Release Date: August 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- PVH Corp (PVH, Financial) reported stronger-than-expected profitability and EPS for Q2 2024.
- EBIT margins increased, driven by significant gross margin expansion of 250 basis points.
- Inventory productivity improved with inventory down 12% year over year.
- North America delivered an 11.7% EBIT margin for Calvin Klein and Tommy Hilfiger, marking the fourth consecutive quarter of double-digit non-GAAP EBIT margin.
- PVH Corp (PVH) reaffirmed its revenue, non-GAAP EBIT margin, and EPS guidance for the full year, excluding a one-time tax benefit.
Negative Points
- DTC revenue was down 3% on a constant-currency basis for the quarter.
- Wholesale revenue declined slightly, down 1% on a constant-currency basis.
- Revenue for the Asia Pacific region declined 4% in constant currency, with a notable decline in China and Australia.
- SG&A expense as a percentage of revenue increased by 160 basis points versus last year.
- PVH Corp (PVH) projected a decline in third-quarter revenue by 6% to 7% as reported and 7% to 8% on a constant-currency basis.
Q & A Highlights
Q: Stefan, maybe if you could elaborate on the current health of your brands and speak to recent demand trends that you've seen across fall assortments relative to how you planned back-half demand in North America and Europe, I think that would be great.
A: Well, good morning, Matt, and thank you for your questions. Starting with the health of the brand, so we're coming into this fall with all-time-high consumer engagement from spring in both Calvin and Tommy. And we continue to strengthen that. So I don't know if you saw that yesterday, we launched Calvin's fall campaign and the second chapter of Jeremy Allen White, very strong consumer response already. One thing that strikes me is when consumers really take time from their busy day -- we all have busy days. And right into the comment field, hundreds of them, thousands of them saying things like work should be canceled today, I'm screaming, stop the world again. So very powerful start of the fall campaign, building on the all-time high growth in consumer engagement from spring. Every week now, you'll see new talent in the campaign. You will see Kendall Jenner, MINGYU, Greta Lee. You will see the K-pop band NewJeans, and we'll have more talent coming in. And they will all be wearing the best iconic Calvin Klein products across all lifestyle categories. Tommy also just released his fall campaign, a cut-through campaign with the K-pop band Stray Kids. Equal positive comments on social from our consumers saying things like Stray Kids and Tommy is life, I love Tommy, please keep posting. So very strong consumer response to both fall campaigns, the start of both fall campaigns. When it comes to Tommy, also want to mention that in just a few weeks, we are back in New York Fashion Week with the Tommy Fashion Show. And just as a reminder, this past season, when Tommy came back in February, we had the biggest cut-through show in New York Fashion Week and the top 10 globally. So feeling really good about the consumer engagement, then that consumer engagement drives an interest in the product. Fall '24 was the first product season where we were able to fully impact product globally for Calvin and Tommy. So the improvements you will see during the fall is we have been able to lean in further into key growth categories in both brands. We will have driven more innovation, more newness in the hero products. And then you combine that with having better inventory levels, better inventory composition. And it's still early days for fall, but the product -- the fall season -- the fall product season is off to a strong start versus fall product season last year. Another area you can see the increased forward-looking product strength already now is in the forward-looking order books for Europe for spring 2025. So last time we caught up like this, we were still selling in spring 2025. And now we have the full spring 2025 landed. And we have driven significant sequential improvements. So if you'll recall fall 24, we were down high single digit in selling. And for spring '25, we were down only low single digits. And it reflects the belief and the recognition from our partners to see the work of the product improvements. So overall, stronger consumer engagement coming into fall, better product assortment, more full-price selling, less clearance, better inventory composition, of course in the setting with a tougher macro. But based on what we can influence, we feel very good about how we are stepping into form.
Q: Zac, just on the controllables, could you elaborate on cost efficiencies that support operating margin expansion regardless of macro, or just -- is there any change to the mid-teens operating margin target that you cited over the next couple of years?
A: Yes. Hi, Matt. I think on the controllable, the most controllable element of our business is really how we go about investing those SG&A dollars, and I think we're happy with the cost work we've accomplished over the last couple of years. Looking forward, we expect to follow the same path with two important pillars. First is, I suppose, we would call performance management. That's really the hundreds of small actions we take continue to match spending to current trends. That's the work we've leaned into over the last couple of months as the macros that Stefan has talked about have started to change, and it's helped us to continue to hold our profit commitments in the year in spite of that tougher backdrop. And I think second are the larger changes we're working on to really greatly simplify our ways of working all around the world. This will deliver the incremental 200 to 300 hundred basis points of SG&A savings, which really allows us to make that step change in profitability, helping us to deliver the 15% profit commitment we've made, and importantly, I think, create capacity to continue investing growth as well.
Q: Stefan, wondering if you can just talk a little bit more about Europe and how you're feeling about the region as you've been executing the quality of sales initiatives. Thank you.
A: Yes. Thanks, Jay, absolutely. So we feel really good about how we are executing the quality-of-sales initiative and how that's resonating in the market. So we see it in the -- here and now in how we drive the business and how we came into the end of season with less clearance and more newness and how that newness is selling more than last year. We see it also as I referenced in the forward-looking order books, so feeling really good about that. In addition, I flagged in my prepared remarks, we are very close to announce a permanent CEO for Europe, a high-performance leader with highly relevant experience. So coming up shortly, but overall feeling good about -- very good about how we execute on the quality of sales and how it plays out in the market.
Q: Can you talk about sort of where you feel you are with the progress that you're making and specifically with the profitability targets that you've talked about within the North American market, how you think that's going? Thanks.
A: Absolutely. Thank you, Bob. So for North America, it continues to be a great proof point on the PVH+ execution. So if you look at the business, in the second quarter, we delivered high quality growth, 1% combined for Calvin and Tommy at an 11.7% EBIT margin. So it's another quarter with 400 basis points operating margin improvements and driven by a combination of gross margin improvement and SG&A improvement. Most importantly, what drives the business in North America is our focus on executing PVH+, meaning an improved product category offense, and we see how that drives growth. We drive newness into the hero products, and we continue to build them out, and they work. We see the marketplace execution in e-commerce stores, partners improving, very close partnership with our key wholesale partners where we continue to make the brands come to life stronger: product, presentation, inventory. So we just keep at it in North America, but kudos to our teams there doing a very good job.
Q: I was wondering if
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
