The company reported fourth-quarter profits of $134.2 million late Wednesday, a gain of 161 percent and a nice end cap to a good year, but by the time Chirico talked to Wall Street Thursday, analysts were asking big-picture questions and looking for what’s next.
“Right now, the focus will be on the incremental acquisitions…and continuing to maximize what the opportunity is for Calvin and Tommy,” Chirico said. “And then as we turn 2016 into 2017, opportunistically looking at what’s out there in the world. We generated a tremendous amount of cash. We have not leveraged to any extent given our strong balance sheet dynamics. There is a significant amount of open-to-buy dollars that are there and historically we’ve been a significant acquirer of brands, be it Calvin, Tommy, Warnaco. So I don’t think that’s really going to change, but I think that Tommy in the next 12 months will be continuing to focus on the strategic licensing acquisitions.”
But the fashion world has grown into an entirely different jungle than even when he bought Warnaco in 2013. The apparel business has become more troubled, Amazon and other digital players are making a bigger play in fashion, department stores are closing and foreign currency has slowed the international business.
One positive that Chirico noted is that while Europe continues to be volatile, the company has had strong comparable-store sales for both of its main brands and seen no sign of slowdown despite the string of terror attacks in Belgium, Turkey and Paris.
“The market has been volatile, we got warm weather…a lot of issues caused by the geopolitical situation,” he said. “It’s very frustrating over a two-year period, looking at almost $3 of earnings per share that have gone against us on the currency line.” PVH’s net earnings for the past two years totaled $12.16 a share.
“If we get any kind of a tailwind from currencies, meaning that the dollar levels will start to actually weaken somewhat long-term against some of these currencies as we get back to equilibrium around the world, that would clearly be a tailwind that would help us going forward and have the biggest impact on our operating margins as we go forward internationally,” he said.
Currency pressures might ease, but the digital dynamic is not going away.
Chirico was asked about Amazon after he mentioned that it, along with Urban Outfitters, were strong outlets for Calvin Klein jeans last fall even while the department store business was soft.
“We see it as a real growth opportunity, but we’re being very cautious as we move forward,” the ceo said about Amazon. “We’re focused on key product lines and key product categories to try to grow — to grow the business. Obviously, when you think of the underwear category by its nature, it tends to be a natural for the online business and we see penetration not only growing with Amazon, but in all of our department store accounts that it just continues to drive. We’re going to watch that business, manage inventory levels there with them. We’re trying to really control the promotional agenda not only in department stores, but also online.”
As Amazon becomes a bigger part of the picture and an outlet that brands are talking about more and more, department stores continue to retrench.
“Every major retailer is talking about some store closing,” the ceo said. “We’ll continue to see retail pruning their store base 5 percent a year. So much, I think, is ahead of us for the next three years to five years as we get balanced and they deal within their channels of distribution in their retail stores, their growing e-commerce platform and the need for [fewer] stores in order to connect with the consumers.”