Good morning, everyone, and welcome to today's PVH Third 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] Please note this call may be recorded and that I will be standing by, should you need any assistance. 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. third quarter 2024 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 4, 2024 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 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 headcount cost reduction initiative announced in August 2022, the 2021 sale of assets of, and exit from its Heritage Brands menswear and retail businesses, the November 2023 sale of the Heritage Brands women's intimate apparel business to focus on its Calvin Klein and Tommy Hilfiger businesses and its current multi-year initiative to simplify its operating model. 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 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'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. I want to start by thanking our teams around the world for all the hard work you do every day to bring our two globally iconic brands, Calvin Klein and Tommy Hilfiger fully to life with the consumer. Through our disciplined execution of our brand-building growth plan, the PVH+ plan, for the third quarter, we again delivered on our revenue guidance with stronger-than-expected profitability and EPS. We drove significant gross margin expansion, up 170 basis points year-over-year, and we continue to drive strong expense discipline across the company. Consistent with our plan, direct-to-consumer revenue was flat on a reported basis and down 1% in constant currency. As we shared last quarter, we came out of the summer season with less old season clearance inventory and our new season inventory didn't fully didn't fully yet compensate on the total top line. Since then, as planned in September and October, our D2C trends have come back up to positive for both months. And now, coming into peak holiday season, we have a very good inventory composition with less old and more new season inventory than the same time last year. For wholesale, as a result of our proactive quality of sales actions, revenue declined 4% on a reported basis and 5% in constant currency, excluding the 4% negative impact of the Heritage Brand sale. We are in a really good sell-through position with our key partners which is driving sequential improvements in forward-looking orders. We continue to demonstrate that where we lean in to execute, we deliver, and in everything we do to drive the business here and now, we also position our brands for long-term increasingly profitable sales growth. One powerful example is our Fall 2024…

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 with our third quarter financial results, driven by our iconic brands and disciplined execution of the PVH+ Plan. We exceeded both our top-line and bottom-line guidance largely due to timing of wholesale shipments in Europe and an acceleration of expense efficiencies. We delivered operating margin of 10.5%, better-than-planned and flat versus last year, as higher gross margins and strong expense management offset the loss of leverage due to the decline in revenue. Looking forward, following our solid third quarter performance, we are reaffirming our full year revenue and operating margin guidance. We are updating our full year EPS guidance to $11.55 to $11.70 per share from previously $11.55 to $11.80 to tighten the range as we head into the fourth quarter and reflect a $0.10 negative impact from exchange at the top-end. I will now discuss our third quarter results in more detail and then move onto our outlook. Revenue for the third quarter was down 5% versus last year, including a 2% decline from the sale of the Heritage Intimates business. On a constant currency basis, revenue was down 6%. We delivered our revenue plan for the quarter, beating our guidance by 1% due to a small shift in timing of wholesale shipments in Europe from the fourth quarter into the third quarter as inventory received earlier than planned. Starting from a regional perspective, third quarter revenue for our International businesses was down 2% on a constant currency basis. Sales in our Asia Pacific business were up 3% on a constant currency basis driven by growth in our digital channel due to the early start of China's important 11/11 events, which more than offset…

The floor is now open for your questions. [Operator Instructions] Our first question will come from Matthew Boss with J.P. Morgan. Please go ahead, sir.

Great. Thanks. So, two questions. Stefan, maybe first, could you elaborate on customer demand for fall product assortments, maybe both the impact you're seeing at global DTC and lead indicators for global wholesale orders? And then Zac, on the path to mid-teens operating margins multi-year, what's your comfort today with Street consensus at 10.7% next year?

Yes. So thank you, Matt. And what was really great to see in Q3 was that Fall '24 product season was the first season that we were able to fully influence the product execution across both brands under PVH+. So, what we have seen so far is double-digit sell-through improvements versus last year in both brands, all regions and across channels. So, to your point, starting with D2C. So, we could see how the improved sell-through of the fall product led to D2C trends up significantly from August to September. So with September and October now being back to growth versus last year. You can also see the -- in the gross margin rate up 170 basis point. Then to your point in wholesale and especially in Europe, very encouraging and exciting to see that same increased sell-through there increased over double-digits in wholesale in Europe, which bodes really well for the upcoming sell-in for Fall '25. So we kicked that off Fall '25 in January. We have the market launch first week when we are back in January. So the double-digit sell-through improvement in wholesale in Europe will be a really good starting point to sell in Fall 2025. And when it comes to -- so switching gears then to the outlook and I'll leave it for Zac to comment on the exact margin, whether we comment or not at this time on the exact margin target for '25. But let me just share what we see, Zac and I when we look out at '25. So as I shared in my prepared remarks, for 2025, we expect to return to growth and take another step towards our 15% long-term operating margin target. And we do that based on the parts of the PVH+ growth plan that are coming into place in 2024. So, some of the key building blocks of that are, we are coming into '25 with stronger D2C trends, fresher inventory composition, more optimized inventory levels. We're driving the strongest sell-throughs as I just mentioned on the new product assortment across both brands, all regions, all channels. In Europe, exciting to see that the targeted quality of sales action that we launched earlier this year already paying off double-digit sell-through across both Tommy and Calvin in Europe, D2C and wholesale. North America, we're holding our own in a tough macro with a much-improved profitability. APAC, we continue to deliver on our plans despite the setback in consumer sentiment we saw a few quarters ago. So, this then coming into '25 with the investments behind the growth initiatives and continued efficiencies are giving us the confidence to set out to not only come back to growth for '25, but also then take another step towards the 15% target. But over to you Zac.

Yes, yes. Thanks, Stefan. So, as you've covered sort of the early look around revenue, what we see, maybe I'll talk about the rest of the P&L a little. For gross margin, I think we -- following the large improvements over the last couple of years, which we do expect to retain, we do expect to transition to a model of more incremental changes now over this next cycle. I do think one point worth noting is that the first wave of G-III intake begins in 2025. While not having a material profit impact over time, the transition from that licensing revenue and gross margin to wholesale revenue and gross margin is a gross margin percent headwind in 2025 of approximately 50 basis points. So beyond that impact for gross margin, we are expecting a stronger second half than a first half as the traction of our two global brand product kitchens really gained momentum. And for SG&A next year, our work on the 20 basis points to 30 basis points that we've communicated continues. That will begin to show up a little bit in the first half and then more powerfully as we move into the second half of the year. So the net of all of that, while Stefan had said, we're not providing full 2025 guidance. We do expect to take a step towards our long-term PVH+ Plan target of 15% next year. Oh, sorry, I apologize. 200 basis points to 300 basis points on the OpEx improvement. Thank you. I just want to make sure we sort of cover that one-off. We've talked about that one previously.

Yes.

Thank you. Our next question will come from Michael Binetti with Evercore ISI. Please go ahead.

Thanks, guys, for taking our question here. Could you help us double-click on the fourth quarter gross margin guidance for a second, down 200 basis points, I think you said Zac. Can you help us maybe size some of the puts and takes and more importantly, help us isolate which ones are transitory roll-off as we look past the calendar a little here in the first half to try to connect to some of your longer-term comments there? And then, Stefan, I think bigger picture, you mentioned flywheel early in the in the call. Interesting to hear a flagship opening for Calvin Klein in SoHo. Moving your flywheel, we think about share gains or businesses outgrowing the category, gross margin drivers from new initiatives and then reinvesting at a high level. Could you help us think through where you are on the evolution of the brands as you look at important investments like a flagship in SoHo, what are some of the important investments that you think will put your brands on that flywheel next year?

Yes. Thank you, Michael. Maybe I'll start on that one. I think for gross margin, we had another strong 3Q, up 170 basis points, about half of that from DTC mix and our quality of sales work and about half from product cost improvements that we've now fully anniversaried some of those larger macro cost reductions at the end of third quarter. That was a little better-than-expected as our mix of North America wholesale shipments delivered higher gross margin percent, although that didn't really impact profitability. Now to 4Q specifically, gross margin percent is coming in lower than we had planned earlier this year, and as we've said earlier, down 200 basis points compared to last year. Three main drivers of that. The first, as we mentioned in the prepared remarks, we saw a more promotional holiday season here in the U.S. with the shorter period between Thanksgiving and Christmas, kicking off Black Friday started much earlier and we see that carrying through for the rest of the quarter. We see that impact as approximately 80 basis points of that. Second, we are forecasting some modest freight increases in 4Q as we're working through some temporary supply chain disruptions in a couple of our key locations and some lingering Red Sea impact. We see that as around 40 basis points approximately. And then lastly, as I just mentioned on 3Q, with our North America wholesale mix being higher from a gross margin, the timing effect of that rolls back out in 4Q. So we see that negative impact from gross margin of around 60 basis points, but again, no profit impact of that. So most of the 4Q impact that we're seeing here, it's predominantly transitory is how we would describe that. And so maybe then, Stefan, I'll turn it over to you.

Yes, absolutely. And before we -- or part of the flywheel in terms of the gross margin. So if you start on -- if we take a step back on gross margin and look at where we started when we set out the PVH+ Plan and where we are now, we have improved gross margin with close to 300 basis points. And in 2024 alone, we increased gross margin with 120 basis points. So -- and when it comes to the bigger picture and connecting to that flywheel is, we are super disciplined on keeping the direction of the PVH+ Plan and quarter-by-quarter in a systematic, repeatable way, improve our execution power. So to come back to your flywheel question, what that really is, is we have these incredibly iconic and globally beloved brands. And what we're doing is to go back to the DNA of each of those brands, Calvin Klein and Tommy Hilfiger and make them current in everything we do. So, the flywheel starts with the product, the consumer seeing the product getting stronger, leaning into key categories, leaning into innovation in hero products, adding newness. And that leads to the double-digit sell-through improvements for Fall '24. That's why that is such an exciting building block. Then the next building block is to drive the consumer engagement, the cut-through campaigns, the fashion shows. So if you look at Tommy Hilfiger, it's quite outstanding actually what Tommy was able to do. Second time now we are back in a systematic, repeatable way. We come back to New York Fashion Week and we take -- Tommy took half of New York Fashion Week's total earned media value went to Tommy Hilfiger, 2 times the closest competitor. And then if you look at Tommy's Fashion Week impact on a global…

Thanks a lot, guys.

Thank you. Our next question will come from Jay Sole with UBS. Please go ahead.

Great. Thank you so much. I'm hoping you just elaborate a little bit on inventory. I think you said you're making some -- you brought some stuff in early. You made some investment in your most essential products. Can you just talk about the impact of that on fourth quarter and sort of the -- what -- we talk about essential products, like what does that mean? And being in stock 95% of the time, like, how does that help the business? And why did you make those changes? Thank you so much.

No. Thanks, Jay. Inventory, really important for us. And when we are on plan now starting off the holiday, we also have a better inventory composition than what we had last year. So that means that we have more new inventory and less old. And we are also continuously calibrating the inventory levels needed to optimize the profitable sell-through. And you'll see that we have more inventory than last year, but we have less in absolute terms, but we have less inventory in relation to sales. We're double-digit, as Zac mentioned, less inventory relating to sales this year than last year. And coming back to your -- going more into the details on the never out-of-stock products, our style icons like our Oxford shirt at Tommy or our Polo shirt or our most iconic underwear in Calvin Klein, our ambition is to have them at least 95% in stock. So, on this journey to driving inventory in relation to stock down, we realized mid-year that we need to make sure that in the icons that we don't -- that we keep that 95% in-stock level. So, what you will see is that increasingly when we lean into this data and demand-driven supply chain, we'll continue to adjust and optimize. But given where we are right now, better composition, better levels, so very well positioned to transition now from finishing holiday and then going into spring.

Got it. Thank you so much.

Thanks, Jay.

Thank you. Our next question will come from Bob Drbul with Guggenheim. Please go ahead.

Hi, good morning. Just two questions. The first one is progress in North America. Can you just give us an update sort of where you are on that trajectory and how you see things materializing? And then just following the inventory question, can you just talk more about what the promotional activity in North America and just how you think inventories are at retail? Thanks.

Yes. Thanks, Bob. So let's start with our performance in North America, where you have seen we have made significant improvements, significantly strengthened the execution of Calvin and Tommy in North America over the past two years. So, this quarter, we held our own in a tough macro, tough consumer backdrop. It's our fifth consecutive quarter of double-digit EBIT growth. We continue to execute really well across both brands. You see it in D2C with more full price, less clearance. You see even when the traffic is challenged from the tougher macro, increased conversion, strong e-commerce growth. And for the year, we are seeing wholesale up low-single digits. So when we look out for 2025, we see that we'll continue to just build strength in the execution. And we see -- when we look at the consumer research in North America, we see how strong brands are with the North America consumers. So it's just that PVH+ focus next level coming into 2025. Yes. Sorry. Promotional pressure -- sorry, promotional pressure. Thank you, Zac. Holiday. So, the biggest shift, Bob, that we have seen in the holiday is that it started earlier this year. So there were a lot of calendar shifts this year versus last year and that led the sector -- the whole industry got early and then the consumer started early with the holiday shopping and that led to the holiday promotion starting early and that's increased the promotional pressure. When we look at the -- coming back to inventory in relation to promotions, we are having less inventory in relation to sales and more fresh inventory. So we feel good about it.

Thank you.

Thank you. Our next question will come from Ike Boruchow with Wells Fargo. Please go ahead.

Hey, good morning, everyone. A couple of questions from me, mainly on the licensing impact for next year. Just at a high level, maybe, Stefan, to start, just how has that transition been working? Has the foundation been fully laid out to begin? Taking those categories in, is there any more cost? Just kind of curious there at a high level. And then maybe this is for Zac. Two follow-ups. Can you give context for how much revenue from that business should hit next year and then what is left over to hit the P&L in '26? And I'm sorry, the last question is, when you mentioned modest growth for next year in constant currency, I'm just curious, is that organically and with licenses or is that really just a function of the licenses benefiting? Thank you.

Yes. Thanks, Ike. Let me start by sharing why we are bringing back our women's product in-house in North America. So bringing back control of our women's product assortment in North America is an important part of securing our long-term strength and competitiveness for both our brands in the market. So, as a reminder, we already operate women's in all other regions of the world. And being able to improve product execution, sourcing, distribution, pricing, being in control and being able to improve that, it's all needed to win with the consumer and our partners to drive long-term brand accretive sales growth in the market. So that's the strategic rationale. That's why we do it. When -- with respect to the takeback and where we are, we are on plan on the preparations and we're in the beginning of this multi-year process. So a transition -- big transition like this is always complex work. And that's why we laid it out over multiple years where we step-by-step take our North America women's business back and then together with our partners, build them for long-term sustainable growth. And coming back to the consumer and the consumer perception in North America, that the incredible strength we have in men's for both Calvin and Tommy and the big opportunity we have in women's in their lives, the big long-term, value-creating opportunity that we are going after.

Yes. And I think, Ike, to your second question, we've said approximately 20% of the licensing -- the women's wholesale licensing portfolio will come back in 2025 as part of that first wave. We've not communicated hard dollars on that yet. We'll be in a better position to be able to talk about that next quarter, as by then we'll actually be selling in and have more tangible progress to be able to report. So we'll cover that with a nice quarter. I think, for 2025, your point, I mean, we're focused squarely on a return to organic growth. That's where our focus is. We know that the licensing transition will have an impact on the P&L and we'll work sure to unpack that for everybody. But as we talk about next year and where we think we're pointed towards, we really are focused on that idea of a return to organic growth.

Thanks, guys.

Thank you. This does conclude the question-and-answer session. I would now like to turn the call back to Stefan for closing remarks.

All right. So thank you very much for being with us going through our Q3 performance. As we always end these calls is that we are on a multi-year journey to tap into the full potential of our incredible brands and we look forward to continuing the conversation in the new year. Wishing everybody a great holiday and speak soon.

Thank you. This does conclude the PVH third quarter 2024 earnings conference call. Thank you for your participation. You may disconnect your line at this time and have a wonderful day.