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Calvin, Tommy Parent Cutting Jobs

PVH’s revenue in the quarter fell 8 percent to $2.13 billion, as income dove 36.6 percent to $115.3 million. The company is also cutting headcount in a bid to reduce costs as consumer demand sags.

In a Nutshell: PVH Corp., in reporting second quarter results, updated its full year revenue and earnings per share (EPS) outlook to reflect its current expectations for the second half of 2022 based on the challenges in the macroeconomic environment and trends within the retail industry.

These include lower consumer demand as a result of inflationary pressures, as consumers reduce discretionary spend and certain wholesale customers take a more cautious approach, particularly in North America and to a lesser extent in Europe, and a more promotional environment, particularly in the North America wholesale business, due to elevated inventory levels industrywide compared to consumer demand in the region.

In addition, PVH said there continues to be “significant uncertainty” in the current macroeconomic environment due to the supply chain and logistics disruptions and inflationary pressures globally, the war in Ukraine, the Covid-19 pandemic and foreign currency volatility.

For the year through Jan. 31, revenue is projected to decrease 3 percent to 4 percent. Operating margin is forecast to be approximately 9 percent.

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EPS is expected to come in at around $7.64 compared to $13.25 in 2021. This includes a $50 million pre-tax charge recorded in connection with the decision to exit the Russia business, and the estimated negative impacts of approximately $1.25 per share related to foreign currency translation and 60 cents per share related to the company’s businesses in Russia, Belarus and Ukraine that have been significantly affected in the current year by the war in Ukraine.

“A critical element of our PVH+ Plan is to increase productivity and invest to grow,” Zac Coughlin, chief financial officer, said. “We are leaning into this work by streamlining our organization, implementing new ways of working and leveraging our scale. These actions will enable us to reduce people costs in our global offices by approximately 10 percent by the end of 2023 and reinvest strategically in digital, supply chain and consumer engagement connected to the PVH+ Plan. Through our strengthened execution, we remain committed to delivering strong returns for our shareholders and achieving our previously announced 2025 targets.”

In line with the fifth growth driver of the PVH+ Plan–drive efficiencies and invest in growth–the company is taking steps to streamline its organization and simplify its ways of working. The company plans to reduce people costs in its global offices by approximately 10 percent by the end of 2023 to drive efficiencies and enable continued strategic investments to fuel growth, including in digital, supply chain and consumer engagement. PVH expects these reductions will generate annual cost savings of over $100 million, net of continued strategic people investments.

Inventory increased 19 percent as of the end of the quarter compared to the prior year period. Inventory levels at the start of the second quarter were lean, particularly in North America, where delayed receipts of inventory due to supply chain delays negatively impacted revenue, PVH said.

The increase in ending inventory compared to the prior year period was due to a combination of abnormally low inventory levels in all regions in the last year, a planned increase in core product to mitigate the ongoing supply chain and logistics disruptions, and elevated inventory levels in the North America wholesale business due to lower than expected demand.

PVH also announced on Wednesday that Trish Donnelly, CEO of PVH Americas and Calvin Klein Global, will be leaving to pursue other opportunities. She will remain in an advisory role through Nov. 30.

PVH intends to separate her responsibilities into two roles to strengthen its ability to execute its PVH+ Plan calling for a regional leadership role for PVH Americas and a global brand leadership role for Calvin Klein. The company has launched a global search for both positions. In the interim, Stefan Larsson, CEO of PVH Corp., will lead PVH Americas and Calvin Klein Global, working closely with the leadership of both organizations and their teams.

Sales: Revenue in the second quarter ended July 31 decreased 8 percent to $2.13 billion compared to the prior-year period, inclusive of a 6 percent negative impact related to a reduction resulting from the Heritage Brands transaction and the exit from the Heritage Brands Retail business and from the war in Ukraine, including closures of company stores in Russia, the cessation of wholesale shipments to Russia and Belarus, and a reduction in wholesale shipments to Ukraine.

Tommy Hilfiger revenue declined 5 percent in the quarter compared to 2021, with Tommy Hilfiger International revenue falling 9 percent. Tommy Hilfiger North America revenue increased 6 percent.

Calvin Klein revenue dipped 1 percent overall, with Calvin Klein International revenue decreasing 2 percent and Calvin Klein North America revenue off 1 percent.

PVH said its underlying revenue growth compared to the prior year was primarily driven by solid performance in its international businesses. The company continued to experience supply chain and logistics disruptions globally and impacts from the Covid-19 pandemic in China, in addition to an increasingly challenging macroeconomic environment, particularly affecting its North America wholesale business.

Direct-to-Consumer (DTC) revenue fell 5 percent year over year. Wholesale revenue declined 11 percent in the period, while total digital revenue decreased 7 percent. This includes sales through the company’s digital commerce businesses and sales to the digital businesses of its traditional and pure play wholesale customers.

Earnings: Net income in the quarter fell 36.6 percent to $115.3 million compared to $181.8 million in the comparable 2021 period.

Earnings before interest and taxes (EBIT) was $177 million, inclusive of a $29 million negative impact due to foreign currency translation, compared to $279 million in the prior-year period.

Earnings per share (EPS) was $1.72 compared to $2.51 in the prior-year quarter. This included a $50 million pre-tax charge recorded in connection with the company’s decision to exit from its Russia business, primarily consisting of noncash asset impairments. It also included the negative impacts of 35 cents per share related to foreign currency translation and 17 cents per share related to the company’s businesses in Russia, Belarus and Ukraine that were significantly affected by the war in Ukraine.

Gross margin was 57.2 percent compared to 57.7 percent in the prior-year period and included a negative impact of foreign currency translation of approximately 40 basis points.

CEO’s Take: Lasson said: “Our Calvin Klein and Tommy Hilfiger businesses continued to exhibit underlying strength in the second quarter, despite the increasingly challenging macroeconomic environment as the quarter progressed. We continued to execute very well in Europe and Asia, where countries not currently impacted by Covid are performing significantly above pre-pandemic levels, while in North America we continue to be impacted by ongoing supply chain pressures.”

“In light of continued macroeconomic headwinds, we are intensifying our focus on driving growth through the disciplined execution of our brand-focused, direct-to-consumer and digitally-led PVH+ Plan, connecting Calvin Klein and Tommy Hilfiger closer to the consumer than ever before,” Larsson added. “This intensified focus includes a strong emphasis on driving product strength and consumer engagement, significantly upgrading our supply chain capabilities to become more demand-driven and simplifying how we work, resulting in substantial cost efficiencies. Our iconic global brands, Calvin Klein and Tommy Hilfiger, have high consumer relevance and we are in the early phase of the multi-year PVH+ journey to unlock their full potential.”