NEW YORK — The turnaround has begun at Calvin Klein Jeans.
“The bleeding has stopped and I think the business feels better,” especially in men’s, Emanuel Chirico, chairman and chief executive officer of Calvin Klein parent PVH Corp., said.
In a conference call Tuesday morning, Chirico said the company is “seeing a strong reaction from the consumer” on the updated product it has delivered, “particularly where we have installed new jeans shops.”
In North America, the average unit retail results in the shops showed a 25 percent increase over last year. In the first quarter, the AURs “were up about 10 percent and that trend continues into the second quarter of 2015. We are targeting 150 new jeans shops installations in North America for fiscal 2015,” the ceo said. Also in the region, the retailer had opened more than 200 shops across men’s and women’s jeans business through end of fiscal 2014.
The men’s product is outpacing women’s in both North America and Europe, “but women’s continues to see an improvement,” he added. The men’s jeans business is gaining market share “but we have to be honest, we’ve lost about 50 percent of our market share from where we were four or five years ago.”
Chirico said that in Europe, “we are in the early stages of a turnaround in the jeans business. We have significantly improved the quality level of our jeans line with better fabrics, trends and packaging. This has resulted in strong sell-throughs and higher AURs in the first quarter with growth across all European markets excluding Russia. Second-quarter jeans sales trends in Europe have continued to improve and are running up high-single digits.”
Turning to the brand’s underwear collections, Chirico said new offerings, such as Intense Power, the product Justin Bieber wears in the company’s ad campaign, and its performance-oriented Air FX for men have seen “very strong first-quarter selling which has continued into the second quarter.”
Overall, he revealed, the Calvin Klein North America men’s underwear business gained 300 basis points of market share in the first quarter. The women’s underwear, led by the Modern Cotton logo product, “continues to drive the improvement in our women’s business in North America and Europe. Overall, our Calvin Klein North America women’s intimate business has gained over 200 basis points of market share in the first quarter of 2015,” Chirico said.
He is also confident that the higher-priced Black Label product for men and women “should continue to see great performance…in Asia and Europe. Our women’s bra business in Asia continues to outperform through the tailored bra category in both the push-up and solutions category. Overall sales for Asia in the first quarter ran up midsingle digits at retail and the strong sales trend has continued into the second quarter.“
In total, Chirico said revenues in the Calvin Klein brand rose 5 percent and operating profits jumped 25 percent in the first quarter, “driven by the strong performance of our international businesses.” He said the Bieber ads as well as the Kendall Jenner women’s jeans ads are helping the brand connect with a younger consumer.
In the second quarter, Chirico said the company’s international businesses continue to post strong sales gains with increases in the high-single digits in Europe and midsingle digits in Asia. “We are seeing particular strength in China, France, in the U.K. and the Middle East. In Europe, Calvin Klein wholesale business continues to improve,” he said.
A goal going forward is to improve operating margins in Europe. “We have a $500 million Calvin Klein European business that is marginally profitable today from money losing over the last two years,” Chirico said. “So, our long-term target in Europe is to get that to about a 10 percent operating margin within the next four years. I think we’re on track to deliver against that.”
Turning to the Tommy Hilfiger brand, Chirico said comparable-store sales in Europe rose 2 percent in the first quarter, while comp sales in North America fell 3 percent. “As with Calvin Klein, we experienced a decline in international tourist traffic and spending in our Tommy U.S. stores. Operating earnings on a constant currency basis decreased 6 percent in the first quarter due to weak international tourist traffic in the U.S. which drove more promotional selling and higher markdowns.”
However, the company has experienced “significant improvement in our Tommy Hilfiger sales trends” in the second quarter, he said, with international comps rising in the midsingle digits and North American comps increasing in the low-single digits.
“In Europe, we have seen a significant improvement on our men’s side of the business across all key categories, in particular, in our largest market, Germany. We believe we continue to outperform in men’s and denim relative to the market, and our women’s wear business is also seeing improvement quarter to date,” the ceo said.
Wholesale sales for the brand are up around 5 percent in Europe, excluding Russia, he said, with Germany, France and the Middle East the strongest markets.
The company’s heritage brands — which include Van Heusen, Arrow and Izod — posted a sales increase of 5 percent in the first quarter and an increase of $5 million in operating earnings. However Chirico said PVH’s “first priority will be to continue to strategically invest in our two global powerhouse brands [Calvin Klein and Hilfiger] in order to fully maximize our organic growth opportunities.”
On Monday, PVH reported that net income in the first quarter ended May 3, tripled to $114.1 million, or $1.37 a diluted share, from $35.2 million, or 42 cents, in the 2014 quarter. Stripping out currency effects and other one-time items, adjusted earnings per share hit $1.50, 12 cents above the $1.38 expected, on average, by analysts.
Revenues declined 4.3 percent, to $1.88 billion from $1.96 billion, while rising 3.3 percent on a constant currency basis. Gross margin dropped 20 basis points to 52.4 percent of revenues from 52.6 percent a year ago. North American revenues were up 0.4 percent at Calvin Klein, to $338.8 million, while falling 2.4 percent at Tommy Hilfiger, to $353.9 million.