In a brief, 16-minute meeting Thursday at The Graduate Center of City University of New York, Emanuel Chirico, chairman and chief executive officer of PVH Corp., shared highlights of the past year, driven by the company’s two powerhouse brands, Calvin Klein and Tommy Hilfiger. There was no mention of Raf Simons, who is widely rumored to be joining Calvin Klein in a top creative role in August, and no questions from shareholders.
Following the meeting, WWD spoke to Chirico about the Simons rumors and asked when he would be coming on board. Chirico declined to confirm Simons’ appointment, but said: “We would hope that a decision will be made in the near future and as events unfold, we’ll be sure everyone’s brought up to speed.”
Asked how that position might operate, he said, “The plan would be that there would be one creative visionary for the brand, similar to when Calvin ran the business directly.” He said Kevin Carrigan, global creative director of CK Calvin Klein, Calvin Jeans and Calvin Klein white label will report into the new creative head. For spring 2017, the designer collection is being designed by a team under Calvin Klein Collection president Michelle Kessler-Sanders.
Before he spoke about the company’s business, Chirico shared how deeply sad he was about the terrible events in Orlando, Fla., and offered a moment of silence. The company lost its Calvin Klein store manager in Orlando, Frank Hernandez, a six-year veteran of the firm, who was killed at the Pulse nightclub. “Our thoughts and prayers are with our associates in the area and all those who affected by this horrible tragedy,” said Chirico.
Turning to business results, Chirico gave a quick review. As one of the largest apparel companies in the world with more than $8 billion in revenues, PVH is driven by its two key brands, Calvin Klein and Tommy Hilfiger, he said. Last year PVH generated $842 million in earnings before interest and taxes, and achieved earnings per share of $7.05, which includes the impact of foreign currency translation and impact.
He said the Calvin Klein business is less than $3 billion in revenues and the Hilfiger business had overall retail sales of less than $7 billion (and internal reported revenues of less than $3.5 billion). PVH’s Heritage business is around $1.7 billion.
The company looks to expand globally in the two regions where it has seen the most dramatic growth — Asia and Latin America, “where the brands have strength and where profitability is the highest,” the ceo said.
The company bought back a number of its licensed businesses and assumed direct of the Tommy Hilfiger China business, effective as of April. There are opportunities to bring other businesses in-house and expand and integrate them into PVH, he said.
“We’ve had a long history of solid sales and earnings growth over a 13-year period,” said Chirico. Last year, the company was impacted by foreign currency and he believes that this year it will be “severely impacted” by foreign currencies.
“The fundamentals of the business continue to be very strong. The underlying business model continues to work very efficiently. We’re dealing with the impact of the strengthening dollar across the world, which will hopefully be behind us as we turn into the fourth quarter of this year and the first quarter of next year” where the company’s reported earnings will really match the performance they’re seeing in the business, he said.
Since the acquisition of Warnaco in 2012, PVH has paid down more than $1.1 billion in debt. “Our businesses, by their inherent nature, are very cash flow positive. This year we expect to pay down an additional $350 million of long-term debt, while returning capital to our shareholders,” said Chirico. He said that’s in addition to making appropriate investments in the business, including the acquisition of Hilfiger’s China business.
He’s looking for revenue growth in the Calvin Klein business on a long-term basis “in the mid-to-high single digits.” “We’re exceeding that on a constant currency basis. We believe our operating margins will grow above the 15 percent threshold,” he said.
As far as the Hilfiger business, he sees similar growth driven by international business in Asia, Latin America, as well as its business in Europe “which continues to perform so well.” Operating margins there have averaged 12 percent. “We’ve really seen the transactional impact on the strengthening dollar in 2015. We believe over the next three years we can claw back the operating margins in the Tommy Hilfiger business to approach 14 percent as we move forward,” he said.
The company’s Heritage business, which it has been restructuring and paring back to run more efficiently, is operating just under 7.5 percent in operating margins and is targeted to be above 7.5 percent this year. “We think our long-term goal is to bring that business back to overall 10 percent operating margin business,” Chirico said.
He sees midsingle-digit growth in Hilfiger’s top line in an organic growth rate, excluding acquisitions.
“We see our operating margins growing over the next three years by 100 to 150 basis points to 12 percent,” he said. “ We think our organic businesses continue to grow to meet the demands of the market, while there are opportunities to use our strong cash flow to enhance that through strategic acquisitions and strategic investments,” he said.
But Chirico said it’s not all about the bottom line, pointing to PVH’s initiatives in human rights, sustainability and staff training and development.
After the meeting, Chirico told WWD that the Calvin Klein Jeans business internationally is very strong, and the company is seeing very positive results on the denim side in Europe, “which has been a total turnaround.” He said Asia and Brazil, which have always been strong markets for the jeans business, continues to do well. “The U.S. jeans business has turned from a loss business to a marginally profitable business for us,” he said.
“In general, the ath-leisure trends over the last four years have had the biggest impact on the category overall and for Calvin Klein, it does close to $200 million on a retail basis in its performance line, which is manufactured and licensed to G-III.
Turning to second-half business, he said, “We’re optimistic about how we’re setting up. If most of the retailers are projecting that business will turn marginally positive on a year-over-year basis, we haven’t gone that far. If there’s an opportunity for us, and any chance of a reasonable winter from a weather point of view, I really think we can out-perform guidance based on the trend of the business today, driven by our international business,” he said.
Chirico added, “The Calvin business in Asia continues to be a stellar performer for us driven by the China business.”
He said the tourist areas in the U.S. continue to be impacted “pretty severely,” and it impacts PVH’s direct to consumer business in the U.S., especially outlets. “We’re seeing it in our Fifth Avenue store and our Madison Avenue store, and locations in Orlando, Miami, Las Vegas, Los Angeles and San Francisco,” he said.
Chirico said the Hilfiger business internationally is very strong and European comps are running ahead in the high single digits. “The order book in Europe is up 6 percent for fall,” he said. PVH is looking forward to the Gigi Hadid collaboration with Hilfiger for fall. “This is strategically critical for us because we view women’s as a significant growth opportunity for us in Tommy, and I believe having Gigi as our ambassador in women’s and doing a capsule collection with her and a number of marketing issues will just help propel us and get momentum behind us as we go into spring ’17 and fall ’17,” he said.
He also said with the re-launch of the Hilfiger women’s business with G-III, he expects women’s, which does $100 million to $125 million in wholesale volume at PVH, to become a $1 billion business at G-III. “Calvin is just about a $1 billion business [at G-III] in wholesale sales,” said Chirico.