When Stefan Larsson steps in as president of PVH Corp. on Monday — and starts learning the ropes to take over the job of chief executive officer from Emanuel Chirico — he will come into a company with lots of moving parts and hopes that the second half will show stronger trends.
“We believe that as we head into the second half of the year, we will be up against significantly easier [comparable] store sales comparisons and that the noise around trade and tariffs will moderate,” Chirico told analysts on Thursday after PVH reported a 1.8 percent gain in first-quarter sales and better-than-projected adjusted earnings. Comp sales at both Tommy Hilfiger and Calvin Klein fell in the quarter.
“We expect a much healthier back half of the year for the company,” he said. “We believe that the incredible brand power behind Calvin Klein and Tommy Hilfiger continues to position us well in the marketplace against our competition in light of the difficult macro and retail environment.”
That macro environment includes a strong U.S. dollar, which is hurting tourism spending, and costs associated to the trade war in China, which is starting to impact consumers on both sides of the Pacific.
Investors are growing wary of fashion in general and shares of PVH fell 14.9 percent to $84.49 on Thursday.
Chirico pointed out the company has a more developed business in China than many of its competitors, selling beyond the tier-one cities like Beijing and Shanghai and into tier-2 and tier-3 cities where workers are more impacted by the trade war.
“We are much more broadly distributed throughout China. And that has been part of, I think, the strength of our brand overall and the recognition of the brand throughout China as we were one of the first movers in China and I think we continue to benefit from that,” Chirico said. “But with that comes a much broader geographic spectrum, and I think we’re being more impacted by some of these trade issues.”
Like other importers, PVH is moving to reduce its production in China, shifting it from 15 percent of its supply base this year to 12 percent next year.
One of the first jobs of Larsson, who is expected to transfer into the corner office in three or four years, will be to help get Calvin Klein back on track after the departure of Raf Simons, who took the brand into a more fashion-forward direction that didn’t click with consumers.
But there’s also plenty of action at the stronger Tommy Hilfiger brand, where Macy’s had a sportswear exclusive until recently. (The brand’s women’s sportswear is made by licensee G-III Apparel Group.)
Chirico said Macy’s is taking a different tack going forward, but is still a “key customer, strategic partner for us…our largest customer in the world overall from a wholesale point of view.”
Opening up Tommy Hilfiger sportswear to broader distribution through merchants like Dillard’s and Amazon could eventually add $100 million in sales, Chirico said.
G-III is a key partner for PVH and is also about to take on women’s jeans for Calvin Klein for North America.
“We shook hands,” said Chirico, referring to his deal with G-III ceo Morris Goldfarb. “The lawyers are still playing around with some wording. I think that will all be behind us. Shortly, that deal is done. They’re showing product. They’re actually talking about building spaces in certain key department store doors with new shop-in-shops.
“We really feel good about how strong their product presentations to the department store channel have been,” Chirico said. “The reception of the product at retail has been extraordinary.”
PVH has another iron in the fire with its recent deal to make Nike-branded men’s underwear.
“The business has a potential of a $100 million business,” Chirico said. He said the brand has very strong distribution — “It really goes from Kohl’s all the way up to Nordstrom and beyond.”