NEW YORK — PVH Corp. expects the heavy lifting needed to reinvigorate the Calvin Klein Jeans business to be completed by the second half of the year.
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The battle is being fought on multiple fronts, from realizing operational efficiencies to upgrading the product and its marketing as well as store presentation and distribution.
Emanuel Chirico, chairman and chief executive officer of PVH, said Wednesday on a conference call to discuss fourth-quarter results that the jeans business, inherited along with Calvin Klein Underwear when PVH bought The Warnaco Group Inc. last year, was “damaged” in the U.S. and Europe but healthy in markets such as Asia and Brazil. Likewise, the underwear business under the Calvin Klein name is “very positive, very strong.”
Work remains on the jeans side, and the fruits of these labors are expected to arrive in time to benefit second-half results. The European jeans business is about $500 million and is projected to break even this year. The firm didn’t comment directly on the profitability of the business in the U.S.
Although PVH hopes to increase the wholesale jeans business in Europe by about 20 percent with existing wholesale accounts, it also plans on “reducing some of the off-price business, leaving it with an increase in the high-single to low-double digits on a net basis.”
In North America, “there has been too much promotion of goods, too much markdown activity around the denim business,” the ceo commented. “And we really need to get control of that, get control of our markdowns and our allowance budget. And I think that could drive improved profitability and the top line will follow with better presentation and strong product as we go forward.”
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Sidestepping discussion of the women’s jeans business, he noted that the men’s denim business has shown some signs of improvement as newer product has arrived in stores for spring. “We’re starting to see better sell-through at higher [average unit retail prices] and seeing some good order increases for third and fourth quarters given the new product receptivity that retailers have,” Chirico commented. “So we’re looking for some type of midsingle-digit increase in the CK jeans business.”
Moving into the second half, he said PVH is working closely with key accounts such as Macy’s and Belk “to really enhance the jeans presentation as we go. We’re really in the process of negotiating that right now with Macy’s in particular to really expand the space and hopefully improve the profitability.”
New shop and presentation concepts figure prominently in the plan.
Wednesday’s call followed PVH’s report late Tuesday of fourth-quarter earnings that topped analysts’ consensus expectations, with adjusted earnings of $1.43 a diluted share topping estimates by 1 cent and PVH’s most recent guidance by 3 cents. Helped by the addition of the Warnaco businesses, revenues rose 25.4 percent to $2.05 billion from $1.64 billion.
Based on difficult macroeconomic conditions and continued investments in the Warnaco businesses, PVH projected 2014 earnings per share of between $7.40 and $7.50, below consensus estimates of $7.81, with profitability prospects improving as the year progresses.
Investors shrugged off the soft guidance Wednesday, sending shares up 3.6 percent to $121.43.