Q4 2012 Earnings Call
March 28, 2013 9:00 am ET
Emanuel Chirico - Chairman and Chief Executive Officer
Michael A. Shaffer - Chief Operating & Financial Officer and Executive Vice President
Robert S. Drbul - Barclays Capital, Research Division
David J. Glick - The Buckingham Research Group Incorporated
Kate McShane - Citigroup Inc, Research Division
Omar Saad - ISI Group Inc., Research Division
Eric M. Beder - Brean Capital LLC, Research Division
Evren Dogan Kopelman - Wells Fargo Securities, LLC, Research Division
John D. Kernan - Cowen and Company, LLC, Research Division
Erinn E. Murphy - Piper Jaffray Companies, Research Division
Howard Tubin - RBC Capital Markets, LLC, Research Division
Steven Louis Marotta - CL King & Associates, Inc., Research Division
Dana Lauren Telsey - Telsey Advisory Group LLC
Previous Statements by PVH
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The information made available on this webcast and conference call contains forward-looking statements that reflect PVH's view as of March 27, 2013, of future events and financial performance. These statements are subject to risks and uncertainties indicated in the company's SEC filings and the Safe Harbor statement included in the press release that is the subject of this webcast and call.
These risks and uncertainties include the company's right to change its strategies, objectives, expectations and intentions and its need to use significant cash flow to service its debt obligations. Therefore, the company's future results of operations could differ materially from historical results or current expectations. The company does not undertake any obligation to update publicly any forward-looking statement, including, without limitation, any estimate regarding revenue or earnings.
The information made available also includes certain non-GAAP financial measures as defined under SEC rules. Reconciliations of these measures are included in the full year and fourth quarter earnings release, which can be found on www.pvh.com and the company's current report on Form 8-K furnished to the SEC in connection with that release.
At this time, I'm pleased to turn the conference over to Mr. Manny Chirico, Chairman and CEO. Please go ahead, sir.
Thank you, Kayla. Good morning, everyone. Joining me on the call is Mike Shaffer, our Chief Financial Officer; and Dana Perlman, our Treasurer and Head of Investor Relations. We're going to break the call down into 2 parts. Mike and I will take you through 2012 first. Then we'll do an overview of the business, and Mike will take you through the financial results. And then we'll go through a discussion of 2013, some of the early trends that we see in the PVH business, as well as talking about some of the trends that we see in the Warnaco businesses and our perspective on how the integration and acquisition will be moving forward throughout the year. And then we'll open up the call for questions.
Let me start by saying, given our fourth quarter results, we're very pleased. We beat the top end of our fourth quarter earnings guidance by $0.05 a share and came out of the year very clean from an inventory and receivable point of view, which we think positions us very well for the first half of the year.
Let me start by talking about the Tommy Hilfiger business, which has been our stellar performer for 2012. In the fourth quarter, the Tommy business continued its strong performance, posting a 9% revenue increase. Excluding the extra 53rd week, revenues increased 6%. In the fourth quarter, operating income increased 45% over the prior year.
Focusing on the international business. Internationally, revenues, excluding the 53rd week's revenue, increased 5%. Our retail comps in Europe posted a 9% increase, while European wholesale sales were up 3% for the quarter. Geographically, we continued to see strong growth in Central and Northern Europe, with particular strength in France, Germany and Turkey, partially offset by the continued weakness in Southern Europe, particularly Spain and Italy.
Moving to North America, excluding sales for the 53rd week, revenues were up 7% in North America, driven by a 5% comp store sales increase in our retail business, square footage growth at both wholesale and retail and mid-single-digit growth in our wholesale business for the quarter. We continue to see momentum in the North American business and strongly believe that the significant investments we are making in product, in our stores, in the shop presentation and our marketing programs are paying dividends for us.
Just to give the full-year perspective on Tommy, our Tommy Hilfiger segment consolidated posted a 5% revenue increase, with operating income growing 24%, to $437 million. Operating margins in the Tommy business consolidated increased 200 basis points, to 13.6%.
Moving to our Calvin Klein business. Our Calvin business continued to exceed our financial guidance and post strong results. Total revenues in the fourth quarter for our combined Calvin Klein businesses were up 14% despite overall softness in the global jeans and women's underwear businesses. These increases were driven by our Calvin Klein North American Retail and Wholesale businesses, which posted revenue increases of over 20%, driven by square footage growth at both wholesale and retail.
Operating income increased 5% in the fourth quarter despite a $6.5 million advertising expense increase relating to our Calvin Klein underwear campaign, which centered around our Super Bowl commercial. Absent this brand marketing investment, operating income would have been up 15% for the quarter.
The Calvin Klein brand posted revenue increases across all geographic regions, with the exception of Europe. Specifically by region, North America sales were up 4%, with all product categories posting strong results, with the exception of jeans and women's underwear, which were down double digits. In Asia, sales were up 3%, driven by mid-single-digit growth in China, Hong Kong and Southeast Asia, partially offset by continued weak sales in Korea, where business was down double digits. Latin America and South America continued their strong performance, posting a 12% sales increase, driven by Brazil and Mexico. In Europe, sales were down about 13%, principally related to the poor performance in the Warnaco apparel and underwear businesses.
In our Licensing segment, overall royalty revenues were up 4% on a constant-currency basis. The increase was driven by strong performance globally in women's sportswear, dresses, footwear and handbags, all of which posted double-digit increases. This positive performance was negatively impacted by a 9% decline in Warnaco's global sales of jeans and underwear.
Moving to our Heritage businesses. Excluding the impact of the exited business, ongoing revenues excluding the 53rd week for the Heritage business increased 3%. Comp sales in the Heritage retail businesses were relatively flat, while our ongoing wholesale businesses posted a 4% sales increase, due principally to strong growth at Izod and Van Heusen sportswear businesses.