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Phillips-Van Heusen Corporation (PVH)
F2Q09 Earnings Call
August 20, 2009 9:00 am ET
Emanuel Chirico - Chief Executive Officer
Michael A. Shaffer - Chief Financial Officer
Benjamin Rowbotham - Goldman Sachs
Kate McShane – Citi Investment Research
Robert Drbul - Barclays Capital
Jeff Mintz - Wedbush Morgan Securities Inc.
Evren Kopelman - J.P. Morgan
Paula Torch – Needham and Company
Omar Saad – Credit Suisse
Jeffrey Klinefelter - Piper Jaffray
Andrew Byrd - Post Advisory Group
David J. Glick - Buckingham Research Group
Chi Lee - Morgan Stanley
Previous Statements by PVH
» Phillips-Van Heusen Corporation F2Q08 (Qtr End 08/03/08) Earnings Call Transcript
» Phillips-Van Heusen Corporation Q1 2008 Earnings Call Transcript
» Phillips-Van Heusen F4Q07 (Qtr End 2/3/08) Earnings Call Transcript
Any such forward-looking statements are subject to risks and uncertainties indicated from time to time in the company’s SEC filings. Therefore the company’s future results of operations could differ materially from historical results or current expectations as more fully discussed in its SEC filings.
The company does not undertake any obligation to update publicly any forward-looking statements, including without limitation, any estimate regarding revenues or earnings. The information made available also contains certain non-GAAP financial measures as defined under SEC rules. A reconciliation of these measures is indicated in the company’s earnings release which can be found on the company’s website, www.pvh.com and in the company’s current report on Form 8-K furnished to the SEC in advance of this webcast and call.
At this time I would like to turn the call over to Emanuel Chirico, Chief Executive Officer for Phillips Van Heusen.
Mike is going to quantify the financial results for the second quarter after my comments and then I’m going to come back and try to put some color and perspective onto our projections for the balance of the year.
Let me start with a business roundup. I’ll start with Calvin Klein licensing. Overall our royalty revenues in the quarter were down about 6% and on a constant currency basis, declined only 3%. Operating margins improved significantly by 220 basis points to over 60%. Looking at our largest licensing category is Warnaco Jeans, and underwear royalties were down about 10% for the quarter. On a constant currency basis, Warnaco sales were down about 4% for the quarter.
The US jeans and underwear businesses were down about 15% due to sale timing shifts and the overall challenging retail environment. The international jeans and underwear businesses were ahead about 8% overall.
Warnaco’s international comp store performance increased about 1% in the quarter and they have increased their estimate for new store retail square footage about 20% to just over 120,000 square feet for 2009. As Warnaco talked about on their second quarter earnings release call just a couple of weeks ago, their business in the second quarter was significantly impacted by a number of revenue timing shifts which accelerated revenues into the first quarter and out of the second quarter. Therefore, I think it’s probably more meaningful to look at the Warnaco business in a total six month basis.
For the six month period and first half of the year, Warnaco’s royalty revenues on a constant currency basis were up 3% so on all points they’ve had a strong performance. For the second half of the year we and Warnaco are projecting flat royalties on a constant currency basis for the jeans and underwear business worldwide. We believe we have opportunity to outperform against that but right now we think it’s very reasonably planned.
Moving to fragrance, our fragrance business is by far our most challenged category in the Calvin Klein portfolio. Total fragrance royalties in the second quarter were down about 25%. Again, just to remind you, the two primary channels of distributions for this product are high end US department stores and travel retail, particularly duty free airport shops. Both of these channels of distribution are under a significant amount of pressure and it’s impacting the overall business. As we look at market share for fragrance, we have not lost any market share position in the total fragrance business both domestically and internationally. Our brands, particularly Euphoria, Eternity, some of our large franchises, the CK franchise, continues to perform on a relative basis against the competition very well.
In the US, our licensing partner G3 is continuing to post strong sales in the men’s and women’s outerwear category as well as strong growth in women’s dresses. Both of these categories ran ahead about 20% on a sales basis and total G3 royalty revenues for the second quarter were up in excess of 20%.
Our men’s and women’s footwear licensee [Jemlar] recorded sales growth of over 30% in the quarter as we benefited from a continuation of the [door road] as well as comp store growth throughout the second quarter. We are growing both internationally and domestically in the footwear category and we look for this to be an opportunity for us as we go forward.
The balance of our licensees in all product categories posted royalty growth of about 4% in the quarter, driven by strong performance both in the US and internationally. A number of the categories here are classification categories and those like men’s suits and watches and the jewelry area where Calvin clearly delivers value across and there we had strong growth in the quarter of about 4%.