The immediate effect of tariffs imposed on apparel imports from China and the uncertainty of whether there will be more or if they will be alleviated, combined with civil unrest in Hong Kong, is presenting problems for PVH Corp.
The owner of Calvin Klein and Tommy Hilfiger Jeans and sportswear said Monday these tariffs are expected to have a negative impact of approximately 20 cents per share in fiscal 2019. It includes $250 billion of tariffs at 25 percent and $300 billion at 15 percent imposed in September and expected to be imposed on certain other goods in December.
On Tuesday, speaking to analysts on a conference call, chairman and CEO Manny Chirico expanded on their impact as well as ongoing protests in Hong Kong and global economic effects.
“It continues to be a volatile environment,” Chirico said. “The uncertainty just continues and the talks go on, and you hear one source telling you there is a Phase 1 agreement, commenting that there will be no new tariffs. And so it’s very hard to plan. We are partnering with all of our key factories and our key factories are working with us as we go into spring.”
He said the outcome of trade talks between the two countries “is going to determine what happens post-spring as we move forward.” If the tariffs “continue to be short-term in nature, I think our factories are going to partner with us to work through it as we go forward,” he added.
“At the same time, we’re reducing our exposure,” Chirico said. “U.S sourcing out of China will be about 10 percent of our overall sourcing mix and I think that compares to three or four years ago we were close to 35 percent to 40 percent. So I think we’re moving strategically as we plan.”
He said PVH will look at targeted price increases going forward, but “we have to be also cognizant of the consumer and not go too hard, too fast.”
In addition to the tariffs, PVH continues to see consumer volatility in the Greater China region, driven by ongoing protests in Hong Kong, the ongoing U.S.-China trade tensions and a stronger dollar.
“Our teams continue to be nimble and react to emerging business trends, especially in Hong Kong, as the business disruption has gotten worse over the last few months,” he said.
There was good news, as revenue for the third quarter ended Nov. 3 increased 3 percent to $2.59 billion, exceeding guidance, even as net income in the quarter fell 13.9 percent to $208.9 million.
“We are seeing good results, specifically in core denim products,” Chirico told analysts. “On jeans and bottoms, here in the United States, what’s been the driver is the bottom side of our men’s business. G-III just launched the women’s products here in North America. The receptivity of that product has been outstanding. We are seeing really strong sell-throughs there and they’ve gotten strong placements.”
Internationally, he said, “I think we are probably six months ahead of where we are in North America.” The international product has been upgraded, leading to strong sales of tops and bottoms throughout Europe, and in all regions with the exception of China.
“So I think we are on the right track with [bringing] that product back to the brand DNA,” he said. “And I think the receptivity of our products that we’ve seen, particularly internationally, gives us confidence in the turnaround on that business.”