Q2 2025 Summary
Published Jan 16, 2025, 7:53 AM UTC- Significant Operating Margin Expansion in North America Driven by PVH+ Plan Execution: In Q2, PVH's Calvin Klein and Tommy Hilfiger businesses in North America delivered a combined 11.7% EBIT margin, marking the fourth consecutive quarter of double-digit non-GAAP EBIT margin, with an improvement of over 400 basis points compared to last year. This demonstrates the effectiveness of the PVH+ Plan in driving profitability through both gross margin improvement and SG&A reductions.
- Successful Execution of Quality of Sales Initiatives in Europe Leading to Improved Wholesale Order Books: PVH is feeling "really good about executing the quality of sales initiative" in Europe, which is resonating in the market. They are seeing "significant sequential improvements in forward-looking wholesale order books" for Europe for Spring '25, moving from "down high single digits" for Fall '24 to "down only low single digits" for Spring '25. This indicates growing confidence from wholesale partners in the improved product assortment, which can lead to future sales growth.
- Strong Consumer Engagement and Positive Response to New Product Assortments: PVH is entering the fall season with all-time high consumer engagement for both Calvin Klein and Tommy Hilfiger brands. New campaigns featuring talent such as Jeremy Allen White, Kendall Jenner, Mingyu, and Stray Kids are generating strong consumer responses, with comments like "very powerful start of the fall campaign" and products resonating with consumers . This reflects the strength and desirability of their brands, which can drive sales momentum.
- PVH expects no improvements in direct-to-consumer (DTC) trends for the third and fourth quarters across all regions, indicating ongoing challenges in their DTC business, which may negatively impact revenue growth.
- The company anticipates a modest increase in promotional activity in the second half of the year due to tougher macroeconomic conditions, potentially putting pressure on margins and reflecting increased price sensitivity among consumers.
- PVH may rely heavily on cost efficiencies and SG&A savings to achieve its operating margin targets, which could limit future growth investments and might be challenging in a tougher macroeconomic environment.
-
Margin Outlook and Cost Efficiencies
Q: Any changes to mid-teens operating margin target?
A: Management remains committed to achieving the 15% operating margin over the next few years, with no changes to the mid-teens target. They focus on cost efficiencies, including performance management and simplifying ways of working globally, expecting to deliver incremental 200 to 300 basis points of SG&A savings to support margin expansion, regardless of macroeconomic conditions. -
Impact of Increased Promotions on Margins
Q: How will increased promotions affect full-year margins?
A: The company anticipates a modest increase in promotions due to tougher macro conditions, which will slightly impact gross margins in the fourth quarter. However, they feel well-positioned with good inventory levels, allowing strategic promotional choices without inventory pressure. -
North American Profitability Targets
Q: How's progress on North American profitability targets?
A: PVH continues to see North America as a strong proof point for the PVH+ execution, delivering a combined 1% growth for Calvin Klein and Tommy Hilfiger and an 11.7% EBIT margin in Q2, marking another quarter with 400 basis points operating margin improvement. This is driven by improvements in both gross margin and SG&A, despite a low-growth external environment. -
European Market Execution
Q: Thoughts on Europe and quality of sales initiatives?
A: Management feels very good about executing quality of sales initiatives in Europe, seeing positive resonance in the market. They have observed significant sequential improvement in forward-looking order books for Spring 2025, with wholesale sell-in improving from being down high single digits to down only low single digits, reflecting partner recognition of product improvements. -
G-III Licensing Agreement Update
Q: Update on G-III licensing agreement recapture?
A: PVH is on a good path to take back the business over a multi-year period. They have good partnerships with key wholesale accounts and now possess the sourcing and product capabilities to start delivering on their multi-year plan, with Calvin Klein sportswear launching first in Spring 2025. -
Wholesale vs DTC Strategy
Q: Plans for managing wholesale and DTC mix?
A: The company aims to follow the consumer, feeling good about working closely with wholesale partners while also strengthening DTC channels. They do not tie their 15% EBIT margin commitment to a specific channel mix, focusing instead on building an omnichannel marketplace that delivers successful financial outcomes across all channels. -
Brand Pricing Strategy
Q: Any signs of increased customer price sensitivity?
A: PVH believes Calvin Klein and Tommy Hilfiger are well-positioned from a pricing perspective relative to competitors. The biggest opportunity for improving average unit retail and decreasing discount rates lies in strengthening product assortments, planning inventory closer to demand, and reacting swiftly to consumer preferences, leading to less inventory and better composition. -
Demand Trends and Brand Health
Q: Elaborate on current health and demand trends?
A: The brands are experiencing all-time high consumer engagement, with strong responses to recent fall campaigns for both Calvin Klein and Tommy Hilfiger. Early in the fall season, the product is off to a strong start versus last year, with improved assortments, more full-price selling, less clearance, and better inventory composition. -
North American Sales Trends
Q: Has North America returned to prior run rates?
A: After a slowdown in July due to reduced clearance inventory and aggressive market promotions, PVH proactively chose not to match competitors' aggressive clearance strategies. As they moved into August, they see benefits from having less clearance and more new season products resonating with consumers, with improved sales trends. -
Sequential Improvement in 4Q Guidance
Q: Drivers of sequential improvement in 4Q guidance?
A: The fourth-quarter outlook assumes the same recent DTC trends, with revenue and gross margin expected to be consistent with the third quarter, except for modestly increased promotions. The main improvements come from SG&A efficiencies identified following tougher DTC backdrops, with some benefits in Q3 and more in Q4 as they take time to implement.