After a difficult third quarter, the owner of Calvin Klein and Tommy Hilfiger enjoyed a healthier holiday season.
While the latter went from strength to strength, clocking in $1.2 billion in revenue in the fourth quarter, there were signs that the overhaul of Calvin Klein is starting to pay off, Emanuel Chirico, chairman and chief executive of PVH Corp., told WWD.
“We’re especially pleased with the initial results coming out of Calvin Klein….It’s a good first step,” he said, adding that it will only get better as the changes to the product were made quickly by the team in the fourth quarter and by the fall, a “marked improvement” will be visible.
“The best response that we’ve seen so far is the new spring campaign with Shawn Mendes. The reaction from the consumer seems to be back to where our marketing and advertising consistently has been in the past,” Chirico said.
His view is more positive than in the third quarter, when he unexpectedly revealed the fallout at Calvin Klein, declaring the Calvin Klein Jeans relaunch “too elevated and too fashion-forward for our core consumer,” while the $70 million investment in the 205W39NYC collection did not result in the returns that PVH had hoped for.
Since then, PVH has acted quickly to implement a number of drastic changes, including Calvin Klein designer Raf Simons’ departure, the end of the brand’s collection business and departure of that subsidiary’s president Michelle Kessler-Sanders and the shuttering of Calvin Klein’s New York flagship on Madison Avenue in Manhattan.
The cost of all this added up to $41 million in the fourth quarter, consisting of $27 million of severance, $7 million of noncash asset impairments, $4 million of contract termination and other costs, and $2 million of inventory markdowns.
Chirico also confirmed that, as WWD reported exclusively, PVH was in late-stage discussions with G-III Apparel Group Ltd. for the latter to acquire the license for the Calvin Klein women’s jeans brand for North America, but added that apart from that there shouldn’t be any further major restructuring announcements for Calvin Klein anytime soon.
“I think what we’ve announced is what we plan to do,” he said. “When you make a mistake, make it quickly and move on. I think that’s what we really tried to do, so I think we’ve laid out all the strategic initiatives that are in place.”
Overall, PVH’s fourth quarter net revenue was $2.48 billion, beating analysts’ estimates of $2.41 billion, according to FactSet data.
Revenue in the Tommy Hilfiger business for the quarter increased 2 percent to $1.2 billion, while revenue in the Calvin Klein business for the quarter slipped 2 percent to $953 million.
The latter was pulled down by a 7 percent slide in North America sales, in part due to the weaker Calvin Klein Jeans business. In better news, its international revenue increased 2 percent to $523 million.
When pressed on Calvin Klein revenue, Chirico explained there was an unfair calendar comparison with an additional 53rd week in the 2017 numbers, adding that the problems the brand faced in the third quarter weren’t primarily sales-driven.
“It’s not necessarily a sales issue that we’ve had some challenges with. In our own business, it impacted us more financially, particularly in the third quarter it was our margins where the product just wasn’t making the right connections and, in order to move through it quickly, we had to make the markdowns and get new product on the floor,” he said. “We saw a much healthier business in the fourth quarter. We think that is a good sign as we go into the first half of the year.”
As for earnings, they came in at $158 million, or $2.09 a share, up from, $109 million, or $1.39 a year earlier. On an adjusted basis, they were $1.84 a share, up from $1.58 a share.
The stock market appeared to be pleased with the figures. In after-hours trading, PVH shares were up almost 10 percent to $121.65.