Phillips-Van Heusen Corporation (PVH)
Q1 2008 Earnings Call
May 21, 2008 11:00 am ET
Emanuel Chirico - Chief Executive Officer
Michael Shaffer - Chief Financial Officer
Allen Sirkin - President, Chief Operating Officer
Pamela Hootkin – Treasurer, Director Investor Relations
Robert Drbul - Lehman Brothers
Carla Cassella - J.P. Morgan
Brad Stephens – Morgan, Keegan
Jennifer Black - Jennifer Black & Associates
Sean Naughton – Piper Jaffray
Analyst for Kate McShane – Citigroup
Jeff Mintz – Wedbush Morgan
Emily Shanks - Lehman Brothers
David Glick – Buckingham Research
Susan Sansbury – Miller Tabak
Clark Orsky – KDP Investment Advisors
Previous Statements by PVH
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Your participation in the question-and-answer session constitutes your consent to have any comments or statements you make appear on any transcripts or broadcast of this call. The information made available on this webcast and conference call contain certain forward-looking statements which reflect PVH’s view of future events and financial performance as of May 21, 2008.
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 our SEC filings.
The company does not undertake any obligation to update publicly any forward-looking statement, including without limitation, any estimate regarding revenues or earnings. At this time I would like to turn the call over to the Chief Executive Officer of Phillips-Van Heusen, Mr. Manny Chirico. Please go ahead sir.
Thank you very much, good morning everyone and thanks for joining us on the call. On the call with me this morning is Allen Sirkin our President and Chief Operating Officer, Mike Shaffer our Chief Financial Officer and Pam Hootkin our Treasurer and Director of Investor Relations.
Let me starting off with saying we were quite pleased with the results of the first quarter particularly considering the overall difficult retail environment. Let me focus first on the Calvin Klein licensing segment. We posted a 19% increase in royalty revenues in the first quarter and a 17% increase in operating earnings in the quarter.
It should be noted that the quarter includes about $3 million of expense timing issues which will reverse out over the balance of the year. These expenses principally relate to an increase in advertising associated with a number of new second half launches and marketing associated with our new specialty stores for Calvin Klein.
We continue to expect the operating margins for the Calvin Klein licensing segment to increase about 200-250 basis points for the year. The licensing revenues in the first quarter, internationally we were up about 28% while our domestic business was up about 8% for the quarter.
Getting into each component of the business I’m going to start with underwear. Underwear posted bout a 25% increase in royalty revenues for the quarter. Business grew in the United States about 10% and internationally about 35% in the quarter. The international growth was fueled by a number of new product initiatives coupled with the continued expansion of retail stores, particularly throughout Asia.
We saw continued strength both domestically and internationally in our men’s business, principally driven by our Steel product which is benefitting from a very strong product offering and an amazing marketing campaign which features Djimon Hounsou
As we look out into the underwear segment for the second half of the year, the major news for fall is that we are launched Seductive Comfort our new women’s bra initiative. Seductive Comfort brings much excitement to the bra business that Steel did for the men’s business in 2007.
The launch will be significant and supported by a marketing campaign featuring Eva Mendez. Eva personifies the Seductive Comfort proposition perfectly and speaks to the Calvin Klein consumer that is diverse and she has very broad appeal. The jeans business posted a 30% increase in royalties for the quarter.
Our international business was up about 40% while our US business was up about 10%. The US business was driven by the women’s side of the product assortment as well as the newly launched plus sized department store business in the United States. The international growth was driven by a very strong performance in Europe and Asia, strong wholesale growth as well as the continued expansion of retail stores, particularly in China and Korea. And that business for us in Asia and Europe continues to be very strong.
Moving on to fragrance, our fragrance business was ahead of plan for the quarter. We planned the business down and it was down about 5% from last year when you’ll remember we launched CK IN2U in the first quarter of last year. There was a significant [fix shift build] going on in the first quarter and we’re up against that launch. And just to remind everyone, the CK IN2U is today is about a $130 million wholesale business worldwide.
We’re coming off in the fragrance business three years of plush 20% revenue growth driven by a number of new initiatives, including CK IN2U, Calvin Klein Man and a number of introduction under the Euphoria label.
The business was very strong internationally and was softer in the United States when you consider that the major distribution in the United States continues to be the department store base and their fragrance business was soft overall. We have a major fragrance launch planned for the fall.