Q4 2023 PVH Corp Earnings Call
Good morning, everyone and welcome to todays PVH fourth quarter 2023 earnings conference call.
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It is now my pleasure to turn today's program over to Cheryl Freeman.
Sheryl Freeman: Senior Vice President of Investor Relations. Please go ahead.
Sheryl Freeman: Thank you operator, good morning, everyone and welcome to the PVH Corp, fourth quarter 2023 earnings conference call, leading the call today will be Stefan Larsson, Chief Executive Officer, and Dot Kaufman Chief Financial Officer.
Sheryl Freeman: This webcast and conference call is being recorded on behalf of PVH and consist of copyrighted material. It may not be recorded rebroadcast or otherwise transmitted without pvh's written permission. Your participation constitutes your consent to having anything you say appear on any transcript or replay of this call.
Sheryl Freeman: The information to be discussed includes forward looking statements that reflect pvh's view as of April 2024 of future events and financial performance.
Sheryl Freeman: These statements are subject to risks and uncertainties indicated in the Companys SEC filings and the Safe Harbor statement included in the press release that is subject to these.
Sheryl Freeman: These include Pvh's right to change its strategies objectives expectations and intentions and the companys ability to realize anticipated benefits and savings from divestitures restructuring and similar plans such as the planned cost efficiency actions announced in August 2022, the 2021 sale of assets of an exit from its heritage.
Sheryl Freeman: Brands menswear and retail businesses and the November 2023 sale of the heritage brands with intimate apparel business to focus on Calvin Klein and Tommy Hilfiger businesses.
Sheryl Freeman: <unk> does not undertake any obligation to update publicly any forward looking statements, including without limitation any estimates regarding revenue or earnings.
Sheryl Freeman: Generally the financial information and projections to be discussed will be on a non-GAAP basis as defined under SEC rules.
Sheryl Freeman: Reconciliations to GAAP amounts are included in Pvh's fourth quarter 2023 earnings release, which can be found on www PVH dot com and in the company's current report on form 8-K furnished to the SEC in connection with the release.
Sheryl Freeman: At this time I am pleased to turn the conference over to Stefan Larsson.
Stefan Larsson: Thank you Cheryl and good morning, everyone and thank you for joining our call today.
Stefan Larsson: For the fourth quarter and full year, we drove strong performance that was ahead of our guidance for both top and bottom line driven by the strength of our two iconic brands.
Stefan Larsson: <unk> and Tommy Hilfiger, and the disciplined execution of our PVH plus class. This included a very strong holiday season.
Stefan Larsson: For the fourth quarter, we drove double digit growth in our owned and operated E Commerce and high single digit growth in our stores.
Stefan Larsson: This was offset by a challenging wholesale channel, resulting in flat revenue overall for the quarter on a reported basis and down 1% in constant currency.
Stefan Larsson: We continued to drive quality of sales with higher AUR, and we expanded our gross margins by 440 basis points year over year.
Stefan Larsson: On a non-GAAP basis, we delivered 40% increase in EBIT dollars and $12, 1% EBIT margin and EPS growth of over 50%.
Stefan Larsson: For the full year, we grew revenue, 2% on a reported basis and 1% in constant currency, including high single digit fee to see growth, while expanding our gross margins by 140 basis points.
Stefan Larsson: And we drove a 9% increase in EBIT dollars and a 60 basis point increase in EBIT margins to 10, 1%.
Stefan Larsson: And we delivered EPS growth of nearly 20% and achieved a record high EPS.
Stefan Larsson: We ended the year with inventory in great shape down, 21% compared to last year and produce significant cash flow, which we used to buyback approximately $550 million of stock.
Stefan Larsson: Looking back on the first two years of PVH plus plan execution, you can see a clear trend in that when we lean in to execute we deliver we.
We have put 100% of our focus on our globally beloved iconic brands, Calvin and Tommy and divested all other regionally focused brands.
Stefan Larsson: We are building a very strong leadership team with experience to move PVH from our legacy brand acquirer to leading brand builder.
Stefan Larsson: Today, I'm, especially excited to share the clear rich Goldman is starting this week of Tommy Hilfiger global precedent.
Most recently, Tom Schall successfully leading to cost brands impressive global growth.
Stefan Larsson: Through the PVH plus plan, we've driven strong D to C growth for both 2022 and 2023 across all brands and all regions through strength in product marketing and marketplace execution.
Stefan Larsson: We have developed strong product category, Cte categories, and must have hero products significantly increasing AUR and gross margin rate.
Stefan Larsson: We are executing breakthrough campaigns.
Stefan Larsson: Very strong global talent amplification to really cut through with their call similar.
During 2023 calving drove more consumer engagement.
Stefan Larsson: Any other time in the history of the O'brien with Mega talent, such as Jenny Kim Jong Cook, Kendall Jenner, Michael B, Jordan, and most recently, Jeremy male and white and.
Stefan Larsson: And Tommy went back to its roots are classic American cool.
Stefan Larsson: Most recently created cost true global attention, we just return to New York fashion week.
Stefan Larsson: We have strengthened the brand experience across social e-commerce and stores.
Increasingly tough wholesale channels, we have deepened our relationships with our key partners and applied a strong quality of sales focus globally.
Stefan Larsson: Regionally, we have grown our European business in a very tough macro environment with our business today over $4 billion over 20% larger than 2019 and driving higher profits.
Stefan Larsson: We have started to successfully unlock north America, despite a choppy backdrop driving significant margin expansion, including an $8, 3% EBIT margin for 2023.
Stefan Larsson: And we are taking back our license of core product categories as part of a multiyear transition beginning in 2025, which will allow us to draw on the power and expertise of our global brands.
Stefan Larsson: We have also turned Asia two growth engines, where we are now taking share on a consistent basis.
Double digit constant currency revenue growth in both 2022 and 2023.
Stefan Larsson: As a company we have successfully started to build out our data driven operating model, we are reducing inventory as a percentage of sales, while driving higher availability of stock freshness and the quality of our product yourself the cost of goods is down and the pricing power is up.
Stefan Larsson: All leading to higher gross margins.
Stefan Larsson: We continue to invest behind our growth initiatives, including increasing marketing spend to approximately 6% of sales for 2023 to fuel Cup through campaigns and global talent amplification.
Stefan Larsson: All while driving cost efficiencies across the company.
Stefan Larsson: And we have significantly increased our cash flow enable us to invest in growth and increased our share buyback historically high levels over the last two years, we have repurchased nearly $1 billion of our stock.
Stefan Larsson: <unk> approximately 17% of our outstanding shares.
Stefan Larsson: Now, let me share a bit more of what drove our strong performance in the fourth quarter and full year, both from a global brand and regional perspective.
Stefan Larsson: Starting with Calvin Klein.
Stefan Larsson: Brand continued to come through we had record strong global okay.
Stefan Larsson: In the fourth quarter, our spring campaign with Jeremy Allen why capture global attention generating over $12 million in media exposure in the first 48 hours, reaching more than $40 million on the Brian Sanders Tegra.
Stefan Larsson: Our hero underwear style square in the heart of culture conversation, followed by Jeremy styling, Calvin's menswear Golden Globe win in.
In the U S alone one of the campaign generated more than 30% growth in underwear versus last year.
Stefan Larsson: The campaign continues Idris Elba menswear, Jenny Kim Kendall January womenswear and John Cook in our most iconic denim all to amplify our Calvin Klein lifestyle offering.
Stefan Larsson: Turning to Tommy Hilfiger in Tommy we continue to drive relevance by.
Stefan Larsson: By leaning into the brands unique DNA of classic American Cool, we started off the year with Thomas returned to New York Fashion week, creating a true New York moment, and driving both high visibility and engagement.
Stefan Larsson: The runway show had massive talent reach resulting in over 3000, PR placements and a reach of over $6 billion. We were the most talked about brand at New York fashion week dominating online conversation.
Stefan Larsson: In February we announced Sofia Richie as the new partner for Tommy Women's wear last month, Tommy launched spring 2024 campaign, featuring Kendall Jenner and yesterday, we launched a global cut through campaign featuring straight hits one of the top three K pop.
Bounce worldwide.
Stefan Larsson: Now, let me turn to our regional performance, starting with North America I'm very proud of how our team continued to lean into the PVH plus planned drivers in the fourth quarter, achieving strong DTC growth up high single digits for both brands and delivering a significant improvement.
Stefan Larsson: The ability for the fourth quarter, we again delivered a double digit EBIT margin for the region, including higher gross margins and <unk>.
Stefan Larsson: Overall revenue for Tommy and Calvin was stronger than we expected driven by strong growth in direct to consumer which was offset by declines in wholesale.
Stefan Larsson: For 2023 of our Calvin and Tommy businesses together delivered eight 3% EBIT margin.
Stefan Larsson: The step up of nearly 500 basis points year over year. Despite modestly lower revenues. This demonstrates the significant progress we are making in building the foundation for long term brand accretive growth in the North America region.
Stefan Larsson: Let me share a few North America highlights for Tommy the D to C growth was broad based led by seasonal premium essentials in key categories with strong AUR increases.
Stefan Larsson: The number of source back to 2019 profitability levels, despite much lower international tourism and for Calvin leading our category offense, we successfully re establish self defined disorder.
Stefan Larsson: We continued to elevate the online shopping experience and have delivered four consecutive quarters of high quality double digit growth on CK Dot com.
Stefan Larsson: For both brands, we continue to build strength in our key wholesale partners led by men's sportswear.
Stefan Larsson: Look into 2024 for North America, we plan to deliver another year of strong lead to see growth with further increases the quality of sales across the marketplace and deliver another year of significant improvement in profitability.
Stefan Larsson: Turning to our international business in Europe building on our historically arch business marketing awareness and brand strength across both Tommy and Calvin for 2023, the region delivered low single digit revenue growth in euros.
Stefan Larsson: In the fourth quarter revenue again exceeded 1 billion euros and most importantly delivered much stronger overall profitability revenue for the quarter declined low single digits senior us compared to last year.
Stefan Larsson: Increasingly tough macro we drove mid single digit growth in D C, which was offset by declines in wholesale.
Stefan Larsson: Since we spoke in December we have seen consumer sentiment further slow across Europe, especially in our two biggest markets, Germany and the UK and we have seen our wholesale partners there come even more cautious let me share a few examples of what this tougher European macro means for us.
Stefan Larsson: And how we are choosing to sacrifice sales script in the near term to strengthen our unique brand position in the market for the long term.
Stefan Larsson: Our number one focus here has been to avoid having too much inventory tomorrow.
Stefan Larsson: And we have succeeded very well with this starting the year with much less clearance inventory and at the same time last year, driven by our supply chain improve.
As an example in February we were up against a greater proportion of discounted sales last year and this year, we made the proactive decision to come into the lower outgoing stock and higher share of the new spring season inventory.
So we're starting in the spring season with significantly improved stock freshness, which is driving double digit comp increases for our spring product, while prior season clearance sales and inventory.
Stefan Larsson: Over 20%.
Stefan Larsson: In wholesale forward orders from our partners have become more cautious. This is reflected in our full 2020 for order books, which we expect to be down high single digits versus the prior year.
Stefan Larsson: It is important to remember that our wholesale partners are coming off very tough fall season across the sector from last year driven by the warmest false starts since the 18, hundreds, which led to too much inventory and high promotion outlet in the market.
Stefan Larsson: In this tougher environment, we're making proactive decisions towards quality of sale to build our brands for the long term and position us for sustainable brand accretive growth.
Stefan Larsson: In wholesale this means in midyear 2024, we are stopping sales of our brands by third parties on digital platforms and significantly reducing the number of digital platforms that we sell to.
Stefan Larsson: This will increase the quality of sales with our most important wholesale partners across both bricks and mortar and online.
Stefan Larsson: And across all channels, we are buying inventory much closer to demand.
Stefan Larsson: Significantly reducing our need to manage discounted prior season inventory.
Stefan Larsson: The collective impact of these quality of sales decisions, it's a reduction equivalent of approximately 5% of our total sales for 2020 for European businesses.
Stefan Larsson: It will drive gross margin expansion and more importantly enabled brand accretive growth overtime.
Stefan Larsson: In parallel these quality of sales improvements. We're also stepping up our product category offerings driving innovation in key categories and muscle South central for full 2024, where we will have more transitional products more technical fabrics more dress casual and this has been very well received by our.
Stefan Larsson: Wholesale partners.
Stefan Larsson: We will also further strengthen our D to C execution, where we have the most control over their brand experience and we continue to drive increased pricing power and margin expansion.
Stefan Larsson: Moving to Asia Pacific, Our Asia teams disciplined PVH class plan execution across both Calvin and Tommy drove strong growth for post quarter end of the year for the year. The region delivered revenue growth of 16% in constant currency, including growth of 17.
10% in the fourth quarter led by D to C.
China is an important growth engine with growth over 20% in local currency for both the fiscal year and fourth quarter as we successfully captured key consumer moments.
Stefan Larsson: Outside of China fourth quarter performance was also strong with over 30% growth in Korea, and double digit growth in Japan in constant currency.
Stefan Larsson: We delivered strong e-commerce growth with both brands achieving double digit growth during double 11 and ranked among the top international brands on Tmall.
Stefan Larsson: Revenue and market share set new records some billion as we continue to engage consumers in new ways.
Stefan Larsson: We continue to win in the important lunar new year holiday fueled by successful capsule launches and consumer Activations for both brands.
Stefan Larsson: Our brands and products have a clear premium positioning with the opportunity to grow further in all markets. We continue to focus on driving overall brand awareness, especially in China, where both Calvin and Tommy are underpenetrated.
None: Now, let's switch gears and turn to our overall company outlook.
None: Following the strong 2023 regain traction on each of the underlying growth drivers of the PVH plus plan, we will build on this momentum in 2024.
None: Across the company, we are leaning into the next level of PVH plus execution.
None: This will directly translate into growth in Asia, and North America, while in Europe, where the macro come more challenging our focus is on quality of sales to further strengthen our market leading position.
None: From a numbers perspective, this translates into our guidance for 2020 for revenue down 6% to 7% or down approximately 3% to 4% on a comparable basis, excluding the sale of our heritage brands intimate spaces, a 50 <unk> week in 2023.
None: We're driving further gross margin expansion and despite the deleverage from our European business, we will maintain our EBIT margins versus 2023 at.
None: At the same time Sac will take you through how we are leaning in to unlock significant cost efficiencies in a way that we will even better align our cost structure to the PV plus growth drivers leading to another year of EPS close in 2024.
Sac: As we go forward, we will further strengthen Calvin and Tommy brand desirability by building out our global product marketing experience centers under the strong global brand leadership that we now have in place.
Sac: We will continue to amplify our category offense and key hero product strategies globally.
Sac: We refer to win with consumer engagement by executing strong cut through campaigns.
Sac: <unk> by the best Global Mega talent.
Sac: And in the marketplace. We are relentlessly focused on driving higher quality of sales across all regions and channels, which will continue to drive pricing power and margin expansion across the company.
Sac: Everywhere, the consumer and macro will allow we will drive high quality revenue growth.
Sac: Whereas the consumer and macro tougher we are willing to sacrifice short term low quality revenues in order to strengthen our brand position our pricing power.
This is the right way to build our bonds some business for the long term.
Indeed to see where we have the most direct control of the shopping experience you will see us drive high quality growth across both brands and all regions.
We will continue to elevate the consumer experience online and offline and our owned and operated channels as well as key wholesale partners.
Sac: You will see us continue to build out our demand driven supply chain maximizing inventory productivity.
Sac: And across the company you will see us investing in long term growth in areas, including marketing as well as Capex for technology store renovations, new store expansion and supply chain initiatives at the same time, we're getting in even better shape from a cost efficiency perspective, we've sat with.
Sac: Share more details on and lastly, we will continue to significantly improve our cash flow, which will enable us to make further stock repurchases.
Sac: In closing in 2023, we fully focused on and strengthen the desirability of our two globally iconic brands Calvin Klein, Tommy Hilfiger, and we drove very strong financial performance across both brands and all regions.
Sac: For 2024, we will continue to build on the PVH plus execution momentum across the company that will translate directly to both in Asia and North America, while we sacrificed near term sales growth in Europe to further strengthen our unique market position there for long term brand accretive growth.
Sac: Our PVH plus momentum is building in both the consumer facing parts driving the brand desirability up in product marketing and marketplace and in how we build out the data on demand driven business engine.
Sac: <unk> step guided by our PVH plus plant, we are building Calvin Klein and Tommy Hilfiger into the most desirable lifestyle brands in the world and making PVH one of the highest performing brand groups in our sector.
Sac: And I want to thank my entire team for all your great work in making our vision come to life.
None: And now I'll turn the call over to <unk>.
None: Thanks, Stefan and good morning.
None: My comments are based on non-GAAP results and are reconciled in our press release.
None: As Stefan discussed we are pleased with our results for the fourth quarter and full year 2023, driven by our iconic brands and disciplined execution of the PVH plus plan.
None: For the fourth quarter, we delivered revenue flat to the prior year and more importantly, we delivered significant earnings growth in the quarter versus last year led by the sizable step up in gross margin we had planned for all year.
None: Our EBIT was $301 million, 40% higher than prior year, and our operating margin for the quarter was 12, 1%.
None: 350 basis points versus last year.
None: On the bottom line, we once again exceeded our guidance with a record setting fourth quarter non-GAAP earnings per share of $3 72.
None: Which was over 50% higher than last year.
Our ability to drive significant operating margin expansion and earnings growth in spite of the challenging macroeconomic environment is.
None: As a testament to our disciplined execution.
None: We also delivered strong cash flow this year with free cash flow of over $700 million. This includes inventory being down 21% compared to last year as we continue to position inventory to focus on quality of sales.
None: We also completed the sale of our heritage intimates business in the fourth quarter for $160 million.
None: The results of our work on cash allowed us to repurchase $280 million of shares in the fourth quarter and an all time high of 100.
None: <unk> million share repurchases for the full year.
None: I will now discuss our 2023 results in more detail and then move onto our outlook for 2024.
None: As I mentioned earlier revenue for the fourth quarter was flat compared to last year and reflected a 1% positive impact on the.
None: The benefit from the 50 <unk> week was largely offset by the revenue reduction from the sale of the heritage Intimates business.
None: Starting from a regional perspective fourth quarter revenue for our international business was up 3% on a constant currency basis.
None: Sales in our Asia Pacific business were up 17% on a constant currency basis and up 13% on a reported basis as strong consumer demand drove growth in all markets led by China with a lifting of COVID-19 restrictions negatively impacted the fourth quarter last year.
None: Sales in Europe were down 2% in euros as mid single digit growth in the DTC business was more than offset by high single digit decline in wholesale sales.
None: In North America revenue for the Tommy Hilfiger, and Calvin Klein businesses combined was down 2% as high single digit growth in DTC was more than offset by a decline in wholesale sales within DTC, our retail stores were up high single digits and our owned and operated E Commerce business was up.
None: Mid teens.
None: Looking at overall fourth quarter revenue from a channel perspective, we continue to drive strong performance across all regions and our DTC businesses. Our total DTC revenue was up 9% on both a reported and constant currency basis in the quarter and also up 9% on a constant currency basis.
None: At our stores and our owned and operated ecommerce with approximately half of the increase due to benefit from the 50 <unk> week.
None: So it also revenue for the quarter was down 10% on a reported basis and down 12% on a constant currency basis as retailers around the world continue to take a cautious approach to orders and shipments. This includes a 3% reduction from the sale of the heritage intimates business and a benefit from the 50 <unk> week.
None: Turning to our global brands Calvin Klein revenues were up 4% and Tommy Hilfiger revenues were up 1% on a reported basis.
On a constant currency basis revenue for Calvin Klein was up 3% and Tommy Hilfiger was down 1% as the macroeconomic challenges impacting Europe weigh more heavily on the Tommy business.
None: Importantly, our DTC business was up in both brands and in all regions.
None: In the fourth quarter, we delivered record high gross margin of 63% an increase of 440 basis points compared to last year with approximately half of the improvement due to a favorable shift in channel and regional mix and approximately half due to lower raw material costs and ocean freight rates.
None: G&A expense as a percent of revenue for the fourth quarter was 48, 2% an increase of approximately 100 basis points versus the prior year the.
The increase is more than explained by higher expenses due to DTC mix, partially offset by an approximately 125 basis point improvement in expenses versus last year due to savings realized from the actions we have taken to reduce people costs and prudent management of expenses.
None: In total EBIT for the quarter was $301 million, 40% higher than the prior year and exceeding expectations.
None: Operating margin was 12, 1% and expanded 350 basis points compared to last year with improvement in all regions, including a 550 basis point expansion for North America for Calvin Klein and Tommy Hilfiger combined.
None: Earnings per share increased over 50% to $3 72.
None: Compared to $2 38 in last year's fourth quarter and exceeded our guidance by 2007, largely driven by the EBIT improvement.
None: Our tax rate for the quarter was approximately 21%.
None: For the full year 2023, we drove significant profitability and earnings growth versus last year in spite of the challenging macro environment.
None: Revenue was up 2% versus last year, bringing a positive impact of 1% from exchange and EBIT was up 9% driven by operating margin expansion.
None: Our operating margin of 10, 1% reflects a 60 basis points improvement versus last year.
None: And on the bottom line, we delivered record high non-GAAP EPS of $10 68 for the year, which reflected growth of 19%.
None: Now moving on to our outlook.
None: In 2024, we're committed to building on the momentum coming out of 2023 leaning into the PVH cost plan to drive the profitability improvements in North America strong growth in Asia Pacific.
None: A focus on quality of sales in Europe.
None: Further matching inventory to demand and delivering efficiencies to fund future growth.
That said, we have taken a cautious approach to planning 2024 due to the softening consumer backdrop, we saw in January and February and a conservative wholesale environment.
None: For the full year overall revenue is projected to decline between 6% and 7% on both a reported and constant currency basis compared to 2023, including a 2% decline due to the sale of the heritage intimates business and a 1% decline due to the 50 <unk> week in 2023.
None: We expect full year operating margin will be approximately flat compared to 10, 1% in 2023, and our projected earnings per share in the range of $10 75 to $11 up low single digits versus 2023, despite the top line pressures.
None: Our sales outlook for the North America, Calvin Klein and Tommy Hilfiger businesses combined is planned up low single digits versus 2023 with mid single digit growth in the DTC business tempered by wholesale.
None: Within wholesale we are focused on strong quality of sales and winning with our key wholesale partners.
We do see retailers continue to take a cautious approach.
None: This wholesale environment is also impacting our licensing partners in the region and our overall licensing revenue is planned down high single digits.
None: Asia Pacific is planned to grow high single digits on a constant currency basis with growth again projected in all markets and led by DTC.
None: Now turning to Europe.
None: As Stefan mentioned, we saw consumer sentiment further slow in January and February and our fall 2020 for order books are increasingly cautious in this tougher environment, we're making strategic choices to focus on higher quality sales across all channels.
None: As a result, we are planning to Europe sales down high single digits in euros wholesale is planned down low double digits for the reasons just mentioned and DTC is planned down low single digits with modest comp store growth offset by reductions in our own sales through third party platforms.
None: While overall revenue is projected to be lower than 2023, our gross margin is expected to increase approximately 200 basis points, reaching an all time high with approximately half of the increase due to channel and customer mix as we grow our higher margin DTC business and decreased sales to lower margin wholesale accounts in approx.
None: We have due to lower raw material costs, which were elevated during the first half of 2023, but began to ease in the second half.
None: SG&A dollars are planned down for the full year 2024, as compared to 2023, but are expected to increase approximately 200 basis points as a percentage of revenue.
Approximately 150 basis points of the increase is due to the deleveraging of expenses on a lower European revenues in 2024, and approximately 150 basis points is due to higher DTC mix.
None: Beyond those two impacts we continue to drive approximately 100 basis points of cost efficiencies across the business. While at the same time, maintaining strategic investments in our global brands, including marketing in order to drive long term growth.
None: As a result, we expect our full year operating margin will be approximately flat compared to 10, 1% in 2023.
None: Excluding the significant impact of deleverage due to sales operating margin would have been approximately 150 basis points higher.
None: Interest expense is projected to be relatively flat compared to $88 million in 2023, and our tax rate for the year is estimated at approximately 21%.
Looking at the balance sheet, we are heading into 2024, and a very strong financial position.
None: Working capital is in great shape, and our leverage is low we are projecting capital spending of approximately $300 million.
As we invest in our store supply chain and technology in line with our PVH plus priorities and.
None: And with the $2 billion increase to our share repurchase program that we announced yesterday. We are currently planning $400 million of share repurchases in 2024.
None: Turning to the first quarter, we are projecting revenue to decline approximately 11% as reported and approximately 10% on a constant currency basis compared to the prior year, including a 3% decline due to the sale of the heritage intimate business and a 1% decline due to the impact of wholesale sales from the 50 <unk> week.
None: In 2023.
None: While we are projecting low single digit growth in our DTC businesses. We expect this will be more than offset a decline in wholesale revenue primarily in Europe for the reasons I mentioned earlier.
We expect our first quarter operating margin to be approximately flat to first quarter last year with higher gross margins fully offsetting the loss of leverage due to the decline in revenue.
None: Our first quarter earnings per share is projected to be approximately $2 15.
None: Compared to $2 14 in the prior year or.
None: Our tax rate for the first quarter is estimated at approximately 21% and interest expense is projected to be approximately $20 million.
None: Looking ahead beyond 2024, we remain confident in our path to achieve the 15% operating margin target we committed in the PV plant.
None: We will do that through improvements in both gross margin and SG&A.
None: As discussed earlier, we will take a significant step up in 2024 and gross margin through a focus on quality sales and significant supply chain improvements, we expect to see the improvements continue beyond 2024.
None: And while we have made significant progress and SG&A expenses were not close to done there either.
None: We are embarking on the next phase of growth driver for five of the PV plus plan to drive efficiencies in a couple of meaningful ways.
None: First on technology, if completed a global study of our it spending and the result is a roadmap to decreased global technology spending by over one third.
None: We will do that by delivering a single global Tech stack that all business units will leverage and in January we on boarded a new global Chief Technology and information officer, the experience driving global transformational change at other best in class consumer companies.
None: Next is a focus on global logistics costs, we have already delivered a significant reduction in inventory. This lighter supply chain allows us to redesign our global logistics network to be more efficient.
None: We expect this to deliver over 50 basis points and operating margin improvement.
None: There is also ongoing work that continues within our support functions globally, we see opportunities to centralize processes and improved systems and automation to drive more efficient and cost effective ways of working again led by our focus on consistent execution PVH plus plan around the world. We believe this will generate at least 50.
None: Basis points of operating margin improvement.
None: And finally in Europe, historically, our global Tommy Hilfiger Global brand in Europe commercial organizations have been highly intertwined into complex ways of working.
None: With the appointment of Lea Rich Goldman as leader for the global Hanmi brand.
None: This allows us the opportunity to reengineer, the European operating model and unlock significant deficiencies.
None: The work on these initiatives has already begun and will continue over the next couple of years. We expect this work to result in an incremental 200 to 300 basis points of operating margin improvement on top of the SG&A leverage we expect to recapture as we grow our global brands in the future.
None: Before we open up for questions I want to reiterate that we remain confident in our ability to win in a tough environment as evidenced by our performance in 2023.
None: We continue to work relentlessly to drive results and as Stephane talked about earlier, we are laser focused on executing our five key growth drivers of the PVH plus plan, bringing together the consumer facing growth drivers of product consumer engagement marketplace with our underlying operating engines to deliver sustainable long term.
None: <unk> growth.
None: And with that operator, we'd like to open it up to questions.
None: At this time, if you would like to ask a question.
Please press star one on your telephone.
You may remove yourself at any time by pressing star two.
None: Once again to ask a question please.
None: Please press star one now.
None: Our first question comes from Matthew Boss with Jpmorgan. Please go ahead.
Matthew Robert Boss: Great and thanks for all the additional color.
Matthew Robert Boss: So two part question, maybe Stefan first could you speak to underlying health of the Tommy and Calvin brands today, or maybe just help elaborate on current direct to consumer demand trends that youre seeing across geographies. If we could parse through the sales that you mentioned that you are proactively sacrifice.
Matthew Robert Boss: At both direct and wholesale Andrew Zach what gives you confidence in mid teens is the right margin structure multiyear and how does the 2024 forecast alter in the past.
None: Well thank you thank.
None: Thank you, Matt and good morning.
None: Okay.
Stefan Larsson: Let us take the threes three different parts of this question I'll start with the two first so if it comes to let's start with brand strength. So as I mentioned, we see an all time high customer engagement across both Calvin and Tommy.
Stefan Larsson: And if we look at the start of the spring campaign with Calvin.
Stefan Larsson: Their campaign with Jeremy male in Hawaii.
Stefan Larsson: We had the biggest cut through campaign and all of the fashion industry.
Stefan Larsson: So some data to back off of that so we had the.
Earned media value of over $74 million, so far we've not campaign, we have $134 million.
Stefan Larsson: Engaged.
Stefan Larsson: <unk> brand fans on Instagram, which was 60% up versus same time.
Stefan Larsson: Last year, and then the engagement of those $134 million were up 13%, which was up 85% year over year, So what youre seeing from Cowen.
Stefan Larsson: A demonstrated consistency in delivering top through campaigns with Jenni Kayne Kendall Jenner John Cook.
Stefan Larsson: And you will increasingly see new talent coming into Brian on their call system basis, So that Calvin and Tommy we have developed a cough assist that youll see a consistent way of driving higher rattled through going back to the unique DNA of the brand Classic American cool. So few examples from this spring.
Stefan Larsson: <unk> told me went back to New York fashion week.
Stefan Larsson: Had a reach of over $6 billion. So.
When we do the fashion show with Tommy We also work hard.
Stefan Larsson: Maximizing the talent reach on.
Stefan Larsson: Under Franck throw a $6 billion took us to the most the most tough.
Stefan Larsson: <unk> through <unk>.
Stefan Larsson: So New York fashion week, plus it took us as the only non luxury brand into the top 10 of all brands luxury included across all fashion week globally. So you look at New York long non Milan, Paris top talent.
Stefan Larsson: And yesterday as I mentioned, we launched.
Stefan Larsson: And other cultural campaign, we told me featuring straight Kid Vacates, just now one of the top three.
Stefan Larsson: Globally. So that's one way of looking at brand.
Stefan Larsson: Strength in brand relevance, but another another way that I would like to look at it as I spent as you know we're spending a lot of time being our stores travelling else in the market spend roughly 50%, 60% of my time, and what I keep seeing when I come to Big shopping mall says.
Let's say, it's a shopping mall 140 over 140 brands.
And then I meet.
Stefan Larsson: Owners of the shopping centers, saying that 30% of all of our over 30% of all the traffic coming to the shopping mall comes to one of our brands.
Stefan Larsson: And that to me it's just.
Stefan Larsson: A really impressive figure it to tap into because think about their culture, where today. They have all choice in the world. They have only so much.
Stefan Larsson: Time and over 30% and this is something I hear across Europe I hear is the North America and I hear it in Asia Pacific.
Most importantly, translating that into growth so deep to see growth.
Stefan Larsson: Your second part of your question. So last year, we drove 9% growth in D. C. As a company North America drove 7% Asia drove 17% and in Europe, we drove 5%.
Stefan Larsson: The PVH plus execution the momentum, we translate that into 2024 and it directly.
Stefan Larsson: Next to growth in North America, and Asia. If you look at the to see growth expected for Q1, and the full year for 'twenty for North America.
Stefan Larsson: Continuous mid single digits Asia continued double digit growth and in Europe to your question about quality of sales, we see low single digit decline.
Stefan Larsson: And this is a decline in DSO proactive sacrifice that we make in this tough for them.
Stefan Larsson: In the software environment so.
The D to C related part of that is.
Stefan Larsson: Making sure that we have less inventory in the market are less inventory to demand and at the same time have higher availability. So you can see that already now in our European business that we have much less although wingstop old inventory less stiff helmet.
Stefan Larsson: Old inventory much more of the new stocks driving double digit comp increases so spring season alone drive double digit comp increases. So what you will see from us our D to C side as sacrificing some of the top line growth in the near term to position us for long term.
Stefan Larsson: <unk> growth brand accretive increasingly profitable.
None: And this is a good connection stock to you. If you can lay out the path, we see to the 15% operating margin. Yes. Thanks for the question, Matt I mean, we remain just as confident in our ability to deliver 15% operating margin commitments as we mentioned earlier, excluding the loss of top line leverage this year driven by quality of sales.
None: Choices operating margin would've been around 11, 5%. So a significant step forward on gross margin due to gross margin and SG&A work and we've mentioned earlier on the call. We've identified the next round of opportunities in SG&A efficiencies worth 200 basis points. So if you put that together you are almost there before we even talk about more opportunities to lever.
None: Our scale and supply cost of growth in Asia, which is our most profitable markets and further unlocks in North America beyond the 500 basis point improvement we delivered in 2023.
I think though with respect to timing of achieving the 15% our expectations for 2024, obviously makes our 2025 target timing exceedingly difficult due to the <unk>.
None: <unk> plus plan and the five growth drivers are absolutely the right strategy for us to drive sustainable long term profitable growth.
None: And importantly, given our progress across the P&L, our path to 15% remains fully intact, even if it may take a year or two longer.
Great color best of luck.
None: Thank you.
None: Thank you. Our next question comes from Jay sole with UBS. Please go ahead.
Jay Daniel Sole: Great. Thank you so much so.
Jay Daniel Sole: I Wonder if you can elaborate a little bit on the.
Jay Daniel Sole: The quality of sales initiatives in Europe, I think you mentioned some third party online channels.
Jay Daniel Sole: You want to reduce exposure to can you just tell us a little bit about more of those channels what they're light.
Why it is important too.
Jay Daniel Sole: Not distributor channels and what gives you confidence that the quality of sale initiatives that youre.
Jay Daniel Sole: Taking are going to have the desired effect as we look out into fiscal 'twenty and beyond.
None: Thank you Jay.
Yes so.
None: <unk> question was related more to D to C. So when we look at the full market. There are three big actions, we're taking to increase quality of sales in Europe. This year. The first one is <unk>.
None: Mid year.
None: We're stopping sales of all ground by third party on digital platforms. So we are enabled by a change in European regulations.
None: Makes it possible to do this which is very important too.
None: Keep the distribution quality high and keep the pricing power.
None: The second initiative, we take is to reduce the number of data pulp class pulse, we sell to so we will reduce approximately 30% of the platforms. We historically have sold to again to focus on the key platforms, our key wholesale partners to increase the.
None: Quality ourselves with them.
None: And the third part is what I mentioned.
None: So my question, which was across all channels, we are buying inventory much closer to demand.
None: So again you see it already now that spring season is up gross margin is up an old inventories style and Thats, what you will continue.
None: To see from US were down overall, we are down 20% in inventory and you will see us continue to drive the business with the highest quality of sales and less inventory.
None: And Thats, how we how we will continue to to position ourselves for long term sustainable growth and the PVH plus plan is.
None: Our plan to tap into the unique potential of having two of the most iconic beloved brands globally in the fashion industry and tapping into the DNA of dose, France and in a very systematic way drive product strength.
None: Consumer engagement strength marketplace strength, and then connecting that to the underlying demand in data driven engine and we we have talked about that since we kicked off the plan two years ago and now you really see that we are able to drive.
None: Much higher quantity of sales in for 2024 outflow of cash gross margin and pricing power is up across all regions.
None: Got it okay. Thank you so much.
None: Thank you. Our next question comes from Michael Binetti with Evercore. Please go ahead.
Michael Binetti: Hey, guys. Thanks for all the detail here and help us take us through.
Michael Binetti: First just tactically can you help talk us through the bridge through the year from first quarter sales.
Michael Binetti: The core is down 7% excluding heritage in and then improving the rest of the year to get to the down three to four at the core could you help us break that down between direct to consumer and wholesale where we would expect to see does.
Michael Binetti: Those improvements embedded and what's driving that and then I guess.
DTC is.
Michael Binetti: Stefan or maybe is that you said <unk> planned to be down low single digits in Europe.
Michael Binetti: Yes.
Michael Binetti: Why does it have to stay negative I know you cited trends in the wholesale channel in January and February were tough, but it sounds like youre pretty encouraged with.
Michael Binetti: The spring numbers.
Michael Binetti: And maybe that's being weighed down so far in the first quarter by a lot less clearance, but as you get away from that clearance period. If the current season inventory is working.
Some of the industry data and some of the big markets in Europe has picked up around Easter.
Michael Binetti: Why couldnt that number improves through the year.
Michael Binetti:
None: So let me start with your.
None: Your question Michael about.
None: Three to see.
None: Expectations for Europe for the health of the year.
None: It doesn't have to stay this way.
None: We are doing is we are guiding based on what we see we see.
None: Consumer slow down in Europe, especially in are our two biggest markets, Germany and the U K in January February so what we're doing is we're making sure that the focus is on quality of sales and we are pulling the inventory down to the trends we see right now and then of course, if these change shifts.
None: We are able to reacting to that and and to follow the demand, but our strategy will always remain the same which is to follow the demand that we see from the consumer and to do it in an increasingly profitable way.
None: And then Michael I think your question around sequential improvement throughout the back end of the year I would say consistently let Stefan just said the year, we've actually planned quite consistently we stay away from trying to forecast the macros or building the outlook basically today. The reason why first quarter looks a little more a little.
<unk>, then where our full year guide is minus 6% to 7% is really tied to some wholesale shipment timing issues with the 50 <unk> week. There were some shipments pulled into 2023 in Europe January is a big spring season, and some timing shipments out of first quarter into second quarter as we matched.
None: Shipment timing to Europe to win sell outs season, its focus from there if you adjust for those two issues that look for the full year is actually quite consistent if we looked at retail specifically were those don't affect our retail outlook actually records shows that level of consistency throughout the year October business.
None: Okay. Thanks, a lot guys.
None: Thank you. Our next question comes from Bob <unk> with Guggenheim. Please go ahead.
Bob: Good morning.
Bob: I was wondering if you could spend a little more time on.
Bob: North America, just the progress that Youre seeing North America spend on your comments a bit specifically the assumptions.
Bob: For the sales by partner, specifically macys assumptions.
Bob: In North America wholesale outlook, just would love for you to sort of unpack that a bit more.
Bob: Just in terms of the broader picture as well thanks.
None: Thank you Bob.
None: As I shared in my prepared remarks really proud of the team.
None: They are building an increasingly.
None: Sustainable profitable base continued to grow at best So if you look at that.
None: Our outlook for 2004, we see that continue I mentioned mid single digit growth in DTC, we actually comped doors in wholesale.
<unk> partners were also for 2020 for driving comp sales growth.
None: So.
None: What is driving this is the disciplined PVH plus execution so.
None: Product focus on driving product category also works for both Calvin and Tommy.
None: In addition in the best must have essentials to hero products that works across both brands such well.
None: We see as a result, the pricing power and margin expansion we see.
That the experience is improved it improved brand experience for both Calvin and Tommy If you go onto our website youll see that our our experience has significantly improved versus last year and we see all of this leading to growth in both DTC and wholesale.
Looking into 2024 and when it comes to Macy's, we see continue to see very encouraging.
None: Performance, where we lean in with them into their most important doors, we look at stuffing together.
And we see.
None: Great effects.
None: The top door focus staffing focused.
None: The product category offense and the key essentials.
None: Thank you.
None: Thank you. Our next question comes from Ike <unk> with Wells Fargo. Please go ahead.
Ike: Hey, good morning, everyone. Two questions from me, maybe first for Zach just the gross margin for the year up 200.
Ike: Any way you could shape.
Ike: Gosh, it should progress through the year.
Ike: As of Q1, and just kind of the drivers and how those kind of flow through the year and then maybe first of on <unk>.
Ike: Zach.
Ike: We think about I know, we're still a couple years away, but when we think about the licensing business coming in the house.
Ike: It looks like the revenue base of that business has changed a lot over the past couple of years I believe a couple of years ago. It was around 1 billion and a half at retail I believe that your partners now talking about it being closer to $1 billion plan for this year. When we think about the ultimate potential for you guys. Once you take that in house.
Ike: What kind of number should we be keeping in mind that it seems to be kind of changing as they kind of like.
Have begun to wind down it looks like that business that'd be really helpful. Thank you.
None: Let me start on the on the take back of.
None: Our North America womens.
None: Product categories for wholesale so we're taking that back over a multiyear period.
We are on plan.
None: Really good partnership with our key wholesale accounts.
None: We have the product and just scale the sourcing bill.
None: So everything is lined up to seamlessly connect.
None: The womens products that we're bringing in from North America into the PVH plus framework, which is about brand accretive long term growth with pricing power. So.
None: All on plan.
None: Yes.
None: Your question around gross margin for the year. So if you think about how gross margin improving two main drivers that's really the work around macros in supply chain.
None: That started in the fourth quarter really showing up last year in Kansas through and then the war on quality sales, which we have begun some of that and talked about it last quarter in the fourth quarter as well so we'd expect to see significant improvements Q1, two and three.
None: And then also the Q4 being about flat to last year.
None: A lot of the work has begun and showing up so that sort of but relatively equally weighted with regard to improvement in the first three quarters of the year.
None: Thank you.
None: Thank you. Our next question comes from Dana Telsey with Telsey Advisory Group. Please go ahead.
Dana Lauren Telsey: Hi, good morning, everyone.
Dana Lauren Telsey: Can you think about the wholesale both Ralph and the enhancements to the quality of sales you mentioned North America.
Dana Lauren Telsey: Like how do you think of the percentage of sales coming from wholesale in Europe.
Dana Lauren Telsey: How do you think of that for the brands, both Tommy and Calvin and thank you.
Dana Lauren Telsey: As you enhance that quality of sales distribution in Asia also needs to be adjusted up thank.
Thank you.
None: Well, thank you Dan.
None: When it comes to quality of sales so as I mentioned the quality of sales actions.
None: Impacts positively.
None: Both the wholesale channel and the D to C channel. So our focus on wholesale is to continue to get closer to our.
None: Our biggest and most important partners and they will benefit from the proactive actions. We are taking in terms of Tufting third party sales from all brands two platforms, reducing number of digital plus points, we sell to have less inventory overall so.
None: Quality of sales will be seen by our partners.
None: In Europe cross across all regions, and and indeed to see and you will see us.
None: You will see us in what was your last question Dana part of the critical study in Asia.
None: Also in Asia, Okay, yes.
None: So in Asia.
None: We have high quality of sales, we are pre dominantly need to see.
None: So no no change shifts there.
None: Thank you.
None: Thanks, Shannon, we have time for one last question.
None: Thank you our last question comes from Chris <unk> with Bank of America. Please go ahead.
Thank you guys good morning.
How are you thinking about the impact from this red sea disruption to both your European and U S businesses and just trying to find.
Chris: Find out if you're incorporating any freight headwind in the back half of the year and then as it related follow up here you talked about a slowdown in January and February throughout Europe, particularly in your two largest markets do you have any other color on how March is doing outside of your comments on on the spring business picking up.
Yes.
Chris: Let's start on the.
None: Let's start on the spring business. So we are in the middle of all.
None: The Easter selling period and Easter this year was earlier than.
None: Last year and so far we are on track.
None: When it comes to Red Sea.
None: It takes us 10 days longer to ship.
None: Around.
None: And avoid the Red sea. So it takes US 10 days longer we don't see it having a significant impact on our overall supply chain.
None: Alright with that thank you for taking the time today.
None: We are relentless in call system, the <unk> focus of the PVH plus execution of driving long term sustainable growth from our two iconic beloved brands Calvin Klein and Tommy Hilfiger, I'm looking forward to catching up on this journey next quarter again.
Thank you.
None: Thank you. This does conclude todays PVH fourth quarter 2023 earnings conference call.
You may disconnect. Your line at this time and have a wonderful day.
None: [music].
None: Okay.
None: Okay.
None: [music].
None: Uh huh.
None: Uh huh.