Phillips-Van Heusen Corporation (PVH)
Q2 2008 Earnings Call
August 21, 2008 9:00 am ET
Pamela Hootkin – Director IR
Emanuel Chirico – CEO
Michael Shaffer – CFO
Allen Sirkin – President & COO
Jennifer Black - Jennifer Black & Associates
Robert Ohmes – Merrill Lynch
Emily Shanks - Lehman Brothers
Kate McShane – Citigroup
Ben Rowbotham – Goldman Sachs
Robert Drbul - Lehman Brothers
Omar Saad – Credit Suisse
Sean Naughton – Piper Jaffray
Brad Stephens – Morgan, Keegan
Previous Statements by PVH
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Your participation in the question-and-answer session constitutes your consent to having 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 August 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. 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.
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.
We were quite pleased with our second quarter earnings release and results particularly in light of the difficult retail environment that we’re dealing with. Let me start with Calvin Klein licensing business, our Calvin Klein licensing business had an extraordinarily strong second quarter. Royalty revenues increased 28% in the second quarter and operating earnings grew over 47%.
Results were very strong across all geographic regions and virtually all product categories. Royalty revenues grew internationally about 35% while domestic business was up about 15%. Michael Shaffer our CFO is going to quantify the details of the quarter, what I’d like to do for the licensing segment of Calvin Klein is focus on the first half results to give you a perspective of the business.
When you look at the first half overall royalty revenues grew about 23% and our operating earnings for the first half were up about 32%. Overall our operating margins for the first half of the year increased by about 300 basis points to over 53%.
Looking at our large businesses, I’m going to start with the Warnaco businesses, our jeans royalties for the first half were ahead a little bit more than 25%. Our international jeans business was up 40% while the US business was ahead slightly more than 10% for the first half of the year.
The US growth was driven by the women’s jeans business as well as the newly launched plus size department store business. Our international business was driven by strong performance throughout Europe, Asia and throughout the Americas. Strong retail performance was fueled by comp store growth of over 20% as well as continued expansion of retail stores particularly throughout Asia.
Moving to the underwear side of the business royalty revenues were the first half were ahead over 20%. The business grew in the US about 10% while international growth was an impressive 35%. The international growth was driven by the direct to consumer portion of the business; this growth came from comp store growth of about 20% and the continued opening of new retail stores.
We saw continued strength on the men’s side of the business from the success of our Steel launch which has continued to benefit from an extremely strong product offering and amazing marketing campaign that features Djimon Hounsou throughout the first half of the year.
Just to remind everyone, Steel launched at the second half of last year. It was a tremendously successful launch for us and that momentum has just continued into the first half of this year.
The major news for fall is the launch of Seductive Comfort which we believe will bring as much excitement to the women’s business as Steel has done for the men’s business. The launch will be supported by a major marketing campaign featuring Eva Mendez. The product offering and the marketing campaign has been received very strongly by our retail partners. There’s been great marketing and PR buzz surrounding the campaign and we think the marketing machine is working very well for us with this launch and we’re very excited as we head into the third quarter, particularly around underwear.
The strength of Steel coupled with the new launch we think will continue to fuel the growth in the Calvin Klein underwear business.
Moving to Coty our fragrance business, Coty for the year is ahead of plan and is up for the first six months of the year about 3%. That’s very important when you consider we were planning this business down in the first half of the year because we were up against some major product launches in particular the CK IN2U launch was in the spring of 2007; that was a tremendously successful launch for us.