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New Deals Cooking at Calvin Klein

Bruce Klatsky, ceo of Phillips-Van Heusen and the new owner of Calvin Klein, is already working on several potential blockbuster deals for the brand.

NEW YORK — There will be a new face Friday at the Calvin Klein fashion show, and it’s not a hot starlet or model. It’s Bruce Klatsky, chairman and chief executive officer of Phillips-Van Heusen, and the new owner of Calvin Klein Inc., who is about to attend his first fashion show.

Having completed the deal Wednesday to buy CKI, Klatsky is already working on several potential blockbuster deals for the brand.

“I feel very good about owning one of the world-class lifestyle brands, and it will fuel extraordinary growth for our company,” said Klatsky. “We’re not touching their marketing or design studio. What we hope to contribute will be on the operational and financial sides. We have extraordinary expertise in the distribution and the production sides.”

Klatsky’s top priority is the development of a women’s better sportswear line under the CK Calvin Klein label.

“We’re negotiating for a women’s wear partner and are talking to four people,” said Klatsky, who declined to divulge the firms. “The U.S. opportunity is in excess of $1 billion for a men’s and women’s better sportswear business.”

A new men’s better sportswear business is currently being developed in-house by PVH.

In addition, Klatsky said CKI has a small in-house accessories business, which has enormous potential. “We think there can be a big sportswear and accessories business, and we’re looking at how to do them in-house. The Bass folks are studying that as we speak,” said Klatsky, referring to PVH’s G.H. Bass & Co. footwear division. Warnaco also has a piece of Klein’s European accessories business.

CK Calvin Klein better women’s and men’s sportswear, as well as the accessories business, will be launched in the next 24 months, said Klatsky.

As for freestanding retail store expansion, he said, “Right now we’re studying the business. Our Italian partners [Frattini Group] are putting together a proposal to open freestanding jeans stores throughout Europe and Asia, as well as sportswear stores.”

He said during the past two months, he’s met with many of the licensees, who are interested in expanding their current Calvin Klein business.

Klatsky said he believes that Warnaco, which has the CK Calvin Klein Jeans license and owns Klein’s underwear business, is in good shape. “They came out very solid. The balance sheet is very strong. I know John Kourakos [president of the Warnaco sportswear division]. He started his career at PVH, and we know him very well.”

Since he signed the deal on Dec. 15, Klatsky said he has enjoyed getting to know Calvin Klein personally.

“Calvin Klein is the best. My single greatest pleasure since I signed Dec. 15 is the relationship I’ve developed with Calvin Klein. He’ll continue to be the design inspiration and is instrumental. PVH will provide the strength and infrastructure.”

Klatsky added that Tom Murry, president of CKI, will continue as president and chief operating officer of a separate operating unit that will include CKI’s existing design, merchandising and marketing teams, which will remain unaffected by the acquisition. In fact, Klatsky said that PVH has increased the budgets for marketing and design this year.

PVH anticipates that the CKI acquisition will be somewhat dilutive in 2003 and will make a positive contribution to annual earnings by 2004, as reported. During 2003, due to normal integration and transition costs, operating earnings per share are expected to be approximately $1. EPS for fiscal 2004 and beyond are expected to grow at an annual rate of 15 to 20 percent. PVH anticipates being able to make annual cost savings of approximately $20 million to $30 million through 2004 in back-office and logistical functions as a result of the transaction.

In addition to the $430 million in cash and stock that PVH paid for CKI, PVH also has an ongoing agreement with Klein that will enable him to receive purchase price payments based on sales of all Calvin Klein products through 2018.

Klatsky said it still hasn’t been decided if PVH will change its name to Calvin Klein, a move that’s been speculated in the press.

“A lot of people are suggesting renaming it, [but] we’ve got extraordinary respect for our heritage. Our company is over 125 years old,” he said. “The thing about the Calvin Klein brand is we spent a fortune on consumer research in Europe, the U.S. and Asia, and the consumer thinks the Calvin Klein brand is the top of the pyramid. The businesses he has are small, relative to the strengths of the brand.”