Release Date: June 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- PVH Corp (PVH, Financial) delivered first-quarter results in line with revenue expectations and achieved stronger-than-expected double-digit EPS growth year over year.
- The company drove 3% growth in its direct-to-consumer business on a constant currency basis.
- PVH Corp (PVH) achieved 350 basis points of gross margin expansion and increased EBIT margins by 80 basis points on a non-GAAP basis year over year.
- The company reaffirmed its revenue outlook for the full year and raised its EPS guidance, reflecting confidence in continued execution despite macro headwinds.
- PVH Corp (PVH) saw significant consumer engagement and brand desirability for both Calvin Klein and Tommy Hilfiger, driven by effective marketing campaigns and product innovations.
Negative Points
- Revenue for the first quarter was down 10% versus last year, including a 1% negative impact from exchange and a 3% decline from the sale of the heritage intimates business.
- Sales in the European business were down 12% in euros due to strategic decisions to focus on higher quality of sales and challenging macroeconomic conditions.
- Wholesale revenue was down 17%, including a 6% decline from the sale of the heritage intimates business and the impact from the quality of sales focus in Europe.
- SG&A expense as a percent of revenue increased by 270 basis points versus last year, partly due to higher DTC mix and deleverage of expenses on lower revenues.
- The company continues to navigate a tough macroenvironment, including a soft consumer backdrop and a conservative wholesale environment, particularly in Europe.
Q & A Highlights
Q: Could you elaborate on the progression of sell-through trends at wholesale for both Tommy and Calvin, and speak to opportunities with product innovation and newness for fall and spring '25?
A: (Stefan Larsson, CEO) We see that our quality-of-sales actions are taking hold, enabling stronger in-season sell-throughs and less end-of-season clearance. In Europe, despite cautious fall 2024 order books, our partners have positively received our product improvements. We also see sequential improvements in pre-spring 2025 orders. In North America, sell-through keeps improving, driving comp sales growth for both Calvin and Tommy.
Q: Could you elaborate on drivers of the North America profitability inflection seen in the first quarter and any change in the multi-year path to mid-teens operating margin?
A: (Zachary Coughlin, CFO) We saw significant EBIT margin improvement in North America, driven by growth in both brands and channels, gross margin expansion, and SG&A efficiency. We remain confident in achieving low teens operating margins in North America, supported by the PVH+ Plan value drivers.
Q: How do you feel about the positioning of the brands with the quality-of-sales initiatives underway? And can you expand on the leadership changeover in Europe?
A: (Stefan Larsson, CEO) We are seeing the quality-of-sales actions take hold, especially in DTC with a 50% reduction in clearance sales and a 10% increase in new spring season sales. Regarding leadership, Lea Rytz Goldman is now Tommy Hilfiger Global President, and David Savman is interim CEO for Europe, ensuring continuity and strong execution.
Q: Could you help us understand the next few quarters on profitability in Europe as we see you come out of the initial phases on the top line?
A: (Stefan Larsson, CEO) We are driving an all-time high gross margin rate through product strength and cost efficiencies. The quality-of-sales actions will continue to improve our gross margin over the year, supported by better planning, buying, and allocation.
Q: Regarding inventory down 22%, how do you feel about the composition and progress with the supply chain initiatives?
A: (Stefan Larsson, CEO) We are optimizing inventory to better match demand, with RFID rollout across all brands and channels. This will further improve planning, buying, and allocation, driving significant value over the next few years.
Q: How do you think the PVH+ Plan is coming together in regards to the consumer, and how do you see the expansion into '25?
A: (Stefan Larsson, CEO) The PVH+ Plan is driving strong brand engagement and consumer love for Calvin and Tommy. This engagement is translating into product and marketplace execution improvements, leading to gross margin expansion over time.
Q: What's your clearest line of sight into the long-term margin potential of the business, and how top-line dependent are you on those long-term targets?
A: (Stefan Larsson, CEO) We are early in the PVH+ Plan execution but seeing strong traction in brand engagement and product improvements. We expect continued gross margin expansion and SG&A efficiencies to drive long-term margin potential.
Q: Can you explain the digital business performance and expectations for the rest of the year?
A: (Zachary Coughlin, CFO) Digital growth remains strong in North America and Asia. In Europe, we are focusing on quality of sales, reducing third-party platform sales, and increasing in-season full-price sales, which will drive long-term growth.
Q: What are the most impactful and highest future returns on investments for Calvin and Tommy?
A: (Zachary Coughlin, CFO) Marketing remains a key focus, driving consumer engagement. We are also investing in store network expansion, technology, and supply chain improvements to support growth and efficiency.
Q: What are the early reads on the spring order books in Europe?
A: (Stefan Larsson, CEO) We see positive indications of trend change and sequential improvements in pre-spring 2025 orders. We will provide more details after the main spring 2025 season launch.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
