Q4 2024 Summary
Published Jan 16, 2025, 7:53 AM UTC- PVH is experiencing strong brand strength and consumer engagement for both Calvin Klein and Tommy Hilfiger, demonstrated by record-breaking campaigns and significant increases in social media engagement. For instance, Calvin Klein's Spring Campaign with Jeremy Allen White generated an earned media value of over $74 million, with 134 million engaged brand fans on Instagram, up 60% from last year, and an engagement rate of 13%, up 85% year-over-year. Similarly, Tommy Hilfiger's return to New York Fashion Week achieved a reach of over 6 billion, making it the most talked-about show and placing it among the top 10 brands across all fashion weeks globally.
- Direct-to-consumer (DTC) growth is robust, particularly in North America and Asia, which supports higher-margin sales channels. In 2023, PVH achieved 9% DTC growth company-wide, with North America growing at 7%, Asia at 17%, and Europe at 5%. For 2024, the company expects continued mid-single-digit DTC growth in North America and double-digit growth in Asia, contributing to increased profitability and a stronger market position.
- PVH remains confident in achieving its long-term operating margin target of 15%, driven by gross margin improvements and SG&A efficiencies. Despite challenges in 2024, the company has identified opportunities worth 200 to 300 basis points in SG&A efficiencies and expects to benefit from growth in high-margin markets like Asia and further improvements in North America, where they delivered a 500-basis-point improvement in 2023. This confidence underscores PVH's commitment to sustainable, long-term profitable growth.
- Consumer slowdown in Europe, particularly in Germany and the UK, is impacting sales. The company observed a slowdown in January and February and is adjusting inventory levels accordingly, which could negatively affect revenue. [Index 13]
- Reduction of sales channels in Europe may lead to revenue declines. PVH is stopping sales by third parties on digital platforms and reducing the number of digital platforms they sell to by approximately 30%, potentially resulting in lower sales in the near term. [Index 14]
- Delayed achievement of the 15% operating margin target. The company acknowledged that achieving the 15% operating margin by 2025 will be "exceedingly difficult," indicating potential challenges in profitability growth. [Index 12]
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Margin Outlook and Path to 15% Operating Margin
Q: What gives you confidence in achieving mid-teens margins?
A: We remain confident in reaching our 15% operating margin target, even if it may take a year or two longer. Excluding the loss of top-line leverage due to quality of sales choices, operating margin would have been around 11.5%. We've identified the next round of SG&A efficiencies worth 200 to 300 basis points , and see further opportunities in supply cost leverage, growth in Asia—our most profitable market—and improvements in North America. -
Quality of Sales Initiatives in Europe
Q: Can you elaborate on quality of sales actions in Europe?
A: We're taking three key actions to enhance quality of sales in Europe. First, mid-year we'll stop sales by third parties on digital platforms, enabled by changes in European regulations. Second, we'll reduce sales to approximately 30% fewer digital platforms, focusing on key wholesale partners. Third, we're buying inventory much closer to demand, leading to less inventory in the market and higher gross margins. -
North America Wholesale Outlook and Macy's
Q: Explain progress in North America and assumptions for Macy's.
A: We're seeing mid-single-digit growth in D2C and comp sales growth in wholesale comp doors. Our focus on product category offense and pricing power is driving growth for both Calvin Klein and Tommy Hilfiger. Specifically with Macy's, we're encouraged by performance in their most important doors, with a focus on staffing and key essential products yielding positive results. -
Licensing Business Coming In-House
Q: What's the expected potential when licensing comes in-house?
A: We're on plan to bring back our North America women's product categories for wholesale over a multiyear period. Despite changes in revenue base, we've built product engines and sourcing to seamlessly integrate this business, aiming for brand-accretive long-term growth with pricing power. -
Impact of Red Sea Disruption and Freight Headwinds
Q: What is the impact of Red Sea disruption on your business?
A: The Red Sea disruption adds about 10 days to shipping times as we reroute. However, we don't see it having a significant impact on our overall supply chain. -
Gross Margin Progression Over the Year
Q: Can you detail gross margin progress through the year?
A: Gross margin improvements are driven by macros, supply chain work, and quality of sales initiatives. We expect significant improvements in Q1 through Q3, with Q4 being about flat to last year. -
Wholesale Sales Percentage and Asia Distribution
Q: How will wholesale percentage change in Europe and Asia?
A: Quality of sales actions will positively impact both wholesale and D2C channels. In Europe, we'll focus on key wholesale partners, benefiting from reduced third-party sales and less inventory. In Asia, where we have high quality of sales and are predominantly D2C, no distribution adjustments are needed.