Good day and welcome to the PVH First Quarter 2022 earnings call. Today’s conference is being recorded. At this time, I would like to hand the call over to Sheryl Freeman. Please go ahead, ma’am..

Thank you, operator. Good morning, everyone and welcome to the PVH Corp. first quarter 2022 earnings conference call. Leading the call today will be Stefan Larsson, PVH’s Chief Executive Officer; and Zac Coughlin, Chief Financial Officer. 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 to be discussed includes forward-looking statements that reflect PVH’s view as of June 1, 2022 2022 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 a 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 pandemic, global inflationary pressures, and the war in Ukraine continue to have impacts on the company's business, cash flow, and results of operations. There is significant uncertainty about the duration and extent of the impact of these events.

The dynamic nature of the circumstance 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 estimates or suggestions regarding revenue or earnings. Generally, the financial information and projections to be discussed will be on a non-GAAP basis as defined under SEC rules.

Reconciliations to GAAP amounts are included in PVH’s first quarter 2022 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’m pleased to turn the conference over to Stefan Larsson..

Thank you, Sheryl. Good morning, everyone and thank you for joining our call today. We are pleased with our first quarter performance where we beat our guidance for both the top and bottom line, and our business experience continues strength and delivers strong underlying double-digit topline growth.

Through the disciplined execution of the PVH+ Plan, we are confident in the sustained momentum of our overall underlying business trends and we are reaffirming our annual guidance for constant currency revenue growth, EPS, and a 10% EBIT margin, which includes maintaining our strong gross margins and speaks to the strength of our overall business.

For the full-year 2022, we will drive underlying double-digit top and bottom line growth.

While we are mindful of the volatile overall backdrop, including continued temporary lockdowns in certain markets, and new supply chain disruptions in China, the war in Ukraine and inflationary headwinds, we are prudently managing our business in a way that positions us to drive sustainable, profitable growth, and create long-term value.

Having introduced our strategic growth plan, the PVH+ Plan at our recent Investor Day, this quarter's performance is just the beginning of our multi-year journey to unlock the full potential of our company and our two globally iconic brands Calvin Klein and Tommy Hilfiger. As a reminder, the PVH+ Plan is first and foremost a growth plan.

It's a brand, digital, and direct-to-consumer led plan underpinned by five growth drivers. One, we will win with product as we create the best Hero products in the most important product categories.

Two, we connect those Hero products to the consumer and the biggest consumer moments, with our iconic brands as platforms for creative partnerships to win with consumer engagement.

Three, we will win in the digitally led marketplace through our direct-to-consumer digital first approach, which creates the pinnacle experience of our brands, while supercharging our e-commerce business across regions.

Four, we are developing a demand and data driven operating model that connects the planning, buying, and selling of inventory closer to demand to increase speed and flexibility. And five, we are focused on driving efficiencies and further investing in initiatives to fuel our growth, and at the same time improving our overall cost competitiveness.

For both of our brands, these five growth drivers come to life in our regions where we will fuel the market leading strength we have in Europe, accelerate our growth in Asia, and unlock significant opportunity in North America.

Through the PVH+ Plan, we have the focus and the tools to position PVH and our brands to win with the consumer and drive profitable long-term growth in both challenging and favorable macro types. Zac will provide more detail on our financial commitments and our financial performance for the quarter.

Let me now turn to our regional update and share how the PVH+ Plan comes to life across each region. Starting with Europe, the region delivered double-digit revenue growth on a constant currency basis supported by solid gross margin expansion from strong full price selling and a higher share of direct-to-consumer.

As we further build on and [fuel] the market leading strength the region has delivered over the last few years. Europe continues to execute in a systematic repeatable way generating consistent profitable growth on an underlying basis, high brand awareness and a premium positioning through its strong consumer base and leadership in digital.

Despite the macro challenges with the war in Ukraine, the underlying business performance in Europe remains very strong with performance closely aligned to the PVH+ Plan growth drivers driven by strong product execution across both Tommy and Calvin, combined with a market presence that allows us to very closely follow where and how the consumer wants to shop, both in stores and online.

You might recall that in the first quarter last year, the region faced significant temporary store closures due to COVID. This led to unprecedented growth in demand in our digital channels.

We have since seen stores open up and the consumer going back very strong to brick and mortar for both Calvin and Tommy, and online shopping behavior returning to a more normalized rate, although importantly, still significantly above pre-pandemic levels.

This is an example of what we do better than most others to have the seamless flexibility to follow the consumer when they shift from one channel to another. Overall, sell out at full price remains very strong and shows the strong consumer demand for both Tommy and Calvin.

We have seen strength in elevated product categories such as denim, shirts, woven tops, as consumers shop for more refined styles, while also further expanding lifestyle categories such as footwear.

We continue to experience strength in our future order books for both brands with full holiday 2022 now finalized [than] [ph] up double-digits versus the prior year. Moving on to Asia.

During the quarter, the region was heavily impacted by significant COVID lockdowns in China, which caused stores, as well as warehouse closures, negatively affecting our retail, wholesale, and e-commerce business there. However, in markets such as Korea and Australia, we have seen a very strong sales recovery.

As we continue to navigate COVID resurgences, we remain excited about the significant long-term potential to accelerate growth in the region. Our brands have a clear premium brand and product positioning with the opportunity to grow further in all markets. We continue to lean in to further increase overall brand awareness.

especially in China where both Calvin and Tommy are underpenetrated. Under the surface, we made important progress across each of the PVH plus plan growth drivers. We drove strong performance of Hero products aligned with marketing support and locally relevant talent across all channels.

We continue to drive engagement through impactful brand campaigns focused on key consumer moments. We're now gearing up for 6/18 Chinese Valentine's Day with each of these events supported by unique product capsules. We are creating a consistent and seamless consumer experience no matter where the consumer shops in the marketplace.

We're innovating by accelerating new platforms for digital commerce, including social, digital gamification, and personalization. We see success in consumer engagement and sales traction across various live streaming formats such as on [indiscernible], where our events are generating significant increases in GMV and new followers.

Tommy [eight plus] [ph] live streaming ranked number one. And for Calvin's new fashion event, Calvin Klein jeans ranked top three among international men's wear brands and Calvin Klein underwear ranked top five. Turning to North America. As we shared at our Investor Day, both Calvin and Tommy remain highly relevant with today's consumer in the region.

However, we recognize that we're on a multi-year journey to unlock the significant opportunities we have in the market. We continue to intensify our focus on the domestic consumer, while international tourist traffic still remains significantly below pre-pandemic levels.

As we previously guided, we continue to work through significant COVID-related inventory delays during the first quarter and we expect our inventory positions to gradually improve in the back half of this year.

Despite these challenges, we see important progress in the region, including, we are driving significantly lower promotions and are able to sell through our products at higher AURs. We’re driving increased product strength through our Hero product focus and the consumer is responding positively to newness for both Calvin and Tommy.

For Calvin, we continue to see strength in underwear, in addition to the launch of new Hero products such as the smooth cotton polo and tee, which have been highly successful. We also see great strength in refined categories like dress shirts, which are up significantly versus last year.

For Tommy, we are increasingly leveraging our global bestsellers and essential styles with strong brand DNA and driving strong increases in AUR. We are highly focused on meeting our consumer where they want to shop our brands.

For us, this starts with digital where our target consumer is increasing their shopping the most, and direct-to-consumer where we are in control on the whole brand experience.

As we increasingly grow these channels, which we previously had underinvested in, this will over time rebalance our distribution footprint in a healthy and disciplined way to drive higher quality sales and long-term sustainable growth.

Looking ahead, [bolting] [ph] D2C and together with our key wholesale partners, we will better leverage the strength of our brands by building increased product strength, driving consumer engagement, and taking a segmented approach to each channel to position the region for more sustainable profitable growth over time.

An important specific driver for this already in place for the back half of this year will be our improved inventory position, which will enable stronger in-stock levels with our key Hero products. Next, I'll share a few key global brand highlights and how we are bringing each brand to life for the consumer beginning with Calvin Klein.

Global brand awareness remains high with a continued increase in consideration to purchase. The brand's product strategy is rooted in creating the best Hero products for our target consumers through high quality modern essentials designed with purpose.

Through this approach, we are creating newness while maintaining the iconic strength of our product and brand. We continue to focus on social platforms relevant to the younger Gen Z consumer.

Last month, we introduced a global hashtag challenge on TikTok across 10 countries, generating significant viewership of the #onlyinmycalvins, while we continue to drive engagement through Instagram, which hit 22 million followers in May.

In April, we launched CK1 Palace, a collaboration with London-based streetwear brand Palace with record sell-outs and high consumer engagement across the globe. Following a strategic marketing campaign, including short films, social media posts with key talent, at launch there were lines around the block at Palace stores in London, Tokyo, L.A.

and New York, emphasizing our global reach. Our approach generated high global influencer earned media value and we sold through almost everything in the first week of the campaign, with 85% of the purchases by either new tower site or reactivated consumers.

And these particular consumers drove greater value spending over 60% more on average than our current consumer. The underlying drivers of this campaign are important proof points for the PVH+ Plus approach to driving consumer engagement. We connected our iconic brand to culture.

We created energy in key product categories and a halo around our most important Hero products. And we attracted a young digitally native consumer, supercharged e-commerce, and cut through the noise in media. Lastly, I'm excited that Jonathan Bottomley will be joining the brand as Global Chief Marketing Officer.

Jonathan is a transformational marketing leader with a proven track record who has deep expertise across all aspects of marketing. He brings over 20 years of global experience from both best-in-class agencies and in-house having been the global CMO for Ralph Lauren.

Jonathan’s leadership will help us win with the consumer and increase our brand relevance even further by leaning into the many strengths of the Calvin Klein brand. Moving on to Tommy Hilfiger, Similar to Calvin, brand awareness remains strong and we have seen recent increases in relevance.

Tommy's product strategy is rooted in its classic American style essentials, always with a twist to make them current, generating a global and timeless appeal.

From a consumer engagement perspective, our brand campaigns are focused on driving global relevance, while also considering the regional differences today of consumers to always be relevant for local audiences.

For example, in Europe, our Tommy Hilfiger Make Your Move and Tommy Jeans play to progress spring brand campaigns successfully drove consumer demand in key markets. In addition, to celebrate the Tommy Jeans pop drop capsule and the Tommy Jeans TikTok account launch, we activated a number of global influencer partnerships with very strong results.

Lastly, I'm excited to share our new Play It Forward long-term partnership with Canadian singer songwriter, Shawn Mendes, which builds on our iconic style and shared vision for a better future.

The collaboration launched last month with Shawn fronting the classic reborn campaign features a collection fully made from more sustainable materials from our iconic 1985 program. For Tommy, this collaboration also connects to the underlying drivers of the PVH+ Plan.

This campaign stays true to our successful history of brand collaborations with people who shape culture. It amplifies our iconic Hero products. It highlights our sustainability efforts, and drives heat and relevance for the brand.

Early consumer REITs are very strong with a highest positive sentiment score ever for a brand campaign, strong social engagement and a direct positive impact on traffic to e-commerce and stores. In closing, for both Calvin Klein and Tommy Hilfiger, despite the volatile macro backdrop, we see our brands, business, and consumer remaining strong.

As I shared at our recent Investor Day, having two, not one, but two of the most globally iconic brands in our sector is an incredible strength to build on and I couldn't be more excited about the growth opportunities ahead.

Through the PVH+ Plan, we are connecting our brands closer to where the consumer is going in a very strategic and disciplined way across all our three regions. Having the strength of these brands and a clear plan in volatile times is a big advantage.

And what you will see from myself, Zac, and the full management team going forward is how we are leaning into the execution of the plan and continuously learn and improve to keep delivering on our commitments. And with that, let me now turn the call over to Zac to discuss the financials in more detail..

Thanks, Stefan. At our Investor Day in April, we committed to how we will communicate and engage with our investors, simple, transparent, and long-term focus.

Our new multi-year strategic growth plan, the PVH+ Plan, leverages the strength of our two global brands, Calvin Klein and Tommy Hilfiger and reflects the compelling opportunities we see across our channels and geographies.

While investing to fully capitalize on the global digital and DTC focused potential of our plan, we will also drive efficiencies that together will accelerate earnings growth and deliver strong and sustainable shareholder returns.

As a reminder, our 2025 financial objectives include high single-digit global compounded annual revenue growth and a total revenue target of $12.5 billion with operating margin expanding to 15% and free cash flow above $1 billion.

The PVH+ Plan is about accelerating growth over the near and long-term and as we are coming off an exceptionally strong 2021 with record financial results, we are very pleased that we have been able to build off of that strong base into the first quarter of 2022 and deliver both revenue and earnings per share above our guidance despite the challenging macroeconomic environment.

I will now discuss our first quarter results in more detail and then we will move on to our outlook for 2022. The comments I'm about to make are based on non-GAAP results and are reconciled in our press release.

Overall, revenues for the first quarter were up 2%, compared to the prior year as reported and up 7% on a constant currency basis, reflecting strong underlying double-digit growth and continued momentum in Europe.

Revenues for the quarter reflected a 5% reduction resulting from the heritage brands transaction and the exit from the Heritage Brands retail business and a 1% reduction from our decision to suspend operations in Russia and Belarus, along with the reduction in wholesale shipments to Ukraine as a result of the war.

Driving that growth was our direct-to-consumer business where we saw continued positive consumer sentiment and momentum in-spite of the worsening macro environment, up 4% compared to the prior year and up 9% on a constant currency basis, inclusive of a 6% reduction from the exit of the Heritage Brands Retail business.

From a regional perspective, we saw strong momentum in nearly all international markets other than those markets in Greater China, which were affected by COVID shutdowns with first quarter revenue for our international businesses up 8% versus last year on a constant currency basis and significantly exceeding 2019 pre-pandemic levels.

In North America, direct-to-consumer led strong growth of 21% overall for Tommy Hilfiger and Calvin Klein in the region for the first quarter although our North America business is still below 2019 pre-pandemic levels as we face significant ongoing supply chain disruptions.

We also demonstrated strong underlying growth across our brands with Tommy Hilfiger revenues up 2% as reported and up 7% on a constant currency basis, and Calvin Klein revenues up [30% as reported, and up 70%] [ph] on a constant currency basis. In the first quarter, we delivered gross margin stronger than pre-pandemic levels at 58.4%.

This compares to 89.1% in the prior year. We maintained our full price selling and reduced promotions. We also implemented price increases in certain regions and in certain product categories to mitigate inflationary pressures, including higher cost of commodities and raw materials and increased cost of ocean freight.

However, these improvements were more than offset by an increase in airfreight to mitigate supply chain cost and logistics delays primarily in North America. All-in, the impact of inflationary pressures and increased airfreight was worth over 150 basis points of margin deterioration versus last year.

SG&A expense as a percentage of revenue for the first quarter of 48.4% was better than originally planned as we prudently manage our expenses in-light of worsening macro pressures during the quarter.

SG&A as a percent of revenue was higher than last year by approximately 120 basis points as we invested meaningfully during the quarter in areas like marketing and digital to fuel growth. Also, as a reminder, in the first quarter of 2021, we were still benefiting from significant store closures and we're receiving COVID relief.

As communicated in our Investor Day, we expect to deliver significant cost efficiencies and we'll invest in our infrastructure for a long-term growth, but we will pull back on costs where prudent based on changing external conditions.

So taken together, our EBIT of $210 million was better than our plans due to the revenue outperformance, gross margin in-line with our plans, and proactively managing SG&A in light of increasing macro pressures and an operating margin of 9.9% for the quarter, compared to our guidance of approximately 10% for the full-year.

EBIT was down 15% versus last year, but reflected a negative impact of 10% due to foreign currency translation and the suspension of operations in Russia, Belarus, and Ukraine, with the remaining 5% represented by the increased airfreight and expenses I mentioned previously.

Earnings per share was $1.94 for the first quarter, compared to $1.92 in the prior year period and exceeded the top end of guidance by $0.34.

Earnings per share for the current quarter included the $0.28 negative impact, compared to the prior year related to foreign currency translation, and the suspension of operations in Russia, Belarus, and Ukraine.

Inventory was down 4% at the end of the quarter, compared to the prior year, but would be up approximately 6% if adjusted for changes in foreign currency exchange rates, the Heritage Brands sale, and the exit from the Heritage Brands Retail business.

In response to global supply chain disruptions, we've adjusted our buying cycle to account for increased lead times and ensure we will have the right product at the right time. As a result, our in-transit inventory levels are up 10% versus last year.

Inventory levels in North America remain lean as the supply chain disruptions continue to impact the region most severely. Additionally, we returned over $100 million to shareholders during the first quarter through the repurchase of 1.2 million shares of common stock and our dividend payment. Moving on to our outlook.

To start with, we are reaffirming our projected revenue increase on a constant currency basis of 6% to 7%, our EBIT margin outlook of 10%, and our EPS projection of $9.

While we continue to navigate this unprecedented macroeconomic volatility, we remain confident in the power of our two global brands Calvin Klein and Tommy Hilfiger and in the fundamental strength of our business, and we believe that the disciplined execution of our strategic priorities will drive underlying double-digit top and bottom line growth for 2022 while maintaining our strong gross margins.

For the full-year, we are projecting underlying double-digit revenue growth in our businesses, driven by continued strength in our direct-to-consumer business. Our overall revenue is projected to be up 1% to 2% as reported and up 6% to 7% on a constant currency basis, compared to 2021.

Our overall revenue projection reflects a 2% reduction resulting from the Heritage Brands transaction and the exit from the Heritage Brands retail business and a 2% reduction as a result of the war in Ukraine.

Our international businesses continue to demonstrate strength and are expected to continue to build on strong growth in 2021 underpinned by systemic execution of our strategic priorities. And while China remains impacted by COVID lockdowns, we are already seeing signs of sales returning to prior levels.

And in North America, we expect to continue to progress back towards pre-pandemic revenue levels, while still facing a lack of international tourism and ongoing supply chain pressures.

We expect supply chain and logistics disruptions to continue to impact our business, primarily in North America through most of the year with the first half being most severely impacted. This includes wholesale shipments originally planned for the end of second quarter shipping into the beginning of the third quarter.

Total digital penetration as a percent of revenue is expected to continue to be approximately 25% in-spite of lapping exceptionally strong growth in the prior year, particularly in the first half as stores were closed last year.

We expect our full-year gross margin rate to remain at record levels and flat to 2021, despite rising inflation, higher cost of commodities and raw materials, and increased [premium freight] [ph].

We will accomplish this by implementing strategic price increases beginning in the first quarter in certain regions and in certain product categories, but to a greater extent in the second half by continuing our focus on full price selling in all channels and by leveraging growth in direct-to-consumer.

Consistent with prior guidance, SG&A expense as a percentage of revenue for the full-year is expected to increase approximately 70 basis points, compared to 2021 with an increase in the first half and a slight reduction compared to 2021 in the second half.

We will continue to prudently invest in core pillars of the PVH+ Plan while accelerating cost efficiencies across the business. We expect our full-year operating margin will continue to exceed 2019 pre-pandemic levels and will be approximately 10%.

This reflects double-digit growth in our underlying business earnings as we systemically execute against our strategic growth priorities.

However, we expect that our overall EBIT in 2022 will decrease low mid-single digits versus 2021, given the unprecedented macroeconomic impacts, reflecting a negative impact of approximately 14% due to foreign currency translation and the war in Ukraine.

We expect our interest expense to decrease in 2022 to approximately $90 million, compared to $104 million in 2021 and our tax rate for the year is estimated at 28.5$ to 29.5%, compared to 17.1% in 2021 and reflects a slight improvement versus our previous guidance.

For the full-year in 2022, we are holding our projected earnings per share at approximately $9, in-line with our previous guidance despite increasing macroeconomic headwinds as we continue to project underlying double-digit growth in revenue and business earnings.

We are also announcing that we will be increasing our planned stock repurchases in 2022 to approximately $400 million from approximately $225 million following the recently approved $1 billion increase to the stock repurchase authorization.

For the second quarter, we are projecting our overall revenue to decrease by 3% to 4% as reported and to increase by approximately 2% to 3% on a constant currency basis compared to the prior year.

This reflects continued double-digit revenue growth in our underlying business and includes a 4% reduction from the Heritage Brands transaction and the exit from the Heritage Brands retail business, and a 2% reduction from the war in Ukraine.

Our second quarter revenue projection also reflects an impact of approximately $75 million or 3% and wholesale shipments shifting from the end of the second quarter into the beginning of the third quarter.

While we remain vigilant for macroeconomic challenges, we have seen a strong start to the second quarter, especially in our direct-to-consumer channels. Second quarter earnings per share is expected to be approximately $2, which reflects negative impacts of approximately $0.42 due to exchange translation in the war in Ukraine.

And as mentioned a moment ago, the expected shipment deferral from the second quarter to third quarter is also impacting second quarter earnings. We expect our interest expense for the quarter to be approximately $20 million and our tax rate to be approximately 30%.

Before we open up for questions, I want to reiterate that despite the increasing macro pressures, we remain steadfastly focused on driving our strategic priorities and are committed to delivering steady and consistent financial performance over time.

Through the PVH+ Plan, our global brands and businesses are well-positioned to drive long-term value creation and deliver sustainable profitable growth and shareholder returns. And with that operator, we would like to open it up to questions..

Thank you, sir. [Operator Instructions] Our first question comes from Bob Drbul, Guggenheim. Please go ahead..

Hi, good morning.

Stefan, I was wondering if you could spend a little bit more time, provide more insight into the European market, the European business, conversations that you're having with your retail partners, around the fall and I think you said your order book remains double digit, but if you could spend a little more time, I don't know, country information just on the strength of international overall would be pretty helpful.

Thank you..

Yes. Thank you, Bob. As we mentioned in our prepared remarks, we see continued strength in Europe. Strength in our business, strength with the consumer, what we have seen over the past quarter is this shift from having been in lockdown Q1 last year to the consumer coming back to brick and mortar really strong.

And again, it's a testament to our strong execution from our team there that they're able to seamlessly follow the consumer. So, very strong continued business trend in Europe and strong execution. And to your point, the forward-looking order books also are very strong.

When it comes to Asia, so that's Europe and a big part of international is Europe and then we have Asia. What I wanted to say on Asia this quarter is that we took a hit from the COVID lockdowns in China. So, China was down 25%. And what's important though is that Asia outside of China was up double-digits.

So what we see is that the consumer comes back both in Europe and both in Asia, as soon as the consumer is out of lockdowns, it's a very strong consumer and very strong business that comes back..

Yes. Hi, Bob. Just to supplement what Stefan had to say, our most important signal, our DTC business has built on our first quarter performance and in many of our markets has actually strengthened in the first month of our second quarter. So, very good signed there.

And as Stefan said, in Europe specifically, the fall order book remains very strong, up double digits to last year. And I think what's important to comment on that is the fall season reflects our planned price increases and our key accounts have continued to support strongly with that order book..

Great. Thank you very much..

Thank you. Michael Binetti, Credit Suisse. Please go ahead..

Hey, guys. Thanks for all the detail. Congrats on a nice quarter from us as well. Could you take us through the comments that North America revenues should start to approach pre-dynamic levels in the back half, and I think you said that's about tourism being fully back.

Can you walk us through what the brands and channels are that will be above 2019 and since it seems like this speaks some initial progress on the work that Stefan has mentioned again with reengaging the domestic consumer, obviously a big swing factor?.

Okay. Thank you, Michael. Yes, as we had stated on Investor Day, North America will be a multi-year unlock as we're seeing.

I think if we talk about the first quarter specifically, if we start at the top line, 21% growth, really good strong balanced growth across both wholesale and DTC, I think the most important impact for us and really for the most of the first half of the year North America is really going to be the impacts of supply chain disruption.

As we've discussed the last couple of quarters, we believe that is both suppressing sales, as well as costing us airfreight. In the first quarter, that impact is $12 million alone.

So, I think as we look forward then for North America, we do expect the supply chain challenges to continue through the second quarter, but then beginning in the second half, we've seen the supply chain challenges abating significantly, which we believe will be a significant step-up in growth.

And then beyond that as well, I think we begin to see especially in Tommy, you know some of the new product lines that we've been working on and bringing from the global line in.

And so we get really a compounding effect of better supply and less disruption, better margins accordingly from that and an increasing progression in this multi-year unlock of better product moving forward from there. And so yes, from an international tourism perspective, we're not calling international tourism back by the end of the year.

We do expect to see modern improvement in our non-Asian based travel, and so there'll be some uplift from there. But I think what we expect is that the growth continue for the international travel to be able to work beyond 2022 as well..

Thanks a lot..

Jay Sole, UBS. Please go ahead..

Great. Thank you so much.

My question is on SG&A, you know one of the PVH+ Plan key drivers is to drive efficiencies and investing growth, how can you maybe get us comfortable that with the tightly managing SG&A right now given the macro changes that are taking place, you're still able to invest in growth while at the same time, obviously drive short-term earnings improvement? Thank you..

Yes. Thanks, Jay. And I think as we communicated in Investor Day, we’re actually confident in being able to do both.

So, starting on the investment piece, if we think about our investments for the first quarter we remain laser focused on those items that are most important to the plan, and so focusing significantly on digital spending and the rest of the technology platforms we have around that.

Investing in marketing, making sure that we're connecting to our customer closer and closer. And then increasingly over the rest of this year, we'll see investments in the store network. And we do not believe that that is, in contrast, the work we’ll do on around efficiencies.

So, on that side of things, we saw three main areas that we believe will continue to prove beneficial from an efficiency perspective. So, the first is really opportunities to simplify how we work through new ways of working.

We see significant scale and leverage opportunities as we grow, especially in North America taking advantage of our store network. And then lastly, we've seen opportunity to work more closely with our most important landlords partners to win, to find win, win occupancy agreements. So, we don't see those in contrast with one another.

And I think we saw that in the first quarter with SG&A landing below where the plan was, but at the same time not slowing down investments as we move forward..

Got it. Thank you..

Chris Nardone, Bank of America. Please go ahead..

Hey guys, good morning. Thanks for taking my question. Can you talk a little bit more about your confidence in getting inventory into the U.S.

in the back half of the year and whether you think you'll be able to support potentially better expected demand from the core tourist consumer? And also how do you gauge the risk of receiving delayed seasonal inventory in the back half of the year? And if you could talk just about how you're forecasting the promotional environment to evolve? Thank you..

Yes, thank you. Appreciate it, Chris. On the point on inventory, I think we really want to make sure – obviously we ended the first quarter minus 4% reported, but what's most important is if we adjust for exchange and the impact of the heritage sale, inventories are up 6%.

And I think if we break that down looking across the regions, international we feel very good about where inventories are and should definitely be able to continue to fuel growth. We are leaving the first quarter with less than the level of inventory in North America we would like because of the supply chain disruptions.

And so, we do expect the work on that to continue through the first half. And with those challenges abating starting in the second half, we believe that that will present an opportunity for incremental growth as we work our way through that from there at that point in time.

So, I think that inventory level leaves us at a good level of balance around being both optimistic to drive growth. And at the same time making sure that we have an inventory level heading into the macro environment that allows us. Now, the downside with that is, it is costing us airfreight in the first half of the year.

We saw that in the first quarter with a $12 million of airfreight impact, and we will expect to see that in the second quarter, but that is what we expect to abate into the second half as well. So, we'll be getting both higher inventory levels and less airfreight..

And just building on what Zac is saying here, when it comes to your question about the risk of increased promotional levels, we don't see it for our brands. On the contrary, we see that we're able to sell through our products with a higher AUR and lower discount rate.

And my experience having navigated through good and bad times from a macro perspective is that there is a lot you can control in terms of how you plan and buy your inventory to demand. So, that's what we are leaning into..

Thank you. We'll move to our next question from Brooke Roach from Goldman Sachs. Please go ahead..

Good morning and thank you so much for taking our question. Can you provide additional context on your AUC outlook into the second half of 2022 and perhaps the first part of 2023 and provide additional dimensional color on your plans for taking price on a like-for-like basis? Thank you..

Yes. Thank you, Brooke. Yes. I think as I mentioned in the comments, we're expecting to see around 150 basis points of inflationary gross margin pressure tied to, sort of macroeconomics, around two-thirds of that is in product cost and increases in AUC, which we've indicated at about 10% previously.

And that trend we see, sort of consistently we said previously from there. The other one-third of that inflationary pressure is tied to increase freight costs as there's inflationary cost increases in those places from there. So again, consistent with prior direction, so no surprises.

With regards to pricing, we've indicated previously increases of pricing of approximately 10% with passing most of that onto most of the cost increases on to customer in terms of pricing. And we still feel confident in that.

We've begun targeted pricing in some of our markets so far already this year and we've seen the ability to maintain full price selling. That will increase as we get into the second half of the year. We start to see some higher cost increases.

And again, I think from as a proof point around expectation, the order books as we worked with our European partners reflected that pricing. We've seen strong support from there.

And so I think at this point, we see that across Europe and in North America, the pricing increases will be combined with the improved product that is coming in, especially on Tommy Hilfiger.

So, the idea of both pricing and product improvements at the same time gives us confidence that as we head into the second half that we'll be able to continue with the focus on full price selling..

And Brooke, in addition to that, what makes us confident going forward is that both our [brands] [ph], both Tommy and Calvin are uniquely positioned being both aspirational and accessible. So it gives us the pricing power and we are still able to deliver great value to the consumer..

Thank you very much..

Tom Nikic with Wedbush Securities. Please go ahead..

Hey, good morning. Thanks for taking my question. Zac, I wanted to ask, I guess, [indiscernible] question as we think about currencies. So, I know you've guided to a $0.85 headwind from foreign currency translation this year. We should also think that there should be a transactional impact in 2023.

And I'll just hope, you know, get clarity as to how we should think about that?.

Yes, sorry, Tom, on that one, the reception was a little bit rough coming through, but I think if I heard you correctly, you're asking about the transactional impact that we should expect to see beyond the translation impact.

So, I think with regards to that, we've run a hedging program that will allow us to maintain sort of the cost levels that we'll see from a transactional basis for the remainder of this year. As we work into 2023, we'll begin to see the impact around that. And so we're locked in for this year.

And as we move into next year, we'll work to continue to address that through some of the other efficiencies that we're seeing across the business, as well as continuation of the pricing that we expect to take in the second half of the year.

So again, while our eyes are on it, we do not expect to see significant modeling differences to the business as we move out of 2022 into 2023..

Understood. Thanks, Zac. I'm sorry about the connection issues..

Paul Lejuez, Citigroup. Please go ahead..

Hey, thanks guys. Just one clarification, you mentioned double-digit order book increase, just curious if you could break that down in units versus dollars? How much of that pricing increase is impacting the number that you cited? And then just high level, you guys play in many different categories.

I'm curious if as you look across the entire landscape of any category strike use being at balance from an inventory to sales perspective, are there any differences by region or channel? Thanks..

Yes. Let's start from the last question you had in terms of category. So, what we see with the consumer coming out of the lockdowns is that we see this shift that we have been talking about on earnings call over the past few quarters, the shift towards more refined dressing.

So, we see it in denim, strength in denim, khakis, woven shirts, woven dresses, dresses across the board. And you see the vocational based dressing like dress shirts in areas were up over 60% in dress shirts.

So, you definitely see strength in the more refined categories, but you’ll see – we also see the consumers still maintaining a casual lifestyle that's focused on comfort and you can see that in categories like sneakers.

So, is this what we see going forward from a category mix with the consumer is more of a hybrid way of keeping their casual lifestyle, but wanting more of a refined mix. And that fits our two brands really well, because both Calvin and Tommy are true lifestyle brands.

Two are very few that have the right to play across categories with the best Hero products across, ranging from very casual and underwear to more refined..

Yes. And Paul, to your question around the – what's in pricing versus units, I think maybe I’ll focus first on what we're seeing in through the first quarter. And so while growth was strong, I think also importantly to indicate below that is actually the AUR increase was low single digits across all of our markets in the first quarter.

So, really all of our growth thus far this year has come from unit growth. Now, we do expect that ratio to moderate to a certain extent as we get into the second half of the year and price increases do remain, but we do expect to continue on with the trend of important and powerful unit growth as well..

Operator. We have opportunity for one more question. Thank you..

Certainly. Our last question comes from Kimberly Greenberger from Morgan Stanley. Please go ahead..

Okay, great. Thank you so much. I was hoping just to ask about gross margin, if I could. The back half, I think you talked about flat gross margin.

It seems like in terms of the puts and takes in gross margin, freight costs maybe ease up and supply chain costs might ease up in the back half, what are the other puts and takes? And do you see any further inflation in cost of goods sold as we head into 2023? And do you think the price increases you're taking are sufficient to offset the current 10% inflation in input costs that you're seeing? Thanks..

Yes. Thank you, Kimberly. From a gross margin perspective overall, yes, in the first quarter, we saw overall 70 basis points down versus last year, really more than explained by the premium costs around airfreight. That will continue through the second half or second quarter that will then begin to pull back in the second half.

And so, we will get that lift. And we expect gross margins for the second half of the year to be higher than the second half of last year. So, the supply chain cost, sort of fade away and we're really able to see that as the power of focused on full price selling.

And I think also that's a good signal of the fact that we believe that our pricing is expected to be able to offset the inflationary pressures we're seeing.

So, as we mentioned earlier, 150 basis points of gross margin pressure tied to product costs and to ocean freight costs will be able to be offset by the pricing that we're seeing from there at that point in time. So that's sort of what the breakdown is.

If we move into 2023, at this point, we believe that most of the work will be some increases, but much more moderate versus 2022 than what we've seen thus far, and we'll continue to work to leverage both pricing, as well as other efficiencies that we can to hold the strong margin levels we've delivered thus far..

That's great color, Zac. And could I just ask one follow-up on supply chain? Have the recent rounds of lockdowns in China in any way either affected production of product for PVH or distribution of product for PVH or have you been pretty unaffected at the inventory or production level and just more sort of at the retail level? Thanks so much..

Yes. I think for us generally speaking, the biggest impact of the shutdowns that we've seen across Shanghai and Beijing has really been focused on the impact to our China market.

As Stefan mentioned earlier, down 25% in the first quarter versus last year, and we will see that impact as well carried through into first couple of months of second quarter, but what I will say is from a positive perspective, it's one of the reasons why we're confident of being able to continue growth into the second half as those, sort of, some of the lockdowns ease and our ability to return back to selling, we've seen relatively quick upticks in the marketplace from there at that point in time.

So, I think in general, our production in China is heavily oriented to China for China production.

And so the impacts beyond that have been minimal, and I would say, actually, low from a production perspective because most of the production facilities in China are away from where the heavy lockdowns have been, but port congestion in China has been a little bit, but the impact we expect to be minimal..

Great. Thank you..

Thank you all. This concludes today's question-and-answer session and concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect..