Emanuel Chirico - Chairman, Chief Executive Officer Michael Shaffer - Executive Vice President, Chief Financial Officer, Chief Operating Officer Dana Perlman - Senior Vice President, Business Development and Investor Relations.

Bob Drbul - Nomura Securities David Glick - Buckingham Research Group Erinn Murphy - Piper Jaffray Michael Binetti - UBS John Kernan - Cowen Omar Saad - Evercore ISI Dana Telsey - Telsey Advisory Group.

Good morning everyone and welcome to the PVH Corp. Full Year and Fourth 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 March 23, 2016 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 operations could differ materially from historical results or current expectations.

PVH does not undertake any obligation to update publicly any forward-looking statements, 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 to 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, Dana. Good morning. Joining me on the call is Mike Shaffer, our Chief Financial Officer; Dana Perlman, our Treasurer and Head of Investor Relations, and Ken Duane, who runs all of our wholesale businesses in the United States. Just some general comments.

We’re very pleased with our fourth quarter and full year 2015 results, which exceeded our expectations despite the difficult macroeconomic environment and the highly promotional retail market in the U.S. We grew 2015 annual earnings per share 15% on a constant currency basis, consistent with our long term growth targets.

Our Calvin Klein business was the highlight as the investments we’ve made over the last two years continue to generate solid results, and we saw strength across all regions where we operate. Our Tommy Hilfiger business also saw positive momentum in all of its international markets, highlighting the global power of the brand.

Lastly, our heritage brands produced a notable improvement in overall profitability. I’m going to get into the Tommy Hilfiger business a little bit. Revenue in the Tommy Hilfiger business for the quarter increased 5% on a constant currency basis.

The performance was driven by our business in Europe, the brand’s largest market, with European comp sales up 10% for the quarter and 8% for the year. We continued to gain market share from our peers in almost all markets throughout Europe.

Our wholesale performance in Europe was also very strong in the fourth quarter and we expect that to continue in 2016. Our European spring/summer 2016 wholesale order book is up 4% and we are planning our fall/holiday 2016 wholesale sales also up about 4%. In the U.S.

market, we were challenged with unseasonably warm weather and the further deterioration of traffic and consumer spending trends in our U.S. stores that are highly penetrated in international tourist locations. North America retail comps declined 7% in fourth quarter. The strong U.S.

dollar continues to negatively impact international tourist spending throughout the United States. Some marketing highlights for the brand. Rafael Nadal was signed as the brand ambassador for Tommy Hilfiger Underwear, Tommy Hilfiger Tailored, and the Tommy Hilfiger Bold fragrance.

Beginning with the fall 2015 marketing campaign focusing on these categories that we see significant growth in, the launch of the Nadal partnership was accompanied by a global multimedia advertising campaign in over 40 countries, campaign video that went viral and was one of the top 10 videos on Google for the launch period.

The campaign had over 500 million impressions during the second half of ’15 and helped full-price sales of underwear nearly double in Europe and in the U.S. during the second half as well. We also took strategic steps to strengthen the Tommy Hilfiger women’s business globally during the quarter.

We signed supermodel and millennial icon Gigi Hadid as the global brand ambassador for Tommy Hilfiger women’s collection beginning in the fall of 2016. Gigi will also be collaborating with Tommy on a capsule collection which will be distributed globally with key retail partners and on our own ecommerce site.

In February, we announced our new licensing agreement with G3 apparel to design, produce and distribute the brand’s women’s wear collection in the U.S. and Canada, beginning with the holiday 2016 season.

We believe that G3’s expertise in the women’s wear business can significantly enhance our women’s presence in the U.S., and I feel that over the next five years they can build a Tommy Hilfiger women’s business in the U.S. to well over a billion dollars, which is what they have done with our Calvin Klein women’s wear business over the last five years.

We also announced in February that we will be buying back the remaining 55% interest in our joint venture in China that we did not already own. The business has experienced strong momentum over the last several years with brand awareness doubling and our retail footprint more than tripling over the last five years.

Since 2012, the first full year of operations after the joint venture was acquired, the Tommy Hilfiger China business has more than doubled from approximately $70 million in revenue to a little bit more than $140 million in revenues for 2015. We have over 350 stores, of which 65 are directly operated by the JV.

Moving to Calvin Klein, overall we continue to see great momentum with the Calvin Klein brand and our business more broadly. Revenue in the Calvin Klein business for the quarter increased 21% on a constant currency basis, with international comps up 6% while North America posted a 4% increase.

Earnings on a constant currency basis increased 31%, reflecting the strong top line growth with continued gross margin improvement in both Europe and Asia. North America posted a 20% revenue growth on a constant currency basis for the fourth quarter and 8% for the year despite the challenging market conditions in the U.S.

At wholesale, we saw healthy top line performance driven by the continued outperformance of our underwear category. As we look at our U.S. jeans turnaround, we saw solid performance in the first half of the year as we had previously discussed with you, but as we moved into the fall/holiday season, as a result of the overall U.S.

retail landscape, we experienced a softness in business at our department store customers, but we did see strong performance through our new retail partners, Urban Outfitters and Amazon in the U.S. Additionally, our U.S.

retail business posted healthy performance despite the market headwinds that were experienced with comp stores up for the full year about 2%. As we move into the first quarter, the strong wholesale sales trends have continued.

Our Calvin Klein international business also posted strong performance with sales growing 21% for the quarter and 11% for the year on a constant currency basis. Calvin Klein Europe saw a significant turnaround in the overall business with operating profits moving to mid single digits for the year.

We saw an improvement across all categories, including jeans, accessories, as well as underwear, and we continue to see Europe as a major growth opportunity for the brand. We’ve seen an acceleration in the Europe business as our improved product, marketing and retail execution is paying off.

We are seeing outperformance against our plan across both genders, with women’s outperforming men’s. Our best performing markets in Europe are Spain, the U.K., Germany and Italy. Overall for Calvin Klein Europe, our summer/spring order book for CK is up mid teens, and fall/holiday is also planned up about mid-teens.

We continue to see increasing consumer acceptance and strong retail performance at our wholesale accounts in almost European markets. Moving to Asia, Calvin Klein continued to expand its presence in Asia, which is the most significant opportunity for long-term expansion.

Strong performance in China with comps up high single digits for the quarter building on strong performance for the entire year. We also launched directly operated ecommerce platforms in China, Hong Kong and Macau.

We experienced strong performance in Southeast Asia and are aggressively opening travel retail stores, which are an important brand building and profit growth opportunity for the business.

Hong Kong and Korea continue to be our softest markets in Asia, but we have strategies in place in order to move that business forward and drive the brand in 2016 and beyond. From a market perspective, we drove brand relevance with strong campaigns and strong digital advertising campaigns as well.

Our marketing focus has been on lifestyle advertising in order to encourage cross-category shopping leveraging through the hashtag, My Calvins, to connect with consumers. The brand has had over 20 million consumer engagements across its own social media channels during 2015.

We have significantly increased our distribution to youth-minded shoppers through our expanded global distribution at Urban Outfitters, Opening Ceremony, mytheresa, Amazon, Zalando, and TMall.

From a product category perspective, Calvin Klein underwear has had a great quarter and year driven by our investments in marketing, product, and in technology. We focused on faster replenishment and better in-stock levels in order to meet the strong consumer demand.

Our men’s division grew its market share and continued to hold the number one market position across U.S. department stores.

Women’s also posted stellar results with a 20% year-over-year increase driven by new specialty store and ecommerce distribution, growth in panties and our focus on better bra fits, as well as the exceptional response to our modern cotton assortment, which is a casual alternative to our core lingerie business.

Importantly, our modern product line is increasing our engagement with a younger consumer, which we believe will create loyalty over the long term as the younger consumer graduates in the future to our more elevated product categories and our more elevated product offerings.

We have also seen strong improvement in our Calvin Klein jeans business with a continued investment in product, which has been evidenced across all of our international markets through their strong growth.

We are increasingly focused on key initiatives to drive this business forward, including investing in supply chain across all of our denim efforts globally. We’re also investing in capsule collections and the ability to respond faster to the consumer demands.

Moving to our heritage business, revenue in the heritage business for the quarter decreased 10% from $447 million in the prior quarter.

We saw a double digit increase in earnings as we discontinued our Izod retail business during the year, as well as a number of underperforming product lines in our dress furnishing business that did not meet our profit goals.

In dress shirts, we launched the Van Heusen flex collar featuring an expandable collar, and given its initial success we are taking this technology and moving it across a number of our other brands in 2016. Our Izod shops at Kohl’s continue to post very strong performance following their 2014 fall/holiday launch last year.

Warner’s and Olga improved market share positions for bras in the U.S., both in the chain and department store channels with both brands significantly increasing their market share.

During 2015, the Warner’s No Side Effects bra drove significant performance improvement as its television commercial effectively communicated its key [indiscernible] features and led to significant conversion at point of sale.

Our Speedo division continued to post healthy performance during 2015 and we see a significant opportunity for the Speedo brand in 2016 with the Summer Olympics, which we believe we can commercialize with our key retail partners as we move forward.

Van Heusen also had a solid year with comparable store sales growing 8% in the quarter and 10% for the year, and also exceeded all of our profit expectations. As we look forward into the first quarter and we look at the environment today by region, let me give you a little bit of a backdrop to what we’re seeing.

In Europe, our business continues to persevere through the volatility that is plaguing the region, especially the recent terror attacks in Belgium, Turkey and Paris. We continue to see strong comp store sales growth out of both Calvin Klein and Tommy Hilfiger, with no signs of slow down.

Comps for Tommy continue to perform in the high single digit range, and the Calvin Klein Europe business continues to comp low double digits. Moving to the U.S., as we’ve come out of the highly promotional fourth quarter, industry-wide inventory levels are elevated across channels.

We aggressively cleared inventory in the fourth quarter and are not aggressively promoting in the first quarter as we are managing gross margin rates against lower unit inventory levels at retail.

As such, we are currently seeing comps down in the Calvin Klein business low single digits and down low double digits for the Tommy Hilfiger North America business. Our Van Heusen retail business is posting high single digit comp store growth. At the same time, we are seeing higher gross margins across the board in the U.S.

We continue to see the strong dollar’s negative impact on our international tourist stores; however, we are seeing solid sales performance continue in our Canadian business.

Moving to Asia, China continues to demonstrate strong results similar to what we’ve experienced in 2015; however, we were up against a shift in the Chinese New Year relative to our first quarter last year.

We are expecting the weakness to continue in Korea and Hong Kong driven more by the broader macro environment in large part due to the lack of mainland Chinese tourist spending in those markets. Overall, Asia comps here are trending down in the high single digit range due to the year-over-year compare against Chinese New Year.

China continues to outperform the region and continues to outperform the rest of the world. I guess as an overall backdrop, the global retail landscape continues to be uncertain with major foreign currencies largely weakening against the U.S. dollar. Global consumer spending patterns are volatile.

The consumer is dealing with a tremendous amount of uncertainty and also dealing with geopolitical risk. Given this backdrop, we believe that we can successfully manage this challenging environment and have taken a prudent approach to our 2016 plan.

We believe that our best-in-class brands and management teams will continue to manage through the volatility by leveraging our powerful brands and our operating platforms while not losing sight of our long-term vision and our ability to deliver double-digit constant currency earnings per share growth.

With that, I’ll turn it over to Mike to quantify some of the results..

Thanks Manny. The comments I’m about to make are based on non-GAAP results and are reconciled in our press release. I’m going to briefly touch on the fourth quarter of 2015 and then move on to 2016. On a constant currency basis, revenues for the fourth quarter were up 7% versus the prior year and exceeded our guidance.

Driving our revenue increase was our Calvin Klein business, which delivered a 21% constant currency increase over the prior year. Both our Calvin Klein North America and international businesses had revenue growth of over 20% in constant currency.

The North America growth was driven by our wholesale underwear business and square footage expansion in our retail business, which included the conversion of the Izod retail stores to Calvin Klein accessory and underwear stores. Calvin Klein International growth was mostly driven by Europe and China.

Tommy Hilfiger revenues were up 5% in constant currency, also exceeding our guidance, with strong revenue growth in our international business which had revenue up 8% in constant currency and Europe comps up 10%, with most markets showing increases. Our U.S.

Tommy Hilfiger retail stores located in international tourist destinations continue to be under significant pressure from a lack of traffic and spending.

Our heritage business revenues were down 10% due to the continued rationalization of the heritage business, which included exiting the Izod retail business and several licensed product lines in our [indiscernible] business.

Our heritage revenues were below our guidance due to shipments that were planned to go out at the end of ’15 shifting into the first quarter of 2016.

Our overall strong revenues drove an earnings per share beat for the company of $0.05 for the quarter versus our guidance, with favorable taxes and interest of about $0.03 being offset by further foreign exchange pressure of $0.03.

Moving to 2016, our 2016 earnings will be significantly impacted by foreign exchange in 2016 we are anticipating, based on current exchange rates that will be impacted negatively by about $1.60 of earnings per share for foreign exchange. The $1.60 impact is approximately 85% driven by transaction and 15% driven by translation.

As a reminder, our exposure at a transactional level is mostly due to our international divisions purchasing their inventory in U.S. dollars. To partially protect against this, we buy foreign exchange hedge contracts about 12 months out for about 80% of our projected inventory purchases made by our international divisions in U.S. dollars.

Therefore, the hedges we entered into during 2014 at more favorable exchange rates impacted our operations in 2015, while the hedges we entered into in 2015 during the strengthening U.S. dollar will negatively impact our operations in 2016.

Our exposure at a translation level is simply due to converting the revenue and earnings of our international divisions into U.S. dollars. For the full year 2016, we are projecting earnings per share of $6.30 to $6.50. If we exclude the negative impact of FX of $1.60, we have earnings per share growth of 12 to 15% over the prior year.

Overall, we are projecting constant currency revenue to grow approximately 2% excluding the negative impact of 1% related to foreign currency. Overall operating margins are expected to increase approximately 75 basis points on a constant currency basis and to decrease approximately 100 basis points on a reported basis.

We project Calvin Klein revenues to grow 6% on a constant currency basis, excluding a negative impact of 2% related to foreign currency. We are also planning Calvin Klein operating margins to increase about 50 basis points on a constant currency basis and to decrease approximately 100 basis points on a reported basis.

Tommy Hilfiger revenues are planned to increase 3% on a constant currency basis excluding a negative impact of 1% related to foreign currency with operating margins planned to increase about 50 basis points on a constant currency basis and to decrease approximately 175 basis points on a reported basis.

Our heritage business is planned to have a revenue decrease of 7% due mostly to the exiting of the Izod retail business and several licensed product lines in our dress shirt business. Operating margins in our heritage business are planned to increase about 50 basis points. The impact of currency on our heritage business is relatively immaterial.

Interest for the year is planned to be between $100 million and $125 million compared to the prior year amount of $113 million. As a reminder, an interest rate swap converting variable to fixed interest began in February of 2016 and is the reason for the increase.

We currently expect to generate approximately $500 million of free cash flow in 2016, which we will use with existing cash on hand to fund the acquisition of the remaining 55% stake in our Tommy Hilfiger joint venture and to make similar debt pay downs and stock repurchases as we did in 2015.

Our tax rate for the year is planned at about 20% and in line with the prior year. First quarter earnings per share is planned at $1.40 to $1.45 and includes $0.50 of estimated negative impact for foreign exchange. Excluding this negative impact, we are expecting earnings per share to increase 27% to 30% for the first quarter.

Revenue in the first quarter is projected to increase 3% on a constant currency basis excluding the negative impact of 2% for foreign exchange. Calvin Klein revenues are planned at a 12% constant currency increase, excluding the negative impact of 4% for foreign currency.

Tommy Hilfiger revenues are planned at a 2% constant currency increase, excluding the negative impact of 1% for foreign currency, with North America planned down mid-single digits due to continued weakness in our retail stores located in international tourist locations, while our international business is planned up high single digits due to its continued strength in Europe.

Heritage brand revenues are projected to decrease 9% due mostly to our exiting of the Izod retail business and several licensed product lines in dress shirts. Interest expense is projected to be about $28 million to $30 million and taxes to be 23% to 24% in the first quarter. With that, we’ll open it up for questions..

[Operator instructions] We’ll go first to Bob Drbul with Nomura Securities..

Hi, good morning. .

Good morning, Bob..

Manny, just a couple questions for you on some of your comments.

I think the first one is in the first quarter now, and you’re talking about lower inventory levels, less promotional environment, are you seeing your competitors act that way, and are the wholesale customers also sort of warming up to that type of approach as we look to this full year?.

I think, Bob, in the first quarter we’re not seeing that in the market environment, because they’re still working through pretty heavy inventory levels that came out of the fourth quarter.

I think as we turn into second and third quarter, I think you’ll see a significant decline in inventory levels as retailers have really tried to contract their open to buy dollars for fall and holiday.

They’re being very aggressive focusing on inventory turns, and I think everyone is really trying to manage gross margin rates going forward and limit their markdown exposures. So I think you’ll start to see that play out. My point in my comments was I think we’re a little bit ahead of the market.

We really took the fourth quarter--you know, we had a good quarter and we really took advantage of clearing goods to get to the right inventory level, so we could start to see the gross margin improvement maybe earlier than you’ll see in the overall market. .

Manny, as you think about the Tommy Hilfiger business and you look at U.S. trends, the announced relationship now with Tommy and G3, how do you separate sort of brand positioning in the U.S.

versus tourism pressure on the Tommy Hilfiger business?.

I think, as you know, we’ve seen strong growth in what we characterize as our domestic store base, which is really 95% driven by the U.S. consumer - middle America, some of the large urban centers. We’ve seen that business very strong.

Where we’ve seen a difficult business environment has been in the tourist destination stores - you know, the Orlandos, the Las Vegas, some of the California markets, New York, which had enjoyed a significant level of tourist spending from key markets like Brazil and South America, as well as the European markets.

With currencies going the opposite way and the U.S.

dollar continuing to strengthen, this has not been an attractive place to travel to and we’ve seen that really impact our business, more directly on the Tommy business that has such a premium position globally - Europe, Asia and Latin America - that we’ve really taken it on the chin on the Tommy business from a comp store performance.

On the positive side, we’ve also seen tremendous growth in our international business. European comps are double digits increases, and our Asian business, particularly in China, just continues to do exceedingly well. So I think we’re trying to balance that out, manage inventories, and we understand the impact that’s going on..

Just one last question, Manny, from me.

On your relationship with Amazon, what have you learned so far? How are you approaching the business as we look forward?.

You know, we see it as a real growth opportunity, but we’re being very cautious as we move forward. We’ve focused on key product lines and key product categories to grow the business.

Obviously when you think of the underwear category, by its nature it tends to be a natural for the online business, and we see penetration not only growing with Amazon but in all of our department store accounts that that business just continues to drive. I think we’re going to watch that business, manage inventory levels there with them.

We are trying to really control the promotional agenda not only in department stores but also online.

It’s all interplayed, and I think we really are taking an omni-channel approach to all of the brands and really trying to not only grow the pure play business but really are focused on our key department stores accounts like Macy’s, like Kohl’s, like Nordstrom’s where we’ve really invested inventory and invested from a technology point of view our ability to respond to that business.

So we see it as a real growth vehicle for us going forward and we’re really managing it cautiously from a promotional agenda.

And I really focused on the U.S., but globally we’re seeing similar trends in Europe that’s growing very fast online, and in Asia we are really--on a small base, we’re seeing very significant growth in the rate of sale, and we’re doing it in a very profitable way..

Thank you..

We’ll go next to David Glick with Buckingham Research Group..

Thank you. A couple questions. Mike, starting with the margins for 2016 embedded in your guidance, you said down 100 basis points on a reported basis. Can you walk us through sort of the reported gross margin and SG&A, and how you get to that down 100? That would be the first question, thanks..

Okay, so on a constant currency basis, operating margins are up 75 basis points. When you flip to a reported basis, we’re down 100 basis points in operating margin. A couple things - one, FX, transactional FX headwinds are significant. We talked about $1.60 of pressure there, and that’s a big piece of that take down, obviously.

In addition when you look at the components, gross margins are up on a reported basis and on a constant currency basis.

As we layer in the higher growth businesses for us in 2016, which is the China business for Tommy as well as the faster growing international businesses that have higher gross margins, our gross margins are up, operated and reported.

With those higher gross margin businesses - China and the other international business, come a higher expense rate as well, so when you layer that in, our SG&A is up more than the gross margin on a reported basis, and that’s what’s taking the operating margins down on a reported basis..

Okay, so the dollar growth in SG&A, up mid singles, is that a fair--?.

That’s absolutely correct..

Okay, all right. Secondly, I think there’s some confusion about the FX. In early December, late November when you reported, you gave an estimate of $1.50 to $1.60. Since then, the euro is up about $0.065.

Some of the other currencies which you have a lot of exposure to got worse, then they got better, so I’m just wondering if you can kind of foot to the little bit higher FX pressure when I think investors were expecting somewhat lower..

Okay, so I think you’re going back to the last call, and I think we’re in that range; but just to pull it apart a little, when we talk about FX impact for ’16, it’s predominantly transaction. Where FX rates are today impacts translation. Where the FX rate was when we bought our inventories impacts transaction.

So when you look at where we were at the end of the third quarter and where rates were throughout the balance of the year when we placed our purchases, Canadian dollar was down significantly and the Mexican peso was down significantly, so the euro might have been in the range but the peso and the Canadian dollar took us to the high end of that range..

And those currencies only recently improved over the last two and a half weeks, so as you’d say, David, it’s just a very volatile situation when you look at those currencies, and making estimates in $1.50 to $1.60, and now we’re saying $1.60, there’s a lot of movement going on and a lot depends on when you place the orders for the goods and you place your hedges..

So essentially what you’re saying is that when you placed some purchases after your call, that negatively impacted--that timing negatively impacted the transactional FX slightly?.

Exactly..

Okay, great. Just one or two more, if I could.

In terms of your free cash flow, $500 million, how are you going to prioritize that in debt pay down versus potentially additional accretive acquisitions, and how do we think about the potential interest savings after 2016 if you do elect to use all that free cash flow to pay down debt?.

I think our first priority are these strategic acquisitions, as we said, but I think when--our assumptions that are built into our projections assume that we’ll have a similar debt pay down to what we had this year and assumes that we’ll have a similar stock buyback to where we were this year as well.

In addition, we’ll use just our excess cash in order to make the China acquisition this year, as well as the cash that’s on the China JV itself. So from that perspective, I think when you’re doing your modeling, that’s how you should look at it.

We continue to try to target a leverage ratio in the range of about 2.5 times, and I think we are on our way to get there..

Okay. Last, if I could, any different view on the U.S. outlet business? It seems like we’re probably at the peak of the toughest tourist compares.

Would you expect those, based on the timing of the currency, the strengthening of the dollar in late ’14 and the lag for when people buy their plane tickets, make their travel plans, et cetera, do think that this summer we should see an inflection point, and given a normalization in terms of clearance levels versus the competition and promotional activity, do you anticipate an improvement in your outlet trends after we get past the first quarter?.

Short answer is yes. We are planning the business as we project it out to be challenged, more challenged in the first and second quarters of this year. We see the inflection point as sometime in July as we look at the business and how we trended last year versus how it’s trending right now.

You can imagine we’ve got analyses, reams of analyses as we look at sales and what’s going on with the consumer. So short answer is yes, more pressure on the first half of the year, and we expect that to subside in the second half. .

Right, thank you. Good luck..

Thank you..

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

Great, thanks. Good morning.

First, with the momentum that you’re seeing the Calvin Klein brand right now and the order book trends that you alluded to for the second half of the year, and I look at your guidance on a constant currency basis with Q1 being up 27% to 30% full year, just being 12 to 15, it does seem that there’s a disconnect based on the strength of what you’re seeing right now with how you’ve implied the second half of the year.

So could you just maybe walk through some of your key assumptions as we go throughout the year? It just seems that there’s a pretty considerable level of conservatism..

Look, I think it’s a really good question and there is a lot of momentum in the Calvin Klein business. It’s also a very long year as we try to really lay out what I would describe as a prudent plan that we continue to invest in.

When you think about the quarters, second half of 2015 really saw a substantial growth in the Calvin Klein business, so the comparisons get tougher in the second half of the year and we are assuming that we’re just not going to be able to have the kind of double-digit growth that we experienced in the first and maybe into the second quarter of this year to continue into the second half of this year.

In addition, I’d just remind everyone, in the U.S. open to buy dollars at retail for the second half of the year, major department stores have really shrunk those open to buy dollars. The challenge there is that they went into that season expecting comp store growth.

We all know it didn’t happen for a lot of reasons - the unseasonably warm weather, international tourism issues, but suffice to say that second half of the year was generally very tough.

The assumption here is we’re dealing with these compressed open to buy dollars and we’re managing inventories tightly, so we’re planning that second half level of sales growth much more cautiously as we go forward.

If the trends were to continue what they are now, we would chase that business and I think there’d be a sales upside opportunity we don’t have in our numbers, but I think it would be premature to call that out now..

Got it. That’s helpful, and fair enough.

Just secondly, if we think about longer term on some of the margin opportunities with both Calvin Klein jeans as a category, as well as the underwear business, can you just kind of pencil out for us where those businesses are trending now from a margin perspective by category, and then where do you still see the longer term opportunity?.

Well, I think when we talk about margins, I’ll just give you some perspective. I’m not going to lay it all out. The Calvin Klein underwear business is by its nature one of the highest margin businesses we have from a profitability point of view.

Our underwear business in general is one of our highest operating margin businesses, so I would not anticipate significant margin expansion in those businesses but I would expect continued top line growth in those businesses which are margin-rich, so I think as they grow faster than the core, I think you’ll see margins improve.

On the jeans side, domestically there’s significant opportunity to grow our operating margin. That business was the business that I’d argue when we made the Warnaco acquisition was the most damaged. It’s about a $300 million business, men’s and women’s, and I think we can continue to see margin expansion there.

I think you should think about that we are in the low single digit kind of margin rates in jeans in North America, and there’s no reason why that category as it expands and as we get better sell-throughs from the better investments that we’re making in product and marketing, that that shouldn’t be a 10% operating margin business.

The last piece I would say is our European business from a margin point of view is clearly the biggest opportunity we have. That business has been the most impacted on the Calvin side by currency, and it’s really transactional currencies; but despite that last year, we operated in the mid single digits.

With the headwinds we’re seeing this year transaction-wise, I’d expect that business to continue into the mid single digits this year and then to start to expand to that 10% goal we talked about.

So Europe, both from a top line basis for Calvin Klein and on an operating margin basis probably geographically holds the biggest opportunity for continued growth in profitability..

That’s very helpful.

If I could just sneak one more in, can you help us think about the mechanics of the Tommy Hilfiger women’s business as you’re transitioning that to G3 this year? Are you guys just winding down kind of the product and the channel as they sit here and then they take over and start shipping that sportswear business in Q4 of this year? Just help us think about that dynamic as we start to model that out, and I’m assuming from a P&L perspective in fiscal ’18 for 2017, you’ll start seeing an uptick in the royalty on that line.

Just anything you can--.

Yes, you captured it. What you’ll basically see is this year is a bit of a transition year.

I think the whole transaction net-net for us in 2016 will be a small negative, but on balance as we move into ’17, I think you’ll see it as a significant positive in that we basically will be taking a business that was marginally profitable, cover the overhead so we’ll have to deal with that, and replace it with about--with a higher margin licensing business that you’ll see growth in the licensing revenues associated with women’s on an annual basis in that $18 million to $20 million range.

So the trade-off there should be fairly positive for us as we go into ’17..

Great, thank you guys, and congrats on a good quarter..

Thank you..

We’ll go next to Michael Binetti with UBS Financial..

Hey, good morning guys. Let me add my congrats on a great quarter. I know it was tough out there. Just want to understand a couple things here.

I think we talked about the Calvin guidance through the year, but the cadence on the Tommy guidance, I guess I don’t understand what are the dynamics at Tommy to get to 3% growth, excluding currency, when the acquisition should add about two points, if my math is right, and the trends right now across the different businesses look pretty favorable.

Would you mind helping me understand that a little bit?.

Yes, I think the biggest impact is we are planning the North American business retail down, and we’re also losing a quarter wholesale sales of the women’s business, which is about $25 million associated with the women’s business that moves out, and then planning the retail business to continue high single digit negative comps for the first half of the year and then moderate in the second half of the year to low single digit negative comps.

So more pressure on the Tommy Hilfiger North American retail business, which is the biggest component of our North America business..

Do I have the pieces upside down, though, because you’re guiding it to plus-2 in the first quarter and then to accelerate to plus-3 for the year..

The China piece is the big driver there..

Okay. I guess on China then, it seems like a strategic owner, long-term brand owner would be more incentivized for growth.

Can you talk about what some of the immediate needs are for Tommy China, maybe as far as the investments you look at and how fast you think you can scale that business?.

Yes, we will basically spend--we’ll spend more on marketing than is currently being spent, but let me put it in perspective. The acquisition, even in a partial year, will be marginally accretive and then should be significantly more accretive in 2017.

So our assumption is based on as the brand owner, we’re making more of a marketing investment in the brand in China because we see the significant growth opportunity. It’s $140 million business, highly profitable business that we think can grow long term over the next five to six years to somewhere in the vicinity of $300 million to $400 million.

The Calvin Klein business today is approaching $300 million, to give you a sense of that, so we really see it there. The other area is that in China, the Tommy Hilfiger business is really driven by men’s sportswear. Women’s is about 20 to 25% of the business, the balance is men’s wear.

so there’s a huge men’s wear opportunity and then when you think about our other categories that are just marginally represented there - denim, accessories, and tailored - we see filling out the full lifestyle for the Tommy Hilfiger brand in China similar to what we look like in Europe with the Tommy Hilfiger brand..

Okay.

So if you wouldn’t mind, Manny, I know you’ve been getting a lot of near-term questions, so just as we think a little longer term, as you guys seem like you’re on steadier footing with control over the P&L after the Warnaco acquisition and then some really unexpected FX issues here the last few years, as you take a breath here and think about strategy, how do you think about the priority between going after a few of the licenses that we’ve talked about quarter to quarter that are low-hanging fruit for you guys to bring in, versus something more strategic like exploring a third big brand at some point?.

Okay, well first I would say from a strategic--not to play word games, but from a strategic point of view, I don’t think there’s anything that’s more strategic than to gain more control of the brands, both Calvin and Tommy, and layering those in.

But I do understand what you’re saying, is for a major impact it would be another global brand that we could add to the portfolio.

I think the way we’re thinking about it right now, the focus will be on the incremental acquisitions that we’ve talked about, continuing to bring those in, continuing to maximize what the opportunity is for Calvin and Tommy, and then as we turn 2016 into ’17, opportunistically looking at what’s out there in the world.

As you know, we generate a tremendous amount of cash. We’re not leveraged to any extent, given our strong balance sheet dynamics, so there is a significant amount of open to buy dollars that are there, and historically we’ve been a significant acquirer of brands, be it Calvin, Tommy, Warnaco, so I don’t think that’s really going to change.

But I think the timing in the next 12 months will be continuing to focus on the strategic licensing acquisitions..

Thanks a lot, and congrats again, guys..

Thank you..

We’ll go next to John Kernan with Cowen..

Hey, good morning guys. Thanks for taking my question and congrats on a real nice quarter..

Thank you..

So Manny, thinking longer term, I think there’s a lot of investor concern about the apparel category in general.

Clearly there were two disruptive factors over the past couple quarters, being FX and the warm weather, but as you look out at this category long term and when you look at the company’s long term profitability profile, where do you think you can move the operating margin long term, and how sustainable is this 12 to 15% EPS [indiscernible] at the current top line run rates?.

Okay, let me start with the latter first.

I think if you just took a step back and you look at--you really touched on it when you talked about the volatility, the market’s been volatile, we’ve had warm weather, we’re dealing with a lot of issues caused by the geopolitical situation, but despite all of that - and I know from an investor point of view, it must be frustrating as it is for the management team - we’ve grown our earnings on a constant currency basis about 15% over the last two years.

So it’s very frustrating over a two-year period looking at almost $3 of earnings per share that have gone against us on the currency line.

We see nothing that would stop us from continuing over least, let’s use the next three years, that’s how we do our strategic planning, that we couldn’t continue to drive earnings per share growth at a double-digit rate, something between 12 and 16% continuing to drive it, given the dynamics that we see in the Calvin Klein business and the dynamics we see in the Tommy Hilfiger business.

I think there is clearly an opportunity over time to regain the margin loss that has impacted us on an operating margin basis from the foreign currency impact, so when we look out, we think that there is somewhere in the neighborhood of another 100 to 200 basis points overall operating margin improvement in the business that we can build on as we move forward.

If we get any kind of a tailwind from currencies, meaning that the dollar levels or starts to actually weaken somewhat long term against some of these currencies, as we get back to equilibrium around the world, that would clearly be a tailwind that would help us going forward and have the biggest impact on our operating margins as we go forward internationally.

So I hope that answers your question..

Yes, that’s really helpful for our long-term models. Just one more follow-up on China for Hilfiger.

Where do you see the potential sizing of this business and the long-term economics of the business? Historically, China’s been a pretty high margin region for a lot of the western brands there, so I was just wondering what you think the economics of this Tommy Hilfiger China business looks like two to three years out. .

Okay, so look - I think you kind of answered the question yourself. Just the size of the business, we are thinking about a $500 million business over the next five years growing to, so that would be substantial growth. Margins, I think there’s a combination of we will grow more balanced from a retail wholesale point of view.

It’s important to take control of your brand. I would say the current model that has been built is too franchisee dependent, so we will be bringing that business in-house.

That’s a lower margin business but still very healthy - very, very healthy, than just a pure wholesale franchise model business, but I think it’s critical that you take ownership of your brand and how you present it, not only in Shanghai and Beijing but throughout the other Tier 1, Tier 2 cities throughout China.

I think China should be our highest operating margin region in the world..

Okay, thanks. That’s really helpful. Best of luck..

Thank you..

We’ll go next to Omar Saad with Evercore ISI..

Thanks, good morning. Nice quarter, guys, especially given everything going on..

Thank you..

I wanted to ask--I noticed you grew SG&A dollars for the first time in a while, a few quarters at least. It sounds like you’re going to grow SG&A spend again next year. What are the key areas you see, investment opportunities you see, and what’s giving you the confidence there? It’s certainly intriguing. I have a follow-up, too..

Well I think as Mike said, some of that is driven by the mix of business that we see, some of the international markets growing significantly faster.

At the same time, we continue to make incremental investments in marketing, we continue to make the investments that are required in the digital space to drive ecommerce, both our own platforms as well as the pure play channels that we’re dealing with, with some of the key players around the globe.

It’s a somewhat different model, so it really requires us to invest in those operating platforms and in people, but we think the returns long term are very high there as we move it forward.

So that’s where you’re seeing the spend - it’s a combination of mix and then really investing, both systemically and technologically, and continuing to invest in the brands and products. .

Thanks, that’s helpful, Manny. You mentioned a couple times Urban Outfitters, Amazon’s come up a couple times. I know you’ve got a lot of digital and social media going on.

I wanted to ask how you’re thinking about channels of distribution longer term, bigger picture, especially North America, the two kind of traditional main channels for you guys - the wholesale and department stores and outlets have been very strong. I know they’re obviously still important, but maybe there’s some shifts going on in consumer behavior.

Are you thinking differently about your points of distribution and the balance in the mix going forward?.

I think you need--the short answer is absolutely the world is changing, and to be honest, it’s changing faster than most of us would have anticipated.

I think historically, you know, for the last 20 years we’ve been a multi-channel distributor of product across different channels of distribution, so for us, this is another channel of distribution that needs to be managed and managed directly.

I think the challenge is from a profitability point of view, short term the ecommerce profitability is lower than the brick-and-mortar opportunity, both wholesale and retail, but as that business scales, the profitability should level out and we should become agnostic to where we sell the goods moving forward.

But that will require over the next couple of years more investment in systems, more investments in technology and people in order to bring that to balance, while at the same time dealing with what in North America is a shrinking store pool.

I mean, every major retailer is talking about some store closings, and I think we’ll continue to see retail is pruning their store base 5% a year, and that’s slow march I think is ahead of us for the next three to five years as we get balanced and they deal with, in their channels of distribution and their retail stores, their growing ecommerce platform and the need for less stores in order to connect with the consumers.

.

One last quick one, Manny.

The $3 EPS from currency the last couple years, last year and this year, can you give us an update on the opportunity, if any, to recapture any of that lost earnings from pricing or other factors?.

Sure. I think over time--so I think there is three places that we are really focused on. We’re focused on supply chain, and that’s where we’re making tremendous investments, looking at different sources of product, and that’s a long-term opportunity to continue to improve our margin.

Secondly, we’re looking at, as you said, price increases, but you need to do that very thoughtfully. The idea of just raising prices to match your costs, it just doesn’t work that way, that’s not the real world.

You have key price points, be it for core categories that are big and highly profitable and you need to manage that over time and have the consumer move with you, change your promotional agenda to a degree and try to get your average unit retails up. I think that’s an opportunity as we go forward as well.

The last piece is as we get equilibrium in the currency area, the real challenge that we had to face was that if you really look at what happened with currencies, the huge hit took place really in a compressed six to nine-month period of time.

The euro was actually in, like, a three-month period of time that we saw a drop from the mid-$1.30 to somewhere around $1.10, and that drop happened so quickly to be able to usually blend it into your hedging strategy, react to it, there just wasn’t time.

The ability to raise prices all at once with the consumer that’s feeling pressure wasn’t there as well.

So I think there is an ability to recapture that over time, and I would characterize it as against the 2016 margins and goals that we set, that there’s 100 to 200 basis point opportunity in operating margins post-2016 as we move forward to improve operating margin..

Thanks, Manny. Good luck..

Okay.

Last question, please?.

Okay, we’ll go to Dana Telsey with Telsey Advisory Group..

Good morning everyone, and congratulations.

Manny, as you’ve talked about brand acquisitions and license acquisitions, as you think about the landscape holistically, is there ever a time for brand dispositions or anything you’d want to dispose of as you think of the portfolio?.

You know, Dana, we’re constantly looking at that. There are no plans, there’s no discussions right now, so I don’t want to start any rumors.

But we are constantly looking at the portfolio, and either in the past two or three years we’ve sold off divisions, we’ve sold off [indiscernible], we’ve closed divisions, we’ve shut down the Izod retail business. We’ve really consolidated a number of areas, and I think we’re going to continue to do that.

I don’t see a dramatic move in the next 12, 18 months, something that would be a spinoff or whatever. Every time I look at those models, they sound good when you talk about them, until you sit down and actually try and execute those.

They just don’t make sense, especially when you have a healthy business like our heritage business that operating margins are improving, we’re growing off significant cash flow. I don’t know why we would walk away from that so quickly, so for me, I’m still wedded to that business.

I like the cash flow, I like the usually consistent earnings trends that go on in that business that we can count on as a balance to some of the fashion that we have going on in Calvin and Tommy. So no major plans..

Thank you..

Okay, thank you everyone. I really appreciate the time. We’ll see you in May for our first quarter earnings call, and have a great Easter holiday. Take care. Bye bye..

Again, that does conclude today’s presentation. We thank you for your participation..