Calvin Klein RTW Fall 2017

PVH Corp. has big plans for Calvin Klein — and Europe is key.

Buoyed by strong international sales of its marquee brands Calvin Klein and Tommy Hilfiger, the apparel group is setting its sights on exponential growth abroad. Chief executive officer Emanuel Chirico told Wall Street analysts on Thursday that despite international revenues from Calvin coming in last year at a little more than $1.4 billion, he thinks revenue from sales in Europe alone will hit $2 billion in the future.

Chirico said the brand is set to enter some categories in the region next year, namely performance and ath-leisure, which are already selling well in Asia and North America, along with an expansion of its sportswear business for men and women and accessories.

Considering the Hilfiger brand is two to three times bigger than Klein in almost every regional market, Chirico said there’s plenty of space for growth over the next five years.

“I don’t see any reason why Calvin cannot be as strong, as big as Tommy over time,” Chirico added. “The $1 billion mark [for Europe] is within reach for us with jeans, underwear, accessories, men’s sportswear. To get to the $2 billion mark, we really have to take advantage of the women’s opportunity that could be significant for us [in Europe].”

Chirico has previously spoken about the ability of Calvin to grow, and when Raf Simons was brought on board as chief creative officer, PVH mentioned hopes for the brand to hit $10 billion in global retail sales. But Thursday’s comments represent some of the first specific plans and milestones for the brand’s expansion.

Sales in Europe for Calvin and Tommy already grew by “double digits” in the first quarter and Chirico said deadly terrorist activity, like that in Germany, France and most recently England, has not had a “significant impact” on the positive momentum for the brands, either in physical retail or online.

“Europe continues to look like a real bright spot for us as we go forward,” he added.

Ike Boruchow of Wells Fargo said in a note that international sales of Calvin Klein outperformed for the quarter with “significant growth” and that a “sequential improvement” is expected to continue in the next quarter.

Echoing Chirico’s comment on Europe, Boruchow characterized PVH on the whole as “a rare bright spot in our universe,” given its consolidated revenue growth of 3.3 percent to $1.87 billion during the first quarter.

There may be a reason PVH is looking overseas for growth opportunity with Klein and Hilfiger — sales in North America are dragging. Between political uncertainty and the ongoing contractions of the department store channel, PVH faces significant challenges on the wholesale side.

Comparable-store sales of Klein fell by 5 percent during the most recent quarter and comp-store sales of Hilfiger fell by 14 percent.

Chirico admitted the region still presents a “volatile environment” for PVH, but said digital with retail partners like Macy’s and Nordstrom is growing and efforts are being made to manage the flow of Klein and Hilfiger into the off-price channel, although the sector is “clearly” growing.

“As I look out 24 months, I think there is a likelihood that digital will be a higher percentage of our business than it is today. Off-price and specialty will also be a somewhat higher percentage than [it is] today. And given what’s going on in the department store channel, that will continue to shrink on some levels, especially with some tenuous players out there right now that we continue to watch closely,” Chirico said.

As for the political issues facing PVH in the U.S., notably the border adjustment tax proposed by House Republicans that would see importers of goods taxed more heavily, Chirico is still strongly opposed to such a measure. But he said he’s “more confident” now that such an action won’t be passed.

“The way the wind is blowing in Washington, the likelihood of something like a border adjustment tax getting in the tax proposal — if they can even get anything done in Washington —  is probably a long shot right now,” he said.

He added that he’s been in Washington, D.C., for talks with Congress and the new Trump administration at least seven times in recent months, more visits than he’s made during the length of his entire career.

Nevertheless, Chirico said the looming possibility of a difficult tax proposal causes hesitation when thinking in terms of possible acquisitions going forward.

“It does give me a little bit of pause to do a big deal and to pull the trigger on a big deal,” he said.

Despite this uncertainty, PVH continues to have its eye on expanding Klein and Hilfiger, taking back licenses and making investments internationally and Chirico said “opportunistic acquisitions” in the hundreds of millions of dollars range will be considered.

“Then again, if a great opportunity comes along that is more expensive than that, it’ll cause us to maybe be a little bit more conservative in our capital structure, but I don’t think it’ll stop us from doing a deal,” he added.

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