Good morning, everyone, and welcome to today's PVH's Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions]. It is now my pleasure to turn today's program over to Sheryl Freeman, Senior Vice President of Investor Relations.

Thank you, operator. Good morning, everyone and welcome to the PVH Corp. Fourth Quarter and Full Year 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 March 28, 2023, 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 statements included in the press release that is the 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 its second quarter earnings release and its 2021 sale of [indiscernible] and exit from its Heritage Brands business to focus on the Calvin Klein and Tommy Hilfiger businesses. Significantly, the COVID-19 pandemic, global inflationary pressures 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 fourth 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 the release. At this time, I'm pleased to turn the conference over to Stefan Larsson.

Thank you, Sheryl, and good morning, everyone, and thank you for joining our call today. We are pleased to report that we drove strong fourth quarter financial performance ahead of expectations for both the top and bottom line, led by strength in our direct-to-consumer businesses. Revenue exceeded our expectations on both a reported and constant currency basis. And underlying growth, excluding the impact of currency and the Russia-Ukraine exit, was plus 9% in the fourth quarter driven by better-than-expected results for both Tommy Hilfiger and Calvin Klein. We are coming into 2023 with strong momentum and expect to continue to grow our top line, led by outsized D2C growth while planning to deliver EBIT margin expansion and double-digit EPS growth. The growth in 2022 was driven by strong consumer response to our product, marketing and marketplace execution across both brands and across all regions. We showed that we were able to compete to win in what proved to be a much more challenging macro environment than any of us expected going into the year. And I would like to highlight some of the proactive choices we made to make that happen. Last April, we shared our long-term vision and multiyear growth plan at our Investor Day. The PVH+ Plan is our brand-focused, direct-to-consumer and digitally led growth plan that will over time build Calvin Klein and Tommy Hilfiger into the most desirable lifestyle brands in the world and in parallel, making PVH one of the highest performing brand groups in our sector. The clarity of our direction and plan have provided a very strong focus for everyone in the company. We know where we are going, we know how we will get there and we made great progress in the first year of execution. This stronger execution focus is gaining…

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 extremely pleased with our results for the fourth quarter and the full year, which significantly exceeded both our top and bottom line guidance, driven by strength in our European business and continued cost discipline globally. 2022 was a year of unprecedented macroeconomic volatility. And in this tough environment, we fought hard to win by focusing on what is within our control. Our ability to drive underlying revenue growth of 9% for 2022 and earnings per share of $8.97, in line with our initial expectations at the start of the year, approximately $9 per share, is a testament to our disciplined execution of our strategic priorities and the power of our 2 global brands, Calvin Klein and Tommy Hilfiger. We are encouraged by the positive momentum we drove in the fourth quarter and are confident that we can deliver solid top line growth in 2023 while driving increasingly improved profitability. I will now discuss our 2022 results in more detail and then we'll move on to our outlook 2023. Our strong fourth quarter results delivered underlying revenue growth of 9% versus last year, exceeding our top line guidance by 4% on a constant currency basis. And we delivered earnings per share of $2.38, significantly exceeding our earnings guidance by $0.73. Our underlying revenue growth was driven by both our Tommy Hilfiger and Calvin Klein brands. We delivered strong revenue growth in Europe and continued growth in North America driven by the direct-to-consumer business. We continue to experience negative impacts in China from the COVID pandemic but the rest of Asia Pacific continued to drive growth in constant currency. On a reported basis, fourth quarter revenue was up…

[Operator Instructions]. Our first question will come from Bob Drbul with Guggenheim.

A couple of questions that I have actually. On the first one, can you just talk about what surprised you the most in the fourth quarter? And I mean, the results were just well ahead of what we expected. And then the second piece of it is when you think about the PVH+ Plan, what elements do you think you got the most traction on that gives you the confidence that you portrayed for FY '23?

Well, thank you. Let me -- so first of all, from the surprises in Q4, I would say what -- it's the lack of surprises because we set out the PVH+ Plan almost a year ago. And we started leaning into our iconic brands and said those are absolutely unique. Perhaps there are a handful of those brands globally and we have 2 of them, Calvin and Tommy. And the PVH+ Plan is about leaning into each of these iconic brands' main product categories. And we were able to get traction on that. There are lead times. So we set out to do that a year ago. And what you can see in the fourth quarter was that we were starting to get traction. So starting to get early traction on the product category focus, starting to get traction in Q4 on developing some of the best hero products in the market, the most important products in the consumers' wardrobe. And then we were able to really deliver cut-through campaigns with world-class talent. So we were able to tap into the iconic strength of the brand. We were able to increase the product strength and then bring that to market and compete to win in, as Zac mentioned, a much tougher macro with a cut-through campaign in Calvin and a cut-through campaign in Tommy, that's -- look at it as a campaign umbrella that will continue to go because it's really combining the category, the hero products, the world-class talent. And that's what we could see in Q4, consumer facing. Then on the underlying business engine side, we were able to drive better, much better supply chain execution. So we were 60% on-time delivery last year, heavily affected by the COVID disruptions. Today, we're at 95%, close to 100% on time. And then we were able to drive cost efficiencies while investing more in growth. So you will hear Zac take you through how we invest more in marketing. And then as the final part is the leadership team and getting the capabilities on the leadership team we needed to execute this. So this is some of the highlights of what I see drove fourth quarter and also how it will continue, that this is just the beginning and that drives the confidence for the outlook this year.

Our next question will come from Michael Binetti with Credit Suisse.

Let me add some congrats on a great quarter here. I guess I have 2 for the -- on the finance side, Zac. Can you give a little more color on sizing the buckets you listed to drive the 200 basis points of underlying gross margin expansion? It would help us to get a little bit of an idea of the magnitude of the different buckets there to see how you're seeing it. And then you mentioned North America direct-to-consumer sales to domestic consumers are now, I think, you said mid-single digits above 2019. I know you talked previously about almost 30% of sales in those doors are from tourists before COVID. Can you offer any specific quantitative examples of where in North America do you see stores are in terms of total productivity levels and profitability levels compared to pre-COVID? And what you think is the right pace investors can think about to recapture some of that opportunity?

Well, thank you, Michael. It's Stefan. So let me just start from the business side in terms of the gross margin strengthening in the outlook because I'm encouraged by a lot of what I see on the gross margin side. First, cost of goods are coming down. Freight is coming down and also the supply chain strengthening, so that we are getting better at leveraging our scale with vendors. So that's all favorable versus last year. And then on the gross margin side, we also have a shift in the business, a regional and channel mix shift. So international grows faster, D2C grows faster. So that's on the highest level from a business perspective. Zac, if you don't mind going through more in detail.

Let me put some numbers around that for you, Michael. I think that, first of all, as we've said gross margin, we expect to grow by over 100 basis points this year versus last year. And keeping in mind that includes approximately 100 basis points of transactional exchange headwind that we've talked about previously. So to your question, the 200 basis points of underlying improvement, as Stefan mentioned, first, we are planning for a significant increase in DTC penetration aligned to the PVH+ Plan and that drives almost 100 basis points of gross margin improvement. And then second, we expect that several of the macro headwinds that we experienced will increasingly transition to tailwinds that as we work through 2023. So included in that are significant reductions in ocean freight rates and a decrease in utilization of air freight as the supply chains have normalized. Those 2 changes alone are worth approximately 100 basis points of gross margin improvement. So I think those are the 2 main drivers that we expect to see moving in our favor. And again, starting with both the exchange, [indiscernible] story and then increasingly, these other measures taking a more powerful impact in the second half of the year. And then you talked -- you asked a little bit, I think, about in terms of the international stores. At this point in time, our outlook does not count on a return to 2019 levels of international tourists. We're still assuming a significant decrease versus 2019. We are seeing the beginnings of some of that start to come back this year. And as they're coming back in, they're buying strongly. But I think we've learned in the last couple of years to not count on that. The focus will remain on the -- on really satisfying the domestic consumer and that will be varied from there. And if international tourists come in, that will be a source of growth later in the year that's not currently planned for.

And Michael, one part that was exciting in Q4 was to see the domestic consumer. The focus we have had over the last year on winning more with the domestic consumer in North America to really see that we started to get traction there. And that's something that we will continue to lean into.

Yes. We haven't heard many other North America outlets improving. So it was nice to hear.

Our next question will come from Jay Sole with UBS.

Great. I think you mentioned for the full year guidance, you expect revenue growth in all regions. Maybe just elaborate a little bit and maybe give us an idea of how you're thinking about growth in North America versus Europe versus Asia?

Yes, absolutely. Thank you, Jay. So in Europe, let me just take a step back to Q4 that we were able to drive a very strong holiday performance in a very tough macro in Europe and we see the momentum continue. And we see D2C, to Zac's point, as he mentioned, we see D2C being the main driver. We see that being true for both Europe and North America and Asia. When we look at North America, it's continuing to build strength with that domestic consumer in a brand accretive way. And then when it highlights on Asia is to come back of China and the Chinese consumer. And we are very encouraged by what we are seeing, early days there coming out of COVID.

Yes. And I think just to put some numbers behind that, we've talked about sort of that mid-single-digit range growth for the overall business. And that's comprised of low single-digit expectations in both North America and Europe and then low double digits in Asia. I think both in North America and Europe, we wanted to make sure with the uncertain consumer backdrop that we're planning prudently for the year. And I think we see some of that in terms of the work we have with our accounts, a bit more of a cautious approach. And I think considering the volatility we're experiencing, we think that, that is a prudent way to plan for the year, focus on those things in our control. And then depending on how the year evolves, if there's stronger consumer demand on that, we're ready to address that, both in the U.S. and Europe as that comes.

Our next question will come from Dana Telsey with TAG Advisors.

Congratulations on the nice progress. As you think about Europe and the order book going forward and what you're seeing in wholesale globally, what trends are you seeing? How are you seeing order books moving forward and the full expression of your new collection being distributed, balancing that, Stefan, with certainly DTC, how you're thinking about the growth both for e-commerce and your own stores as we move through '23?

Well, thank you, Dana. So when we look out for 2023 in Europe, we see strong consumer demand. So if we look at Q1, we see strong consumer demand continuing from Q4 last year. So start of the year, strong consumer demand in both D2C channels and in wholesale sell-throughs. So consumers' response to our spring product is strong. For the back half of the year, our whole partners are taking a more cautious approach and it comes back to the volatile macro. What really makes us have a uniquely strong position in this situation is that in Europe, in particular, we have a very, very strong ability to react into and fulfill in-season demand, both in D2C and in wholesale. So continuing to see the consumer strength that we see now for the rest of the year, we will be able to react and fulfill into that beyond the preplanned order books.

Yes. And I think just to sort of talk a bit more -- to put some numbers around that, Dana, around the European order books. Just as a reminder, for spring '23, we had order books in at high single digits. And we're happy to say that, that is actualized fully as product -- supply chains normalize and products that are showing up earlier than expected. Now keeping in mind that's about in line with where pre-pandemic was but earlier than us or the accounts were planning, the accounts have been very eager to take that product. So we're able to ship and partially in -- for the rest, early here in the first quarter. And we're seeing from those floor sets as they're setting is strong consumer response. I think we feel great about the spring order book. As Stefan mentioned, the fall order books have come in and the numbers are low single digits from a growth perspective, which is not aligned with what we're seeing from consumer response today. So we believe they're taking a cautious outlook and we're aligning our overall expectations for the year to that. But I do think it's important to highlight what Stefan had mentioned that. And we saw specifically through the COVID period and all that volatility, our European operating model the team has built, the never-out-of-stock fulfillment model, best-in-class, we're able to chase quickly into demand that showed itself then. And I think as consumer trends stay where they are, we believe we'll be well positioned to do that as well heading into the year.

Got it. And then just lastly, just on marketing. How do you see marketing progress through the year? And what percentage of sales do you see marketing be coming?

Yes. Thanks, Dana. So on the marketing side, as I mentioned in my prepared remarks, Calvin -- Jonathan and the Calvin team has done a fantastic job to start with Calvin and Calvins or nothing is the campaign umbrella. So it's very much connecting back to the iconic beloved DNA and making it super relevant for today, whether it's Michael B. Jordan, Kendall Jenner and most recently, Jungkook from BTS, the BTS star, who is now becoming a Calvin global ambassador. And it was remarkable. Yesterday, we teased it on Instagram. Zac and I were following the reaction hour by hour. In a few hours, we got 1.5 million likes. We got 157,000 comments, likes from our customers, our consumers saying things like, "Our dream has come true." "I'm dying." "My life is complete." "I'm ready to die." "I'm crying right now." So it's -- that -- you can only do that if you have an iconic beloved brand like Calvin and Tommy and then connect that with incredible products and incredible talent. And then something I'll -- late last night, a team member sent through Tommy and Shawn Mendes are doing the Classics Reborn campaign, also focusing on the DNA, the classic American cool, the style icons and making them relevant for today. And fantastic response to that. And what I received last night was a video clip from one of the -- it's called The Artz, one of the premier shopping centers in Mexico City. Shawn Mendes was there and did an immersive appearance and thousands of people, screaming, going wild. So it's this fantastic balance between the iconic, timeless DNA of the brand and then making it current. So these campaign umbrellas will just continue. And it's for us, it's about systematically, repeatedly executing better and better and better. So that's from a marketing perspective. And then we -- then as I mentioned, we are investing more in marketing. So Zac, will you be able to share more of the details of what that means in numbers?

Yes, we're making a commitment this year to increase marketing spend, both in dollars and I think employee as well in percentage of revenue. So the percentage of revenue will increase 30 to 40 basis points this year to almost 6%. And that's just the first step on the journey, the key investment priority for us as we work on delivering the PVH+ Plan. So a big step forward to almost 6% this year.

Our next question will come from Chris Nardone with Bank of America.

Can you discuss the underlying assumptions around your North America wholesale business? It'd be very helpful if you could discuss how sellout trends are faring for both brands, given your healthier inventory position. And then whether you think you're in a position to chase if retailers begin to turn more positive as we move through the year?

Yes. Thanks, Chris. So in North America, as we mentioned, the outperformance in North America was driven by, first of all, our D2C business. But there is an underlying driver of improvement in North America that I really want to mention, which is -- and it connects to wholesale, which is how we strengthen our performance in the full price wholesale channel with Macy's. So we are seeing improved sell-through trends for both Calvin and Tommy. And we see tremendous potential here in working with Macy's and expressing our full-price presence in North America stronger. For both Calvin and Tommy, we are seeing so much potential there. And the exciting part in Q4 and start of this year is that we're seeing it translate to high growth and improved sell-throughs. With that said, there is a cautious outlook in North America as well from all our wholesale partners coming back to the macroeconomic volatility.

Yes. I think we expect, as we'd said, DTC to be our [indiscernible] in North America. And then closely behind that, as Stefan mentioned, sort of our full price execution with our key partners like Macy's. Beyond that, we do expect the broader wholesale environment to remain, sort of, I would say, the accounts are cautious. And with our focus increasingly on those global bestsellers and that core set of product, I think when we see the improved sellout, we're able to work closely with those partners. And they're eager to follow back in with inventory as we're building something closer towards a never-out-of-stock model with them as we go through. So I think we're optimistic that should those trends continue and what we've seen earlier in the year that we'll be able to continue to fulfill that demand regardless of where the consumer demand goes.

Okay. Great. And then just if I could squeeze one more in, just on China. Can you just talk about how that reopening is going? And then what level of recovery are you assuming in the back half to get to your total sales guide?

Yes, absolutely. So China, as I mentioned before as well, China as a market is a very important growth market for us and seeing the reopening and seeing the consumers come back has been really strong positive trends. So that's why we are planning Asia for 2023 as the highest growth region. So what we see is very encouraging.

Our last question will come from Ike Boruchow with Wells Fargo.

Let me add my congrats. Maybe just looking out the next couple of years, Zac, it's only -- it's been about a year since the Analyst Day and the PVH+ Plan targets were given. Your 15% margin goal for '25 was laid out. You're looking for 10% this year. How are you feeling a year later in your progress towards that 15%? And then I guess to that point, beyond '25 when these licensing dynamics start to play in, I assume that's dilutive to the margin. Is there some way we should think about margins past '25 as the business model changes a bit more from owned -- away from license?

Thanks, Ike. It's Stefan here. So if I start from just an overall business perspective and value-creating perspective, first year in now into the PVH+ Plan. There is significant growth opportunities, both from a revenue and a margin expansion perspective in each of -- through each of these 5 growth drivers: the product, the increased marketing, consumer engagement, the marketplace execution, the demand-driven supply chain that we are moving towards, the cost efficiencies and then investing behind these growth drivers. So 1 year in, when I look at this, I see that we are just in the beginning of unlocking this value. And it's independently of macro because so much we have in our own hands. And what excites me the most is to see how we, as a team, has come together during this year and really locked into the direction we set out. And now it's just about consistently delivering improvements. Zac?

Now we built our PVH+ the financial model with flexibility. Over any multiyear period, we would be safe to assume that we'd experience the full range of macroeconomic cycles and we've seen that. So obviously, we're going to drive growth when those opportunities are there, just like we saw in 2022 with high single-digit underlying growth in all dimensions. And we will also continue to manage the remainder of the P&L to drive profit efficiency. So the DTC channel mix and pricing power to drive gross margin improvement and all elements of cost, product cost, supply chain costs, we've talked about that already today and all elements of SG&A that we knew and we talked about, we had efficiencies to work our way through. So we knew the journey would not be linear. And obviously, it hasn't been in that first year. But as Stefan said, we're just as committed to delivering the targets as we laid out a year ago.

And the more -- just to build on what Zac is saying, the more we lean in as a team on these 5 growth drivers, we also see the specific opportunities and then we unlock them step by step.

Okay. Congrats.

Thank you very much.

Thank you very much. Appreciate it.

So with that, we are ending our call and looking forward to reconnecting next quarter. Thank you.

Thank you, ladies and gentlemen. This does conclude today's PVH's Fourth Quarter and Full Year 2022 Earnings Conference Call. We appreciate your participation and you may disconnect at any time.