. We're driving strong shelters and higher AURs in key categories, such as Polos, Shirts and Sneakers.
and remain focused on expanding our strength in Outerware.
At the same time, we continue to grow Calvin through building out and commercializing our hero product franchises in underwear and other key lifestyle categories, which are delivering high-rear and double-digit growth.
When we look at our Forward Hoseil order book, adjusting for Russia and improved delivery performance compared to last year supply chain disruptions, we continue to expect our order book for fall to be up low single digits.
And as we have mentioned before, we are well positioned to capitalize on stronger demand through our never out of stock programs.
Looking ahead, we will intensify our execution of the PVH Plus Cloud to continue to further strengthen our market position in the region.
Moving on to Asia Pacific.
We delivered a very strong start of the year by leaning into our hero product strategy and connecting our brands to impactful and regionally relevant talent.
Our execution drove more than 25% revenue growth on a constant currency basis, with strong growth across all countries.
including China, which was up more than 40% in local currency as COVID restrictions lifted and our consumers came back strong.
We also saw continuous strength in Japan, Korea and Australia.
We continue to amplify Hero product and excite with Nunes to drive key category growth.
In the first quarter, our hero product again out the form with higher AURs and expanding gross margins.
We continue to strengthen our brand awareness and build desire through cultural icons such as Jenny Kim and John Cook, as I mentioned earlier.
Our brands have premium product positioning in the region and we see a clear opportunity to grow further across all markets.
overall brand awareness, especially in China, where both Calvin and Tommy are under-penetrated.
We are creating a consistent and seamless experience no matter where the consumer shops in the marketplace.
with the largest growth opportunity being in digital. We launched on Douyin last year to cover even wider audiences across China.
And we are now continuing to expand our digital footprint by launching on the rapidly growing DaWoo platform, targeting Gen Z consumers in top tier cities.
Looking ahead, following a successful Labor Day and International Women's Day in the first quarter, we are now gearing up for a strong 618 and Chinese Valentine's Day, with each of these events supported by unique product capsules.
Turning to our business in North America, we continue to make great progress in building the foundation for sustainable, increasingly profitable, and brand-accretive growth.
We are winning more with the domestic consumer and getting good traction from our execution, leading to outside growth in our direct to consumer business.
We drove double-digit comps in D2C stores and e-commerce, and we improved our ability to match inventory to demand.
Let me share some exciting proof points.
For Tommy in Q1, we drove 25% year-over-year increases in key categories such as knits, sweaters and wovens. Global bestsellers now represent approximately 85% of our assortment, up from 35% last year.
Pollers were once again the number one category with higher AURs as we are elevating these key essentials.
Similarly for Calvin, across channels, we are better matching key hero products with elevated marketing content.
and we had stronger than expected performance in D2C e-commerce. For both Toming County and North America, we're starting to significantly improve how we plan and allocate our inventory. Leveraging advanced analytics to ensure that the right product goes to the right stores at the right time to drive better availability and margin expansion.
Beyond D2C, we also drove progress with key wholesale partners in the quarter, working very closely to improve Calvin and Thomas' presentation in top doors and drive consumer demand by sharpening our category offense and leaning into our hero products.
Looking ahead, we continue to see significant opportunity to unlock our full potential in the North America region.
In closing, across the company we continue to take big steps in our discipline execution of the PVH Plus plan. With a strong focus on all that is within our control, I feel very confident that we will continue to deliver further building on the traction we have across both brands and all regions.
while successfully navigating the choppy macro.
Last quarter, I highlighted the strength we are building in the leadership team and how I see talent as the key driver of the PVH Plus plan. And just last month, we brought together our top 160 global leaders in New York to share progress, proof points, and learnings from the first year of our PVH Plus execution.
under the theme of Dream and Deliver.
It was so powerful to see our top leaders together, not only being fully united and committed to our vision, but also being clear on how to achieve it, and seeing so many of them sharing on stage many examples of what successful execution looks like. As I continue to travel extensively with our teams in the Marcus globally.
What's crystal clear to me is that no matter where in the world I go, there is incredible strength and untapped growth potential for both Calvin and Tommy. I also start my meetings with our team sharing my perspective that over 90% of our potential is still ahead of us. And I want to thank all our teams globally for being so engaged and so committed to the future.
in our reconciled and our press release.
As Stefan discussed, we are pleased with our strong results for the first quarter, which exceeded our top line guidance by 2%, delivering constant currency revenue growth of 5% versus last year, and significantly exceeding our earnings guidance with earnings per share of $2.14.
We are building a track record of strong performance, delivering yet another quarter with top and bottom line results above guidance as we fought hard to win in the challenging macro environment. We are building a track record record of strong performance, delivering yet another quarter with top and bottom line results above guidance as we fought hard to win in the challenging macro environment.
Looking forward, following our strong first quarter, we are reaffirming our four-year revenue and EPS outlook. Looking forward, following our strong first quarter, we are reaffirming our four-year revenue and EPS outlook.
We are continuing to build momentum in the execution of the PVH plus plan with our first half outlook in line with plan.
And at the same time, we acknowledge that macroeconomic uncertainties still exist with a consumer sentiment tempered by inflationary concerns. As such, we continue to plan for 2023 with a healthy balance of optimism and prudence.
I will now discuss our first quarter result in more detail and then move on to our outlook. Our constant currency revenue growth of 5% in the first quarter was driven by both our Tommy Hill figure and Calvin Klein brands.
On a reported basis, revenue was up 2% for the quarter, which reflected a 3% negative impact from exchange. Starting from a regional perspective, first quarter revenue for our international businesses was up a strong 9% on a constant currency basis.
Within our international business, strong consumer demand and cut through marketing campaigns drove outstanding results across the Asia Pacific region.
Revenues for Asia Pacific were up 18% on a reported basis, including an 8% negative impact of exchange.
And China was a particular bright spot with 44% growth in local currency following the lifting of COVID restrictions in the fourth quarter. Revenue in our European business was up mid-single digits in Euros, excluding the negative impact from the Russia exit in 2022. This was in line with expectations and building on top of a very strong first quarter in 2022.
Overall, excluding Russia, our European business in the first quarter was 35% larger than in the same period in 2019 in Euros. In North America, our focus has been on driving growth in the direct-to-consumer business, and we delivered 14% growth in DTC for the quarter.
With strong performance in both our retail stores and our own and operated digital commerce business, and importantly driven by improvement in sales to domestic consumers compared to the prior year. With strong performance in both our retail stores and our own and operated digital commerce business, and importantly driven by improvement in sales to domestic consumers.
wholesale sales in the region were down as planned, primarily in our Calvin Klein business, as retailers continued to take a cautious approach due to the elevated levels of inventory industry wide.
From a channel perspective, we continue to focus on driving performance in our direct consumer business.
where we have the closest connection to our consumer and can deliver the PVH plus plan with greatest impact. And we delivered strong growth in both our stores and our own and operated digital commerce business for the quarter. And we delivered strong growth in both our stores and our own and operated digital commerce business for the quarter.
Our DTC revenue was up 12% on a constant currency basis, reflecting double-digit growth in both Asia-Pacific and North America, and up approximately 250 basis points as a percentage of our total revenue compared to last year as we accelerate our DTC growth in line with our PVA's plus plan strategies.
On a reported basis, DTC revenue was up 8%, which reflected a 4% negative impact from exchange.
Our global brands also continued to deliver solid growth. Tommy Hilfiger revenues were up 8% on a constant currency basis.
and Calvin Klein revenues were up 3% on a constant currency basis, with Calvin Klein more reliant on wholesale in the U.S. As Stefan described in depth earlier, our successful cut-through marketing campaigns and collaborations fueled growth in both brands this quarter.
With the Shawn Mendez collaboration driving strong demand for Tommy Hilfiger, and in Calvin Klein, the highly successful Calvin's or Nothing campaign.
Together with Jennie Kim, June Cook, and other strong ambassadors driving incredible brand engagement and demand.
Reported revenues were up 5% for Tommy Hilfiger and flat for Calvin Klein. In the first quarter, we deliver gross margin of 57.9%, a decrease of 50 basis points compared to last year, despite a 150 basis point negative impact on product costs due to exchange. Gross margin reflects a significant favorable shift in mix.
with our higher margin DTC and international businesses making up a larger portion of total revenue. Additionally, freight costs were down as we used less air freight due to our supply chain having fully recovered back to pre-pandemic on-time delivery rates and transit times. Price increases were more than offset by higher product costs.
including the negative impact exchange previously mentioned and the full impact of abnormally high raw material costs.
SG&A expense as a percentage of revenue for the first quarter was 48.7% and lower than expected largely due to timing of expenses shifting from first to second quarter.
The slight 30 basis points increase versus last year is more than explained by the shift in NICS towards our DTC and international businesses. We continue to take a disciplined approach to managing expenses.
driving cost efficiencies while making targeted investments in strategic areas to fuel growth.
In total, even for the quarter was $199 million, exceeding our expectations due to strong revenue performance and lower expenses.
Operating margin was 9.2%, which included the 150 basis point negative impact of exchange on our gross margin.
Earnings per share increased 10% to $2.14 compared to $1.94 in last year's first quarter and exceeding our guidance by 24 cents largely driven by improvement in EBIT, with about half of that beat due to timing differences between the first and second quarters.
Earnings per share for the quarter also included an 11-cent negative impact compared to the prior year related to exchange translation.
Our tax rate was approximately 23%. In line with previous discussions, our inventory levels continue to sequentially improve, and we now expect to have inventory and sales fully aligned by the end of the second quarter.
Overall inventory was up 24% at the end of the quarter compared to the prior year period, with sequential improvements in all regions.
As we've discussed previously, inventory levels were abnormally low in the first quarter last year due to supply chain and logistics disruptions.
The supply chain is now fully recovered to pre-pandemic levels, with on-time deliveries back over 98% in all regions. Our inventory at quarter end reflects those earlier receipts of inventory, along with the full impact of higher product costs compared to last year.
We continue to work relentlessly to drive results. Our strong first quarter performance is a testament to the power of our two global brands, Calvin Klein and Tommy Hilfiger, and our ability to navigate this volatile macro environment. And now moving on to our outlook.
For the full year, we are confidently reaffirming our guidance on all dimensions. The new is projected to increase 3-4% as reported and 2-3% on a constant currency basis.
Along with our operating margin outlook of 10% and our EPS projection of approximately $10 per share. Regionally, our outlook remains unchanged as well as our overall first half plan is in line with our initial projections.
Europe and Euros and North America are both planned to grow low single digits, with strong growth in our direct-to-consumer channel tempered by wholesale revenue as retailers remain cautious on orders, especially in the US.
We expect our strong performance in Asia Pacific to continue, with growth in the region planned up low double digits. This reflects broad base growth across the region, led by China, where easing of COVID restrictions has led to a strong rebound in demand for both brands. Additionally,
We expect strong growth in other key markets as our product strategy and cut-through marketing campaigns are driving demand across the region. We continue to expect our full year gross margin rate to increase over 100 basis points compared to 2022.
Despite approximately 100 basis points of higher cost due to exchange. The improvement in our gross margin reflects an approximately 100 basis point benefit from my favorable shift in channel and regional mix.
as we continue to drive growth in our higher margin DTC business. In line with our PBH Plus plan strategies.
And our DTC and international businesses make up a larger portion of total revenue.
And we expect to deliver approximately 100 basis points of improvement due to lower freight costs, a combination of both significantly lower air freight spend, and a material decrease in ocean freight rates, both of which are an outcome of the significant improvements we've driven in stabilizing our supply chain, which is now performing back at pre-pandemic levels.
We expect gross margin improvement to grow and impact each quarter through this year. We continue to expect that SG&A expense as a percentage of revenue for the full year will increase approximately 70 basis points compared to 2022, with our investments in DTC and mix of international business driving higher.
We continue to drive cost efficiencies across the business and evolve our ways of working.
We are making progress in our plans to implement the people cost actions we have shared previously and aim to achieve our targeted 10% people cost reduction in our global offices by the end of the third quarter.
Our four-year operating margin projection continues to be approximately 10% and reflects high single-digit EBIT growth.
Interest expense is projected to be approximately $100 million, and our tax rate for the year is estimated at approximately 24%. For the four year 2023, we continue to project earnings per share to be approximately $10, up 11% compared to 2022.
Turning to the second quarter, our overall revenue is in line with original plans, and is projected to increase low single digits on both a reported and constant currency bases compared to the prior year.
The PVH Plus plan is driving growth by delivering the best-selling hero products that drive brand desirability, cut through marketing campaigns that drive strong consumer engagement and elevate the consumer experience, and strong performance in our DTC businesses.
Second quarter earnings per share is projected to be approximately $1.70. As our PVH Plus plan execution builds momentum, we are planning higher second quarter SG&A investments with a particular focus on marketing where our spend is planned to increase by over 20% versus last year as we invest in cut-through brand campaigns that ignite our talent and influence.
that we are pleased with another strong quarter to start the year. We are confident in the business and our ability to win in a challenging environment and committed to driving top-line growth, improved profitability, and strong double-digit EPS growth in 2023.
Thank you. At this time, if you would like to ask a question, please press the star and one on your touch tone phone. You may remove yourself from the queue at any time by pressing star 2.
Once again, that is Star 1 to ask a question.
Our first question comes from Bob Derboh with Guggenheim. Good morning and congratulations on a great start to the year. I guess just trying to keep at high level today with you guys, but you had a really, you know,
solid first quarter making a lot of progress against the PVH Plus plan but you're not raising your guidance for the year. I'm just wondering if you could just maybe walk us through the dynamics on you know really where you think the business is and when you look at the expectations that you had going into the year you know any of the
the dynamics that you see, how you think about the numbers from this perspective. That would be helpful. Thank you. Thank you, Bob, and good morning. Let me start answering your question by sharing why I feel so good about our beat in the first quarter. If you look at both Tommy and Calvin, we are winning with product.
We're winning with the consumer engagement and we're winning in the marketplace execution and we do that across all three regions. We do it in an increasingly systematic and repeatable way through the PVH Plus execution. The best way to describe this, what this really means is...
starting with the cut-through campaigns. For both Calvin and Tommy, we are in a very systematic way driving consumer engagement through cut-through campaigns that are amplified by our influence regents. So for Calvin, it's within...
the cut-through campaign under the Calvin's or Nothing umbrella, this quarter generated some of the strongest consumer engagement in the history of the brand. So I mentioned Jenny Kim, John Cook, Michael B. Jordan, Kendall Jenner. Just this campaign alone during the quarter drove 1.7 billion impressions globally.
1.6 million new followers on the brand social media platforms. And then we look at Tommy. Tommy come to market through and drive engagement through Tommy's classics Reborn campaign. And during the quarter the brand generated Tommy generated 5.5 billion impressions of 56 million.
in social engagement during the whole quarter, amplified by talent like Sean Mendez, but also through long-term collaborations the brand has had for many years, but we amplify those differently now through the talent and the influencers. So the Mercedes Benz Formula One collaboration.
in the most recent race in Miami, we really amplified it with talent, with a collaboration. So you start to look at...
Why we drive this strong performance despite the choppy macroistic the strength of the brands come to life through these strong Campaigns then these campaigns they play into a very strong product category offense So in Calvin that means underwear shirts denim pants outerwear in Tommy it means polos shirts khakis
sneakers, also outerwear. So we have the campaigns play into the biggest and most important product categories for the consumer. And that's where we focus and that's where we play to win. Within those categories, we build hero products. So one example in Tommy is the 1985 program.
Double digit growth, Calvin's Modern Colton Program, double digit growth. So you start to see the campaign connects to the category of funds connects to the hero products, and then it connects to most importantly, it connects to how we execute in the marketplace. So where you see that we have the most control of the execution is direct to.
year, we will just continue to gain traction. Then in addition to this, we are building the strength in the underlying business engine. So the demand-driven supply chain, we are really starting to get traction. We are back on better than pre-pandemic supply chain operations 101. We start to be able to shorten our lead times.
we start to buy closer to demand. We replenish our key essentials in a much faster way and then to Saks point on the investment we start to target investing in these growth drivers that I just went through so marketing increasing from 5 to 6 percent of sales.
and then we drive our efficiency. So look at it as the PVH Plus plan comes to life, consumer facing and the underlying business engines and in a very systematic repeatable way. So coming back to the specifics of your question, in a normal year, Bob, with all this traction, we would have most likely flown this through.
because we keep gaining this traction all across the company. And I just, having done this a few times as I mentioned, I know when that inflection point happens when you start to see traction just building. But at the same time we are prudent, we are in it for the long-term value creation for shareholders.
and we recognize we're in a choppy macro. So that's why we decided to, even though we beat, and why we beat is systematic and repeatable and we see it continue, we recognize the choppy macro and we decide to reaffirm the guidance.
Thank you very much.
Thank you. Our next question comes from Jay Sol with UBS. Great, thank you so much. I want to follow up on your comments on supply chain. It sounds like the supply chain is really starting to operate back to pre-pandemic levels. Some of the changes that you've been implementing are starting to happen.
What kind of visibility do you have into seeing the company's supply chain really evolve to the point where it can be fully delivering the kind of results that you want? To really maximize the PVH Plus plan and to get it to where you want to be? How long do you think it will take to get there now that the supply chains are sort of back to normal?
Thank you, Jay. It's a really important question around a really important value driver that I would say right now we're in the early innings of unlocking a demand-driven, building a demand-driven supply chain. So having David Sadman...
with his H&M experience come in and help spearhead this with our leaders across our brands, across our regions, within supply chain. We're seeing right now much better visibility to what this could look like. So let me give you a few examples. So on-time delivery, we had supply chain...
related issues coming out of COVID, we are now in a better place than what we were before COVID. So we are able to start to cut production lead times and cut delivery lead times. And we are doing that right now. And that also, in parallel to that, we are able to better improve our forecasting and buying.
closer to demand. So over time you will hear us lay out how we see that we will be able to run with much lower inventory levels in relation to sales than a traditional company in our sector. So, but early days still, but this is going to be a multi-year unlock, but it's bit. Yeah, and I think from a financial perspective, we're already beginning to see
some of that payoff. Air freight has now gone to practically zero because of that level of certainty. We just finished negotiations on second half ocean freight rates and they're down greater than 50%. And I think what we're really excited about, and lastly, and probably most impactfully over time, is the beginnings of that impact on product costs.
So finally in holiday 23, we're starting to see both the combination of a raw materials market that's moving in our favor as well as some of the supply chain issues that Seth was talking about starting to move product costs down and that becomes increasingly impactful as you move into 24 as we're working on spring 24 product costs right now. So again, it's not you know, it's being to show up tangibly in
the financial performance as well. It's a mindset shift, Jay, that we are driving across the company. When we have now set out our vision to build Kavan and Tommy into the most desirable lifestyle brands in the world and make PVH one of the highest performing branders in the sector, we are changing the mindset. So historically, if we were to see that
to Saks point the macro cost in Affecting our cost of goods is going down with X percent That would be what we would do now. We say it's going to go down with X percent plus The improvement we are driving given that we are going to execute better
than the macro. So you will see over time, you will increasingly see how we do something plus than stepping up because that's the power of the vision now and the power of the PVH plus plan that we have set out to become one of the highest performing branches in the sector.
and we have a leadership team and leaders across the company that very much shares that mindset now. Got it, that's great, thank you so much. Thank you, our next question comes from Ike Boruchow with Weld Fargo.
Hey, thanks so much. Zach, maybe just some commentary a little bit more on the underlying success that's driving the cost efficiencies in the business model. And then if I got a little bit more specific based on the SG&A that's a little lumpy in Q2, if the brand investment that you guys are making is driving engagement.
and future sales and customer growth. Do you guys think that you would potentially add more advertising in the back half if it makes sense to you? Just kind of think about how you're weighing the pros and cons of investment and ad spend right now. Thanks.
So this is Stefan and then I'll hand over to Zach. Just on the highest level, the way we drive cost efficiencies that I see from leading the whole company is the power of the vision and the power of the focus on PVH+.
makes it a very clear filter to make decisions around cost and investment. Is it driving one of the five value drivers or not? And again, being a big company, having been in business for a long time, there is a lot of cost that doesn't necessarily connect into driving towards the vision of driving PBH+. And that's where SAC and PBH-
The final team is doing a really good job.
Again, shifting mindset and asking those questions and one of the key ways we drive efficiencies is to first to connect all investment and cost decisions to the PVH plus but also aligning how we work, aligning our organization.
with the execution of the PVH+. Absolutely. I think in the first quarter, SG&A looked up 30 basis points, but if you take out the increased DTC penetration and the outsized growth in our international markets, especially Asia, which we know come with heavier SG&A.
we continue to deliver SG&A efficiency of over 100 basis points again. So that work we started in the back end of the year, that continues. As Stefan mentioned, the core element thus far has really been aligning all spending to the PBH Plus plan drivers, which on its surface sounds simple, but in reality, we are a company that's been...
built together over the years via acquisition and the opportunity to rewire ways of working to operate under a single strategy and a single vision of working itself is driving efficiencies out from there and then we come in with the more structural things that we know that we're talking about. But we're really excited though to your point on investment and marketing in the second quarter and I think it's a sign of our confidence in how the year is shaping up.
We are going to be spending more on marketing, 20% more in the second quarter than last year. Stefan talked already a lot about this is coming through in ways that are, it's not just spending for spending. These are increasingly visible, impactful campaigns that the consumers are seeing and feeling. And we do expect to maintain those increasing level of investments through the rest of the year. And I think that is, if anything, a sign of our confidence that we're looking for to the businesses. We know that's going to drive the outcomes that we're looking for.
we've seen the results so far throughout this year.
so far throughout this year. Got it. Thank you.
Thank you. Our next question comes from Dana Telsey with Telsey Group. Hi. Good morning, everyone. As you think about North America, where you've brought customers back, for each brand, what do you see as the path forward and the opportunity where you are now versus where you are now?
we are winning more with the domestic consumer in North America because as you all have heard us sharing is pre pandemic we were over reliant on on the international traveler and we are really leaning into tapping into the full potential of driving brand a creative growth in North America so starting with
Tommy and or I can take both Tommy and Calvin you see it already now in double digit growth in D2C in a very tough choppy market and so we are executing the PVH plus plan we are executing better category offense better hero products better consumer engagement and better marketplace execution across the channels so what you will see step by step is how we make them.
our story and that connection with the consumer best. And we saw you know significant increases in revenue across both brands and across both channels for the year so for the quarter. So landing mid-teens growth in what Stefan had said is by no means an easy environment out there in that regard. So I think it's showing up as well.
in the numbers that we're generating and the places that we get the chance to touch our consumers most closely. And Dana, just also connecting it back to, I'm going to be very consistent in coming back to the biggest value driver to make the PVH Plus come to life is talent. So if you look at talent...
for Calvin in globally and North America. So globally we have Eva in seat now with her tremendous Inditex experience, really starting to drive strength in products, strength in marketing, very strong marketing, Jonathan our CMO in Calvin. Together with Eva under her leadership we have Donald Kohler.
for Calvin Klein in North America with extensive Burberry turnaround experience that are very similar to what we are doing in terms of unlocking brand accretive growth in the North American market. So Eva, Donald, Jonathan and the whole team under them.
really coming together around building brand accretive growth with the domestic consumer. So early days, but also in Tommy very excited to see Emma who's leading our D2C business in Tommy North America leading our wholesale business.
very across both Calvin and Tommy and both teams. We see how we are very consistent in finding ways to strengthen product quarter by quarter, strengthen consumer engagement, and then strengthen the D to C office, and strengthen...
our key wholesale partnerships, being very mindful of looking at our wholesale partnerships as our best full price expression of the brand as well. We have now time for one more question. Thank you. Our next question comes from Paul Kearney with Barclays. Hey, everybody. Thanks for taking my question. Just with some of the kind of…
that we're seeing with North America Wholesale, do you kind of view the current market as an opportunity to maybe accelerate parts of your PVH Plus plan, whether it's further pull or change your mix towards DPC? Or conversely, are there parts of the PVH Plus plan that maybe need to be pushed off a little bit? Thank you.
Yeah, thank you, Paul. So what we are really pleased with, as we're shared earlier on the call as well is that the PVH-plus execution is gaining traction all across the company. And where we have most of the control of execution is indeed to see. So that's where you see both Calvin and Tommy.
really stepping up and on the wholesale side we see that our partners take more of a cautious outlook and And we are adjusting to that as well But we we are really leading into D to C and then in parallel we are leading in with our Key wholesale partners as I mentioned because it's if we see big upside in Further improving our category offense further improving our hero products further improving our presentation
further improving our inventory behind those and do that together with our key partners. So overall our distribution strategy remains the same which is to follow the consumer. In this past quarter and right now the consumer is resonating with...
the strength in the D2C execution and also in wholesale, but again, in wholesale, more of a cautious out there. Yeah, I think from an investment perspective, we're full steam ahead. Right, you take a look at focusing on those channels that we can have the most close connection to consumers. So investing in own stores, renovation, which we've talked about. So no.
expecting it to and so no slow down when investment perspective as we push into the rest of the year. And just as we close
I want to just reiterate that it's how we beat Q1 that excites us the most. That we are continuing to gain traction on the PVH Plus plan. We are early on a multi-year journey to drive Calvin and Tommy to us the most.
desirable lifestyle brands in the world and make PBH one of the highest performing brand groups. We are having heads down working on that and we look forward to continuing to share updates next quarter.
Thank you very much. This concludes today's call. Thank you for your participation. You may disconnect at any time.
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Good morning everyone and welcome to today's PVH first quarter 2023 earnings conference call.
At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question and answer session.
You may register to ask a question at any time by pressing the star and one key on your touchtone phone. Please note this call may be recorded and then I will be standing by if you should need any assistance. It is now my pleasure to turn today's program over to Cheryl Freeman.
Senior Vice President of Investor Relations. Please go ahead. Thank you, operator. Good morning, everyone, and welcome to the PVH Corp First Quarter 2023 Earnings Conference Call. Leading the call today will be Stefan Larsen, Chief Executive Officer, and Zach Coughlin, Chief Financial Officer.
This webcast and conference call is being recorded on behalf of PVH and consists of copyrighted material. It may not be recorded, rebroadcast, or otherwise transmitted without PVH's written permission. Your participation constitutes your consent to having anything you say appear on any transcript or replay of this call. The information to be discussed includes forward-looking statements that reflect PVH's
objectives, expectations and intentions, and the company's ability to realize anticipated benefits and savings from divestitures, restructurings and similar plans such as the planned cost efficiency action announced in its second quarter earnings release and its 2021 sale of assets up and its exit from its heritage brands business to focus on Calvin Klein and Tommy Hilfiger businesses.
PVH does not undertake any obligation to update publicly in a forward-looking statement, including without limitation, any estimates regarding revenue or earnings. Generally, the financial information and projections to be discussed will be on a non-GAAP basis as defined under SEC rules. Reconciliations to GAAP amounts are included in PVH's first quarter 2023 earnings release, which can be found on www.pvh.com and in the company's current report on Form 8K furnished to the SEC in connection with the release.
At this time, I am pleased to turn the conference over to Stéphane Lersin. Thank you, Cheryl. Good morning, everyone, and thank you for joining our call today. We had a strong start to 2023, delivering performance ahead of expectations for both the top and bottom line, driven by our disciplined execution of the PVH Plus plan. We grew first quarter revenue up 5% in constant currency and up 5% in constant revenue.
addition to double-digit EPS growth, at the same time making strategic investments in areas such as marketing, the shopping experience, and the supply chain to drive long-term brand accretive growth. I'm starting to see leaders all around the company leveraging the clarity of direction.
this a few times. I know that when I see my leaders, whether it's significant product and marketing improvements in Calvin, igniting the influence of marketing and D2C for Tommy in North America, or a new global brand campaign for Tommy connecting back to the brand's DNA or supply chain improvements globally.
or a new level of cost-efficiency work led by our finance team, then I know that we're on the way to transform this company. I feel very good about how we deliver on our near-term commitments while maintaining a strong focus on our long-term vision to build Calvin Klein and Tommy Hilfiger into the most desirable lifestyle brands in the world.
and position PVH as one of the best performing brand groups in our sector. Our PVH Plus plan guides us on this journey and is centered around five key growth drivers. The first is winning with product. The second is winning with consumer engagement. The third is winning in the digital ELAD marketplace.
The fourth is developing a demand and data-driven operating model. And the fifth is to drive efficiencies and investing growth. Let me start by sharing an update on how we deliver against each.
Everything starts with winning with product. It's the most important part of the brand promise, driving brand desirability and building consumer loyalty over time. Having the best product in the market gives us pricing power and drives margin expansion. In the first quarter, we made significant strides here. We continue to advance.
driving increasing strength in hero products. We're just in the beginning of tapping into our full potential.
We then win with consumer engagement by connecting our hero products with culturally relevant aspirational talent.
This comes to life in three ways. First, we develop cut-through brand campaigns every season. Second, we ignite the power of our influencer engine. And third, we elevate the consumer experience at every touch point. In Q1, you saw this executed really well in both Calvin and Tommy.
generating very strong consumer engagement with billions of impressions across both brands. I'll share more specific proof points in my brand update in a moment.
What I want to emphasize here though is that these campaigns form a powerful brand halo and ignite our talent and influence ranging globally. As we shared with you last quarter, we're stepping up our investments here in a very targeted way. In addition to increasing our strategic investments in marketing, we are enhancing the brand experience.
digit growth in our own and operated e-commerce. Overall, we are focused on driving our direct-to-consumer offers while at the same time deepening our relationships with key wholesale partners.
We continue to make early progress towards building a demand and data-driven operating model that connects the planning, buying, and selling of inventory much closer to demand. In the quarter, we executed excellent on-time delivery performance, shortening transit and production lead times.
and improving forecasting and buying. We're getting closer to the consumer with a more responsive replenishment model that ensures that we're never out of stock on core essentials and hero products, already in Q1 driving significant comp increases in many of those products.
As we're investing to fuel growth, we also remain focused on driving cost efficiencies and improving our overall cost competitiveness.
We continue to make progress to align our organization to the PVH Plus plan through the cost actions we have shared previously. Next, I'll share some highlights that demonstrate how we are connecting our brands with the consumer and driving brand desirability around the world.
Starting with Calvin Klein, we generated some of the highest consumer engagement in the history of the brand, driven by the most impactful version of our Calvin's or Nothing campaign to date. The campaign on its own had incredible impact, 1.7 billion impressions across PR and social media.