Good day and welcome to the PVH Third Quarter 2022 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Sheryl Freeman, Senior Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good morning everyone and welcome to the PVH Corp. third quarter 2022 earnings conference call. Leading the call today will be Stefan Larsson, Chief Executive Officer; and Zac Coughlin, Chief Financial Officer. This webcast and conference call is being recorded on behalf of PVH and consists of copyrighted material. It may not be recorded, rebroadcast or otherwise transmitted without PVH’s written permission. Your participation constitutes your consent to having anything you say appear on any transcript or replay of this call. The information to be discussed includes forward-looking statements that reflect PVH’s view as of December 1, 2022 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 a subject of this call. These include PVH’s right to change its strategies, objectives, expectations and intentions, and the company’s ability to realize anticipated benefits and savings from divestitures, restructurings and similar plans, such as the planned cost efficiency action announced in the second quarter earnings release and its 2021 sale of assets of and exit from the Heritage Brands business to focus on its Calvin Klein and Tommy Hilfiger businesses. Significantly, the COVID-19 pandemic, global inflationary pressures, the strength of the U.S. dollar against most of the foreign currencies in which PVH does business and the war in Ukraine continue to have impacts on PVH’s business, cash flow and results of operations. There is significant uncertainty about the duration and extent of these impacts. As a result, what is said on this call could change materially at any time. Therefore, the operation of the company’s business and its future results of operations could differ materially from historical practices and results or current descriptions, estimates and suggestions. PVH does not undertake any obligation to update publicly any forward-looking statement, including without limitation any estimates regarding revenue or earnings. Generally, the financial information and projections to be discussed will be on a non-GAAP basis as defined under SEC rules. Reconciliations to GAAP amounts are included in PVH’s third quarter 2022 earnings release, which can be found on www.pvh.com and in the company’s current report on Form 8-K furnished to the SEC in connection with this release. At this time, I’m pleased to turn the conference over to Stefan Larsson.

Thank you, Sheryl. Good morning everyone and thank you for joining our call today. We are pleased to share that we delivered financial performance in the third quarter ahead of the guidance we provided for both the top and bottom line on a non-GAAP basis. Top line results exceeded our expectations on a reported and constant currency basis and the underlying growth, excluding the impact of currency and the Russia-Ukraine exit, was plus 9% in the third quarter, driven by better than expected growth rates for both Tommy and Calvin. Delivering this strong performance in the face of ongoing macroeconomic challenges is a testament to our disciplined execution of the PVH+ Plan and the strength of our two global brands. We managed our business in a prudent and disciplined manner and underlying revenue growth combined with an increased cost focus drove the outperformance of non-GAAP EPS. Our international businesses continue to execute very well across both brands, with increased product strength and strong consumer engagement driving performance, even in the face of a challenging macro backdrop in Europe and ongoing COVID restrictions in China. And with respect to North America, we are encouraged that our business is starting to show green shoots, although we recognize that we still have work to do to win more with the domestic consumer. We have doubled down on improving our own execution, and this quarter we delivered double digit growth for Tommy and Calvin, led by our D2C stores even against the soft consumer backdrop and intense promotional environment. Given that we're in the middle of the very important holiday season, I've been traveling extensively with our leaders around the world. This past Thanksgiving week, I was with our North American leaders in several of our U.S. markets. Before that, I spent a week…

Thanks, Stefan, and good morning. My comments are based on non-GAAP results and are reconciled in our press release. As Stefan discussed, we are pleased to report strong third quarter results which exceeded our top line guidance by 2%, delivering underlying revenue growth of 9% versus last year and significantly exceeding our earnings guidance with earnings per share of $2.60. We remain laser focused on what is within our control as we continue to navigate a challenging and increasingly complex macroeconomic environment. And that discipline is reflected in our performance for the quarter. Our underlying revenue growth was driven by strong growth across all regions in both our Tommy Hilfiger and Calvin Klein brands. We delivered continued solid performance in our international businesses and sequential improvement in North America, driven by the direct-to-consumer business. On just a reported basis, revenue was down 2%, which reflected a 9% negative impact from exchange and a 2% negative impact from the war in Ukraine. We continue to focus on driving performance in our direct-to-consumer business where we have the closest connection to our consumer and DTC was up high single digits on an underlying basis. On a reported basis, DTC revenue was down 5% compared to last year, which reflected a 10% negative impact from exchange and a 2% negative impact from the war in Ukraine. From a regional perspective, we drove underlying growth across all markets. Third quarter revenue for our international businesses was up 7% versus last year on a constant currency basis, continuing to significantly exceed 2019 pre-pandemic levels. Within our international business, our European business had a record quarter, exceeding €1 billion in revenue for a quarter for the first time ever. Our Asia Pacific business, excluding China, grew nearly 30% compared to last year, even with a negative…

Thank you. [Operator Instructions]. Our first question will come from Bob Drbul with Guggenheim. Your line is now open.

I guess the question that I'd actually like to spend some time on if you could is, Stefan, can you just talk us through the strategic rationale for taking the G-III licenses back and sort of how you structured them and why now and sort of how you really approach this? I think that will be pretty helpful. Thanks.

Absolutely. Thank you, Bob. So as we communicated yesterday, we are extending the licensing agreement with G-III in a way that over a multiyear period will bring these categories back in house. And the rationale for that is very much connected to the PVH+ Plan and what that is about, because, in essence, the PVH+ Plan is a growth plan. It's a brand-driven growth plan. So it's about unlocking the full potential of our brands. And the brands, both Calvin and Tommy are the brands for the most valuable assets we have. So when we look at over time, over the next few years, in housing this, it's about giving us complete control of those brands. So when you look at the PVH+ Plan, we have five growth drivers and this very much connect to what creates value in unlocking those brands. So product design, the product assortment, the pricing, the market channel mix, enabling us to connect to demand-driven supply chain, so all those parts are value-creating growth drivers and that's what we will be able to be in control of and it will help unlock more of Calvin and Tommy and bigger value creation over time. But it will also help us build Calvin and Tommy to truly global cohesive aspirational lifestyle brands.

Yes. And then maybe, Bob, I can give a bit of context from an economics perspective to complement the strategic element to this. So first of all, I think it’s useful to size the current business impact. These are predominantly U.S. women's wholesale categories for Calvin Klein and Tommy Hilfiger. And today these licenses make up approximately one third of our global licensing revenue. And from a profit perspective, the profit comprised less than 10% of our 2021 EBIT. I think also important to note is that due to the structure of the agreement, we do not expect any material impact to our financial results between now and the end of our PVH+ Plan commitments in 2025. Beyond that, in 2026 and beyond, we do expect the impact to become more material. We expect the intake of this business will be accretive to our financial results as we take advantage of the scale of what the rest of the business has.

Great. Thank you very much.

Thank you. Our next question will come from Michael Binetti with Credit Suisse. Your line is now open.

Hi, guys. Thanks for all the detail today. Congrats on a nice quarter. I know it's a tough backdrop. I guess a quick one on the model, Zac, for the EBIT guidance in fourth quarter. It seems like it implies a decent step up relative to third quarter on both a year-over-year and a three year basis. Maybe you could unpack that a little bit. How much of that's cost savings or mix dynamics? Help us understand that a little. And then I guess what I found interesting was the U.S. DTC comments to stores. Stefan, I know this has been a focus for you. It seems like there's a bigger unlock emerging there. I know you said -- I think you said domestic consumer traffic across the back above 2019 levels for the first time. It's great to hear and even fighting that hard. I think you told us 30% of sales in those doors, or at least in the outlet doors was tourist volume. Maybe talk a little bit about how far below 2019 levels those doors are today in productivity and in margins and what you think are some realistic medium-term expectations for how much those can progress back to pre-COVID levels?

Thanks, Michael. So before I let Zac unpack more detailed financials in the outlook for Q4, so what excites us with Q3 is that we were able to compete to win in a difficult macro backdrop. And we continue the outlook for Q4. It's based on that we will continue to do that in Q4. And we had an on planned start of the holiday. And then we continue to compete to win through Q4, and that's the underlying driver of the Q4 outlook. But, Zac, feel free to give more.

I think as we saw as we looked through the third quarter, overall August and September strong and then some of that macroeconomic backdrop as Stefan mentioned, we began to see some softening consumer sentiment in October. We fought hard and we believe competed for our fair share there. As we look forward, we've incorporated that sort of outlook as we sort of worked through the third quarter into the fourth quarter results or into the fourth quarter outlook and expect that to sort of be the underlying dynamic that we're competing in. More broadly from a gross margin perspective, we expect our gross margin impact versus last year to be approximately the same as the third quarter. The composition of that obviously a little bit different as we do expect that higher level of promotional environment to continue through the fourth quarter we saw at the end, but we get the lift there from a much heavier DTC retail focus quarter, but the overall margin impact from there. And then I think from a SG&A perspective, we expect to see continued efficiency as we work our way through being really disciplined and focused on the spending from an outlook for the fourth quarter heading into there. So that's all incorporated into the guidance that we've provided.

And, Michael, to your question about North America, the green shoots we are seeing in DTC stores, yes, it's exciting because we've worked really hard to double down on the execution, starting with our hero products and making sure we have those best essentials that we are known for in both brands that we have them in stock. So what we saw in Q3 was that we were able to navigate through most of the supply chain issues. So we had better in stock levels in more of our hero products. And then we were really focused on the channel execution. And we saw that drive this double digit growth in our store. So we saw the comps coming up with the domestic consumer. So still early days, but very encouraging. If we take Tommy as an example where we increasingly connect our products to the global design center of the brand and have those bestsellers, even for the North America market, we see that the category is like men's knits, which is our number one category for Tommy, we were up 42% versus last year. So Polo’s iconic essential bestsellers are driving significant growth and led by global bestseller. So we're able to get more of the hero products in stock, better product execution, leveraging the global brand design, higher AURs on that, and then we see that we're starting to come up and climb up against 2019. So early days in North America, but very encouraging.

Very helpful. Thanks a lot, guys. Congrats.

Thanks, Mike.

Thank you. Our next question will come from Jay Sole with UBS. Your line is now open.

Great. Thank you so much. I wanted to follow up on some of the comments made about SG&A. SG&A controls part of the PVH+ Plan. But can you help us understand how much of the really strong SG&A control in the quarter was sort of a response to the consumer environment versus how much is sort of identifying opportunities to streamline costs and get more efficient, which will sort of continue into next year and really beyond? Thank you.

Thanks, Jay. So Zac has really done a great job coming in and helping us execute on the fifth growth driver of the PVH+ Plan, which is about driving efficiencies and freeing that up to invest in growth drivers. So what you see now in Q3 and going forward increasingly you will see that we are step by step becoming more cost competitive. Of course, one aspect of that that's even more important when we operate and compete to win in a tough macro, but this is something that Zac and I will drive throughout the whole PVH+ journey and beyond.

Yes, I think just more specifically, there was really no one single item driving the 3Q SG&A efficiency. Instead, the efficiency was across the board as our disciplined focus on spending on only the most impactful elements of the PVH+ Plan really paid off. This is about focus and prioritization. And we actually are confident we can both invest in growth and deliver SG&A efficiency. So we also continue to invest in those areas most important for growth that was included in, we're spending. So digital as we platformed our U.S. Calvin.com site, it continued to build out our European digital ecosystem supply chain as we're building the technology infrastructure across Asia and logistics capability in Europe. And increasingly moving forward, you'll see spending in the U.S. retail network and global marketing. So we believe that we actually do have the ability to do both, to invest in those things most important and really drive those efficiencies as well.

Got it. Thank you so much.

Thank you. Our next question will come from Chris Nardone with Bank of America. Your line is now open.

Hi, Chris.

Good morning.

There we go. We got you now.

Okay, perfect. Can you provide an updated State of the Union on your performance in some of your major Western European markets, and then how some of those trends have evolved quarter-to-date relative to 3Q? And then just as a quick follow up into some of your vacancies for head of Americas and head of Calvin, this Q3 announcement change, how you're looking at the attributes to fill some of those roles? Thanks.

Yes. Thanks, Chris. So starting with Europe, we had a record quarter. We never made a quarter before in Europe over 1 billion. It is the first time we did over €1 billion for the first time in a quarter, so very strong execution by our European team drove underlying growth of mid single digit. Again, we were able to do this despite the tougher macro. For sure, there is a tougher macro situation I will say globally, but in Europe it was a good example of when we were able to navigate through that successfully. And then we go into the start of holiday where Black Friday has become increasingly irrelevant in European -- increasingly irrelevant and big. And we just came out of that and drove strong performance across both brands of channels. So feeling good about how our teams continue to execute really well.

I think if we take a look then just more broadly on the European performance, as Stefan mentioned, continued to see strength there. And as we look forward, there's all important order books, the fall order book holding well, spring order book as we've talked about in prior quarters landing at high single digits. And in fact, as some of the supply chain -- global supply chain challenges have loosened, product is showing up on time or a little bit early and reconfirming the strength of the brand as those accounts are eager to take that product. So I think moving forward as well, we feel good about the strength that Europe is continuing to drive.

And then, Chris, when it comes to the leadership searches we have, I'm excited to share that we're making really strong progress. So within the next few weeks, I look forward to update you all on what that means, both for the Calvin Klein global brand and for our North America businesses. And to your questions about how this connects to the talent choices, the leadership choices connect to the transition of the G-III categories, definitely it connects to the PVH+ Plan. So we are about to land leaders who will bring some different forms of best-in-class experience that helps us unlock both Calvin and Tommy. So yes, very excited and looking forward to in a few weeks time to just give you an update. We have time for one more question.

Thank you. Our last question will come from Ed Yruma with Piper Sandler. Your line is now open.

Hi. Good morning, guys. Thanks for taking the questions. I guess one short-term question as you think about the G-III licenses, I know you said there's no near-term financial impact, but how do you think about building talent in preparation for taking those licenses in '25 through '27? And then Stefan as a longer term question, it seems like U.S. wholesale, one of your competitors is kind of advocating some of these more premium price points. So can you talk about the whitespace you think that you have, given that you're able to kind of reposition some of your brands as a more premium product? Thank you.

Yes, definitely. So starting from your questions about whitespace or opportunity, so as I mentioned in my prepared remarks, I've been out traveling extensively this past week and Thanksgiving weekend while seeing a number of our U.S. markets. And just seeing the love for both Calvin and Tommy, the consumer love in the North America market and the opportunity we have too in a more disciplined way tap into that. So we have great partnerships with our wholesale partners. We have great locations within those stores. And we have an end consumer that loves our brands. So where we have opportunity, it connects to the PVH+ focus which is better disciplined on the product categories that really matters that are big for the consumer essential and where we have the right to play to win, and that we build the best hero products within those. And when we do today -- it's early days, but where we do that today, we see that we win. We win immediately. It's one to one. As soon as we play in the right category with the right hero products, we drive the revenue and we drive -- we don't see any price resistance. So it's very exciting to see that getting closer to excellence in product and then combining that with the consumer engagement and the talent that then the product and the consumer engagement that shows up in social media, shows up in e-commerce and increasingly in our stores, it's just exciting potential. Every time I'm out walking stores, I see it and it's so concrete.

And then I think to add, I'm sure Stefan will want to comment on the build out of the talent capability for the categories coming in. But just to sort of start a little bit, I think if you think about from a financial perspective on that, we already do great product creation all around the world and we've got great supply chain capabilities as well. And so I think we believe that we've got a good amount of the infrastructure in place from a financial perspective that we talked about not seeing a material impact to the financials over this medium-term period. That's what gives us the confidence, as Stefan will talk about how we go about building out some of the actual capabilities themselves.

Yes, we have both the time -- the time plan is setting ourselves up in a very good way to, as Zac mentioned, that one is to leverage the capability we already have because we have a lot of these capabilities and we see that with those leaders and teams and capabilities we’re able to drive winning and winning big in both Europe and Asia. So we see that, one is tapping into that. And two is to complementing our team strength, leadership strength here. So we're doing both and having this time to ramp that up.

Thank you.

Thank you very much, Ed. And with that, we want to thank all of you who are following us and wish you a really good restful holiday and looking forward to catching up in the new year. Thank you.

Thank you. Ladies and gentlemen, this concludes today's event. You may now disconnect.