Emanuel Chirico - Chairman & Chief Executive Officer Mike Shaffer - Executive Vice President, Chief Operating & Financial Officer Dana Perlman - Senior Vice President, Treasurer, Business Development and Investor Relations Ken Duane - Chief Executive Officer, Heritage Brands and North America Wholesale.

David Glick - Buckingham Research Group Bob Drbul - Nomura Joan Payson - Barclays Erinn Murphy - Piper Jaffray Michael Binetti - UBS Christian Buss - Credit Suisse Krista Zuber - Cowen & Company.

Good morning, everyone, and welcome to the PVH Corp. Third Quarter 2015 Earnings Conference Call. 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 used without PVH's written permission.

Your participation in the question-and-answer session constitutes your consent to having anything you say appear on any transcript or replay of this call. The information being made available includes forward-looking statements that reflect PVH's view as of December 2, 2015, 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 risks and uncertainties include PVH's right to change its strategies, objectives, expectations and intentions and its need to use significant cash flow to service its debt obligations. Therefore, the company's future results of the operations could differ materially from historical results or current expectations.

PVH does not undertake any obligation to update publicly any forward-looking statement including, without limitation any estimate regarding revenue or earnings. Generally, the financial information and guidance provided is on a non-GAAP basis as defined under SEC rules.

Reconciliations to GAAP are included in the referenced earnings release, which can be found on www.pvh.com and in the company's current report on Form 8-K furnished in the SEC in connection with the release. At this time, I am pleased to turn the conference over to Mr. Manny Chirico, Chairman and CEO of PVH..

Thank you, Jennifer. Good morning, everyone. Joining me on the call this morning is Mike Shaffer, our Chief Financial Officer and Chief Operating Officer; and Dana Perlman, our Treasurer and Senior Vice President in charge of Investor Relations. Also, Ken Duane is on the call as well, and Ken handles all of our Wholesale businesses in North America.

So overall, we were quite pleased with our results for the third quarter, which exceeded the top end of our guidance by $0.16, despite the volatile overall market environment. Our results continue to highlight the strength of our Calvin Klein and Tommy Hilfiger International businesses, as well as improving trends in our Heritage businesses.

Let me give you a quick update by region, what we see going on in the third quarter and as we move into the fourth quarter.

In the US, the US market during the third quarter and currently into the fourth quarter continues to experience increased softness in traffic trends, in large part driven by a decline in international tourist traffic and spending trends, coupled with unseasonably warm weather.

Not surprising, getting all the news reports that the US is almost challenged macro environment. We had a good Thanksgiving, Black Friday weekend, but overall, November was a soft month, driven by highly promotional - highly promotional macro environment as a result of elevated inventory levels throughout the industry.

For the fourth quarter, we expect these trends to continue and are anticipating a highly promotional holiday selling season. Moving to Europe, Europe continues to be our strongest market. Both Calvin Klein and Tommy Hilfiger posted double-digit comp store increases in the third quarter.

As we moved into the fourth quarter, we continued to see strong comp store sales performance at both of our European businesses. The trend of plus-mid single digit comps continues despite a brief slowdown due to the Paris attacks.

We have seen improving trends in all major European markets, including Spain and Italy, which had been under pressure, and those markets seem to have significantly turned around. We expect these positive trends to continue throughout the fourth quarter.

In Asia, Asia continued to post healthy sales gains for Calvin and Tommy in the third quarter, driven by our China business. These trends continue into the fourth quarter, as China continues to demonstrate strong results.

However, we anticipate continued weakness in Korea, driven by more - driven more by the broader market environment and softness in Hong Kong, in large part due to the lack of mainland Chinese tourists coming to the island. Brazil-Latin America continues to be difficult and volatile, but very profitable for us.

We expect this business to continue to be under pressure and volatile. We believe we are gaining share from our peers and the business continues to be highly profitable. However, growth levels are significantly lower than we would have anticipated at the beginning of the year, given the volatility that's going on particularly in Brazil.

On a brand basis, moving to Calvin Klein, overall we continue to see great momentum with the brand and our business more broadly. Calvin Klein revenues increased 7% on a constant currency basis for the quarter.

We have seen great progress across our businesses, as we continue to expand our directly operated businesses across jeans, underwear, sportswear and accessories. In addition, our Calvin Klein royalties increased 10% in the quarter, further demonstrating the overall strength of the brand. We are seeing strong growth in women's apparel and accessories.

Women's and men's footwear and men's tailored clothing. Globally, our underwear performance continues to be a great - continues with great momentum, with the women's performance outperforming our strong men's business, with a lot of opportunity ahead of us.

Key initiatives in this business include, faster replenishment, maximizing our high end Black Label fashion product in all international markets, and most significantly, keeping up with the growth of our women's Modern Cotton logo business, which continues to grow dramatically in North America and Europe.

To give you a sense of how we're doing with the brand in the United States on the men's side, on the men's underwear bottoms business, our market share has grown to over 30% in department stores and that's up high single digits for the year.

On the top side of the business, we have historically been a number 3 player in department stores and in the third quarter we moved into the number 2 position for the first time in the brand's history. On the women's side of the business, the bra category up overall is up low single digits and the Calvin Klein business is up 15% year-to-date.

And we are one of the top categories in all major department stores. Our panty - the panty category overall in the US market is flat and the Calvin Klein business is up double-digits for the year.

We have seen - we have also seen strong performance in our Calvin Klein jeans business, with the continued improvement in product, which has been evidenced across all of our markets.

We are increasingly focused on key initiatives to drive the business forward, including supply chain initiatives around our denim efforts across the company, significant number of capsule collections and faster overall replenishment.

Asia and Latin America continue to be our two strongest markets for jeans, with continued mid single digit sales growth and improving profitability.

As it relates to our two turnaround markets, the US and Europe for jeans, we have seen an acceleration in our European jeans business as our improved product execution and customer satisfaction is paying off. On like-for-like product, we are seeing outperformance against our plan, against both genders.

Our best performing markets include Spain, the UK, and the Italian market for jeans. Overall for Calvin Klein Europe across all product categories, our spring summer 2016 order book is up mid-teens, excluding the Russia business.

We continue to see increasing acceptance and performance for the brand across all wholesale accounts in all major European markets.

As we look at our US jeans turnaround, we saw solid performance in the first half of the year in this business, but as we moved into fall holiday season, as a result of the softness in the overall US retail landscape, primarily driven by unseasonably warm weather, we have begun to see a softness in this business.

We - overall, department store sales growth decelerated in the quarter to 2% to 4% - 2% to 4% increase by major account, with strong performance at some of our other retail partners, including urban outfitters and Amazon. Moving on to Tommy Hilfiger.

Overall our Tommy Hilfiger sales increased 4% on a constant currency basis, driven by our Tommy Hilfiger international businesses. In 3Q, we saw strong performance with growth of about 7%, driven by a tremendous 10% increase in comp store sales, which further highlights the strength of the Tommy business across Europe.

These strong comp store sales increases have continued into the fourth quarter of this year, with comp trends up mid-single digits. Given these strong trends, we believe we are growing our market share in all major European markets. We saw great feedback from our marketing campaigns with all our major retailer accounts.

The Rafael Nadal fall marketing campaign which focused on underwear and tailored clothing had positive results. The Nadal marketing campaign will continue with the spring-summer 2016.

As a reminder, our European spring-summer 2016 wholesale order book is up about 4%, excluding Russia, driven by a 2% increase in retail selling prices and a 2% unit volume increase. The category is experiencing the most growth included underwear and our denim category for Europe.

In North America, the US market in particular was plagued by further deterioration of traffic and consumer spending trends in the company's US stores. These stores are highly penetrated in international tourist locations and were affected by the unseasonably warm weather.

Margins in the US Tommy business were under pressure throughout the quarter, as we were forced to be much more promotional in order to manage inventory levels. As we have moved into the fourth quarter, we have seen these challenging sales and margin trends continue.

We expect the holiday season to be highly promotional, especially on cold weather product. And we are planning the fourth quarter accordingly. It is critical that we move through inventory and end the year clean from an inventory perspective, so that spring 2016 is not burdened with carry-over merchandise.

That's what's driving our plans for the fourth quarter. As we move to our Heritage business, Heritage had a good third quarter and is in the midst of a strong turnaround. Earnings for the group was up 18% and this improvement should continue into the fourth quarter. We are seeing strong performance in just about all of our divisions.

Just some quick highlights, in the dress shirt division, the Van Heusen Flex Collar has been an extraordinary success for us. We are seeing much higher average unit retails out the door, and we believe the consumer is reacting very favorably to our marketing campaign.

This new technology will be introduced into our other major dress shirt brands, including Calvin Klein, Kenneth Cole, and Tommy Hilfiger.

We are also seeing strength in our Warner's intimate business in the mid-tier channel, especially at Kohl's, and we expect that trend to continue into the fourth quarter with strong selling through Black Friday holiday weekend.

We're also in a wholesale sportswear business seeing improvement from the prior year, led by the IZOD division with strong performance throughout its count chain.

Our direct-to-consumer retail business also saw operating profit improvement in the quarter with Van Heusen posting 11% comp store increase for the third quarter and those positive trends have continued into the fourth quarter with mid single-digit increases for the Heritage division.

With that, I'm going to turn it over to Mike to quantify some of these results..

Thanks, Manny. The comments I'm about to make are based on non-GAAP results and are reconciled in our press release. On a constant currency basis, revenues for the third quarter were up 3% versus the prior year and in line with our guidance.

Driving our revenue increase was our Calvin Klein business, which delivered a 7% constant currency increase over the prior year. Both our North America and their international business had revenue growth of 7% in constant currency, driven by strong wholesale shipments.

Our Calvin Klein strategies are taking hold and you're seeing improved performance in underwear globally, as well as strong performance in our international business, particularly in Europe and China.

Tommy Hilfiger revenues were up 4% in constant currency, also in line with our guidance with strong revenues in our international businesses, which had revenues up 6% in constant currency and Europe comps up 10%, with all major markets showing increases.

Our Tommy Hilfiger and Calvin Klein United States retail stores located international tourist destinations continue to be under significant pressure from a lack of traffic and spending, but these declines were more than offset by the performance in other areas.

In addition, our Tommy Hilfiger and Calvin Klein US retail stores located in centers that are not heavily penetrated by international tourists performed well and had positive comps for the third quarter.

Our Heritage business revenues were down 5% due to the continued rationalization of our Heritage business, which included exiting the IZOD retail business, as well as several licensed dress shirt product lines in our dress shirt business.

Earnings per share for the second quarter was $2.66, and included a $0.44 negative impact related to foreign currency and continued weakness in our Russia business. Excluding this negative impact, EPS would have increased 21% over the prior year. Our quarter 3 EPS was $0.16 ahead of the top end of our guidance.

The $0.16 - was comprised of $0.10 related to the business outperformance, which was predominantly in Calvin Klein, an interest expense benefit of $0.02 and a tax benefit of $0.08. And that was partially offset by $0.04 of FX headwinds. For the full year 2015, our earnings per share guidance remains unchanged at $6.90 to $7.

This includes an additional $0.05 hit for foreign currency versus our previous guidance. If you exclude negative impact related to foreign currency and weakness in the Russia business of $1.35, our earnings per share growth is projected to be 13% to 14% over the prior year.

Revenue is now projected to be up 3% for the year excluding the foreign currency impact of 6%. Our new revenue guidance reflects a decrease of 1% to the prior year versus our previous guidance on a constant currency basis.

Overall operating margins are expected to be flat to the prior year, excluding a negative impact of about 80 basis points due to foreign currency.

Our Calvin Klein business is projecting revenues to grow 8% on a constant currency basis and operating margins to increase 80 to 90 basis points, excluding a negative impact of approximately 40 basis points of FX.

Tommy Hilfiger revenues are planned to increase 3% on a constant currency basis, with operating margins planned down 120 to 130 basis points, excluding the negative impact of approximately 100 basis points of FX. Tommy Hilfiger international margins are planned up, with North America operating margins planned down after FX.

This decline in North America is due to pressure on US stores located in international tourist locations. Our Heritage businesses plan to have a revenue decrease of 3% due mostly to the exit of our IZOD retail business in 2015. Operating margins in our Heritage business are planned to increase about 120 to 130 basis points.

The impact of currency on our Heritage business is relatively immaterial. Interest for the year is planned to be $115 million compared to the prior year amount of $139 million due to our lower average debt balances.

Also favorably impacting interest for 2015 is the debt refinancing we did in last year's first quarter, as well as lower revolving borrowings [ph]. We currently expect to generate approximately 450 free cash flow in 2015, which will be used to pay down debt of about $350 million and allow for continued stock repurchases.

Our tax rate for the year is planned at about 20%. Our revenue for the fourth quarter is planned up 5% on a constant currency basis.

By business, we are estimating third quarter revenues on a constant currency basis to increase 15% for Calvin Klein, driven in part by the Chinese New Year, increase 1% for Tommy Hilfiger, and decrease 4% for our Heritage brands. Heritage brand revenues are negatively impacting by the closing of the IZOD retail division.

Fourth quarter earnings per share is planned at $1.37 to $1.47 and includes approximately $0.33 of estimated negative impact from foreign currency and the decline in our Russia business. If you exclude this negative impact, EPS is projected to be in the range of a 3% decrease to a 2% increase over the prior year.

Interest expense is projected to be $30 million and taxes to be about 20.5% in the fourth quarter. Finally, as we look forward to 2016, the strengthening of the US dollar will negatively impact our 2016 earnings versus 2015 earnings by between $1.50 and $1.60 per share based on current exchange rates.

Approximately 80% of the 2016 projected negative foreign currency impact is expected to be on transaction basis, while 20% of the negative impact is expected to be on translation basis. Our exposure at a transactional level is mostly due to the purchasing of inventory in US dollars by our international divisions.

And with that, I'll open it up to questions..

[Operator Instructions] And we'll go first to David Glick with Buckingham Research Group..

Thank you, good morning. Couple questions. Manny, I thought I'd start off with the revenue trends that you're seeing in Calvin Klein and Tommy Hilfiger. Obviously, a very strong year in Calvin Klein accelerating into Q4. Tommy Hilfiger slowing a bit, obviously US being a big part of that challenge.

How do we think about sort of the ongoing growth rates of these two businesses and will the Heritage business go from being a headwind to a tailwind now that you're past some of these rationalizations? That's the first question..

Okay. So on the revenue side, I think it's clear that the, on the Heritage, let me start with Heritage. I think Heritage will start to be - will not be a headwind any longer. I think we'll get back to our historical rate of growth that's in the low single digit range, moving our profitability closer to 10%.

And I think that from an earnings point of view for at least the next 12 months to 15 months, we'd anticipate that the Heritage business would be a contributor to our earnings growth. On from a Tommy point of view, I think for the next - in the short-term, I think that business will be under more pressure.

I think the pressure will come, as you rightly said, much more from the US business, which is feeling even more dramatically the strengthening dollar and the impact it has on tourism in the United States.

Our Tommy business has benefited in the past from growing that tourist trade and really is benefited from both South American and Latin American travel, as well as European travel. And both of those currencies are anywhere from 20% to 25% weaker, and in the case of Brazil, closer to 40% to 45% weaker.

And that has discouraged travel into the United States. So I think that clearly will continue into the first quarter, fourth quarter of this year and probably into the first and second quarter of next year, as we go forward, as we cycle the strengthening dollar as we move forward.

Long-term, I don't think it's really changed what we see with the Tommy business. We think that business should continue to grow in the mid to high single digits.

I think that growth will be driven more substantially from outside the United States, particularly Asia, South America, and Latin America, where we hope to be adding new businesses to our portfolio that today are either joint ventures or licensed businesses today.

On the Calvin business, we see nothing but momentum in the business, both on the underwear side, which is clearly really outperforming all of our expectations. And on the jeans outside of the United States, that business continues to outperform for us as well.

And there I think our goal would be on a local currency basis to continue to grow that business in the high single digit range. So that's where we are, David..

Okay. Secondly, Mike just talked about your updated sense of translational and transactional FX. Obviously, the currencies can move a lot between now and March. But I was just wondering from a higher level whether you could talk us through, you know, some of the offsets to that $1.50 to $1.60, whether it's pricing, sourcing, SG&A, organic growth.

How we should think about some of the offsets to that headwind, which, you know, hopefully is transitory?.

Yes, hopefully it is transitory, but I think it's with us. And clearly it's going to be with us for all of '16, since we are hedged out, you know, 12 to 18 months is where we go, as we try to position ourselves as we go forward.

So the difficulty we're facing is given the European market, given the significant lack of any sign of inflation in that European market so far, we've been challenged to really raise prices dramatically. I think as I mentioned in my comments, we raised retail selling prices into the market about 2% for spring. We've continued to grow units.

We think it's challenging in this environment.

Most other players I think have agreed with us to really go into that market and start to raise price, especially when your market leader in every major department store throughout Europe, with the Tommy Hilfiger brand, it's very challenging in key core categories, classification businesses where we have major positions to start to raise prices too dramatically.

So we're looking at other levers. But I think unfortunately the offsets that we'll be able to create purely from a pricing point of view and sourcing point of view, you know, are probably - will probably be able to offset 20% of it. But that's what we're looking at right now.

And then I think the improvement in the business as we go forward, as we go into fall, I think there is a greater opportunity to potentially raise prices if the market starts to accept it and as it starts to really take hold hopefully in the market.

As we start to see some of this improving sales trends that we're seeing in our business, hopefully cascade throughout the entire retail industry..

How about on the SG&A side? Are there any levers you can pull there? Obviously currency will….

Well, David, I don't think - I think that's the last thing we want to do. If you really look at the underlying businesses, we've got such strength going with both Calvin and Tommy, to pull back now on marketing, to pull back now on the investments in e-commerce and in the growth areas we see, I think would be like shooting ourselves in the foot.

So I think as we're going - I think we are in the industry, given our exposure to the international markets, as a US company reporting in US dollars, 65% of our pretax income is exposed to international currencies. And our two biggest are - our three biggest are Canada, Brazil, and then Europe. And we've known what's happening with those currencies.

So I think we are - we are being whipsawed right now, and there are some things we can offset and some things we're going to have to wait for the market to recalibrate as we go forward. And I think as we look at '16, that's the position we're going to be in..

Last question….

As we report fourth quarter, obviously we'll give guidance, we'll give more clarity. But to be honest with you, it's very much a moving target. And just this morning, I walked in this morning at 6.30 and the Euro hit its all-time low for the year at $1.05, and then just before we got on the call, Mike came in and said it's trending at $1.09.

So you know, it's a tremendous amount of moving parts right now as we move forward..

There's $0.10 of EPS right there..

There you go..

Question for you, you mentioned Thanksgiving, a good weekend. It seemed like a pretty big improvement from what you've been seeing earlier in November, a lot of retailers talking about first half of November really being quite difficult.

Does that give you any optimism and what did you see across the industry over Thanksgiving and can we see some improvement here as we get into the fourth quarter?.

You know, I'm not optimistic. I'm not pessimistic. And by that, I mean is, you know, Black Friday tends to be a moment, and there clearly was a spike and a change in trend. And I'm really anxious to see what this weekend brings.

But it's such a compressed selling period and when I look out industry wide and I'm focused now just in the United States, when I look out and I see inventories and when I walk the floors at specialty retailers and department stores, I see more inventory than I've seen in a long time. So there's a tremendous amount of promotional cadence going on.

So even if sales were to pick up, which would be great, I think margin's going to continue to be pressured in the US. So I would like to be more optimistic, David. But I just think that's the reality of this moment in time of where we are. As we like to say here, the only good news is we get the comp business next year.

So hopefully that creates an opportunity for next year when we get to some seasonable weather..

Okay. Great. Thank you very much for your answers..

You're welcome..

Good luck..

We'll go next to Bob Drbul with Nomura..

Hey, good morning, Manny. Good morning, Mike..

Good morning..

I guess the question I'd like to focus on a little bit, Manny, when you look at inventory levels, you know, within your business, inventory levels at the department store level.

Can you talk about sell-in versus sell-through and the visibility that you have in these new forecasts on, I'd say gross margin and the markdown support levels that, you know, you anticipate as we go through the next several weeks?.

Well, we are - I guess we are projecting our margins down in the United States during the fourth quarter. We had a big earnings beat in the third quarter, and normally if things were more, much more reasonable, we'd be anticipating - we would have anticipated that we would have taken the year up.

But at the same time that we had a strong August and September, October was weaker and as we got into November, we saw weaker. So this unseasonably warm weather is putting a lot of pressure on it. Inventories are built, particularly in cold weather categories, and it's going to be an expensive fourth quarter to get through a lot of that.

I think competitively, we are in as good position as anyone. Our two fashion brands aren't overexposed from a pure cold weather category. We've got outerwear business, but it tends to be much more fashionable and more lightweight. So we don't have some of the exposure some other brands might have in those areas.

But we do have a big sweater business, big flannel business, big henley business, big heavyweight outerwear business. And to be honest, these are some of the lighter weight categories we're just not getting the traffic in the stores that you'd hope for, that usually the cold weather drives people in. So it is the holiday season.

Christmas will come, people will shop. The consumer is in relatively good shape. But the consumer is really getting some great bargains out there and the mall is definitely on sale, especially at specialty apparel. You're really seeing prices that are 50% to 70% off store-wide. This weekend I think is going to be pretty aggressive. You can see it online.

So long-winded answer to I expect margins to be under pressure in the US and inventory levels to come down, but will come down over the fourth quarter into the first quarter as people move through it..

Great..

And it's all been factored into our guidance, I believe..

Okay. And Manny, you mentioned Amazon as an account.

Can you just talk a little bit about how you're approaching that business with your brands?.

Sure. I think it's critical for us that where we do business in any channel of distribution, what's critical for us is our presentation and our price integrity. And as long as those two are met, we are a multi-channel distributor of product. We sell online direct to consumers ourselves, through our websites globally.

We sell through some third party players like Amazon, and we have a big business with our key department store accounts, Macys.com, Kohls.com, JCPenney.com, that continues to over penetrate and grow.

Some of our - the categories of our business, particularly underwear, when you think about it, dress shirts is another one, given size and usually it's not a category to try on goods, given that nature of that product, I think it over skews in some of those areas to an online distribution and we're seeing tremendous growth in that area.

So we're very cautious about it. We are very concerned about how the brand is presented. By working with some of these third party players and not allowing them just to go out to buy goods in the gray market that's out there.

And, you know, have 10 items and that - but they are screaming on the Internet that they have Calvin Klein at 999, by cleaning it up and selling to them in a disciplined fashion, you clean up a lot of that noise, a lot of counterfeit product that winds up, and it really helps the integrity of the brand globally.

And that's what we've tried to do in order to appropriately sell those channels of distribution..

And then just one last question, I don't know if this is for you or for Mike.

But on the inventory that you have still on the books, is this a period where you would just continue to work it through your outlets, through your department stores or will you be more reliant on the off-price channel to try to, you know, work through some of this product that seems a little backed up?.

So, look, we - our inventories are usually designated to our appropriate channels, Bob. So we have goods that go to the out, goods that go to the off-price channel, goods that go to the department stores. At this point, we'll continue to look at where we can move those goods when the opportunities present themselves.

We're fairly clean in terms of where we want to be. I'm sitting here with 65 degree weather, so I do have some fuzzy goods sitting in our stores that we'd like to get out of. But for the most part, we're up 3% when you exclude the FX on our inventories against a flat sales plan for the fourth quarter.

And a lot of that investment in that 3% is on basics and it's in core replenishment products. So I feel pretty good about where we are. I don't think I have to make any huge adjustments..

I think probably the challenge for us going forward I think is not going to be selling the inventory that's on the books today, because that's been earmarked. It's all factored into our margin.

The concern we have right now, and Ken's really been focused on is, given the softer selling retailers are now looking at turns as they get into the spring season, they are trying to be much more cautious, they are coming - look, they are coming out of the season with higher inventory positions, they are trying to reposition it.

So what we are trying to do is help work with them to deal with some takedowns and some sales estimates right now and reallocate the goods to do off-price market, but do it in the most efficient fashion. The challenge that that's going to face as we go into spring is that the off-price channel has got just about anything they want right now.

There's more inventory in that channel than ever before. They are being very aggressive in the pricing point of view.

So we are being very aggressive of about using our own retail stores to clear the goods in the most efficient way possible and try and really capture that business, in especially warm weather, store locations as we go, as we start the turns into January.

So we're proactively working through it, but I think it's an industry problem that's going to be with us as we go through first quarter..

Thank you very much. Good luck..

We'll go next to Joan Payson with Barclays..

Hi, good morning. Manny, could you talk a little bit more. You mentioned that retailers are being more cautious on the outlook for next year and some of the key department store customers are having a more challenged year right now.

Does it change the longer term strategy at all in terms of North America wholesale or any of those discussions changing?.

No. I mean, fundamentally, no. I think what it does highlight is, you know, is that the wholesale model is built in a way that you don't necessarily - you don't necessarily feel all the pain as sell-through is happening. Now, in the US markets, since you support gross margins and allowances, you feel it.

But as retailers, when they miss their sales plan and then they adjust their sales plans going forward, you have to adjust accordingly. So we won't get caught with inventory, but it will put pressure on sales growth in the US as we go forward. And it's a reason that we've always tried to be as balanced as possible with our distribution strategy.

Our own stores, both outlet and regular price not only in North America, but globally, selling online directly to consumers ourselves, and also using third party Internet players to sell through that makes sense.

It's all about how - that our brand is appropriately positioned, what's the holistic outlook for that and trying to position ourselves that we are agnostic about where we sell the goods, whether it's through our own brick and mortar or through wholesale department stores or direct to the consumer on the Internet.

Now, the only thing that's challenged is in the last few years, as we've had to scale up the Internet business, that business has not been as profitable as it’s been cannibalized.

But over time as we go into '16 and '17, that business should get to a profit level that equates pretty much with our wholesale and retail business, just as that business scales up. So we feel, we feel we're on track. We've made the investments systemically. We've made the investments from a marketing point of view.

In Calvin Klein, I would tell you that over 50% of our advertising today direct to consumer is digital and Tommy is probably close to 40% and both of those, that explosion will continue because I think that's where you really can connect with your consumer and do business.

And we are really moving more and more toward that and engaging with the consumer on a digital basis. So I think the world's changing and our brands need to move with it and our distribution channel needs to move with it as well..

Okay. Great. And then you talked a little bit earlier about the strength in China this quarter.

Has the view or timing changed at all in terms of potential acquisition of licenses?.

No, it hasn't changed because it's been a priority and it is a priority. And I think we'll continue to just move that forward and hopefully be able to talk about more concrete, some acquisitions that will bring businesses in-house in early 2016..

Okay, great. Thank you. And happy holidays..

Thanks to you. Merry Christmas..

We'll go next to Erinn Murphy with Piper Jaffray..

Great. Thanks for taking my question. I was hoping you could talk a little bit more about Calvin Klein's fourth quarter top line guidance, up 13% constant currency. I know you spoke about some of that being the timing of Chinese New Year.

Could you maybe parse out for us what piece of that is just from accelerated shipments versus just the business improving right now?.

I think there is a couple of things. One, the business is very healthy. And I think and secondarily, you mentioned Chinese New Year. We operate the Calvin business directly. So we benefit from that. We are in the Tommy business, the licensed business, so we don't see the top line growth there in the same fashion. So that's the difference between the two.

Secondarily, we've also converted a number of stores, our accessory stores and underwear stores in North America, which came on - which really came on in late third quarter and will be in place for fourth quarter. That's really helping the business. Those stores are off to a really nice start for us. We feel really positive about that.

So there's a number of - I think 15% is by its nature, if you're looking at guidance, too high. But I think the similar 7% to 9% kind of growth, that's what's factored into the ongoing business and nothing has really slowed down there that would that give us any concerns..

Got it. That's great to hear.

And then just on the tourist impact domestically, could you just help us think about the incrementality for Q3 versus what it was in Q2? And then it sounds like you're still anticipating just some of that pressure from tourist traffic domestically to cycle through into the fourth and into the first part of - fourth quarter and into first part of next year.

Just help us think about kind of some of the incrementality there as dollar continue strengthen?.

Okay. The best way to say, on the Calvin Klein business, round numbers, it represents about 25% of the retail volume. On the Tommy Hilfiger business, it represents probably 45% of the retail volume. So those are those big markets that are Miami, Las Vegas, LA, New York, New York metropolitan area, Orlando.

Those key big markets, Tommy has major presence in those markets, even greater than Calvin. And it's really - and they will feel it more. I think what you'll see next year is, if you look at how it's progressed is, last year we really didn't feel much of an impact as currency started to move in last year's fourth quarter.

As we got into the first and second quarter, we saw some impact, but I think the full impact of that came through starting in the third quarter of this year, July and August of this year, in particular. And I think that's, for a couple of reasons. One is people tend to book vacations six months out.

And they book them and I think there was a tendency not to cancel as much. And so that will start to factor in as we go forward. So I think quarter-by-quarter, I think we'll be impacted in first quarter and then to a degree in the second quarter, and then it should hopefully start to level out as we go into the second half of next year.

And that's the way we are probably going to be planning our business unless we see some change..

Got it. And then just last question on Europe, it's pretty encouraging to see you guys finally start to see that turn in Italy, which I think has been the biggest laggard there. It’s a big business for your Calvin business in particular.

Can you just talk about how you're thinking about that going forward and is that big enough to continue to help that order book in Europe remain very healthy as you get into the back half bookings for next year?.

We're - so let me speak to Italy first. The Italian market, we are very encouraged about what we see, mainly because the last three years it's been a drain, both the Calvin and Tommy. And by that I mean it's probably down over a 3 year period from where it had been 45%. So it's been down 10% to 15% a year for the last 3 years.

This year second half is the first time we saw that trend start to turn. I wouldn't - just to put things in perspective, I wouldn't classify the Italian market as healthy and vibrant. But I would say it's in the midst, beginnings of a turnaround. It's stabilized, and we're growing off of it in the high single digit kind of range. So that feels good.

Particularly in Calvin we are really seeing stronger growth, because I think we - one, our exposure in that market and the consumer’s acceptance of the Calvin Klein brand in Italy and how well we've done historically there.

I think we're starting to get paid back for some of the product advancements we've made, for some of the closedown of the inefficient stores to better stores direct-to-consumer, and even in the wholesale channel there we've really gotten the business back on track. So I think we can continue to see outsized growth on the Calvin Klein business there.

But I guess I would say is, we are encouraged by what we see in Europe overall. You know, Spain in particular has been - it’s been ahead of the Italian market, but if you go back, it went through a tough period of time with our largest wholesale account, El Corte Ingles, really struggling during a period of time.

We've seen that business really stabilize. We saw it strengthen as we've gone forward. So our business in Spain continues to grow. And then with the Calvin product, the UK, France, Scandinavian market, Germany in particular, which is by far the biggest market in Europe where Calvin had 3 years ago a very limited presence.

It will probably become our biggest market for the Calvin Klein brand in 2016. So we are excited about how the brand is performing across Europe. Unfortunately, we're being hurt with currencies.

But we are well ahead of schedule on the turnaround in Europe with Calvin Klein business, if you look at the fundamentals of the business and where we are positioned..

Great. That's good to hear. And happy holidays to you and the team..

Happy holidays to you. Merry Christmas..

We'll go next to Michael Binetti with UBS..

Hey, guys. Good morning. Maybe this might be one for Mike. But I'm trying to reconcile a few comments you made on the FX outlook as we think ahead compared to where we were recently.

I think on the second quarter call we were talking about maybe a dollar pressure next year to maybe even $1.20, but also earlier in the year also talking about offsetting, call it 35% to 50% of that with some price increases, manufacturing costs, negotiations lower and maybe some SG&A control.

It sounds like what you're getting the low single-digit price increases that you talked about. I haven't seen which currencies have moved much since we talked to you guys on the second quarter.

So I'm just trying to reconcile the GAAP and what you seem to be leading us to for the FX outlook next year?.

Sure. I guess, the biggest change was second quarter when we reported the euro was at $1.13. Today, it's at, you know, when we closed the quarter, we were at $1.05 and that's by far our biggest currency exposure from marketing. That's been the biggest - that's probably been the biggest change from the second quarter as we've gone forward.

The other change is, I guess we were, again, in the early stages of it and where we are now, we were thinking more - we were thinking there might have been more opportunity to potentially raise prices higher than the 2%. And right now for the spring season, that's where we - that's where we are.

We hope that can improve as we go into the third quarter. So the $1.20 number, $1.25 number that we talked about last time really increased to the $1.50 to $1.60 number, totally based on what's really gone on with the euro and to a limited degree what's gone on with the Canadian dollar. So that's the fundamental change.

And as that - as we've now, we're probably 85% locked in to 90% locked in with hedges for 2016. This is where it's kind of looks like it's actually falling out. So that's been the change from our second quarter call..

Okay. And Manny, on your conversations with retailers in the US, and obviously I think you say, the current trend seems to be little bit isolated to weather, you're working with them to help clear inventories.

But then as we look ahead to next year, I mean, is there a general sense in the industry that we're going to order more cautiously, even though we do know - it was at least in large part impacted by weather.

I mean, do you want to - do the retailers want to plan more cautiously with their orders for next year, even though we think it’s weather or are they just saying, let's focus on margin next year, maybe order a little bit lower just in case, even though the weather, you know, we're not really forecasting it to be as big of a drag as next year at this time?.

Yes. Michael, I guess it's a fair point and it's clearly a fair point from a financial guide. But that's just not the way retailers work. Retailers work off of this is what was last year and they may say, look, we think there's opportunity, so we're going to plan our comps instead of up 1.5%, we're going to plan it up 2.5%.

But it's not like they'd say - they won't go back and say 2 years ago we did X dollars and we're going to do that much and we're going to drive it. So, you know, they tend to do what's safe. And what's safe is they are getting - besides getting hurt on the top line, they are really getting hurt on the margin line.

So what I always like to say, there are some years that are sales years and some years that are margin years. And I think for retailers and probably for most apparel companies, next year has got to be a margin year. Because the margins are depressed, you can see it in front of you.

So you can really plan better for that and then they will tend to chase goods into the fall season as those opportunities present themselves.

So we'll also try to, maybe try to be smart about inventory and decide where it's appropriate to take some risk next year in the second half with some inventory, if we start to see some positive trends and some selling. But I mean, that's the reality of it.

I think you hit it on the head when you said, they are really going to try to manage the terms and manage margins and manage their markdowns for '16..

Let me ask you one last. Manny, you know, it sounds like there's a general sense that the market, we should expect it to remain at least a little bit sluggish next year, if that’s a fair comment, at least to be ready for it. No one has really have accused you've been lazy about pursuing opportunities.

So as you go back to Erin's question about, the license roll-ups next year.

Is it really like we have to sit here and wait to we have a willing seller on these licenses that we're focuses on or is it time to say look, maybe we should look little bit more strategically, is there a brand that we could add to our portfolio and is 2016 the right year for us to start thinking about that a little bit more broadly, given somewhat muted outlook for the industry?.

Look, there's - we've done a lot of acquisitions over the years. And in the last five, six years, we've done some major acquisitions. So my - those are impossible, the kind of acquisition you're talking about, adding a brand, and something that's going to fundamentally change the company to a degree, it's impossible to anticipate that.

That happens when it happens. I think I've tried to be clear to say is, we're in a position right now where the Warnaco acquisition is fully integrated systemically. We're there, we're moving it forward.

We seem to be really capturing a lot of the opportunities from the acquisition in underwear in particular, in jeans, as we continue to make advancements in that category. So I think that's behind us and we can see that ahead of us, some of the growth that will come with that.

So it gives us - all that said, paying off a billion dollars of debt in the last three years, the balance sheet is in strong position. As opportunities present themselves, where two or three years ago we just said we're not looking, today we are looking. We are interested to see what the opportunities might be.

And from a strategic point of view, based on what we own today, the best acquisitions we could do are the ones I've talked about, which is the re-acquisitions of the licenses. But at the same time, opportunities present themselves. We are - we've been very good at being able to take advantage of those opportunities.

Nobody anticipated that we would acquire Tommy Hilfiger when we did. It turns out to be a fantastic acquisition for our shareholders. And we'll look for those same type of opportunities as they present themselves. Planning for it from, you know, projecting out earnings and whatnot, you can't - it's impossible to do.

But be assured this management team is not sitting back and waiting for something to happen. We're out there trying to make things happen..

Thanks a lot..

And we'll go next to Christian Buss with Credit Suisse..

I was wondering if you could talk a little bit about the underlying expectation for the fall order book, as you start thinking about inventory buys for seasonal product in holiday in the fall of 2016.

I know it's a long ways off, but just want to see how you're approaching that as you build out your plans for the year for next year?.

You know, we are half way into - I don't mean this is going stop, in any way disparaging but we haven't even gotten through the holidays '15 season, so it’s really planning inventory purchases is challenging.

So as we are looking at the overall projections and thinking about the business, we are - we're fortunate in that we had some real core replenishment businesses, particularly our underwear business, our dress category business, even our sportswear businesses, the denim categories.

We continue to get behind those businesses to make sure we execute and maximize those businesses. As we are working out, there's no reason for us, except to secure production, where there's no reason for us to get ahead of the order cycle in any significant way. So to commit inventories, there's no reason for us to do that.

So we are staying as nimble as possible to try to take advantage of every opportunity from a top line point of view and also at the same time to manage the risk against that, that presents itself by overexposing ourselves to commitments in production.

You know, the cold weather product, how that all works out next year, I think that will take care of itself and the lead times on that are such that we'll have plenty of times to react, not to get caught in any way with inventory. And to take appropriate risks in order to capture potential opportunities as we go forward.

And since it is about - it's well after 10 O’clock we're going to make this the last question, operator. We'll take one more question..

And we'll go next to John Kernan with Cowen & Company..

Good morning. This is Krista Zuber on behalf of John. Thanks for taking our, getting our question in. So just very quickly, just wanted to circle back on AURs. Just how far do you think you can push AURs higher in Europe, kind of starting in Q3, '16, as you alluded to for both Calvin and Tommy? Thanks..

That's the interesting question, how far we can press it. That’s we're in the process of really trying to figure out. I would say the high point is mid single-digit increase to a low single digit increase. And we're talking somewhere between 2% and 5% I think for fall. I think that's reasonable.

I know there is been one or two others that have been out there talking much more aggressively about it and we just don't think it's logical. We think that even if it's accepted by the retailer, it's got to dramatically affect your sell-throughs and you have to really look at your competitive set and what you're seeing.

You can't look at it in isolation. So we are really trying to manage that and think it through very thoughtfully about managing gross margin percentage versus gross margin dollars to see what the, what will give us the optimal answer.

And as we are trying to protect with the Tommy business a very large market position, we're not giving up market share to the competitive set, so they can come in and underbid us for potential categories. So that's the balancing act that's going on right now..

Okay. Thank you..

You're very welcome..

I would like to thank everybody for joining us. Look forward to seeing you on the New Year. Wish everybody happy holidays, Merry Christmas, and a happy and healthy new year to you and your families. Thank you very much. Have a great day..

This does conclude today's conference. We thank you for your participation..