NEW YORK — PVH Corp. thinks the troubled Calvin Klein jeans and underwear businesses it’s buying from Warnaco Group Inc. should start to show signs of healing before the end of next year.
Emanuel Chirico, chairman and chief executive officer of PVH, said on a Wednesday morning conference call that efforts initiated by Warnaco to better position the business in North America and Europe “will start to benefit next year, particularly in the second half of the year. The focus is really on product enhancements…[and] the centralized design focus that they’ve been bringing to bear.”
PVH said Oct. 31 that it had agreed to buy Warnaco for $2.9 billion in a deal expected to close early next year. While PVH owns the Calvin Klein brand, Warnaco owns the underwear business under the name and the jeanswear is licensed to it on a long-term basis.
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While Calvin Klein enjoyed strong results in the third quarter — revenues, including royalties from all sources, were up 6.1 percent to $319.6 million, while operating earnings climbed 7.3 percent to $92.4 million — royalties were down slightly and Warnaco’s businesses suffered an 8 percent sales decline globally. “Strong sales in Asia and South America were more than offset by the poor performance in North America and Europe,” Chirico said.
Those jeans and underwear businesses represent nearly three-quarters of Warnaco’s overall business and 40 percent of Calvin Klein Inc.’s licensing revenues. While Warnaco has struggled in recent quarters, other licensees have thrived, with women’s licensees G-III Apparel Group Ltd. and Jimlar Corp. generating about a 10 percent royalty increase in the third quarter.
PVH had said previously that, because of Warnaco’s problems with its Calvin Klein businesses, its earnings guidance assumes receipt of only minimum royalties from Warnaco’s businesses in Europe for the year, about 10 percent below 2011 levels.
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Chirico expects the Klein turnaround in Europe to be “slower” than the one in North America. “I think there the whole business needs to be repositioned,” he told analysts Wednesday, adding, “We’ll probably see sales go down slightly further in 2013 as we reposition the brand for profitability and for profitable growth, really positioning it well for 2014.”
The Warnaco acquisition has PVH contemplating a switch in timing of another transition — the CK Calvin Klein bridge business in Europe that PVH took in-house and away from Warnaco earlier this year. “The plan was to really bring that out in 2013,” the ceo said, “but now, with the taking on of the jeans business, I think we’re really just reevaluating that whole timing and if that makes sense. Is it better to make a grand launch together, repositioning the brand? We’ll make that decision in the next 30 to 45 days.”
While eager to upgrade the Klein business in the U.S. and Europe, Chirico said he views it not as a luxury brand but as a “premium status brand.”
PVH late Tuesday reported third-quarter net income rose 47.4 percent, to $165.4 million, as revenues contracted 0.7 percent to $1.64 billion. Shares on Wednesday advanced $7.15, or 6.5 percent, to close at $116.44, establishing a new 52-week high of $116.93 earlier in the day.