Backstage at Tommy Hilfiger Spring 2019

PVH Corp., which owns Tommy Hilfiger and Calvin Klein, has cut its full-year forecast in the wake of continued unrest in Hong Kong, declining tourist spending in the U.S. and looming apparel and footwear tariffs.

In an interview with WWD, Emanuel Chirico, chairman and chief executive officer, said unlike a number of its competitors, it’s “not building in a second-half retail turnaround” and wants to strike a cautious tone.

The company is expecting adjusted earnings per share to be in a range of $9.30 to $9.40, compared to the previous forecast of $10.20 to $10.30.

Full-year revenue, meanwhile, is penciled in to increase by just 1 percent, down from the prior estimate of 3 percent.

Chirico singled out continued unrest in Hong Kong as one of the main headwinds facing the business.

Hong Kong business, which is a little over a $100 million business, is under a lot of pressure. It’s a highly profitable business for us and that’s causing us to be more promotional. We’re assuming what we’re seeing in the last month will continue,” he explained.

“I think we tried to contemplate almost the worst-case scenario so we’re assuming that the disruptive trends that existed through the second quarter and into the beginning of the third quarter will just continue for the balance of the year,” he added.

Another hurdle for the business is tariffs. Levies set at 15 percent are about to hit three-quarters of apparel and footwear in the next few days and the rest will come into force in mid-December. PVH has calculated that tariffs are set to cost the business around 20 cents a share this year.

The company has been working hard to reduce its China footprint for U.S.-bound goods. Three years ago, the group sourced 30 percent of its products from China, but it aims to get that number down to as low as 10 percent next year.

“What makes this whole thing so difficult is the uncertainty that gets created around the tariffs and our assumption is they’re going to be in place for the year,” the ceo said, referring to the fact that the Trump administration has changed its policy on tariffs several times in the past few months. “It makes managing a global business challenging.”

Finally, declining tourist spending in the U.S., especially from China and South and Central America, is also hampering the business. Around 30 to 40 percent of PVH’s North American business is driven by international tourism. As well as a strong dollar, Chirico believes some of this stems from immigration issues at the southern border.

“I think a lot of that has been with a lot of what’s going on with the border and immigration and people not feeling comfortable and the pressure of continuing strength in U.S. dollars, which just makes travel to the United States that much more,” he said.

The worsening outlook comes despite the company surpassing Wall Street’s estimates on both the top and bottom lines in the second quarter. PVH released its numbers after the close of the stock market.

Revenue came in at $2.36 billion, compared to the average analyst estimate of $2.33 billion, according to Refinitiv.

On an adjusted basis, net income was $2.10 a share. Analysts had been predicting $1.88 a share.

Revenue in the Tommy Hilfiger business for the quarter increased 8 percent to $1.1 billion. For Calvin Klein, which PVH is overhauling after a disappointing performance, revenue for the quarter decreased 6 percent to $873 million.

PVH’s shares were down 0.8 percent to $71 in after-hours trading, having closed up 2.5 percent to $71.57 before the bell.

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