PVH Corp. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Product Innovation and Brand Performance:
  • Calvin Klein saw 25% growth in combined sales of Icon Cotton Stretch and Cotton Stretch styles globally due to product innovation and strong marketing. Fashion denim assortment grew 14% in Q1. Tommy drove growth through product innovation in categories like sweaters, linen fabrications, and fashion tees, and through partnerships like with Sail GP and Formula One.
• Regional Execution:
  • EMEA kept strengthening brand position with mid-single digit revenue growth, total D2C turned to growth, and third consecutive quarter of store growth.
  • The Americas delivered double-digit EBIT margin, overall revenue up high single digits, supported by earlier wholesale shipments and relaunch of women's sportswear and jeans business.
  • Asia Pacific faced challenges due to weaker consumer confidence and Lunar New Year timing shift, but drove product innovation across categories.
• Supply Chain and Licensing:
  • Launched core essentials 'never-out-of-stock' program and adjusted demand-driven supply chain. Took back Calvin Klein women's sportswear and jeans licenses, and entered new licensing agreement for men's and women's outerwear.
• Operational Challenges:
  • Resolved Calvin Klein global brand operational challenges, appointed new leadership, and saw sequential improvements for fall 2025 and spring 2026 seasons.

Segment Performance

• Regional Breakdown:
  • EMEA: Revenue grew 4% in constant currency during the quarter, with wholesale business up mid-single digits and direct-to-consumer business up low single digits. European business reported revenue up 5%.
  • The Americas: Revenue increased high single digits, driven by earlier wholesale shipments and the relaunch of Calvin Klein women's sportswear and jeans business at U.S. Wholesale. Delivered double-digit EBIT margin.
  • Asia Pacific: Revenues declined low teens on a reported basis and low double digits in constant currency due to weaker consumer confidence and earlier Lunar New Year timing shift.
  • Licensing Segment: Licensing revenue was down 2% versus last year, impacted by Calvin Klein women's sportswear and jeans in-house transition.
• Brand Performance:
  • Calvin Klein: Revenues flat.
  • Tommy Hilfiger: Revenues up 3% on both reported and constant currency basis.
• Channel Performance:
  • Direct-to-consumer revenue down 3% both reported and in constant currency. Retail stores sales down 5%, while owned and operated e-commerce business up 3%.
  • Wholesale revenue up 7% on constant currency basis and 6% on reported basis, driven by increases in EMEA and The Americas.
• Gross Margin: First quarter gross margin was 58.6%, a decrease of 280 basis points from Q1 last year. Factors included higher wholesale revenue mix, promotional impact, and freight cost/customer discounts.

Guidance

• Revenue: Reaffirms full-year revenue guidance of flat to a slight increase on both reported and constant currency basis, with reported revenue more likely at the higher end of the range.
• Gross Margin: Expected to decrease approximately 250 basis points versus last year, up from previous guidance of a 100 basis point decrease, driven by tariff impact, promotionality, and Calvin Klein operational issues.
• SG&A: Expected expense to be lower in constant currency in 2025 compared to 2024, with savings from Growth Driver five actions.
• Quarterly Outlook: Second quarter projected to have revenue up low single digits on reported basis, flat to up slightly on constant currency basis; gross margin to decline 300 basis points; operating margin approximately 6.5%-7%; expected to exit 2025 with double-digit operating margins.

Risks

• Macro Environment: Uncertain consumer and retail trends, with increased promotional levels globally.
• Tariffs: Unmitigated impact of tariffs creates approximately $65 million headwind to full-year EBIT, weighted predominantly in the second half.
• China Business: Dynamic situation with PVH Corp. remaining on MOFCOM's unreliable entity list, facing challenging consumer environment.
• Calvin Klein Operational Challenges: Transitory operational issues during the first globally created product season led to margin headwind, predominantly weighted to the first half with some carryover to the second half.

Question and Answer

Q: Jay Sole asked about the confidence in Calvin and Tommy brands maintaining momentum despite macro challenges.

A: Stefan Larsson responded that where they lean into consumer love for the brands, align with PVH+ plan, and execute on product newness, innovation, marketing, and execution, they win despite macro. Cited examples like Calvin Klein's 25% growth in Icon Cotton Stretch and 14% growth in fashion denim, and Tommy's partnership with Formula One.

Q: Michael Binetti inquired about cost-out efforts and timing.

A: Zac Coughlin and Stefan Larsson explained that cost actions include decentralized technology mapping, global logistics network optimization, and value driver five initiatives, with progress seen in the first half and aiming for double-digit operating margins in Q4.

Q: Dana Telsey asked about tariff impact and pricing strategies.

A: Zac Coughlin responded that they leverage global supply chain relationships, evaluate strategic discount reductions, and take calibrated pricing actions where they have pricing power to mitigate tariff impact.

Q: Brooke Roach asked about squaring product innovation and promotions.

A: Stefan Larsson replied that they strategically sharpen focus on product innovation in key categories, increase marketing spend in a focused way to drive traffic, and expand the impact of PVH+ execution to mitigate headwinds.

Q: Matthew Boss inquired about top-line trends and gross margin progression.

A: Zac Coughlin explained that gross margin decrease is driven by factors like tariff impact, promotionality, and Calvin Klein operational issues, with sequential improvement expected in the second half.

Q: John Kernan asked about promotional impact on gross margin in the back half.

A: Zac Coughlin stated that they plan for the promotional environment to continue through the rest of 2025 as seen in the first half.