Good day, ladies and gentlemen. Welcome to the PVH Fourth Quarter 2019 Earnings Call. Today’s call is being recorded. The Safe Harbor will be read today by Dana Perlman..

Thank you, operator. Good morning, everyone and welcome to the PVH Corp. fourth quarter and full year 2019 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 transmitted 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 April 1, 2020 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.

Significantly, at this time, the COVID-19 outbreak is having a significant impact on the company’s business, financial condition, cash flow and results of operations. There are significant uncertainties about the duration and extent of the impact of the virus.

The dynamic nature of these circumstances means what is said on this call could change materially at any time. Therefore, the operation of the company’s business and its future results of operations could differ materially from historical practices and results or current descriptions, estimates and suggestions.

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

Reconciliation to GAAP amounts are included in PVH’s fourth quarter 2019 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 this release. At this time, I am pleased to turn the conference over to Mr. Manny Chirico, Chairman and CEO of PVH..

Thank you and good morning everyone. Joining me on the call is Stefan Larsson, our President; Mike Shaffer, our Chief Operating Officer and Chief Financial Officer; and Dana Perlman, our Treasurer and Senior Vice President of Business Development and Investor Relationship.

We are all working from home today so I want to thank everyone for joining us on our fourth quarter call. I must comment that it is indeed strange to be sitting in my living room for this call and not in my conference room, but I suppose that is the new normal and I hope everyone is safe and healthy this morning.

We were extremely pleased to how we ended the year. We had a strong holiday season with increasing momentum across Tommy Hilfiger and Calvin Klein in the majority of the regions where we operate.

We had a significant revenue beat of about $100 million and exceeded our earnings guidance on a non-GAAP basis despite the impact from the coronavirus, which was not contemplated in our initial outlook.

If you compare our fiscal year earnings per share results with our guidance of at least $9.45 we had a $0.31 beat out of earning – out of our business outperformance from Calvin and Tommy and a $0.03 beat from lower interest and taxes.

This was offset by a $0.25 hit for the corona inventory reserves that we booked that we recorded at the very end of the fourth quarter, which was not contemplated in our initial guidance.

I believe the magnitude of our business outperformance, especially our sales outperformance given the backdrop that we were dealing with in the fourth quarter, was truly impressive and speaks to the health of our brands and the momentum in the business that we saw in the fourth quarter. We were pleased to end the year with very clean inventories.

Overall, our inventory position was down 7% year-over-year which also was better than the guidance we have talked about. Before I go into our financial results, I wanted to take a few moments to talk about the coronavirus which I am sure is top of mind on everyone in the investment community.

This is an unprecedented time and it’s a rapidly changing situation and our hearts go out to all those impacted by the events that are unfolding. Our PVH people are demonstrating their passion and dedication to PVH with most of our regions working remotely from home to continue to operate our business through this uncertain time.

It has been inspiring to see our people rally together and I truly believe that this demonstrates the power of PVH. The spread of the coronavirus is unfortunately having a major impact on our business with temporary store closings felt across in multiple continents including store closures across Europe, the Americas and Australia.

Our wholesale customers and licensees have been similarly impacted which in turn negatively impacts PVH. Our digital sites and those of our key partners continue to service consumers and we are seeing significant growth there.

Depending on the market we are seeing anywhere from 20% to over 50% growth on online versus last year, which we are balancing with the health and safety of all workers in the distribution center making sure goods get to consumers.

As a reminder, our digital business in 2019 was up approximately 20% globally and now represents about 12% of our total revenues versus 10% in 2018. In China, we have seen some encouraging early signs of recovery. All of our stores have reopened, but stores are operating with shorter hours and approximately 95% of our franchisee stores are also open.

We are seeing some rebound in sales with improvement week over week and for the month of March total business was down only about 35% with digital sales comping up closer to plus 40%. We know it clearly will take some time to return to normalcy and hope that our other regions will follow a similar path to normal business once the pandemic has passed.

Before I go into our business review and forward-looking comments, I want to touch on a few topics given the current climate. The health of our balance remains our core strength. We recently drew down about $750 million from our revolver which gives us over $1.2 billion in cash and available borrowings.

We ended the fourth quarter with a gross leverage ratio of 2.2x and a net leverage ratio of 1.1x. Cash preservation is a critical focus areas of us now. We suspended our stock repurchasing program and also suspended our cash dividend beginning in the first quarter of 2020. Cost-cutting measures have been implemented.

We have taken a hard look at expenses and are reducing or canceling the discretionary spending and variable expenses in many areas to navigate successfully and take the pressure off the business.

This includes our marketing expenditures although we continue to invest in our digital businesses as this is a critical channel for us to maintain our connection with our consumers and to transact globally with our consumers.

As of now, store associates in the U.S., Canada and Europe continue to be paid through this week and next and we are evaluating any and all payroll opportunities and salary reductions, including looking at what different governments are offering as relief packages in each region.

We took a hard look at capital expenditures and now expect to spend around $190 million in CapEx for 2020, about a 45% reduction from 2019 as we have cancelled the delayed capital projects that are not business critical at this time.

On the supply side, our supply chain is one of our key competitive advantages and we have strong relationships with long-term partners.

Therefore, we have been able to reduce our inventory commitments for the fall season and we are redeploying some inventories, particularly core and core fashion from summer to fall and consolidating some seasons, particularly holiday and spring, which will give us more time to make better decisions without making inventory commitments.

As we operate in so many countries around the world, we have a task force headed up by Stefan Larsson, our President, reviewing all options, including government relief and support and different inventory programs that we have utilized in each region. We will take advantage of any government support that’s available to us as it is appropriate.

Lastly, as a reminder in January, we announced our transaction to sell our Speedo business to Pentland, which is expected to close in April of this coming month for our business and we will take advantage of that support of about $170 million that will come in as cash sometime in April.

Before I go into our financial review, I just want to take a moment and reiterate my confidence in PVH and the strengths that we have that will enable us to navigate this crisis. Our brands are iconic with incredibly strong brand health across the board.

We have great consumer brand royalty and we are taking this opportunity to deepen our connection with the consumers even further as we leverage our always-on digital approach. The diversification of our business is a true advantage both from a regional and a brand point of view.

And we have significant category and regional opportunities to further extend our brands after the pandemic subsides. While the near-term is uncertain, I do believe that PVH will emerge from this even stronger given the strength of our brand, our people and our strong competitive balance sheet.

Moving on to the business, we are pleased with the fourth quarter results especially in light of the challenging and volatile global backdrop. Our revenues rose 6% on a constant currency basis, which significantly exceeded our previous guidance and exceeded it by about $100 million.

I think that clearly demonstrates the momentum that we saw in the business, particularly in the December holiday season and into January period, right before the coronavirus hit. Our performance was as principally driven by our international businesses, which represented about $75 million of the $100 million deal.

Europe, in particular, was strong, but also China. In North America, we saw an outperformance against our plans of about $25 million in sales and that was driven principally by our retail businesses, which comped significantly head of our initial plans.

Our brand health in the region or regions is very strong for both Tommy Hilfiger and Calvin Klein and we feel we have significantly outperformed our competition in the fourth quarter. Tommy continued to see an excellent response to its lifestyle offerings, which enables to us to continue to get gain share from regional and global competitors.

Calvin Klein in Europe continued to see great trajectory of growth and we remain confident in the long-term path to $2 billion in revenues, which we just about doubled our business from today as we expanded both category offerings and capitalized on the consumer appetite for the brand.

If we look to the current state of the business in Europe, obviously, the region today is quite challenged due to the coronavirus epidemic. Our stores remain temporarily closed as government regulations and so are those of certain of our key wholesale partners.

Before the COVID-19 outbreak, our strong order books were for both brands plus 12% for three and for full were plus 12% for spring; and for fall, were plus 20% increase in Calvin Klein.

However in light of the crisis, there will be some pressure from our partners and we need to support them through this period and allow some level of cancellations in order to move goods through.

And in order to get inventories back in line, we continue to manage this situation in order to position our both Calvin Klein and Tommy Hilfiger for long term growth in Europe. Moving to North America, we had a great holiday season related to our plans.

Our wholesale businesses performed quite well both Tommy and Calvin, particularly on digital channels where we continue to grow our penetration.

We remain a key account for our wholesale partners, our brands, our traffic drivers in our North America retail business, in North America Calvin Klein posting the 800 basis points acceleration in comp stores relative to the third quarter, which we were very pleased with. Comps overall for the quarter came in at plus 4%.

However, we saw a traffic in sales under the pressure during the fourth quarter due to lower visits on international tourists, especially as we get closer to the Lunar New Year period in January.

This had a particular impact on our Tommy Hilfiger retail business, which has about 40% of its sales coming from tourists and led us to take deeper discounts and markdowns. Currently, in North America, there are clearly store closures for both our own stores and those of our wholesale partners.

These temporary closures are pressuring our business and we expect that we will have to deal with some pressure from order cancellations. As we move forward, we are working with all of our retail partners to manage that and to manage the inventory flow finally for our results in Asia.

I would like to highlight that China has showed a significant improvement in the fourth quarter relative to the third quarter trends with Tommy Hilfiger’s fourth quarter comps up double-digits and Calvin Klein fourth quarter comes flat, but in January, we saw significant increases, particularly in China.

Obviously, this trend reversed with the coronavirus outbreak, where we saw a significant drop in business in the fourth week of January and then moving to February. As I mentioned earlier, majority of our stores in Asia are now open and we have seen resurgence in business which I will go into in more detail.

Let me begin with talking about Tommy Hilfiger. First, Tommy Hilfiger continued to experience momentum during the fourth quarter. Brand health remained strong as we continued to deliver differential product assortments and engaging consumer experiences.

We had exciting partnerships, including our sponsorship of the 2020 Hahnenkamm Ski races in Australia, where Tommy Hilfiger did a full brand takeover. This was in addition to our new capsule collections, including a joint capsule collection with Lewis Hamilton and Grammy award winning singer and song writer, H.E.R.

From a business position, Tommy increased its revenue an impressive 12% in the quarter and 13% on a constant currency basis, which significantly exceeded our revenue guidance about $75 million. However, earnings declined 13% during the quarter, while earnings on Tommy Hilfiger business were up year-over-year during the quarter.

This was offset by several factors most notably the continued gross margin pressure in North America retail business to clear goods as well as the negative impact of additional inventory reserves that were unexpected at the time that we gave guidance and anticipation of lower sales caused by coronavirus.

By segment, our international business continued to show strength with revenues up 22% on a constant currency basis and overall comp stores up 10% with comp store increases, particularly in Europe and China which exceeded our guidance.

Tommy’s European business continued to outperform as they experienced double-digit revenue growth with strength across all channels of distribution in all markets and product categories.

We believe that our market leading position is driven by our excellent product, our compelling price value proposition and strong brand power, which is allowing us to take share from regional and global competitors. Our Asia business posted revenue growth during the fourth quarter. China was very strong for us with comps up double-digit.

We also experienced strong momentum in our Japan business and as a benefit of the addition of revenues from the acquisitions of our Australia and Central and Southern European Tommy businesses. In North America, revenues declined only 2% and margins were down – but margins were down sharply.

We continued to see very favorable trends at wholesale as our brand outperformed competition throughout holiday. However, results for our business – retail business which were planned were extremely challenged as we continued to take heavy markdowns to end the year clean with inventory.

Our global licensing business continued to be very favorable for us, particularly with G-III on our women’s business that continues to be an excellent partner for us and continued to exceed all of our sales plans from the Tommy Hilfiger women’s business.

Despite the current pandemic, we continue having incredible confidence in the long-term opportunities for the Tommy Hilfiger brand from category and risk expansion opportunities and the ability to optimize our distribution network globally. Let me move to Calvin Klein now. We continued to experience brand heat during the fourth quarter.

We deepened our connections with consumers by delivering compelling product, engaging brand experiences and we are providing a platform to self expression for our consumers. Importantly, we made significant progress to reposition and refocus the brand with enhanced product focus.

We recently launched CK Everyone, a clean fragrance, alongside the new CK1 underwear and jeans collection marking our first ever cross category marketing launch that spans both fragrance and fashion. This was a global launch for us, for the brand.

We also debuted the spring Calvin Klein jeans and Calvin Klein underwear campaign featuring new spring offerings and starring Justin Bieber, Le Zang, among other key talent people. Moving to the business, overall revenues decreased 2% or 1% on a constant currency basis.

If you remove the jeans business which was transferred to our G-III partner, business was up over 1% which beat our guidance by approximately $25 million.

The only softness in business that we saw was in Asia in Hong Kong during the fourth quarter driven by the protest that continued which had a major impact on that market position, sales position overall. By region, Calvin Klein international revenues increased 8% on a constant currency basis with comp stores increasing overall by 1%.

And if you remove the Hong Kong business from that comp store number, comp stores increased ex-Hong Kong by 5%. We continue to see excellent momentum in our European and our China business. Consumers responded well to our offerings for holiday and performance was broad-based across our channels, markets and product categories.

In Asia, we were pleased to see notable acceleration in China during the quarter. Our trends were quite favorable before the coronavirus escalated.

During that, we made progress relating to our products and consumer engagement and I think you can see that in the momentum we saw in sales, particularly in December and January as we started to deliver new spring product.

Our digital businesses continued to see excellent growth as the consumer is increasingly shopping online and we added more online activation to drive overall engagement. Overall, we were very pleased with Asia’s performance outside of Hong Kong, which continued to be on impacted by the flow test in the fourth quarter.

In North America, revenues declined 11% largely driven by our decision to license the jeans business to G-III wholesale was a positive story for us, particularly our performance. In the digital channels, our retail business posted sequential acceleration with comps up 4% in the fourth quarter.

We were quite pleased with these results, which were achieved in conjunction with an improvement in and less promotional lockdowns than last year.

As we look past the current global backdrop, we continue to see strong long-term growth opportunities for the Calvin Klein brand, most notably our expansion in Europe which we believe is at least $1 billion sales opportunity for us driving both through all channels of distribution.

As we move forward, we continue to leverage our growth in the digital opportunities and leveraging our growth opportunities across Asia.

Finally, moving to our heritage business, we continue to feel pressure due to the challenging North America retail environment in our heritage brands that really impact moderate price points such as our heritage businesses revenues for the business declined 1% with flat comps in our own retail stores.

Operating margins remained under pressure as planned as gross margin expansion in the business was offset by expense de-leverage on the expense side.

We will continue to look through additional ways to optimize and streamline the heritage business in the future to generate enhanced returns and we remain on track as I mentioned before with the sale of our Speedo business, which should occur in April.

Before I pass this over to Mike, I want to highlight the PVH’s 140-year history is marked by a strong resiliency. We have overcome countless challenges, including the great depression, two world wars and the great recession in 2008.

As move forward, we have tremendous opportunities across PVH’s business model, some capture long-term sustainable profit growth from driving meaningful engagements with our consumers to continuous improvement in product at Calvin Klein to capturing the global distribution opportunities for both Calvin Klein and Tommy Hilfiger and we continue to look for ways to optimize our business model whether through the supply chain or through efficiencies across the business.

I believe that our core strengths are talented people, our iconic brands and our strong financial fundamentals and our balance sheets. Our conservative balance sheet will continue to serve us and key competitive advantages for us as it will allow us to come out of this crisis stronger than we came in.

And with that, I would like to turn it over to Mike to talk about the financial results in more detail.

Mike?.

Thanks, Manny. The comments I am about to make are based on non-GAAP results and are reconciled in our press release. I am going to deeply touch on the fourth quarter of 2019 then move on to 2020 our reported revenues were up 5% and up 6% on a constant currency basis and revenue grew much stronger than our previous guidance.

Tommy Hilfiger revenues grew very strong at 12% reported and 13% on a constant currency basis and far exceeded our previous guidance. Tommy Hilfiger international revenues increased 20% as recorded and were up 22% on a constant currency basis.

And Tommy Hilfiger international revenue increase was driven by continued outperformance in Europe and the revenue from our Australia and Tommy Hilfiger Central in Southeast Asia acquisitions. International comp store sales were up 10%. Tommy Hilfiger North America revenues declined 2%.

Growth in the wholesale business was offset by North America comp sales down 6%, primarily due to the lower traffic in spending in our stores in the international tourist locations. Our Calvin Klein revenues were down 2% as recorded and decreased 1% on a constant currency basis and were better than our previous guidance.

Calvin Klein international revenues increased 6% as reported and were up 8% on a constant currency basis driven by continued growth in Europe and the revenue from our Australia acquisition partially offset by softness in Asia due to the Hong Kong protests. Our international comp store sales were up 1%. Calvin Klein North America revenue decreased 11%.

Our wholesale business revenues were negatively impacted compared to the prior year by the licensing of our women’s jeans business to G-III. North America comp sales were up 4%. Heritage revenues were down 1% to the prior year and below our previous guidance. Our Heritage retail business comp store sales relatively flat for the prior year.

Our non-GAAP earnings per share was $1.88, which was $0.09 better than our previous guidance. The EPS beat versus previous guidance was driven by outperformance in our Tommy Hilfiger and Calvin Klein businesses for approximately $0.31 and favorable interest and taxes of $0.03.

These beats were partially offset by additional inventory reserves we needed to approximately $0.25 because the onset of the virus occurred in Asia at the end of our fourth quarter. For the full year 2019, we ended the year with record revenue of $9.9 billion, an increase of 3% versus the prior year and non-GAAP earnings per share of $9.54.

Moving on to 2020, our first quarter and full year 2020 results will be significantly negatively impacted by the COVID-19 pandemic. The duration and extent of the pandemic is highly ununcertain and our results could be impacted in ways we are not able to predict today.

As a result, we are not in a position to issue guidance for the quarter or fiscal year 2020. We are monitoring the situation closely with regard to our associates, customers, business partners and supply chain. We feel we are well-positioned to manage through these uncertain times.

We ended 2019 with cash of $503 million and with inventory levels down 7% compared to the prior year. We are taking a number of steps preserve liquidity and financial flexibility.

We feel very comfortable with our liquidity position as we have drawn down from our revolving credit facility in addition to suspending share repurchases under our stock repurchase program. Our mandatory long-term debt repayments in 2020 are only $14 million.

In addition to suspending our cash dividend beginning at the second quarter of 2020, our previously announced dividend is paid on March 31 that was not impacted by the suspension. We are reviewing every opportunity to eliminate discretionary spending.

We are cutting capital expenditures to approximately $190 million from $345 million in the prior year, with capital expenditures only for minimum requirements in our retail stores and for projects currently in progress related to systems and warehouses.

We are also reducing operating expenses, including reviewing payroll opportunities and reducing all non-payroll expenses, including creative marketing and travel. We are also tightly managing working capital. We are adjusting inventory levels by cancelling and delaying orders.

We are extending payment terms to both merchandise and non-merchandise vendor invoices and suspending the payment of rent temporarily and delaying or cancelling prime new store openings.

Also as a reminder, our sale of Speedo North American business to Pentland Group Plc, with parent company of Speedo brand, is expected to close in the first quarter of 2020 for $170 million cash subject to working capital adjustment.

We will give guidance for future quarters and knew once there is more clarity on the impact and duration of the COVID-19 pandemic.

As we work through 2020, our financial discipline will help us take advantage of the opportunities available to us, to expand the comp pressures on our business and emerge in the crisis well-positioned to capture long-term sustainable profitable growth. And with that operator, we will open it up for questions..

Thank you. [Operator Instructions] We will take our first question today from Bob Drbul of Guggenheim Securities. Please go ahead..

Good morning. Manny, I hope you are doing well. You didn’t give us an update today, but hope everything continues to evolve [indiscernible] I do have a couple of questions.

I think the first question that I was hoping you guys could expand upon is generally, when you look at the channel globally and you did talk about the need for some markdowns and cancellations.

Can you just talk through exactly where you see the biggest concerns on your inventories in the channel and what’s coming over from Asia and your sourcing? And then the second question, I don’t know it’s probably for Mike.

Mike, can you just talk a little bit about the biggest buckets of expense opportunity as you think about where you could pull the levers whether it is payroll, whether it is rent, even on the marketing side, just sort of how you are really approaching as you could stand upon those two questions? That will be great. Thank you..

Bobby thanks for the question. Everybody just get out of the way. I feel fine. You saw me on TV yesterday. I am one of the fortunate ones of the, whatever symptoms I had have been unbelievably mild and I have been able to continue to work and operate and focus on the business.

From a – spring summer inventory is the biggest issue that everybody is dealing with. First, goods are coming in. Goods have been ordered.

Prior to the pandemic and the crisis, as we ended the year with our inventories down 7%, I could tell you we were going in, in the channel department stores across the board in North America, Asia and Europe in our own stores, we were going into the year very clean and feeling really good with tremendous amount of momentum.

I got to tell you we were really feeling great in January before this all hit us and felt we were going to be starting the first quarter with the tremendous amount of momentum and the ability to continue to grow margins and add to our top line growth. Obviously, that all changed within a couple of week period of time.

The biggest challenge we are facing is that we have lost – we have to assume that stores are going to be closed at a minimum through April here in North America and Europe, our two biggest markets. And we have lost at least 6 to 8 weeks of spring selling and spring selling in the heart of the season. So I mean you have to think of it that way.

When you think about Easter, when you think about March, April, that’s the heart of the season as you are going into it, that’s your biggest areas of doing full-priced selling as you go in, so that losing that anywhere from 6 to 8 to 10 weeks of sales is really where the pressure point is going to be.

And what we are looking at and Stefan has really taken on this with the regions and our brands across the board is what we are really looking at that inventory making some judgments about what we should promote and liquidate through our own stores or through some partner accounts to really go after it.

The other piece that we are really looking hard at there is what should we repurpose and utilize to sell into the season – to sell through the season as we go forward.

And we are looking at the ability to potentially pack and hold some really good merchandise that’s in the warehouse that we will use and maybe have to carry for a few months to bring it out as we go forward. So we are looking at all of those from a channel point of view as we think about inventory.

When we think about inventory for fall, we have done a lot of things for ourselves.

Stefan has worked with the teams with Daniel Grieder in Europe, with Tom Chiu in Asia and Cheryl and Ken Duane here in the United States to really look at the inventory pipeline and with our logistics teams to really look at how that pipeline would be worked, try to push out with our partners to push inventory commitments out at least an additional 4 to 5 weeks.

So we will have some more visibility. We will have – we have been able to have deep conversations with our retail partners about what makes sense to cancel and what really is necessary as we go forward. So we are trying to balance that as we look at it. I think it is the risk reward today is to have less inventory and chase later if we need more goods.

The best story if we are sitting here in the third quarter of this year and I am sitting with you telling we are low on inventory and we are chasing fall that would be a real excellent problem to have as we go forward. Mike are you going to take the second part of the question.

Sure. Hey Bob. As it relates to expenses, sort of the big buckets, we are very focused on virtually any discretionary expense.

So when you think about what that means for us it is basically we are taking hard look at payrolls we are taking a hard look at salary reductions we are taking a hard look at marketing any expense that is actually discretionary, obviously travel has gone to zero now and we are clamp down on any travel moving forward and it will just be a matter of doing the right things in the short term to be in the position that when things do get better and we do open we have the base ready to move ready to step up and ready to reopen with the appropriate tools at their availability.

So we are making every discretionary cut we can at this point really it is anything discretionary..

Thanks and welcome. Good luck..

Thanks, Bobby..

Thank you. We will now move to Erinn Murphy of Piper Jaffray. Please go ahead..

Great. Thanks. Good morning and hope you all are staying as healthy as can be. I guess my first question is on digital. It sounds like it is relatively outperformed particularly as you’ve shuttered the stores across the globe.

Can you just talk a little bit more about what you are seeing there and may be using China as kind a launch point just given we have seen a bit more of recovery there.

And then within the 190 million CapEx budget for the year, what are the biggest buckets there? And how is digital and data investment kind of prioritized within the CapEx budget this year? Thank you..

Sure. Mike, I am going to answer the first part, you will take the CapEx. So just give me a moment to just respond, look the digital transactions has been the bright spot throughout this.

It is even before the coronavirus we were seeing 20% growth in our digital business and our penetration for 2019 we have always talked about 10% has grown to 12% overall digital penetration to PVH.

I think this pandemic is only accelerated that not only in the short period of timeframe but I think it is also impacted way consumers are going to shop going forward.

I think I was on Mad Money last night being interviewed and I talked about it I always had a general belief and I think I have spoken on a number of calls and conferences about that over the next 5 or 6 years we are going to continue to see consolidation in retail industry and we are going to see wholesale apparel industry and I thought that would be a 5 or 6 year path.

I think this pandemic accelerates that. It accelerates the consumers’ comfort level with buying apparel online. I think it accelerates the potential store closures and the C and D and E stores closing as we go forward and we will get to a healthier store base. We have always talked about that especially in the U.S. with various too many stores.

Our sales per square foot per capita are by far the highest in the world. And it would be healthy to see that happen. But obviously it is also going to be painful as we go through that process. I think what we are seeing in digital and the kind of growth market by market we are seeing usually anywhere from 20% to 60% growth depending on the channel.

In China our penetration continues to grow. We were somewhere in the neighborhood of about a 15% penetration in China. And I think that this year it wouldn’t surprise us if that moved to 20% as we see an outsized growth in our digital channel. We are growing digitally between 35% and 40% our digital sales and that has very high margins.

So we are not out there promoting. We are out there connecting with our consumers but we are not doing from a price point basis. We are doing it at a very positive level. So I think that’s a bright spot and I think it will continue to be a bright spot.

And on the cap side that’s – capital expense side that’s one area where we haven’t backed off, continue to make investments to support that business.

Mike, you want to talk about the CapEx?.

Yes. Look, I think you said it, we took out CapEx down from $390 million to $190 million. And basically we have cut out discretionary. So what we have seen is we have taken out renovation as we have taken anything that doesn’t have to happen. The one place we have left dollars in is to stabilize, expand and grow our digital business.

That includes e-commerce. It also includes our consumer data efforts. It also includes not just our owned and operated e-commerce, but gateways, pathways and support to work with some of the bigger players in the pure-play area. So that’s still in our plans and we hope to execute that on that this year..

I am trying to direct this call. And the person, besides our China manage – country management team and the person is probably closer to this and has really been working directly with Tmall in particular is Stefan.

Stefan, maybe you could just take a few comments about the relationship and some of the things that are happening and we plan to see happen in that channel..

Yes. Thank you, Manny and hi, Erinn. When it comes to managing through the crisis with the regions and in particular with Europe and China where we have also in North America, so when it comes to e-commerce overall let’s manage that, we see strong comps across the board. And what we are doing is that we are working in Europe closely with Zalando.

We are working with Amazon in North America and we are working very closely with Tmall in China. And some of the product launches that we have planned coming in before noting about this crisis is we have redirected even more focused digitally and it’s worked really well. One example is the CK1 product launch that Manny mentioned.

And through this crisis, we partnered up with Tmall and had a very successful activation, very good reception from our consumers..

I would add – the only other thing I would add in North America on the digital point of view was with our key accounts, particularly Macy’s, the macys.com business continues to be strong for us. And we continue to have strong consumer connections there and seeing really strong growth as they try to redirect. We will take the next question, operator..

Thank you. Our next question is from Jay Sole of UBS..

Great. Thanks so much and good morning. My question is on promotions because one feature of the situation is it’s not just one company that has an inventory challenge to deal with. It’s every company that seems like a global issue.

How much do you pump promotion do you think it’s going to get out there and what kind of impact might have on gross margin generally speaking?.

Listen, I think that’s the big question and I think we are – look objectively speaking, this is not an industry that has had across the board great inventory control metrics in place. That said, I think as we came out of holiday going into first quarter.

There was a tremendous cleanup that went on in the fourth quarter across the board to get inventories back in line.

So at the end of January what we saw as a bright start was inventories that were really under control throughout the channel, department stores, North America, Europe and then even competitively everyone took advantage of the good selling that was going on overall.

And everyone saw some level of margin pressure when they reported earnings, but I think the big piece of that margin pressure was the objective to make sure inventories were clean as we went into 2020.

I think inventory was bought with more discipline, because you heard us all complaining on our third quarter calls about open-to-buy dollars being so tight and the retailers are trying to get turn under control.

So that’s all true but I also think that there is going to be a significant amount of inventory the loss of lets say 8 weeks of selling in spring will make the environment promotional and leave plan for that in cash flow we plan for that in our projections and I think it is going to be a reality for a period of time.

Maybe just one more if I can add on to that as far as like the seasonal goods you talked about some of the core and core basic I think we can shift to how much possibility there were those core items there may be leave them in a distribution center until a year from now to the next season and may be that they have a longer shop life and people realizing this environment how much can you sort of just assume it there is not a lot of sale happening you can just hold on to that inventory for maybe a longer period of time.

And so in the future without have to take maybe super big mark downs on those items?.

Yes look I will give a quick answer and then I will just ask Stefan to really comment on that inventory management but I think pack and hold which we are historically not been big believers in we try to turn the inventory into cash the old story is in apparel if you're having a sales problem, this is not like wine that gets better with age.

Your inventory gets worse.

This is a completely different situation and we have to have a completely different mindset and I think a lot will depend what the off price promotional market looks like how aggressive we would have to be in order to clear goods and if it is too aggressive I think we will do exactly what you said and we will pack and hold core that does not have a big seasonality to it and then core plus that has a level of seasonality to it I could see as packing it up for a period of time because there is the goods haven’t hit the floor the goods are in stale I don’t believe the goods would be out of cycle or from that point of view we will take a hard look at that and balance that with our cash flow and balance sheet requirements but given the strength of our balance sheet I think it is something that we will have as a tool that a lot of our competitors that are not merely as well capitalized as we are and not going to have the benefit of carrying goods to 6 or 9 months to get to spring next year and have quality goods to sell so that model is being used extensively by the off price channel the T.J.’s and the losses and I think we are going to have to take a lesson out of that and maybe we will have to park some inventory for a period of time interest rates are very low and we take advantage of that as we go forward Stefan I hope I left you something to comment on..

Yes, thank you Manny and hi Jay.

When it comes to the inventory and receipts parts of navigating through the crises we are starting the most important first step is that as soon as we saw this coming playing out we close everything that has not been cut so we brought ourselves time to take the right actions and then if we look at the inventory that is more to its core it is a strength that we have both in Calvin and Tommy we have a strong core a lot of essential products that are less seasonally dependant and we also have a replenishment system there that gives us much value opportunity to react when it comes to the more seasonal part of the assortment the time we're taking while we have this freeze is to plan through what we're going to redirect and how we adjust flow timing as Manny talked through how we adjust volumes so we have significant opportunities to, in this very difficult situation, try to optimize inventory and receive as much as possible and then with the then be the biggest strength being our core..

Thank you so much..

Next question operator..

Thank you. Our next question is from Michael Binetti of Credit Suisse. Please go ahead..

Hey guys. Thanks for taking my questions Start with saying nice job over the holiday.

Manny, you mentioned last night, I see that you mentioned last night I see that you think that this could cause some consolidation in the industry Does that mean the retailers or do you see the brand starting to merge? And you said you think this could accelerate some of the structural pressures industry has faced over the last few years? And the last time you said that from memory was a couple of years ago and it proved quite fresh and we saw inventories in the channels that changed down a lot lower into hundreds of closures across the department stores, you have said that.

What are you seeing today that drove those comments is your thoughts have been very helpful in the past?.

So, look what we are – we think there is a personal opinion, but I think it’s – and I think it’s shared by many. If the retail industry, the department store and specialty store, apparel area, fundamentally, there is too many stores. And I think you start with that as a premise.

Also the consumer getting more and more comfortable shopping online, I think the winners are going to be those, the retailers that invested in the online capabilities, I believe in the omni-channel approach.

Brick-and-mortar is not going away, but it needs to be coupled and it needs to be aligned with your digital strategy and it needs to be an experience of the consumer that the consumer has that has no disruption in it.

It needs to be clean and it needs to be able to flow directly to them and it needs to be experienced that doesn’t have a lot of problems in it.

And I think a number of our players in North America, Macy’s has made major investments there and Nordstrom and a couple of other key players, including Kohl’s, has really started to move in that direction and I think you are going to see more of that. You are seeing retailers doing curbside pickup and I think that’s what we would want to continue.

I think so those type of things I think are going to accelerate that thought process. The other thing is there is a reality to this situation and I think balance sheets are going to be stretched. Valuations are dramatically down from where they were just 2, 3 months ago when we opened the year.

And given that, I think there is the opportunity – there will be the opportunity to potentially do acquisitions and bring players together and the old story that one plus one equal four. We are particularly in a retail situation.

There is tremendous leverage to get from your fixed cost and your back office being able to spread the investments over a larger base that you need to make in your digital investments, all of those things taking into play. Prior to the pandemic, I felt we were going to see consolidation in the industry.

I think the pandemic has not done nothing but accelerate that. It’s not matter what happens here, balance sheets will be weakened from where they were prior to this. Valuations are going to be lower. And I think given all that dynamic I think there will be opportunity for consolidation. And I think you will probably see an acceleration in store closing.

That’s my theory. And I think it’s good way though for us to think about how we have to plan the business and how we have to think about it strategically..

And if I could follow on that, I generally agree with that, obviously the retailers didn’t come into this period with a model for an extended period of zero revenues across their businesses. So we have done some work looking at the retail side and just based on a few reasonable scenarios.

It looks like until we get better visibility on how long these stores are going to be closed in U.S. and Europe, there could be some liquidity concerns on the retailer side.

So I am just – I am curious what are you – how are you thinking about your business and what you are going to have to do to help the retailers manage inventory as they can cut solvency and liquidity here in the near-term in ways they haven’t had to you in several years?.

That’s, look, yes, that’s a major issue in our thinking as we go forward. It’s a major consideration as we plan our inventory buys.

We look at the North American landscape and these are – we look at our customer base which has historically been a very financially successful group of companies that are – that in normal times are well capitalized and positioned that we really don’t give much draw to credit being a major issue for these players.

We have had to deal with some levels – with some weaker players like Sears and whatever that went on years ago. But as we look at our major customers, it hasn’t been.

We have to take that all into consideration as we plan and moving forward I think they have plenty of levers to pull including their real-estate has potentially cash-generating assets that help – may help them get through this as they move forward and like you said a lot is going to depend if the stores open up in May I think its everybody it is back to getting into business but if it is three months after that I think then there is going to be a real liquidity crises as we got forward and there is going to be winners and losers and potential financial hardship that comes with that we are going to we are trying to plan accordingly..

Thank you so much guys..

Thank you. We will move to Ike Boruchow of Wells Fargo. Please go ahead..

Hey good morning everyone and Manny best wishes to you and your family as well. I guess maybe to add on to Mike's question. When you think about not necessarily retail business and retail volume and what happens in stores reopen but specifically on U.S.

wholesale side when start business together and think about a recovery in the 21 how do you think about that component in the business.

Do you think about it as the light switch goes on, and all of a sudden, volumes go back to 2019 levels is there a portion of our business that may be does that but another portion that may be takes a year that 3, 4, 5 years to get volume back I am just trying to understand how you think that your partners in the U.S.

will begin reorder activity and begin to take volumes inventory up again? Thank you..

Okay. I think there are two questions in here. What do I think how we are planning the business when stores open.

We are going to use the China model because I think it is the best model we have it is also the one that makes the most sense to us so just to put that into prospective what that means for us in China what we came into December January popping 5% business very strong the last week of January through February when the stores close and there was disruption in China and we saw the business go down to not minus 85% 90% basically everything was being done digitally beginning end of February business opened and for the month of march our overall our business in China is back to about 65% in the last week its probably close to being back to 70% of the business digital continues to be very strong what we are seeing is in major cities like Beijing and Shanghai we are seeing those cities that are driven by in some respect international tourism and we have the controls and store hours where the controls are tighter on movement and where the tourism has been a big intact on that business in those two cities the original tourism going on those two cities are feeling it’s much more when the rest of China at large so just give you sense of where we are we are expecting that as we get into the month of April that minus 30% we will move to minus 20% and then we get into May minus 20% we will move to minus 15% to 10% and what we are assuming when we get into the second half of the year we will start to assuming that the pandemic goes the way we hope it does that business will start to get back to more normal level as we get into the second half of the year that is how we are planning it I think that is a prudent way for us to plan the way North America will come back as well I don’t think when the stores open the first thing consumers are going to do are going to run out to buy apparel and accessories and get online and going to stores immediately I think it is going to be a ramp up as that happens to people get more and more comfortable with the situation and I think that’s how we are planning it hope that was helping.

Yes.

And Manny it would be helpful if you could think about the whole I am also concerned about the wholesale business and the reorder activities?.

I think also right what you are saying is what do I think department stores sales trends will be I think there will be exactly what I just said. I don't know what – I think the Macy's did.

I think a retailer that's got big urban stores that have a big tourist component associated with that I think those will ramp up slower and I think the middle of America, I think not – the non-mall-based retailers that are in strip centers or whatever, I think that the likelihood is I think those will come back stronger.

So I think that’s the picture that we are looking at and as we are planning inventories that we're thinking about. I guess that, that is anybody's guess..

I understand. Thank you very much. It’s very helpful..

And I think this will be our last question. It’s already 5 we have to plan and we are goanna try to get back to learning the business from our living rooms..

Thank you. We will take a final question from Kimberly Greenberger of Morgan Stanley. Please go ahead..

Great. Thank you so much for scooping me in.

Manny, you mentioned that in aggregate I think your March sales declined to 35%, I assume this is a global number and I imagine?.

No, no Kimberly, wait a minute, Kimberly 75%, we were talking about Asia, we were talking about China. United States is closed.

So what’s the question?.

Okay.

So that is a big clarification so I thought in your prepared remarks when you mentioned March sales are down 35% I thought you were referring to you global number or to North America not China?.

At the start I was specifically speaking about China and trying to give you a sense when stores reopen what do we see..

Okay. Got it.

any comment I am sorry?.

Nothing go ahead Kimberly..

Anyway for us to think about March or February and March total company global revenue basically where are you quarter-to-date on a global basis and I think the path that you laid out for China is extremely instructive, and we can certainly roll that through geography by geography based on the virus spread but if you care to shred any light on where you guys are quarter-to-date that would be very helpful and then your leverage calculation that you shared with us are you factoring in store operating leases into that leverage or what are the specific metrics that are going into your leverage calculation? Thank you so much..

Okay, I am going to – Dana will take the question after I answer the first one. Dana, I will take the question on the leverage and this way I don’t screw it up. Kimberly, we are not giving guidance. So we are not going to give you an update on sales right now. But, let’s put it into perspective. The stores shut down in the middle of March.

There is no sales going on in brick and mortar, in Europe, in North America, in Australia, in Brazil are our major markets. The only think that’s opened up and I gave you the exact sales trends what’s going on in Asia is Asia that’s opened up.

And in Asia our big markets, China, I talked about in detail, our career has bounced back the strongest for us. There, our March business is only down about 20% and the last week was only down about 10%. And Japan seems to be following pretty closely to what’s going on in China.

Those are our 3 big markets in Asia and that’s what gives us a level of confidence about how we are thinking about planning to business once it’s open. It’s very difficult to give to Cap any sense of what sales we are going to be because I have no crystal ball that’s going to tell me when stores are going to be opened.

I could tell you pre-coronavirus sales trends comps were very strong throughout and then as the coronavirus started to impact us in February, with tourism or whatever we started to see our comps get impacted to a degree but then and then stores closed.

But overall, we were still pretty happy with kind of sales, we are doing and up until the very last week when stores around us were closing and people were starting to huddle in, our business was off at probably around 50% overall, which we felt was really good given what was going on, on a store basis, but that was the kind of trends we were seeing right before the stores closed for that week for that 10-day period.

Prior to that, business has been very strong for us. So I hope that helps, but trying to do modeling or whatever is really very difficult now.

Dana, you want to talk about the leverage?.

Yes. Thanks, Manny and Kimberly. Just on the leverage that we quote is gross leverage. It does not include leases. So gross leverage 2.2x little bit to EBITDA, net leverage 1.9x and net debt to EBITDA. Thank you. Manny, I will hand it back to you..

Okay, everyone. I thank you for the time today. I appreciate everybody joining us. Everybody please stay healthy, stay safe. You are all in my thoughts and my prayers and take care of your families. Thank you for joining us.

Hopefully, we will be speaking to you on our second quarter call and we will do it – we will be doing it more normal state back in our offices. Take care..

Thank you. Ladies and gentlemen, that will conclude today’s conference call. Thank you for your participation. You may now disconnect..