Backstage at Tommy Hilfiger Spring 2019

The U.S.-China trade war is hitting not just supply chains, but the hearts and minds of consumers, according to Emanuel Chirico, chairman and chief executive officer of PVH Corp.

While the company’s Tommy Hilfiger business drove revenues up 4 percent to $1.1 billion in the quarter (a 9 percent boost in constant currencies), and Calvin Klein was flat at $890 million (up 4 percent in constant currencies), both companies saw comparable sales declines in North America. Calvin Klein, in the midst of a restructuring, comped down 5 percent while Tommy Hilfiger was off 4 percent.

Chirico pointed to the strong U.S. dollar that has hurt tourist spending and chilled the company’s outlet sales while the heated rhetoric in the trade war with China is being felt by consumers on both sides of the Pacific.

“The constant drumbeat is impacting the consumer overall — both in the U.S. and in China — and we’re seeing a retail backdrop that is somewhat challenging overall in the U.S.,” Chirico told WWD Wednesday. “It’s a combination of the trade disputes and the pressure and the uncertainty that that creates around tariffs and around just the general tone between China and the United States.”

PVH was among the fashion stocks getting hammered on Wall Street on Wednesday. Shares of the firm fell 8.6 percent to $90.67 after hours after having already dropped 6.3 percent in regular trading. Also being beat up after releasing quarterly results were Canada Goose Holdings Inc., down 30.9 percent to $33.89; Abercrombie & Fitch Co., 26.5 percent to $18.39, and Capri Holdings, 9.9 percent to $35.06.

Investors who were holding out hope that wage growth and low unemployment in the U.S. would lead to strong spending on fashion have been disappointed by a string of weak quarterly earnings reports.

There is still hope for the second half, when comparisons with last year start to get easier, but the specter of trade war lingers — and the conflict could start to cause damage on multiple fronts if consumers change their spending habits.

“I have a particular concern around the trade rhetoric,” Chirico said, referring to talk about “America first,” a slogan of President Donald Trump, who has employed his signature brashness in shaping the U.S.-China dynamic.

“For great American brands, like what we operate, I do worry that there starts to develop a bit of an anti-American sentiment in key markets like China,” Chirico said. “I don’t think people want to see their governments or their countries beat up and that’s kind of what’s going on.”

On top of that comes the danger of higher tariffs, which could rise by 25 percent on apparel and other consumer goods if Trump carries through on his threats.

While China accounts for about 15 percent of PVH’s sourcing this year and is going down to 12 percent next year, that would still have a big impact.

Chirico said the cost could be $40 million this year and $50 million for all of next year.

PVH’s first-quarter net income slipped to $82 million, or $1.08 a diluted share, from $179.4 million, or $2.29, a year earlier. However, adjusted earnings came in at $2.46 a share, ahead of the $2.40 to $2.45 the company projected.

Revenues for the three months ended May 5 increased 1.8 percent to $2.36 billion from $2.31 billion. On a constant currency basis, revenues rose 6 percent.

Chirico, who recently named Stefan Larsson president and heir apparent, also said the company was starting to see some progress at Calvin Klein, which operationally is changing tack following the departure of Raf Simons.
The designer took the brand into a much fashion-forward stance that resonated with critics, but not consumers and led to a restructuring that is expected to cost more than $170 million (on top of the $60 million to $70 million invested in the business).

Simons’ design changes hit denim hardest and the Chirico said the new, more commercial looks wouldn’t fully make their way to consumers until later this year.

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