NEW YORK — Emanuel Chirico and his team at PVH Corp. think they’ve got the right prescription to reinvigorate the ailing Calvin Klein Jeans business — shrink it to grow it.
On a Thursday morning conference call to discuss the firm’s fourth-quarter results, Chirico, chairman and chief executive officer of PVH, provided analysts with a status report on the condition of the jeans and underwear businesses picked up in the $2.9 billion acquisition of Warnaco on Feb. 13. He also outlined the steps planned to fix the struggling jeans piece.
The cuts in the jeans business will take a variety of forms, from lower sales to secondary and off-price retail accounts and the closure of unprofitable stores, to the elimination of 900 to 1,000 jobs, disclosed last week, and an effort to quickly reduce excess inventory. The downsizing will be balanced against investments to improve management, infrastructure, marketing, retail presentation and overall operational efficiencies, some affecting underwear as well as jeans. Merchandising and design upgrades at Calvin Klein Jeans are already under way and date back to Warnaco’s stewardship of the business.
The problems with the jeans business vary by market.
In North America, jeans and underwear sales are “a little bit over $500 million with 10 percent operating margins,” according to Chirico, but a “very profitable underwear business” is offset by “an underperforming jeans business” that’s been “overly dependent on the off-price and [warehouse] club channel.” Because of this lopsided distribution, “Calvin Klein has lost its leadership position in jeans with all of its major department store customers.”
Jeans and underwear generate about $500 million in Europe, but operating margins — earnings before interest and taxes divided by sales — were below 4 percent last year, a third of their pre-2011 peak.
“Our plan is to fully integrate this business into our Tommy Hilfiger European operating platform over the next 12 months,” Chirico said, adding the European headquarters will move to Amsterdam from its current base in London. The business now will be supervised by Fred Gehring, ceo of Tommy Hilfiger and PVH International.
For 2013, the Klein business in Europe is expected to be down in the low- to midsingle digits as 15 to 20 unprofitable stores are closed and sales to off-pricers and what Chirico termed “unproductive small specialty accounts” will be scaled back.
Asia was a $530 million business under Warnaco that has enjoyed double-digit growth over the last five years, and Chirico noted the need for investment to “fully integrate this business into our systems and supply chain over the next 24 months.”
Asian sales for the Calvin Klein jeans and underwear business are expected to expand about 5 percent this year. The sole sore spot has been in Korea, where same-store sales are down more than 10 percent “in the context of a difficult consumer environment and a difficult denim landscape,” he said.
“We were surprised on the logistics side, on the infrastructure side, on the supply chain side,” he said of the condition of the Warnaco businesses upon completion of the acquisition. “But…as we fix those things, without a doubt those weaknesses today create more long-term opportunity for us as we go forward, as we hopefully improve that infrastructure and supply chain….”
The ceo’s preliminary diagnosis and anticipated remedies dominated the call after PVH said Wednesday that the Warnaco acquisition, originally expected to add 35 cents a share to earnings this year, would instead subtract 25 cents from them, leading PVH to project full-year earnings per share of $7 as opposed to the $7.46 earlier estimated by Wall Street.
The bearish guidance pushed PVH shares down in after-hours trading Wednesday, and they continued on that same trajectory Thursday, closing at $106.81, down $5.98, or 5.3 percent.
Chirico said that PVH hoped to move Warnaco’s Calvin Klein businesses to an operating margin of about 12 percent from a current level of 8.5 percent in the next three to four years.
He contrasted the Warnaco deal with the 2003 acquisition of Calvin Klein Inc., which essentially made Warnaco its licensee, and the 2010 purchase of Tommy Hilfiger.
“This is a major, complicated acquisition,” he told one analyst. “It’s over $2 billion in sales in four geographic regions. I’m not going to be Pollyanna about this — this is more complicated than other acquisitions we’ve done, and it’s required us to really dig in.”
“Azzedine has been one of the biggest influences in my life. He has always been such a strong, loving, fatherly figure to me. I call him Papa. His designs are indescribably unique, they are pieces of art. He knew how to make the female form look its loveliest. I have so many memories of him; my favorite might be during my first show with him in Paris. He liked me and he wanted to help me get more work. He called all his friends at Kenzo and Comme des Garcons, and asked them to book me. They said, ‘But she can’t walk!’ And he said, ‘but she has such a great ass!' His friendship and support has been the great privilege of my career. I can't imagine life without him. Repose en paix mon Papa.” - @stephanieseymour tells @wwd. #wwdfashion (📷: @steveeichner) #alaia #azzedinealaia
Azzedine Alaïa, flanked by two of his closest friends, models Stephanie Seymour and Naomi Campbell.
He designed Seymour’s dress for her 1995 wedding to Peter Brant, and treated Campbell (who famously called him Papa), like a daughter. For more on the legendary designer, tap the link in bio. #wwdfashion #alaia #azzedinealaia
Azzedine Alaïa's “I-did-it-my-way” ethos stood out starkly at a time when brands are experimenting with consumer-facing fashion shows, coed formats and trans-seasonal collections – anything to perk up lackluster sales of ready-to-wear in an age of Insta-everything. “It’s not creation anymore. This becomes a purely industrial approach,” the late designer told WWD in an interview last year. “But anyway, the rhythm of collections is so stupid. It’s unsustainable. There are too many collections.” Read more about the iconic designer’s life and work on wwd.com, link in bio. #wwdfashion #azzedinealaia (📷: @WWD Archive, 1986) #alaia
Sneaker reselling app @goat’s latest exhibit, "The Greatest: New York," tells the story of New York's sneaker culture. To celebrate the exhibit, an intimate crowd gathered on Thursday night at the pop-up gallery space, located at Platform in Culver City, to hear guest speaker and illustrator @esymai talk about her own rise in streetwear and women in the business. "For me I'm just someone who is creative. I like to create things," said Chang. #wwdfashion
Azzedine Alaïa, one of the most iconic couturiers of the modern era whose body-con designs defined Eighties fashion, has died in Paris. The diminutive Tunisian-born designer, known for his structured knitted dresses with fitted waists and impeccably cut, figure-hugging second skin silhouettes was deeply admired by his peers, and counted supermodel Naomi Campbell - his adoptive daughter - among his inner circle, one of a gang of glamazons including Farida Khelfa, Carla Bruni and Stephanie Seymour who became ambassadors of his style. (📷: Alexandre Guirkinger) #wwdblast