(Filed Under Financial and General Interest News). As he discussed PVH’s second quarter, CEO Manny Chirico affirmed that PVH’s “underwear business is one of our most profitable business categories that we operate.”

That and other remarks came as PVH reported earnings of $193.1 million on revenue of $2.25 billion in the three months ended August 4, compared to $164.7 million in profits on income of $2.22 billion in the same period last year.

The company also highlighted its decision to “terminate early the licenses for the global Calvin Klein and Tommy Hilfiger North America socks and hosiery businesses” as part of its plan to “consolidate the socks and hosiery business for all company brands in North America in a newly formed joint venture, which is expected to begin operations in December 2019, and to bring in-house the international Calvin Klein socks and hosiery business.”

Chirico explained, in the conference call with analysts to discuss the quarter, “We felt this was a product category that we could really do well that had the characteristics of high operating margins. Now, hosiery stock is not the most sexy business in the world from a brand aesthetic point of view, but from a profitability, it’s plenty sexy.”

He added, “our hosiery business, historically, has been a licensed business globally around the world. And as we look at the business and the dynamics for the business, it’s a core replenishment business with a lot of the same characteristics as our underwear business.”

“We felt that we had a real opportunity to grow – to focus on that business. We have a world-class partner in North America that started with us about a year, a year-and-a-half ago with our Heritage brand and they’ve done an outstanding job and we are very impressed with their supply chain capabilities, with their design capabilities and their abilities to get through product and understand the North America market and sell it.”

PVH, which already had an existing licensing agreement with USA Legwear for its Van Heusen brand, recently expanded the arrangement to include Warner’s socks and hosiery, with a collection that launched for spring 2018.

Explained Chirico, “It’s a joint venture, totally here in North America from design, product and distribution. Internationally, we are taking that line and initially starting with Calvin Klein business and the plan will then be to take on the Tommy Hilfiger business when that license comes due in a couple of years and international we control with the sales and distribution of that category as well. And we think it will be a nicely profit-enhancing business for us as we go forward with very little risk as we move through the business and relatively speaking, a low investment.”

Summarizing PVH’s overall operations, Chirico said the second quarter “saw continued outperformance by our European businesses. However, our businesses in North America and across China experienced weak traffic trends, including the impact of protests in Hong Kong, resulting in a more promotional environment.”

He added, “we have taken a conservative approach to our second half outlook.” For all of 2019 the company is projecting a revenue increase of “approximately 1% (increase approximately 3% on a constant currency basis) as compared to 2018.” Meanwhile, “2019 earnings per share on a GAAP basis will be in a range of $7.95 to $8.05 compared to $9.65 in 2018.”

Those projections take into account a wide range of factors including “the reductions in revenue and margins [reflected in] the trade tensions between the U.S. and China, the ongoing protests in Hong Kong and the increasingly promotional U.S. retail environment.”

During the call Chirico also said, “We are excited to launch the fall 2019 Underwear Campaign #MYCALVINS in real life which features a social and digital first roll out including notable talents, Odell Beckham Jr., Bella Hadid, Jacob Elordi and Naomi Campbell among others. Conversations drove more than 100 million unique consumer impressions within the first 36 hours of the campaign with an earned media value totaling over $4.5 million.”

Asked about the impacts of tariffs, Chirico spoke about transferring manufacturing out of China. “Moving into 2020, we have significantly moved a lot of our production, where we could, out of the China market. Next year, we will be somewhere between 10% to 12% of our U.S. required production coming out of China and just three years ago, that’s down from over 30%.”

Chirico added that instead of moving all manufacturing out of China, he hoped to “get a resolution to the tariff and a resolution to the situation. And go back to a level playing field, and go back to sourcing that will be driven by global economic realities and not artificial elements like tariffs just being placed on goods coming into the United States. We think that would be a much healthier place to be. We have always believed that as China’s economy continues to improve as they continue to advance their economy, that apparel in general would become a smaller portion of their manufacturing base and there would be a natural evolution out of China over a longer period of time.”

PVH is sourcing in Africa and “moved to some other locations throughout Asia and we tried to position ourselves with key fabric suppliers throughout the world that would enhance our supply chain.” — NM

The complete conference call transcript can be found here: https://seekingalpha.com/article/4288716-pvh-corp-pvh-ceo-manny-chirico-q2-2019-results-earnings-call-transcript?page=1

more Financial and General Interest News >>

Published 09-02-2019 by Nick Monjo