Manny Chirico, chairman and CEO, said to analysts on a conference call that based on information the company received from its retail landlords in China, and its own data collection, “I really think we are outperforming what’s going on in the market,” though around July, he added, that business started to slow down.
“I think, clearly, the trade tensions between U.S. and China are impacting that and then the ripple effect that had on stock market valuations and consumer sentiment has made the business more challenging,” Chirico said. “On the positive side, we haven’t seen any slowdown on our Digital business. From an e-commerce point of view, we continue to see very healthy growth in China there, that’s probably our most penetrated market…globally.”
Overall, consumer backdrop in China remains weaker than it was during the first half of 2018. On the upside, Chirico noted that the Calvin Klein and Tommy Hilfiger brands are “resonating with the consumers there.”
“But fundamentally, business is softer [in China] than you saw in the first half of 2018 and that trend has just continued into the first quarter of 2019,” he said. “So, I think we have to plan right to be fairly conservative in our estimate. We are looking for that trend to continue throughout the first half of 2019, and then as we start to lap comparisons, we should get back to seeing a more positive trend, we hope….I don’t have a crystal ball, but looking at what’s going on with some of the trade negotiations, I am more optimistic today than I was 90 days ago.”
PVH’s international businesses present growth opportunities, currently representing more than 50 percent of revenues and 65 percent of earnings before interest and taxes. Company revenue for the fourth quarter ended Feb. 3 dipped 1 percent to $2.48 billion compared to $2.5 billion in the year-ago period. International comparable store sales on an adjusted basis were up 13 percent.
“Europe in particular continues to be an exceptional market for both Tommy Hilfiger and Calvin Klein, despite the soft macro environment across the region, as our products, price positioning and brand experiences are resonating with the consumer,” Chirico said. “Our order books are outstanding, speaking to the power of our brands. We believe that we continue to gain market share for Tommy Hilfiger and Calvin Klein and that Europe represents the largest near-term regional growth opportunity for Calvin Klein.”
Chirico also confirmed that PVH is in discussions with G-III Apparel Group, its women’s wear partner in North America, about the potential for the company to takeover its Calvin Klein Women’s Jeans business in North America. “This is being planned hopefully for the second half of the year and it demonstrates our high degree of confidence in G-III’s ability to drive the women’s jeans business in the North American region,” he said.
PVH made the decision to exit the top-tier business of Calvin Klein, the 205 West 39th Street collection, including the closing of the flagship store on Madison Avenue.
“We believe this was the right decision for the long-term health of the brand as the existing high-end business was not resonating with our core consumer,” Chirico said. “Second, we continue to enhance our Calvin Klein Jeans product assortment. We believe that the balance of core versus fashion product was improved in the first quarter and that you will start to see more fashion right products in the second half of the year.”
Revenue in the Calvin Klein business fell 2 percent to $953 million in the quarter, including a negative impact of approximately $50 million from the 53rd week in 2017. Calvin Klein International revenue rose 2 percent to $523 million.