Calvin Klein Fall 2016

NEW YORKPVH Corp.’s chairman and chief executive officer Emanuel Chirico said he plans on building Calvin Klein into a $10 billion business.

Global sales are in the range of about $8 billion. On the company’s earnings conference call on Thursday, Chirico outlined his plans for the brand as he noted that Calvin Klein hasn’t even launched women’s sportswear outside of the U.S. He also pointed out that the men’s sportswear business is significantly underdeveloped internationally.

Chirico said, “We see dramatic growth to the Calvin Klein brand continuing to come out of Asia and coming out of Europe as those markets really can provide us upside growth as we move forward.”

The strength in Calvin Klein led the way in PVH sales with top-line growth of 13 percent. Calvin grew 20 percent during the quarter in the wholesale category. While tourist traffic in the U.S. may be down, the Calvin Klein business in Europe saw double-digit retail comps. Chirico also said the 2016 order book has accelerated to high teens growth versus the previous indication of mid-teens growth. Calvin Klein revenues are planned to increase 13 percent in the second quarter.

The women’s business for Calvin Klein is seeing outsize improvement through specialty store accounts like Urban Outfitters. With regards to the underwear business, PVH said its Calvin Klein brand was now number five in the bra category and number two in panties in the department store sector.

“I think the underwear business could continue to grow in the mid- to high-single digits for an extended period of time,” Chirico said.

He briefly mentioned the recent uproar over the Calvin Klein underwear ad, where the camera angle is looking up the model’s dress, saying that “the brand continues to draw controversy.”

Cheryl Abel-Hodges, president of PVH’s Underwear Group, said Urban Outfitters has been giving Calvin Klein a nice presence in the stores, which is significant because Urban rarely carries a major designer label. “It’s bringing a new generation to the brand,” she said.

Last month, PVH unveiled a new global creator strategy that would unify all Calvin Klein brands under one creative vision for all categories of the business. As a result, creative director of women’s Collection Francisco Costa and creative director of men’s Collection Italo Zucchelli left the company. Speculation continues that Raf Simons could be the person to take over.

Speaking of the latest numbers, Credit Suisse analyst Christian Buss said, “This reinforces our view that the brand turnaround at Calvin Klein is well under way, and suggests a period of sales acceleration and margin recapture is likely.”

Separately, Tommy Hilfiger revenue increased 4 percent, which was driven by an 11 percent increase in the international business. Chirico said the fall 2016 order book was now up 6 percent versus the previous indication of an increase of 4 percent. In September, PVH will launch the Gigi Hadid capsule collection for Hilfiger with Amazon and in Tommy stores. In August, a Tommy jeans capsule collection will hit Urban Outfitters as the company goes after a younger customer base.

While PVH stressed the importance of its department store partners, it was hedging its bets by making sure it was building other partners like Urban Outfitters and Amazon. Chirico said the department store channel continues to be under pressure from a traffic perspective.

Looking ahead, while retailers are banking on an improving picture for the second half of the year, PVH is opting to be conservative. The company will see a revenue reduction of $55 million in the second half of the year related to the joint venture in Mexico that was recently formed for the Calvin and Tommy brands. PVH said it is going up against positive sales trends from last year and with the slower department store and tourist traffic, is being prudent in its outlook.

“We’re not looking for a sequential improvement as we get to the second half of the year. I think most other apparel companies in this market and most of the retailers, based on what I’ve read, are looking for sequential improvement as they start third and fourth quarter,” Chirico said. “We’re not — but we are — we position ourselves with core products to be able to capture that sales growth if it were to come.”

He said there is an opportunity to outperform those sales projections if the environment improves slightly.

The Heritage business declined 12 percent as the company exited the Izod business and the department store traffic problems have hurt the brands. Having said that, PVH said its Heritage brands are outperforming in their respective categories. PVH also said it has some events planned around the Olympics for its Speedo brand.

On the call, Chirico was complimented by many analysts for the company’s strong results in what several have termed “the challenging retail environment.”

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