Good morning, everyone. And welcome to today's PVH Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, you will have an opportunity to ask questions during the question-and-answer session [Operator Instructions]. It is now my pleasure to turn today's program 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. second quarter 2024 earnings conference call. Leading the call today will be Stefan Larsson, Chief Executive Officer; and Zach 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 August 27, 2024 of 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 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, restructuring and similar plans, such as the planned cost efficiency action announced in August 2022 and completed in 2023, the 2021 sales of assets of and exit from, its Heritage Brands menswear and retail businesses, and in November 2023 sale of the Heritage Brands women's intimate apparel business to focus on its Calvin Klein and Tommy Hilfiger businesses. PVH does not undertake any obligation to update publicly any forward-looking statements, 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 second quarter 2024 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 am pleased to turn the conference over to Stefan Larsson.

Thank you, Sheryl. And good morning, everyone, and thank you for joining our call today. Let me start by thanking our teams all around the world as we continue to deliver on our near term commitments while steering towards our long term mission to build Calvin Klein and Tommy Hilfiger into the most desirable lifestyle brands in the world and make PVH one of the leading brand groups in our sector. For the second quarter, we drove revenue in line with our guidance with stronger than expected profitability and EPS. We increased our EBIT margins driven by significant gross margin expansion of 250 basis points and we continue to improve inventory productivity with inventory down 12% year-over-year. The quarter had two distinctly different chapters to it. The first being the spring and summer full price focused selling parts on May and June and the second part in July being heavily impacted by the end of season summer clearance in the overall market. Our D2C trends were as expected in May and June. And when we came into mid-July as we saw the market shift to heavy end of season clearance and we had less end of season clearance inventory, we decided not to follow the market down. Instead, we saw less clearance and more newness and we drove gross margin rates up. With this approach, we deliberately walked away from the low quality clearance revenue in the peak clearance period from mid-July to early August where our new season revenue didn't just fully compensate on the total top line, which resulted in our D2C revenue being down 3% on a constant currency basis for the quarter. Since then, coming further into August, we see that our overall D2C trends are coming back up, driven by the new season inventory taking…

Thanks, Stefan, and good morning. My comments are based on non-GAAP results and are reconciled in our press release. As Stefan discussed, our second quarter financial results delivered on expectations, driven by our iconic brands and disciplined execution of the PVH+ Plan. We successfully navigated the increasingly challenging consumer backdrop, leveraging our omnichannel execution to deliver our top line guidance while exceeding our earnings per share guidance, largely due to the favorable settlement of a tax matter. We delivered operating margin of 9.1%, up 80 basis points versus last year, driven by 250 basis points of gross margin expansion as we continue to be laser focused on quality of sales all around the world. Operating margin was better than planned for the quarter as we continue to tightly manage expenses. Following our solid first half performance, we are reaffirming our full year revenue guidance and operating margin outlook and raising our EPS guidance to $11.55 to $11.80 per share from previously $11 to $11.25 to reflect the second quarter tax benefit I mentioned. We remain on track to deliver our 2024 financial plan. I will now discuss our second quarter results in more detail and then move on to our outlook. Revenue for the second quarter was down 6% versus last year, including a 1% negative impact from exchange and a 3% decline from the sale of the Heritage intimates business and was in line with our guidance. Starting from a regional perspective, second quarter revenue for our international businesses was down 3% on a constant currency basis. Sales in our European business were down 2% in euros, reflecting an expected sequential improvement as compared to the sales decline in quarter one and better than planned due to a shift in timing of wholesale shipments from the third quarter into…

[Operator Instructions] Our first question will come from Matthew Boss with JP Morgan.

So Stefan, maybe if you could elaborate on current health of your brands and speak to recent demand trends that you've seen across all assortments relative to how you planned back half demand in North America and Europe, I think that would be great. And then, Zach just on the controllables, could you elaborate on cost efficiencies that support operating margin expansion regardless of macro or just is there any change to the mid-teens operating margin target that you cited over the next couple of years?

Starting with the health of the brand. So we are coming into this fall with all time high consumer engagement from spring in both Calvin and Tommy, and we continue to strengthen that. So I don't know if you saw but yesterday we launched Calvin's fall campaign and the second chapter of Jeremy Allen White, very strong consumer response already. And one thing that strikes me and it’s when consumers really take time from their busy day, we all have busy days and right into the common field hundreds of them, thousands of them saying things like where it should be canceled today. I'm screaming stopping the world again. So very powerful start of the fall campaign, building on the all-time high growth in consumer engagement from spring. Every week now, you'll see new talent [running] the campaign. You will see Kendall Jenner, Mingyu, Greta Lee. You will see the K-pop band NewJeans, and we'll have more talent coming in. So -- and they will all be wearing the best iconic Calvin Klein products across all lifestyle categories. Tommy also just released its fall campaign, a cut through campaign with the K-pop band Stray Kids, equal positive comments on social from our consumers, saying things like Stray Kids and Tommy is life. I love Tommy. Please keep posting. So very strong customer response to both fall campaigns, the start to both fall campaigns. When it comes to Tommy, also I want to mention that in just a few weeks, we are back in New York Fashion Week with the Tommy Fashion Show. And just as a reminder, this past season when Tommy came back in February, we had the biggest cut through show in New York Fashion Week and the top 10 globally. So feeling really good about the consumer…

Matt, I think on the control -- the most controllable element of our business is really how we go about investing those SG&A dollars. And I think we're happy with the cost work we've accomplished over the last couple of years. Looking forward, we expect to follow the same path with two important pillars. First is, I suppose we called performance management, that’s really the hundreds of small actions we take, [continue] to match spending to current trends. That's the work we've leaned into over the last couple of months as some macros that Stefan has talked about has started to change, and it's helped us to continue to hold our profit commitments in the year in spite of that tougher backdrop. And I think second are the larger changes we’re working on to really greatly simplify our ways of working all around the world. This will deliver the incremental 200 to 300 basis points of SG&A savings, which really allows us to make that step change in profitability, helping us to deliver the 15% profit commitment we've made and importantly, I think, create capacity to continue to invest in growth as well.

Our next question will come from Michael Binetti with Evercore ISI.

So Stefan, I know you went through a little bit of this, but you did mention some positive indicators in North America as you moved past the end of season clearance. Maybe just some actual -- just some -- unpack that a little bit on the actual business, what's resonating better with the consumer. And Zach, maybe you help us connect that a little more near term to what's embedded for the guidance in North America, D2C and third quarter relative to 2Q. I think it sounded like North America comps slowed in July as the exit rate was a little compressed or below the quarter the average. Has the business returned to the run rate that you were seeing before the July’s low?

So let me start there. So yes, let's start with unpacking what we saw playing out in the second quarter. So we were on plan for D2C in the company across both brands for May and June, and those are the more full price focused months. Then when we came into mid-July with peak summer clearance we came in with less clearance inventory than last year and more new season products, but the market took a turn to be more aggressive with clearance, we decided proactively not to follow that. During the peak clearance period of July, therefore, the new season didn't fully match up on the total revenue. But when we go further into August, we see that the new season, the benefit of having less clearance more new season is resonating with the customer. And what drives is the continued focus we have on the key growth categories on leaning into Calvin, as an example, in underwear, denim, transitional outerwear and having less clearance and more newness, more innovation in that and we see that resonating. Same with Tommy when it comes to polo, shirts, chinos, denim, transitional outerwear. So a big improvement this start of the fall season versus last year is that we are much more transitional in our offering versus last year when we went too fast from summer all the way to fall.

We've been really consistent over the couple of years that we don't get ahead of macros or market conditions, and that holds absolutely true for this outlook. So for North America, DTC and really for that matter Asia and Europe as well, our current outlooks that we provided match the recent trends that we've been experiencing. So that's true for 3Q and actually true for 4Q as well as we carry that DTC outlook for the rest of the year.

Our next question will come from Jay Sole with UBS.

Stefan, wondering if you can just talk a little bit more about Europe and how you're feeling about the region as you've been executing the quality of sales initiatives?

So we feel really good about how we are executing the quality of sales initiative and how that's resonating in the market. So we see it in the here and how we drive the business and how we came into the end of season with less clearance and more newness and how that newness is selling more than last year. We see it also as I referenced in the forward-looking order books. So feeling really good about that. In addition, I flagged in my prepared remarks, we are very close to announce a permanent CEO for Europe, a high performance leader with highly relevant experience. So coming up shortly. But overall, feeling good about -- very good about how we execute on the quality of sales and how it plays out in the market.

Our next question will come from Bob Drbul with Guggenheim.

Just wanted to circle back on North America. Can you talk about sort of where you feel you are with the progress that you're making and specifically with the profitability targets that you've talked about within the North American market, how you think that's going?

So for North America, it continues to be a great proof point on the PVH+ execution. So if you look at the business, in the second quarter, we delivered high quality growth 1% combined for Calvin and Tommy at an 11.7% EBIT margin. So it's another quarter with 400 basis points operating margin improvements and driven by a combination of gross margin improvement and SG&A improvement. But most importantly, what drives the business in North America is our focus on executing in PVH+, meaning an improved product category offers and we see how that drives growth. We drive newness into the hero products and we continue to build them out and they work. And we see the marketplace execution in e-commerce stores partners improving, very close partnership with our wholesale -- with our key wholesale partners, where we continue to the brands come to life stronger, product, presentation, inventory. So we just keep at it in North America, but kudos to our teams there doing a very good job.

And then I think, Bob, I think North America is an amazing example of the financial power of the PVH+ Plan as well. I think it's worth reminding ourselves that our operating margin has now improved by hundreds of basis points in North America for four straight quarters. And I think what's exciting for us is that it comes from both hundreds of basis points of gross margin improvement and hundreds of basis points of SG&A improvement over that time period in a backdrop that I think we would all describe as sort of a low growth external environment. And so I think as we apply the main pillars that PVH+ Plan as Stefan said, I think it's a great example as well of the financial benefit that comes out from there.

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

This is [indiscernible] on for Ike. I was wondering if you can talk a little bit more on your G-III licensing agreement. I don't know if there's any update to that, because as you know, G-III has been scaling it down. So are you able to give a sense of how much of your recapture on that yet?

So we continue to be on a good path to take our business back over a multiyear period, really good partnerships with our key wholesale accounts. And we now have the sourcing engine, the product engine to start to build out and deliver according to our multiyear plan, Calvin Klein sportswear coming in first spring '25.

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

Zach, I was wondering for the total PVH business. Can you walk us through the drivers by region that are contributing to the sequential improvement embedded in your implied 4Q guidance compared to 3Q for both sales and operating margins? And then just as a quick follow-up on the increased promotions embedded in your full year margin guidance. Can you just tie that into your comments that you’ve pulled back from promos in North America in July versus your peer set?

Let me just start from an overall business perspective. If we look at the business regionally and from an outlook perspective, we see North America continue to be a great proof point of the PVH+ execution with a tougher -- within a tougher consumer backdrop. In Europe, we see the backdrop, as of now, we see it holding. We see continued to deliver sales -- quality of sales initiatives and you also saw the forward-looking improvements in wholesale order books. And in Asia where we saw this quarter the biggest trajectory change, we continue to drive strong customer engagement and we continue to be very focused on winning the big customer moments.

I think we feel really good about our 4Q plans, and maybe I'll go through them in pieces to explain. For revenue, our 4Q outlook actually assumes the same carry through of the DTC trends that we've talked about over the last hour or so here in both North America and Asia Pacific. So no improvements planned as we really stay true to that strategy of featuring off of current conditions. There's always a little bit of noise around wholesale timing. And so any sort of numerical changes really comes down to that. On gross margin, we see the quarter playing out very consistent, 4Q playing very consistent to last year. Other than, as you said, a little bit more, modestly more promotional environment that we think is reflective of some of the tougher macros that we've talked about as well here. Where we do have some changes in 4Q in our outlook is in SG&A. So once we saw the DTC backdrop getting tougher in 2Q, we turned towards really managing the rest of the P&L. So that's resulted in some incremental SG&A efficiencies that we've identified. We'll see a little bit of that in 3Q, but more really in 4Q as some of those take some time to implement. So I would say in general from a revenue and gross margin perspective, we see 3Q, 4Q being pretty similar and it really comes down to work around SG&A and those ideas that we've already identified.

Our next question will come from John Kernan with TD Cowen.

So Zach, when you think about the long term targets, how does the wholesale DTC split play into that? The wholesale business now around $4 billion on a reported basis, how do we think about that business long term and your plans for managing the DTC wholesale split?

So let me start, John, by giving you the overall -- just connecting back to what we have set out to do overall. So we have set out to build Calvin and Tommy in to their full potential. Tommy and Calvin, two of the most iconic globally beloved brands and through the systematic approach we take through PVH+, we build them into their full potential. From a wholesale D2C split, we're going to follow the consumer on the highest level. And we feel really good about how closely we work with our wholesale partners to grow the business increasingly profitable there together with them and we feel very good about the D2C approach we have and the connection between both, because that's how the consumer shops. So that's from an overall perspective. And Zach, I don't know if you want to add…

No, I think it's important to make that our commitment to the 15% EBIT margin over time is independent of channel mix as that goes. I think we do best financially when, as Stefan just said, we satisfy the consumer in whatever channel that they're choosing to go to that ultimately is the most successful route for us. And I think what that does mean for us is that we need to build an omnichannel marketplace that delivers successful levels of financial outcomes across the channels as they go. And I think as we've seen over the last couple of years, there's been a good amount of movement across the channel. So we would expect that to continue. And we've been able to continue to push forward on our improvements in profitability in spite of that, I think, is a sign of the progress that we're doing across all of our channels to make them profitable.

And maybe just a quick follow-up to Ike's prior question on the G-III transition. Is there anything in the next 12 months from a financial model perspective that would be material that we should think about in terms of licenses coming over and revenues being transferring from royalty to reported revenues?

No, I mean as you said there at the end, there will be some P&L composition perspective as you change. But what's most important is that we have laid out the plan to return the licenses back phased in over a long period of time. That gives us the time period to be able to adapt, to build out the capabilities, as Stefan talked about earlier, but also to manage the full P&L impact behind there. So we wouldn't expect to be calling in anything significant across that particular change because of that factor.

We have time for one more question. That will come from Brooke Roach with Goldman Sachs.

Stefan, as you invest in product assortment cut through marketing campaigns and full price selling, I'm hoping you can share your latest thoughts on brand pricing strategy. Are you seeing any signs of increased price sensitivity of your customer? And can you elaborate on your expectations for PVH specific promotions versus what you're seeing in the broader macro backdrop? Perhaps for Zach, you could give a little color on the size of the promotional headwind that you're embedding into your guidance in the back half.

Going into your question about promotions and pricing, both Calvin and Tommy are really well positioned from a pricing perspective to the consumer relative to our best and biggest competitors. So the biggest opportunity we have from a pricing improving AUR, decreasing discount rate is very much tying back to how we build assortment to start with in terms of leaning into the key growth categories, planning, closing and -- planning inventory buys closer into demand, how we replenish, how we react to the demand versus when we historically were buying very much upfront. So it's the combination with strengthening the product assortment through the key growth categories, the innovation in the hero products, the right level of newness, the better and better composition for seasonal transition between outgoing inventory and newness. We see that we have opportunities still there. So it's that we're connecting to the build out of demand and data driven supply chain. And we see improvements already there in less inventory, better composition, lower AUC, but tying it all the way back to the consumer's perspective on that, more relevancy in product and a great product value offering for the consumer and relative to the competition. So I feel very good about it.

Yes. And I think from the quantification that the market is moving around a bit and so we're not looking to fully quantify that impact. We've said modest increase, which I think picks up the general magnitude of what we're looking for. I think what's important for us is our inventory is in good shape. And so we're going to be able to make the choices of when it works for us and our consumers or when to be more promotional and when it doesn't versus having to worry about that combined with inventory pressure. So I think that we feel we're well positioned as we head into the second half of the year.

So with that, we just want to close by saying thank you for following along on the journey. We are in the business of building Calvin and Tommy into their full potential. It's a multiyear journey where we stay independently of macro as now getting tougher and stay laser focused on executing to deliver here and now, and making sure that everything we do now connects to the longer term vision and that's where the real value creation will come from. So thank you very much and looking forward to connect shortly.

Thank you. This does conclude today's PVH second quarter 2024 earnings conference call. You may disconnect at this time and have a wonderful day.