Emanuel Chirico

NEW YORK — PVH would like to add another high-profile brand to its already impressive stable, but the uncertainty around a potential border adjustment tax and the challenging world economy is giving the company second thoughts.

“There’s all this uncertainty in the world and on the tax situation with interest deductibility, etc., so it does give you pause when you start thinking about trying to do something very large,” Emanuel Chirico, PVH Corp.’s chairman and chief executive officer, told WWD following the firm’s annual shareholders meeting here Thursday morning. “If you’re going to do a $1 billion or $2 billion acquisition, how are you going to fund it and if the tax rules change, is that going to change how things go? That uncertainty gives us pause.”

So until the economic climate settles down and the tax situation is resolved, Chirico said the company will continue to concentrate on its existing powerhouse brands, Calvin Klein and Tommy Hilfiger — at least for the immediate future.

“For us, the focus will be to continue to do things with Calvin and Tommy with licensing and minority investments with our partners around the world,” Chirico said. “But over the next 12 to 18 months, we would like to put an additional brand onto the platform. But we really need to see the environment and tax situation settle a bit.”

Chirico sits on the country’s Trade Advisory Committee, a role he’s held since the Obama administration, and has worked hard over the past few months on the border adjustment tax and other proposals that could impact the apparel industry.

“I’ve been to Washington more in the last six months not for trade, but to talk about taxes,” he said. “Given our position as an international player and our size and my background being more financial than most of the ceo’s in the industry, it’s a position I can speak on with authority.”

He said the idea of a border adjustment tax is “wrong-headed and would be ill-advised. Forgetting industry issues, I think you don’t impact the consumer negatively when you don’t have to. And you don’t take the world’s largest economy and perform a science experiment on it. Fundamentally a border adjustment tax is a tax on the consumer and I don’t see it being appropriate.”

As an industry, he said, “we’re already paying significant quotas — our average quotas this year are around 15 percent — and this year, we paid $250,000 in apparel quotas. Nobody talks of that as being a tax, but it absolutely is. And this border adjustment tax is just added on top of that. So if the tax rate is 20 percent, you have 15 percent plus 20 percent plus 20 percent on the 15 percent, so it’s a 38 percent levy against imports of apparel.”

He said the U.S. has already acknowledged “apparel is an industry that the U.S. government determined, rightfully so, that we don’t want to be in. We don’t want to compete against Bangladesh, Sri Lanka, Cambodia, Ethiopia, we want to compete against Germany and China in industries that make sense for our workers.”

Apparel industry jobs are low-paying and labor-intensive — “minimum wage types of jobs, and even at minimum-wage levels, we’re paying five times what the other economies are paying and it just doesn’t seem like a place where you really want to compete.”

The good news, however, “is most people you talk to in Washington feel like it’s almost dead as an issue and we’ll see how it moves forward.”

Turning to the issue of climate change, Chirico said, “We were disappointed that we left the Paris Accord as a country. Fundamentally, I believe we need to lead by example and yes, it wasn’t totally fair, but we are the largest economy in the world and it should be balanced, and I think it could be improved, but trying to get 190 nations to agree is tough enough and then to walk away from it.”

However, as a corporation, Chirico said PVH will “continue to do the things we can to improve the situation and hopefully the administration will work on some type of arrangement that will allow us to reengage globally as a country and do it on a basis they see as a more level playing field.”

During his formal remarks at the meeting, Chirico told the small gathering that the corporation will work to continue to drive consumer engagement by further investing in its brands and expanding its Calvin Klein and Tommy Hilfiger lines by assuming more control over their licenses and enhancing the synergies between the two brands.

Developing and retaining talent and continuing to generate strong earnings and cash flow are also key initiatives, he said.

As reported, in the first quarter ended April 30, PVH reported consolidated net sales of $1.87 billion, a 3.3 percent increase over the same quarter last year, but net income came in at $70.1 million, a sizable drop from $231.6 million a year ago due to various expenses, including $7 million related to relocating the Tommy Hilfiger offices in New York and $54 million related to a venture with Li & Fung to create a new supply chain, as well as unfavorable currency rates.

Even so, Chirico said Thursday that the company’s relative strength is “a testament to the strength of the two big power brands, but even our national brands — Van Heusen and Izod and our Speedo business — are competitively really good. Now, we’re dealing with store closures in some cases and the tumult that’s going on in the mall, but through all of that, being able to grow a couple of points and gain market share and doing it in a profitable way says a lot.”

He said the strength of the brands came from their presence on the international stage. “We benefit from two things: Calvin and Tommy’s strength internationally, and just our presence. If you think about it, for a U.S. company with U.S. brands, we by far have the biggest foreign exposure. Our businesses in the U.S. are big, but the international business, compared to a Ralph Lauren or Michael Kors or any of the other players, we clearly have a much bigger portfolio outside the U.S. Europe clearly and then Asia as well. The development in China and the rest of Asia really puts [things] ahead of the rest. And to be honest, a couple of years ago when the dollar was strengthening, people were viewing it as a weakness, although I viewed it always as a strategic advantage, but currency is going down 20 percent, it really impacts earnings. The math of translating profitability at $1.35 a euro to $1.10, you lose 25 percent of your earnings. Nothing really happened to the business, but it does impact results.”

He said that cycle “does seem to be over now and currencies seem to at least be stabilizing and actually next year, the situation at this level will go from being a headwind back to being a tailwind. So we’re feeling good about that. And having strength in the business today and having that tailwind as we go into 2018 positions us well for the future.”

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