Q2 2023 PVH Corp Earnings Call

Operator: Good morning, everyone, and welcome to today's PVH second 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. [Operator Instructions].

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.

[Operator Instructions].

Operator: Please note this call will be recorded and that I will be standing by should you need any assistance. It is now my pleasure to turn today's call over to Sheryl Freeman, Senior Vice President of Investor Relations. Please go ahead.

It is now my pleasure to turn today's call over to Cheryl Freeman, Senior Vice President of Investor Relations. Please go ahead.

Sheryl Freeman: Thank you, Operator. Good morning, everyone, and welcome to the PVH Corp second quarter 2023 earnings conference call. Leading the call today will be Stefan Larsson, Chief Executive Officer and Zach Coughlin, Chief Financial Officer.

Sheryl Freeman: 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. This webcast and conference call is being recorded on behalf of PVH and consists of copyrighted material. Your participation constitutes your consent to having anything you say appear on any transcript or replay of this call.

Multiple: [Sheryl Freeman] The information to be discussed includes forward-looking statements that reflect PVH's view as of August 30, 2023, of future events and financial performance. These statements are subject to risks and uncertainties indicated in the company's SEC filings and the safe harbor statement included in the press release that is the subject of this call. These include PVH's right to change its strategies, objectives, expectations, and intentions and the company's ability to realize anticipated benefits and savings from divestitures, restructuring from similar plans, such as the planned cost-efficiency action announced in August 2022 and its 2021 sale of assets of and exit from its Heritage Brands business to focus on its Calvin Klein and Tommy Hilfiger businesses. PVH does not undertake any obligation to update publicly any forward-looking statement, including without limitation any estimates regarding revenue or earnings. Generally, the financial information and projections to be discussed will be on a non-GAAP basis as defined under SEC rules. Reconciliations to GAAP amounts are included in PVH's second 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'm pleased to turn the call over to Stefan Larsson. [Stefan Larsson] Thank you, Sheryl and good morning everyone. And thank you for joining our call today. For the second quarter, we delivered another strong performance. We grew revenue by 4% on the recorded basis and 2% in constant currency and we beat expectations on our bottom line on the non-GAAP basic, driven by our discipline execution of the PVH plus plan, our long-term brand building growth plan. In the quarter, we again drove double digit growth in our direct to consumer businesses with double digit increases in both our stores and in our own and operated e-commerce which are the channels where we are able to impact the shopping experience the fastest.

So, looking ahead, we will continue to build out this work, starting with Tommy's fall campaign, which is right now underway, featuring seasonally relevant key categories and iconic American families.

Let me now share a few Calvin Klein examples. The Calvin Klein brand is continuing to generate historically high levels of impact and engagement with our consumers in all key global markets.

propelled by our strategy of launching cut-through campaigns and igniting the talent engine. And in May the brand launched a highly successful collaboration with Jennie Kim.

sold through globally within days. They also launched an exciting partnership with some of the world's most iconic female athletes ahead of the much viewed World Cup.

Across the quarter, this strategy generated significant PR and social reach. Specifically in Q2, the Calvin Klein Influencer Engine was ignited by brand ambassadors including Jennie Kim, Kendall Jenner, John Cook, Kid Cudi, and more. These digital first campaign initiatives drove a stunning 828 million social impressions and 770 million PR impressions.

the quarter, this strategy generated significant PR and social reach. Specifically in Q2, the Calvin Klein Influencer Engine was ignited by brand ambassadors including Jennie Kim, Kendall Jenner, John Cook, Kid Cudi and more. These digital first campaign initiatives drove a stunning 828 million social impressions and 770 million PR impressions, both up significantly versus last year.

Calvin added 1.7 million new followers to Instagram and now has well over 1.5 million followers on TikTok. The brand recently launched its Fall 2023 campaign, highlighting iconic underwear, denim, and in the first time in many years, more refined sportswear products that we know our Calvin client consumers really love. We are looking specifically at Calvin product progress and we have a lot of progress coming there. As we focus on winning with the best product in the market, our teams have created the best global hero products for men and women that will be consistent across global assortments, which together with Core Essentials will account for 20% of the SKUs and a much bigger share of the total sales from the Fall 24 season and onwards. We are also accelerating innovation within our core product categories. For example, in underwear, we are bringing new fabrication platforms and performance elements into established programs such as the iconic Modern Cotton. Just like in the example from Tommy, Calvin is fueling a very strong product category focus, creating the best hero products in the market, then engaging their long-term talent partnerships and combining both to cut through in the marketplace. In parallel to improving the consumer-facing growth drivers, we are also committed to develop a demand and data-driven supply chain for both brands and we are making significant progress here. Our supply chain improvements continue to accelerate and will provide us with drastically improved inventory to sales ratio over the coming years.

With much higher on-time and accuracy in deliveries, shorter transportation lead times, more responsive production models, and more data-driven planning tools across our supply chain, we are now targeting a 25% decrease of our inventory levels as percent of sales. This decrease will be accomplished progressively as we move through the balance of this year and throughout 2024. And the exciting part with this is that we will be able to do this while at the same time improving product availability for our consumers across channels and geographies. Importantly, this will significantly improve our ability to match inventory to demand.

one of the highest value drivers in our business. There are several additional positive outcomes of this, including improving our cash flow and capital employed ratio from a financial perspective.

and even more importantly, reduce the pressure and operational cost of our logistics infrastructure. Lastly, as we are investing to fuel growth, we remain focused on driving cost efficiencies, enabling us to reinvest in the key growth drivers I just took you all through. During the quarter, we took the concrete actions we had previously shared in right-sizing our organization to simplify how we work, allow us to get even closer to the consumer and increase speed in our decision-making.

Now, turning to our regional performance and how we are connecting our brands and executing the PVH Plus plan across each region. Let me start with Europe . We continue to intensify our execution of the PVH Plus plan to further strengthen our market position in the region. For the second quarter, we delivered high single digit year-over-year growth on a recorded basis and low single digit growth in euros. Our European business is now nearly 30% larger than pre-pandemic levels in euros. For the quarter, we drove strong performance in our direct-to-consumer business where we continue to focus our efforts around elevating the consumer experience.

For Tommy, through our hero product focus, we drove success in our key categories, like the shirt category, which was tied to impactful summer marketing programs around key essentials.

We also continue to reinforce our key product categories by leaning into our top performers, such as the 1985 program, and at the same time continuously evolving our essential product programs across men's, women's and kids. And for Calvin in Europe , we are further sharpening our hero product focus and exciting with newness across categories.

we are deepening our hero product offer and lifestyle expansion we cut through marketing, while at the same time creating brand heat for exclusive product activations in power cities like London, Paris, Milan. A notable highlight for the region in Q2 was the grand opening of the Tommy Hilfiger store in Rome, Italy. It's our first ever owned and operated store in the city, situated on Via del Corso, Rome's prime and best shopping street at the heart of the Italian capital.

Looking ahead, our forward wholesale order book for the Spring 2024 season on a constant currency basis is expected to increase low single digits on top of very strong high single digit growth this past year as accounts remain conservative.

And as we have mentioned before, we are well positioned to capitalize on stronger demand in season through our Never Out of Stock programs. Moving on to Asia Pacific, the region continues to deliver very strong performance by engaging consumers with product campaign launches and driving brand heat with locally relevant talent.

underpinned by our hero product strategy, which generated double-digit increases at higher gross margins.

Our strong execution drove revenue growth of 16% in the second quarter on a constant currency basis, including over 20% growth in China in local currency and continued strong double digit growth in Japan and Korea.

We drove very strong e-commerce performance on nearly 25% growth in constant currency as we successfully captured key consumer moments including 618.

During the holiday, both brands moved up the rankings on digital platforms and achieved live streaming records of over 10 million.

Newer digital platforms such as Douyin continue to drive engagement.

Looking ahead, we will continue to supercharge e-commerce and are gearing up for major consumer moments such as Double Eleven and the Year of the Dragon with exclusive product capsules.

We are driving consumer excitement with product-led campaigns featuring regionally relevant and global impactful talent, such as Jenny and John Cook for Calvin, to expand brand awareness in the region. In China alone, we are leveraging more than 100 talent catalysts to amplify Calvin Klein hero product storytelling. And for Tommy for Fall, we are looking forward to introducing new brand ambassadors as part of the global campaign. We are looking forward to introducing new brand ambassadors as part of the global campaign.

We are also seeing proof points in Japan as international tourists are starting to rebound. We recently refit our Tomio Montezando flagship store in best location in Tokyo, which has generated strong improvements in sales with our central business growing plus 70% versus last year.

By leaning into the core growth drivers of the PVH Plus plan in Asia, we continue to have major untapped growth potential for both our brands by tapping into the underpenetrated brand awareness in China and across the region.

Turning to our business in North America, we continue to strengthen our North America PVH Plus plan execution across both brands, led by our direct-to-consumer businesses.

which increase mid single digits across Tommy and Calvin, driven by much stronger execution across all key elements of the PVH Plus plan.

We have also enhanced experience and performance of our own and operated e-commerce businesses and we drove double-digit growth there.

All this drove significantly improved profitability across the North America businesses in the quarter. And we are gaining very good traction in building a sustainable foundation for profitable, brand accretive growth for the region.

We are driving increased product strength with pricing power and improving the overall consumer experience and marketplace execution.

Beyond D2C, we continue to drive progress with key wholesale partners, working very closely with them to improve our brand's presentation in top doors and drive consumer demand by sharpening our category offense and leaning into our hero products and securing the inventory we need to fuel that demand.

Let me share some important proof points which highlight how our efforts to build our brands and businesses in North America are driving positive results.

First, we are advancing our category of funds with a re-established base of key essentials and hero products that resonate strongly with our domestic customer and driving growth across Tommy and Calvin's stores as well as e-commerce sites.

At wholesale, while our partners are more conservatively managing their business in a choppy macro, we are building a much stronger business with key partners such as Macy's.

In fact, for Tommy, in doors where we have strategically increased investments behind the brand to improve the consumer experience and inventory availability on the floor, we generated high single digit growth versus the prior year.

Also for Tommy, we drove over 20% year-over-year increases in key categories such as teas, woven shirts, underscoring the success of our global bestseller initiative that we have scaled over the last year in D to C and now scaling in wholesale.

Polos were once again the number one category, up over 30% year-over-year with higher AURs as we are elevating these key essentials.

For Kelvin, core premium essentials in DTC were the stand out, up nearly 30%.

And as we have done with Tommy, we have expanded this initiative to wholesale where the performance has also been strong.

Similarly, we also drove double-digit growth in refined product in D2C, as well as continued growth in D2C.

very well received by the consumer.

We will further expand both these areas as we move forward.

Operationally across the regions, we have made significant progress with our delivery times, now shorter than pre-pandemic levels.

Lastly, with respect to bringing our North America women's business back from G3, we have made very strong progress. We are in a great place with a multi-year integration work, both related to product development and the sourcing aspects needed. And we are working very closely with our wholesale partners on co-creating the Take Back plan. Looking ahead in North America, we continue to focus our efforts around the domestic consumer. lock lock lock irregular watching

to drive the business forward and see significant opportunity to unlock our full potential in the region.

And before I close the America section, I would like to take a moment to address the recent wildfires in Maui, where we operated a calming client store that was completely destroyed in the fire.

All our team members are safe. Luckily, our hearts go out to our Lahaina team and the entire Maui community.

We are doing everything we can to make sure our associates, their families and the broader community have the support they need during this incredibly difficult time.

In closing.

we executed another strong quarter.

I feel very good about how well our teams continue to deliver on our long-term PVH Plus growth plan.

with a relentless focus on driving brand desirability for both Calvin and Tommy, where we connect a very strong product offense, highly engaging marketing with a winning marketplace execution.

We are encouraged by our results, particularly our continued strong growth in D2C, and we are looking forward to tapping into the more than 90% of potential that still lies ahead of us.

With half of the year behind us, the other half still to go, we will continue our disciplined execution and successfully navigate this choppy macro environment as we have done so far. All while keeping our eyes locked on the long-term opportunity ahead of us to build Calvin Klein and Tommy Hilfiger into the most desirable lifestyle brands in the world and make us one of the highest performing brand groups in our sector.

With half of the year behind us, the other half still to go, we will continue our disciplined execution and successfully navigate this choppy macro environment as we have done so far, all while keeping our eyes locked on the long-term opportunity ahead of us to build Calvin Klein and Tommy Hilfiger into the most desirable lifestyle brands in the world and make us one of the highest performing brand groups in our sector. And with that, I'll turn the call over to Zach.

Thanks, Stefan, and good morning. My comments are based on non-GAAP results and are reconciled in our press release. As Stefan discussed, we are pleased with our strong results for the second quarter, driven by our iconic brands and disciplined execution of the PBH Plus plan.

We continue to build on our track record of strong performance, delivering on our top-line guidance, while exceeding bottom-line guidance as we compete to win in this highly dynamic global environment.

We delivered reported revenue growth of 4% for the quarter, with constant currency revenue growth of 2% in line with our guidance.

And we exceeded our earnings guidance with earnings per share of $1.98.

driven by lower expenses and a lower tax rate.

Additionally, we returned $200 million to shareholders during the second quarter to the repurchase of 2.4 million shares of common stock, which was earlier than planned and enabled by our strong balance sheet.

Importantly, our inventory levels at quarter-end are well-positioned, up 6% compared to last year and fully aligned with our projected sales growth.

And as Stefan mentioned, with the significant progress we are making to deliver a demand and data-driven supply chain, we now expect our inventory levels to be significantly lower than 2022 in the second half of 2023, and that improvement will continue through 2024 with our announced 25% reduction in inventory as a percentage of sales.

As we look forward to the rest of the year, we expect our strong first half performance to continue into the second half.

And as a result, our four-year business outlook remains largely unchanged. We are reaffirming our four-year revenue guidance and operating margin outlook and raising our non-GAAP EPS outlook to a record $10.35.

In addition to the continued strong delivery of our plan, the improvement in EPS is driven by two main factors.

an increase in share buybacks, and a decreased tax rate.

On the share buybacks, we are increasing our plan buybacks from 200 million previously up to 400 million dollars.

This supports our conviction in the execution of the PVH Plus plan and its long-term value creation, as well as our priority to deliver shareholder value.

For the tax rate, our outlook for our four-year rate is decreasing from approximately 24% to approximately 22%.

This is another step towards our multi-year commitment to deliver a sustainable rate in the low 20s.

While our revised outlook reflects our growing confidence in our second-half plan, we are also continuing to plan for 2023 with a healthy balance of optimism and prudence.

I will now discuss our second quarter results in more detail and then move on to our outlook.

Revenue was up 4% for the quarter, which reflected a 2% positive impact from exchange.

Second quarter revenue for our international business was up a strong 6% on a constant currency basis with growth in both Asia Pacific and Europe .

Revenues for Asia Pacific were up 12% on a reported basis, including a 4% negative impact from exchange, led by China, where revenues and local currency were up over 20% compared to last year.

In North America, our focus remains on driving strength in the direct-to-consumer business. We delivered another quarter of growth in both our retail stores and owned and operated digital commerce business, with total DTC up mid-single digits and importantly another quarter of improvement in sales to domestic consumers compared to the prior year.

We were especially pleased with the double-digit growth we drove in our digital commerce business in both brands as the investments we have made in the platform and overall site experience have begun to resonate with consumers.

Wholesale sales in North America were down as planned, primarily in our Calvin Klein business, as retailers continued to take a cautious approach and we focused on driving sell-through and healthy inventory across the channel. From a channel perspective, we continue to drive strong performance across all regions in our direct-to-consumer businesses.

where we have the closest connection to our consumer and can deliver the PVH Plus plan with greatest impact.

We delivered another quarter of strong growth in both our stores and our owned and operated digital commerce business.

With constant currency revenues up 10% and 11% respectively compared to last year.

Our total DTC revenue was up 10% on a constant currency basis in the quarter, and up approximately 350 basis points as a percentage of our total revenue compared to last year.

Also revenue was down 6% on a constant currency basis, as retailers continue to take a cautious approach, specifically in the US.

On a reported basis, DTC revenue was up 11% and wholesale revenue was down 3%.

Our global brands also continue to deliver solid growth with Tommy Hilfiger revenues up 6% and Calvin Klein revenues up 3% as reported driven by our hyper focus on investing to drive consumer engagement.

As Stefan described in depth earlier, across both brands,

We work with culturally relevant global talent and influencers.

like Jennie Kim and Lewis Hamilton, to authentically connect consumers to our iconic hero products.

And through some of the biggest events like New York Fashion Week, F1 Grand Prix, and the World Cup, and drove significant engagement and demand for the brands.

On a constant currency basis revenue for both brands was up low single digits.

In the second quarter, we delivered gross margin of 57.6%, an increase of 40 basis points compared to last year, despite a 120 basis point negative impact to product costs due to exchange. The second quarter, we delivered gross margin of 57.6%, an increase of 40 basis points compared to last year, despite a 120 basis point negative impact to product costs due

Gross margin reflects a significant favorable shifted mix.

With our higher gross margin DTC and international businesses making up a larger portion of total revenue and a favorable impact from freight compared to the prior year, consistent with the first quarter as we used virtually no air freight this quarter.

While we did experience a benefit from planned price increases,

This was more than offset by higher product costs, including the negative impact of exchange previously mentioned and the full impact of abnormally high raw material costs, in effect when orders were placed in the latter half of 2022 as that inventory sold through during this quarter.

Raw material costs have improved in 2023 and will benefit our gross margins as we move through the second half of the year and especially in 2024.

SG&A expense as a percentage of revenue for the second quarter was better than planned at 49.4%, largely due to timing of expenses between the second and third quarter.

We continue to make targeted investments to fuel growth throughout the quarter to drive the PVH Plus plan, including an increase in marketing compared to the prior year.

SG&A expense as a percentage of revenue was approximately 210 basis points higher than last year, reflecting the impact of the shift in mix to our DTC and international businesses, along with a planned increase in the investments mentioned earlier.

In total, EBIT for the quarter was $182 million, exceeding our expectations.

Operating margin was 8.3%, which included the 120 basis point negative impact of exchange on our gross margin.

Earnings per share was $1.98 compared to $2.08 in last year's second quarter and exceeded our guidance by $0.28, with approximately half of that beat driven by the improvement in EBIT I discussed earlier and the other half driven by a lower tax rate.

Our tax rate for the quarter was approximately 22%. We continue to work relentlessly to drive results. Our strong second quarter performance is a testament to the power of our two iconic global brands, Calvin Klein and Tommy Hilfiger. Our systematic progress toward developing a demand and data-driven operating model.

and driving cost efficiencies to enable us to invest in brand building growth. And now moving on to our outlook. For the full year, we are reaffirming our revenue and operating margin guidance and raising our EPS guidance by 35 cents from approximately $10 to approximately $10.35.

We continue to project revenue to increase by 3 to 4 percent as reported and 2 to 3 percent on a constant currency basis and operating margin for the year to be approximately 10 percent.

Regionally, our outlook for Europe is unchanged, planned up low single digits in Euros. Asia Pacific is now planned up low teens, compared to previously up low double digits, with broad-based growth in the region, led by China, where easing of COVID restrictions has led to a strong rebound in demand for both brands.

In North America, we are now planning four-year revenue down low single digits compared to previously up low single digits, which reflects a more tempered outlook on the improvement in the international tourist traffic in our U.S. stores for the balance of the year based on continued trends. Our second F outlook for our North America business is otherwise unchanged.

as we continue to expect strong growth in our owned and operated digital commerce business and the current wholesale trends to continue for the remainder of 2023.

We continue to expect our four-year gross margin rate to increase over 100 basis points compared to 2022, despite approximately 100 basis points of higher costs due to exchange.

The improvement in our gross margin reflects an approximately 100 basis point benefit from a 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 as we've indicated previously, we can say with confidence that we will deliver approximately 100 basis points of improvement due to lower freight costs, a combination of both significantly lower air freight spend and a decrease of over 50% in ocean freight rates.

both of which are an outcome of the significant improvements we've driven in stabilizing our supply chain.

We expect gross margin improvement to grow in impact in each of the third and fourth quarters.

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 expenses.

Additionally, as we discussed last quarter, we continue to invest in key areas that drive growth, including increased levels of marketing, with our four-year target at approximately 6% of revenue for the year compared to approximately 5.5% last year.

We've also made significant progress in our plans to implement the people cost actions we have shared previously.

With the actions taken in July and additional actions planned in the third quarter, we will have completed our target 10% people cost reduction in our global offices by the end of the third quarter earlier than initially planned, with an initial cost savings ahead of our targeted $100 million of savings net of strategic people investments.

Our four-year operating margin projection continues to be approximately 10% and reflects high single-digit percentage eBid growth.

interest expense is projected to be approximately $100 million, and our tax rate for the year is projected to be approximately 22% versus approximately 24% previously. We are confident in the strength of the PBH Plus plan and our ability to execute in the back half of the year, and as such, for the full year 2023, we are now increasing our non-GAAP earnings per share projection to approximately $10.35.

Up 15% compared to 2022, and a record high for PBH.

15% compared to 2022 and a record high for PVH. Turning to the third quarter.

Our overall revenue is in line with original plans and is projected to increase mid-single digits as reported and low single digits on a constant currency basis compared to last year.

Third quarter earnings per share is projected to be approximately $2.70 compared to $2.60 in the prior year.

As I mentioned, gross margin improvement in the third quarter is expected to grow in impact as the benefits we realize in the second quarter continue, including an even greater benefit from freight as we realize the full impact of lower ocean rates and the impact of abnormally high raw material costs begin to ease.

We are also planning higher SG&A investments in the third quarter with a particular focus again on marketing, where our spend is planned to increase approximately 20% versus last year as we invest in cut-through brand campaigns that ignite our talent and influencer engine globally and elevate the brands across consumer touchpoints, driving our continued momentum for the rest of the year. When):

Our tax rate for the third quarter is estimated at approximately 22%, and interest expense is projected to be approximately $25 million.

Before we open it up for questions, I want to reiterate that we are pleased with another strong quarter. As Stefan talked about earlier, we are laser focused on delivering our commitments by executing the five key growth drivers of the PVH Plus plan.

bringing together the consumer-facing value drivers of product, consumer engagement, and marketplace with the underlying operating engines and delivering consistent results in a systemic and repeatable way.

And with that operator, we would like to open it up to questions.

At this time, if you would like to ask a question, please press star one on your telephone keypad.

You may remove yourself from the cue at any time by pressing star 2.

Once again, if you would like to ask a question, please press star 1.

Our first question comes from Bob Derbel with Guggenheim. Please go ahead.

Hi, excuse me, good morning. Just a couple questions for you on North America. Can you just elaborate a bit more just on the traction that you are gaining in North America, especially an update on the profitability. And then I guess the second question around North America is just some of the commentary you made around US wholesale. Can you just expand a little bit more in terms of what you're seeing in your assumptions into the back half of the year on the US wholesale business next?

Well, good morning and thanks, Bob. What's really exciting for us to see and to share this quarter is that the critically important work that we started a year ago to build this sustainable, strong foundation for brand accretive growth in our home market, both Calvin and Tommy, we loved in America. We hadn't put enough focus on the domestic consumers. So as part of PBH Plus, we put laser focus on building this sustainable foundation. And as we have mentioned through the quarters, we have seen under the surface improvements, but this is a pivotal quarter because you can all see it. And starting with Calvin and Tommy, both driving mid-signal digit growth in D2C in a very choppy macro. And we are driving this growth both in stores and in e-commerce. And it's directly driven by the PBH Plus execution in product marketing and the marketplace execution. So what do we see? We see that AURs are up.

We see that the gross margin rate is up. We see that through the simplification of how we work and get things done, we see that it flows through in EBIT rate improvements. In fact, we'll be able to take you through a little bit more details on that. But it's really a pivotal moment where you now see the proof points that we have been working on over the past year. And mentioning a little bit more about how we do this from a PVH Plus perspective. Because across both Calvin and Tommy, we start with

leveraging the strength and the brand love for the brands. Then we build out category offers and best hero products. And you can see in Tommi this quarter, the global bestseller strove 20% growth. And this is again, in these market conditions, 20% growth. And in Calvin, the premium essential strove 20% growth as well.

So we see that the category of fans and the hero products are paying off, resonating really well with the consumer. And then we have gotten better and better on connecting the brand and the products with the talent partnerships that we are building out. So we are building out long term talent partnerships.

where we have talent amplifying our products, amplifying our brands, and then we connect the product, the brand, the products, the talent with big events that are culturally relevant, whether it's New York Fashion Week or it's Formula One in Miami. So we're starting to create the flywheel with bringing the brands to life closer to their full potential. So that's the consumer-facing brand desirability improvements, but then we combine that with the underlying business engine. So as I shared in my prepared remarks, what's really exciting is that this quarter we're also able to take a big next step towards the demand-driven supply chain. So think about it, we're setting out to drive higher growth with 25% lower inventory. And then you might ask, how's that possible? Well, it comes back to three things. It comes back to the category-focused, the hero product-focused, the increased discipline in how we build assortment and then how we plan that closer to demand, we're cutting our lead times, and then how we improve the allocations. So you have the consumer-facing improvements and then you have this underlying business engine, and then on top of that you have the efficiencies and the simplification of how we do the work. And that is what you start to see now in the P&L. So, Zach, do you want to complement that? Yeah, I mean, a significant step up in profitability for both Tommy and Calvin in the quarter of North America. Greater than 6% in Tommy, greater than 8% in Calvin. I think what we love about that result is how widespread that improvement was.

Improvement across both brands, improvement across all channels across both brands, and higher gross margin percent and stronger SGA management. So really a widespread step forward. So, you know, mid to high single digits is really only the first step in our commitment towards low teams, but it's an important one and a sizable one this quarter. Yeah. Thanks, Zach. And, Bob, when it comes to US wholesale, we know that the channel is choppy and challenged, but what's exciting under the surface here again is that when we lean in with our most important partners like Macy's, and we focus on bringing PVH Plus to life for Calvin and Tommy together, we see some really encouraging results. So this past quarter, as we mentioned, we were able to drive significant growth in the pilot doors, in the doors where, the top doors where we execute the category of the hero products. We have the inventory, we have the vendor, we worked with Macy's to have more staffing on the floor. So we treat it more as the best expression of our stores. And then we see immediately the performance driving. So it's another proof point that over the next few quarters, we will build out together with our best wholesale partners. Thank you. We'll take our next question from Jay Sol with UBS.

Great, thank you so much. Stephen, I'm interested in your comments on delivery times improving the inventory reduction you're talking about. You just mentioned simplification. Can you maybe just talk about the developments in the supply chain side of the PVH Plus plan over the last 90 days and give us an idea about how that part of the plan is trending and what you're seeing there and how you're getting some of these improvements that you're talking about? Yeah, absolutely. Thanks, Jay. So let's just start with we really strengthened our supply chain leadership when David joined us with his H&M group experience. And he was able to work with our strong team to just get them more focused on and get us more focused on getting the basics right to start with. Long time delivery, shorter transportation lead times, more responsive production solutions and models, more data driven planning tools. And in doing that work, and this is my experience having deep, deep conversations with our partners

experience in the supply chain side is you have to get the foundational pieces right. Then you have to work super closely upstream with the product creation teams. And once you have that done, which we got done sooner than expected, then we started looking at what could be a next breakthrough step. And then we realized that that breakthrough is much closer than what we expected. So that's what enabled us to set the target of 25% less inventory in relation to sales by the end of 2024. And we are already internally driving towards that. And that comes back to what I mentioned earlier. It's just

It starts with how we plan the assortment, how we build the assortment, and having an intention behind every single product. And then connecting that to better demand planning, and then connecting that to better allocation. And we see, so part of the D2C growth in North America right now is fueled by that better planning and that better allocation. We're just in the beginning, but the 25% is significant. And if you look at the value creation potential is that, it's real. And then you look at even the sustainability component of instead of running the business with too much inventory at any given time that most do in our sector, we're able to get much better match between what we create, plan, and produce is actually much closer to what the consumer wants. So yes, very exciting.

We'll take our next question from Mike Borchow with Wells Fargo. Hey, this is Robert on behalf of Ike. Just had a quick question on, do you have any reads on your fall products by brand?

Yeah, thanks Rob. So early days for fall but positive response. So Bosek and I mentioned that we are in great shape inventory wise and there are two perspectives, two dimensions of inventory. One is the level, so we are in great shape across the brands and across regions when it comes to the levels. We are also in great shape when it comes to the composition. The

So, we all know that it's so important in our sector to have fresh inventory, to when you start the fall season, to have more fall season product, more fresh products this year than what we had last year. And that's exactly where we are. And then we look at the initial sell-through reads of fall and positive across both brands, all regions. Very, but very positive.

We all know that it's so important in our sector to have fresh inventory, to when you start the fall season, to have more fall season products, more fresh products this year than what we had last year, and that's exactly where we are. And then we look at the initial sell-through reads of fall, and positive across both brands or regions. Early, but very positive. Thank you.