Emanuel Chirico thinks PVH Corp.’s efforts to restore Calvin Klein Jeans to their former glory are starting to bear fruit.
Speaking on a Thursday morning conference call after reporting strong second-quarter results after the markets closed Wednesday, Chirico, chairman and chief executive officer of PVH, believes that not only is the Calvin Klein denim business making progress, but the denim category is gaining stability, with men’s jeans, generally less volatile than women’s, leading the way.
“We’re seeing much better sell-throughs,” he said. “Denim is a category that will be promoted no matter what your brand is. But I think what we’re really seeing is it’s been a cycle for, going into this year, the last three of four years,” that promotional pressures have been easing.
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Ten years ago, Calvin Klein was the top designer brand in the market and enjoyed a “great position” in its denim business. “The last five years at Warnaco, that business was zero and went away. You need to be cool. You need to be connected, and the Calvin Klein products weren’t cool, weren’t cutting-edge. There were other brands that were much hotter and the [Calvin Klein] business was living off the heritage of the brand and overly dependent on off-price channel distribution,” he said.
PVH sought to change that following its acquisition of Warnaco for $3 billion in 2013, a move that united the Calvin Klein jeans and underwear businesses with PVH, the trademark owner.
In addition to cleaning up much of the jeans’ off-price distribution, PVH sought to revitalize the product, prepare it for high visibility within the desired department store channel and use the new tools of social media and other elements of modern marketing to help it make the connection with consumers. In Calvin Klein’s case, that meant sexual and sensual themes that, as in the days when Brooke Shields represented the brand, had been virtually synonymous with it. And it meant a new generation of sex symbols, such as Justin Bieber and Kendall Jenner, to back the brand.
Chirico said PVH was making “very good progress around the jeans turnaround in North America and Europe. Over the last 12 months, we have installed in North America over 180 men’s shops and over 100 women’s shops, which are performing above last year’s levels,” he said, citing sales increases “in excess of 30 percent” in the men’s areas and above 25 percent in women’s.”
It’s also endeavored to restore some of the “cool factor” in its underwear, which is now being sold by Urban Outfitters Inc. globally and Topshop in Europe.
He noted that the inventory buildup in denim in recent years has moved products that were traditionally prone to promotions and, in an often unsuccessful effort to preserve market share, built in “more promotions, more clearance and a real takedown in [average unit retail prices]” in an effort to moderate inventories. AURs have moved up about 20 percent as PVH has addressed the problem.
“I am optimistic about the category, because it’s an important category for every retailer and it’s historically been one of the most profitable categories, so there’s a real focus on that area,” he said. “And on the women’s side, in particular, there’s been a lot of product innovation around stretch jeans, really trying to take advantage of that whole ath-leisure [trend] as it relates to the denim component of that.”
PVH elevated its full-year guidance Wednesday to an earnings per share range of $6.90 to $7, after sales of $1.86 billion exceeded analysts’ estimates of $1.82 billion and EPS came in 8 cents higher than the $1.29 consensus estimate at $1.37.
“This outperformance was driven by strong underlying results in our international Calvin Klein and Tommy Hilfiger businesses,” the ceo said. “At the same time, we did see softness in our U.S. Calvin and Tommy retail businesses, where a strong U.S. dollar negatively impacted international tourist traffic and spending in some of our largest stores located in tourist destination locations like Orlando, Las Vegas, Miami and the New York metropolitan area.”
However, stores in “permanent population locations” continued to post low- to midsingle-digit sales increases, “which we were very encouraged by,” said Chirico.
Shares of PVH closed Thursday up 6 percent to $118.17 in New York Stock Exchange trading.