Phillips-Van Heusen Corp. expects its product-related costs to increase an average of about 5 percent next year and is planning to test price hikes selectively to gauge consumer sensitivity.
Emanuel Chirico, chairman and chief executive officer of PVH, told participants on the company’s second-quarter conference call Wednesday that cost increases “will be somewhere between 3 and 8 percent” for next year, but that PVH will benefit from its greater dependence on wovens, where price pressures are lower than in knits, and efficiencies of scale realized through its acquisition in May of Tommy Hilfiger.
“We understand the consumer is under pressure,” he said in response to an analyst’s query. “We are testing price increases with a number of our brands as we go into the fall-holiday season to see how moving MSRPs and moving promotional cadence, to see how we react to that and see what benefits may come from that. So we’re clearly experimenting with all the levers.”
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Price pressures will be mitigated, he said, by “the size of our pencil and the way we can intensify our order flow to key factories in order to maintain pricing or mitigate against the pricing increase.” He added that PVH’s exposure to currency fluctuation is “significantly less” than for other firms.
The call followed PVH’s report late Tuesday of results that handily pass analysts’ estimates. Second-quarter earnings, excluding various costs related to its acquisition of Hilfiger, landed at 72 cents a diluted share, 18 cents above estimates, while revenues in its first quarter as Hilfiger’s parent tallied $1.1 billion. PVH shares shot up $3.57, or 7.1 percent, to $54.07 Wednesday.
PVH lifted its guidance for the remainder of the year on Tuesday and provided greater detail on Wednesday’s call. Fall bookings for Tommy Hilfiger are ahead more than 10 percent versus a plan for a 6 percent gain. At Calvin Klein, where revenues rose 14 percent and operating profits were up 20 percent in the second quarter, same-store sales gains at retail were 14 percent and have begun the third quarter ahead 12 percent versus a plan for 7 percent to 8 percent growth. At the new Heritage Brands unit, the company expects its wholesale businesses to grow about 15 percent in the second half, versus 4.5 percent expansion in the second quarter.
Chirico said “we’re getting significant payback from our marketing investments, particularly in Izod and Van Heusen, where we have consistently been spending marketing dollars over the last four years, and we believe those marketing dollars are paying dividends as we are gaining market share with all of our major customers.”
Chirico set a goal of creating “the largest, most profitable branded apparel company in the world” at the firm’s annual meeting in June. Even if its second-quarter sales were to be extrapolated into annual volume of $4.4 billion, it would still trail such U.S.-based apparel juggernauts as VF Corp. and Polo Ralph Lauren Corp. in annual sales.