PVH Corp.’s chairman and chief executive officer Emanuel Chirico is being cautious with his outlook for the second half, telling investors at the Goldman Sachs Global Retailing Conference in New York that he “expects things to get somewhat better.”
The company’s biggest growth is forecast to come from the international business, where Europe and China are both strong. In Europe, business is solid because more people are staying close to home.
When it comes to China, business is strong, especially for Calvin Klein, where there is growth in the high single digits. The customer is responding well to Tommy Hilfiger. Chirico said he hasn’t seen any problem with PVH’s premium brands in China, although he had heard that luxury business in general was soft. The company continues to sell jeans priced at $150 to $200 a pair and the ceo said he sees a huge opportunity for Tommy Hilfiger in China and noted the business could double.
Chirico said he expects U.S. stores to post midsingle-digit negative comparable sales as tourist-heavy stores continue to experience weakness. Overall, Tommy Hilfiger sales are comping in the high single digits, while Calvin Klein is comping at midteens.
With regard to Calvin Klein and Raf Simons, Chirico noted that it was the first time since Calvin Klein was at the design helm was there was one person overseeing the whole brand.
Chirico said he wants to grow the Calvin Klein business in Europe to match Hilfiger’s. Calvin is currently a $600 million business in Europe and Chirico said he wants to get it to $1 billion and then $1.5 billion. He believes there is no reason why Calvin shouldn’t be as big as Tommy, which is a $2 billion business in Europe.
The ceo said PVH has been very happy with the work G-III Apparel Group has done with its women’s Calvin Klein business and thinks it can do the same with Tommy Hilfiger. Starting in the fourth quarter, G-III will get the license for the Tommy Hilfiger’s women’s apparel. “From a financial point of view, we’ll have significant benefits, reducing our risk and our investment in a business that we just don’t have the core expertise to operate the same way as an expert like G-III does,” he said. “I think they could potentially raise our average retails 50 percent to 75 percent over the next two years.”
On the wholesale side, PVH’s U.S. business is healthy and profitable. Inventories have been reduced and prices have improved on clearance items from the summer. The ceo said there is nice momentum in traditional wholesale accounts. “The department stores wanted to be clean for back-to-school.”
There is more demand from off-price retailers that want more goods and Chirico said PVH doesn’t want to create excess inventory for them. “Those retailers have had such explosive growth,” he said. “They buy goods, hotel goods.” He noted that the profitability is much higher and they make it work, but that PVH was trying to keep the inventory tight with them.
Chirico wasn’t upset that department stores are closing doors and said it would have minimal impact. He noted they were overstored and said the move to downsize made sense with the migration to online shopping. He also noted that even though Macy’s was closing 100 stores, it was the underperforming stores that were going and Chirico said they cost the company a fortune. He pointed out, “We tend to be in the top 500 stores.”
At the end of the day, PVH still makes more money on the merchandise sold in-store. Chirico said that the online dynamic for fashion was still being worked out. As far as e-commerce investments go, he thinks the spending will stabilize and said if the company makes anymore big investments in this area, it would be to create direct warehousing. He said the real e-commerce challenge is cleaning up third-party sellers. PVH is finding counterfeiters and some groups that buy the product and then try to sell it for inappropriate prices.
“It’s been a little bit too much like the Wild West out there for all of us who try to control what’s being shown,” said Chirico.