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Over 600 Izod shops will be installed in J.C. Penney stores in September, as part of both the department store’s ongoing transformation and PVH Corp.’s efforts to shore up its stalled heritage brands division.
“It’s pulling together the sportswear into a more powerful presentation and adding more categories. Our second-half business for Izod [at Penneys] will be up probably 120 percent, so clearly there is a big investment in inventory,” said Emanuel Chirico, chairman and ceo of PVH, to WWD at the company’s annual meeting on Thursday in New York.
About 70 of the new Izod shops will exceed 1,000 square feet, with the remainder sized at 600 to 700 square feet. The brand will assume space and dollars from the defunct American Living brand, the line from Ralph Lauren Corp. that J.C. Penney pulled the plug on earlier this year.
“J.C. Penney is going through a tremendous transformation. Everything about how they are going after the consumer is changing so clearly, there are going to be tactical issues that are constantly coming up,” Chirico said of the high-profile turmoil at the retailer, which abruptly lost its president, Michael Francis, on Monday. “They’ve changed their pricing and marketing message but they haven’t really changed what’s on the floor yet. That’s coming this fall 2012. We’re excited about being a big part of that. We think from a strategic point of view they are on the right track and they have to tactically move as they undergo this major change.”
J.C. Penney has also picked up the Arrow brand from PVH, adding on to an existing Van Heusen dress shirt and sport shirt business that Chirico dubbed “very profitable.”
During the presentation to shareholders, Chirico and other PVH executives painted a positive outlook for the company, which owns Calvin Klein and Tommy Hilfiger, leavened with some words of caution about the global economy. Last month, PVH reported first-quarter profits that exceeded forecasts, rising 61.5 percent to $93.1 million, while revenues also beat expectations, increasing 4.3 percent to $1.43 billion.
In fiscal 2011, net income increased nearly sixfold, to $317.9 million, as revenues jumped 27 percent to $5.89 billion. PVH is projecting a much more modest revenue increase of 1 percent to 2 percent this year and adjusted earnings per share in the range of $6.15 to $6.25, an increase of 14 percent to 16 percent over 2011. However, the company expects to outpace that guidance if current business trends continue, it said on Thursday.
Potential trouble spots for PVH include southern Europe, which is clouded by the ongoing debt crisis and slumping economies, and the Japan market, which Tommy Hilfiger ceo Fred Gehring, also speaking at the annual meeting, called “one of the few really challenging markets” for the brand. The company is striving to elevate the brand and prices in Japan, in the midst of stiff economic headwinds.
“In southern Europe, given what is going on, particularly in Italy and Spain, we are really looking to maintain our level of business and not trying to grow. We’ve slowed down retail expansion in those markets given the uncertainty with the consumer and have seen outsize growth in northern and central Europe,” said Chirico.
In Europe, Tommy Hilfiger is better positioned than Calvin Klein geographically, in that 70 percent of Tommy’s business is in the more economically stable northern and central European markets. Conversely, 65 to 75 percent of Calvin Klein’s business is in the less stable southern European markets, said Chirico.
The Calvin Klein jeans business in southern Europe, licensed to The Warnaco Group Inc., has been under particular pressure as the label is overpenetrated there. “The jeans business really needs to improve. Our partner Warnaco is working on a number of design and product initiatives and we are working hand in hand with them to improve that business, and I think we will start to see improvements beginning in 2013,” said Chirico.
Globally, Tommy Hilfiger is forecasting a compound annual growth rate (CAGR) of its retail sales of 8 to 10 percent through 2014, down from 14 percent from 2005 to 2011. “The world being what it is, we have to believe that difficult times are ahead of us,” said Gehring, calling the forecast “prudent.”
Last year, Tommy Hilfiger comprised 52 percent of PVH’s $5.89 billion in revenues and 46 percent of its $758 million in operating profits on an adjusted basis; Calvin Klein was 18 percent of revenue and 37 percent of operating profits, and the heritage division was 30 percent of revenue and 17 percent of operating profits.
With Tommy Hilfiger and Calvin Klein growing 8 to 10 percent a year and the heritage brands — which include Izod, Van Heusen, Arrow and Bass — growing in the low-single digits, within three years the two core designer brands should account for 90 percent of operating profits, said Chirico.
Having bought back its European ck Calvin Klein bridge business from Warnaco, PVH will launch men’s sportswear and accessories for fall 2013 and women’s sportswear and accessories for fall 2014 under that label. Leveraging the Tommy Hilfiger platform in Europe — which alone has a sales force of more than 1,000 people to manage the complex wholesale market in the region — PVH believes it can build a $500 million Calvin Klein bridge business there.