The Bronx gave birth to two of the biggest names in American fashion in Ralph Lauren and Calvin Klein—and now it may be time to add a third: Emanuel Chirico.
This story first appeared in the June 21, 2010 issue of WWD. Subscribe Today.
He may not be quite the household name of his Bronx brethren, but Chirico—who goes by Manny— captains an apparel company, Phillips-Van Heusen, that is fast becoming one of the largest in the world, owning Calvin Klein and now Tommy Hilfiger, which it officially acquired on May 6. The deal doubled the size of PVH—which, for most of its 130-year history, was a respected but sedate shirtmaker—and catapulted it into the first ranks of modern, global fashion firms.
“There must be something in the water,” says Chirico, chairman and chief executive officer of PVH, of his outer-borough origins. “I have to pinch myself every once in a while. I find it amazing that I’m running two of the most iconic brands in fashion.”
Including licenses, those brands ring up massive sums at retail, with Calvin Klein—which PVH acquired in 2003—bringing in about $5.8 billion, and Tommy Hilfiger, $4.5 billion. And while those two labels represent the highest-profile elements of PVH, the heritage businesses are important moneymakers, as well. The company is the largest dress shirt manufacturer in the world, commanding a more than 45 percent market share in the department store channel with owned and licensed brands such as Geoffrey Beene, Arrow, Nautica and DKNY.
In neckwear, PVH’s dominance is even greater, as it makes 50 percent of all ties sold in the U.S. under a portfolio of more than 50 owned and licensed brands. The company also owns the Izod sportswear brand and markets Timberland sportswear under license. PVH’s retail business includes about 650 outlets for its Calvin Klein, Izod, Bass and Van Heusen brands.
Including Tommy Hilfiger, PVH’s total 2010 revenue is forecast at $4.8 billion, with earnings before interest, taxes, depreciation and amortization of close to $800 million.
Chirico, a former college basketball player and boxer, may seem an unlikely fashion enthusiast, but he gravitated toward the industry early in his career as an accountant at Ernst & Young. He ended up heading that firm’s retail and apparel practice before being recruited by PVH, one of his clients, to become its controller.
“I’ve always been interested in the fashion industry because it’s fast and exciting, and I love the dynamic of the business,” says Chirico, 53. “You can make changes relatively quickly compared to other industries. If you can get the right product and design into the marketplace, you can effect change within months. In something like the auto industry, it would take years.”
Chirico, who has a grounded and approachable demeanor, was born in 1957 to a homemaker mother and a father who was a crane operator on construction sites. His parents sent him to a prestigious Catholic high school in the Bronx, Cardinal Spellman. Among his schoolmates was a notable young woman: future Supreme Court Justice Sonia Sotomayor. “She was three years ahead of me. I remember her because I played basketball with her brother, who’s now a doctor,” Chirico recalls. “She was president of the student body. Even back then she was the smartest person in the room.”
Planning on becoming a dentist, Chirico went on to Fordham University, but orthodontics wasn’t in the cards for him. “That idea lasted for one biology course,” he admits. “So I took some accounting courses. I was getting married and needed something stable.”
After graduating, Chirico joined Ernst & Young and ended up staying for 14 years. In 1993, he jumped to PVH, and in 1999, he was promoted to chief financial officer. In 2005, he became president and chief operating officer when ceo Bruce Klatsky retired and Mark Weber, the previous president and chief operating officer, was appointed to the top job. However, in a surprise move eight months later, Weber was removed from the ceo position by PVH’s board, and Chirico was elevated to the role—much sooner than he or anyone else at the company would have predicted.
“It’s not the way I wanted to get this job,” said Chirico at the time. “It was a big surprise, and this isn’t a company that delivers surprises.” (Weber is now chairman and ceo of Donna Karan Inc. and ceo of LVMH Inc. U.S.)
Klatsky, who is now a partner at White Plains, N.Y.–based private equity firm LNK Partners, says Chirico was long viewed by the PVH board as a ceo-in-waiting. “That succession was planned. Mark, Manny and I were a triumvirate while I was ceo,” he explains. “Manny has tremendous financial acumen, and he also has a tremendous set of personal values that were very important to the culture of PVH.”
Klatsky adds that, while Chirico is at heart a numbers person, he also has a firm grasp of other disciplines vital to the fashion business. “Manny is a financially oriented fellow, but he has the ability to relate to the marketing folks. It’s not very often you find a talented financial executive who respects and understands that function so well,” says Klatsky, who spent 35 years at PVH and engineered the Calvin Klein acquisition. (LNK Partners helped finance part of PVH’s acquisition of Tommy Hilfiger, but Klatsky, who hasn’t had an active role in the equity firm for several years, was not involved in the deal.)
Chirico, for his part, calls Klatsky a key mentor. “He’s the one who really helped me with my management style and opened my eyes to the possibilities of my own career,” says Chirico. “I always thought of myself as a financial manager, and he broadened my own ideas of what I could do and manage.”
In one of his non-PVH roles, Chirico—who is an enthusiastic golfer, despite his admitted “above 20” handicap—sits on the board of the $4.41 billion Dick’s Sporting Goods chain. He’s also a trustee of Fordham University and a board member of the HealthCare Chaplaincy, a nonprofit organization that provides chaplains to hospitals and education on the impact of spirituality on health care.
Chirico’s interest in health care has close personal relevance. At 39, he was diagnosed with lymphoma, a cancer of the lymphatic system. “It was a scary time, with six months of chemotherapy and radiation and five years of follow-up testing, but everything is fine now,” he says of his early brush with mortality.
Today, Chirico lives with his wife, Joanne, in the affluent town of Bronxville, N.Y., and is father to three sons—who have all followed in his footsteps, one way or another. The youngest is an undergrad at Fordham University, the middle son is a senior accountant at Ernst & Young and the eldest this year opened a boxing and mixed martial arts gym in New Rochelle, N.Y., called Westchester Fight Club.
As fate would have it, the Hilfiger deal was actually first set in motion by Chirico’s wife. Last September, at a charity dinner hosted by Macy’s chairman, president and ceo Terry Lundgren, she was serendipitously seated next to Tommy Hilfiger. The designer casually told her Chirico should call Fred Gehring, ceo of Tommy Hilfiger, to discuss what the two companies might cook up together.
“I took that as a catalyst to call up Fred, and we had dinner together, where we talked about possibilities,” says Chirico. “In October, we took a trip to [the Tommy Hilfiger headquarters in] Amsterdam, and we could see on the ground how strong the brand was and how strong their operations overseas were. It started a dialogue that kept intensifying, and the economics of a potential deal really fell into place around Christmas.”
The rest, as they say, is history. Following a period of due diligence, PVH agreed to pay British private equity fund Apax Partners 2.2 billion euros, or about $3 billion at current exchange, in cash and PVH stock for the company. (Apax paid $1.6 billion for the brand when it bought Tommy Hilfiger in 2006.)
“It’s a large amount, but as a multiple of earnings, it’s fair,” Chirico explains. We are paying eight times EBITDA. We paid 2.2 billion euros, but we’re getting 275 million euros [or $338.8 million] in operating earnings.”
To finance the transaction and provide liquidity for operations, PVH has taken on more than $3 billion in debt, but Chirico is confident the combined companies’ hefty free cash flow will retire the debt relatively quickly. “In the go-go days of previous buyouts, leverage was at six or seven times EBITDA. Our leverage is less than three-and-a-half times EBITDA,” notes Chirico.
As with Calvin Klein (which PVH acquired for about $700 million, give or take, depending on earn-outs), PVH intends to keep Tommy Hilfiger an autonomous division of the company. Its headquarters will remain in Amsterdam—unbeknownst to most American shoppers, the company’s center of gravity, along with most of its sales, are now in Europe—and its senior management team, intact, including Gehring. Only some back-office functions will be rationalized between the two firms, with about $40 million in cost savings there. Tommy Hilfiger, who is based in New York, is staying on as principal designer and visionary for the brand.
Successfully integrating the Euro-centric Tommy Hilfiger organization under the PVH umbrella will be a crucial test for Chirico. “When a merger fails, it’s usually not the economics, but the culture,” points out Calvin Klein Inc. president Tom Murry, referring to his own successful experience with the process. “From Day One, Manny was one of the guys I felt a connection and chemistry with. Our management styles are very similar and I think that’s one reason we work so well together. We’re both delegators who surround ourselves with a strong management team, giving them authority with accountability.” (Apart from Gehring and Murry, Chirico’s other key lieutenants are PVH president and chief operating officer Allen Sirkin, vice chairman of wholesale apparel Ken Duane and cfo Michael Shaffer.)
Chirico echoes Murry when describing his management philosophy. “My focus tends to be to work with the teams running each business, overseeing their individual three-year plans,” he explains. “We map out strategy and I push the team to quantify results, build a cohesive financial plan and make sure we get appropriate results. And then it’s allowing the management teams to execute the strategies and hold them accountable for those results and to constantly communicate any variances to the plan or strategy.”
One of the more challenging issues facing Chirico and Gehring in the Hilfiger business is, ironically for the red, white and blue brand, the U.S. market. Over the past decade, Hilfiger’s sales in Europe—where the brand enjoys a more premium positioning—have steadily grown from $76.6 million in fiscal 1999 to $1.13 billion last year. During the same period, U.S. sales have slid from $1.57 billion to $719.2 million, with the steepest falloff in the wholesale segment, where sales dropped from $1.33 billion to just $192.7 million.
However, under an exclusive deal with Macy’s, which started in 2008, the U.S. wholesale segment has turned a corner, and Tommy Hilfiger management expects sales to climb to $237.4 million this year, the first increase in a decade.
“The brand had gone through a period of decline in America, and our challenge is to reeducate the consumer here on what Tommy Hilfiger stands for,” says Gehring during an interview in the company’s lavish Fifth Avenue flagship. “The brand lost a lot of credibility. We are going to be patient and not compromise the brand. We want to nurture it, but in a controlled and aspirational way.”
If PVH’s success with Calvin Klein is any indicator, Hilfiger’s growth prospects look bright. Since 2003, Calvin Klein’s retail sales have increased at a 16 percent clip a year. In the same period, PVH has improved its top line with a compound annual growth rate of 7.3 percent through fiscal 2009, an EBITDA expansion of 14.5 percent a year and a total market capitalization increase of 25 percent annually.
One might think that Chirico would be ready to rest on his laurels a bit, but he’s already looking forward to PVH’s next move. “It will take 18 to 24 months to digest Tommy, but we will continue to look at other acquisitions as part of our strategy going forward,” he says. “When you’re a public company, you have to grow.”