PVH Corp. struggled through the fallout of war in the Middle East in the second quarter and logged heavy impairment charges, but managed to top Wall Street’s adjusted profit forecast.
And sales, while down, were ahead of internal forecasts, offering something of a ray of sunshine for chief executive officer Stefan Larsson.
Revenues for the quarter ended Aug. 2 slipped to $2.1 billion, a decline of 3 percent on a constant currency basis — better than the 4 to 5 percent drop the company projected, but inline with analyst forecasts.
In an interview, Larsson said he felt “very good” about the revenue performance at the parent of Calvin Klein and Tommy Hilfiger.
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“It’s driven by the continued momentum that we built for Calvin and Tommy,” he said. “And we do that despite navigating a highly dynamic global macro environment. If we look at [the second quarter], we are seeing encouraging progress in the areas where we have the greatest ability to drive the business.”
Larsson pointed to gains in the direct-to-consumer business in America and the Asia-Pacific region.
“We see that growth coming with higher [average unit retail prices], higher pricing power,” Larsson said. “So that’s a reflection of the increased strength in the product, in the key categories and in putting more and more knowledge and innovation into our best product franchises.
“We also see e-commerce continue to be a source of strength,” Larsson said.
While e-commerce sales were up 4 percent in the quarter, the CEO said customer traffic to e-commerce was up double digits for Calvin Klein and high-single digits for Tommy Hilfiger during the period.
“We see that as a leading indicator that the consumer engagement we drive and the brand relevance and the product relevance is coming through in consumer traffic,” he said. “Even in regions where there are disruptions…e-commerce is up.”
But those signs of momentum showed up only unevenly to the bottom line.
PVH said the second quarter included a $439 million pre-tax, noncash charge to account for “changes in valuation assumptions associated with geopolitical and macroeconomic factors.”
Those on-paper charges left the company with quarterly net losses of $102.9 million even with $107 million worth of tariff refunds coming back from the U.S. government. A year earlier, earnings totaled $224.2 million.
Gross margins increased to 63 percent from 57.7 percent, but almost all of that was driven by the tariff refunds.
However, adjusted earnings per share came in at $3.70, well above the $3 to $3.10 PVH forecast and the $3.08 analysts expected, according to Yahoo Finance.
PVH has been working hard to get its brands in front of consumers. Calvin Klein has major global campaigns including BTS star Jung Kook and Barcelona soccer player Raphinha.
Tommy Hilfiger has partnerships with Liverpool Football Club and the Cadillac Formula 1 Team and launched a fall campaign featuring brand ambassador Travis Kelce, tight end for the Kansas City Chiefs who married Taylor Swift at Madison Square Garden this summer.
Larsson said PVH spends 6 percent of its sales on marketing and that it’s working.
“If you look at the fall campaigns for both brands, you see that they are making a very strong connection to the brand DNA of Tommy Hilfiger’s classic American cool — the ultimate dreamer, Travis Kelce, coming to The Plaza hotel that was Tommy’s home for many years and meeting up with his friends. You see that whole Tommy lifestyle come to life and you see the way it’s coming to life stronger this season as it connects to the key categories. It connects to the franchises so you can really shop the campaign all the way up.”
Calvin Klein is leaning into its key denim and underwear categories with ads fronted by Sadie Sink and Tate McRae, which garner thousands of customer comments online.
“That’s when marketing connects to product, connects to the consumer engagement in the store,” Larsson said. “Those are the two anchor categories for Calvin. And it’s really exciting to see that in [the second quarter], despite all the disruptions, up double digit in sales in denim and up double digits in AUR, and same up in underwear and up in both revenue and AUR.”
At the same time, PVH is looking to cut back more on costs, striving to more efficiently fuel growth at both brands.
“It’s really about following the consumer and adjusting to the dynamic environment,” the CEO said. “We are continuing to invest behind the momentum on Calvin and Tommy, but we’re doing that also through stepping up our cost actions. And we have driven successful one-time programmatic cost actions before, but now we are taking it to the next level. So more systematic, repeatable ways of becoming more efficient.”
And he’ll soon have a new partner in that effort.
PVH named Alexis Rollier, who was global chief financial officer and chief operating officer at Sephora, as its next CFO, starting next week.
“We are getting a partner with incredibly relevant experience in both brand building globally and doing that in an increasingly profitable way,” Larsson said.
Results by brand and division for the quarter broke out like this:
- Tommy Hilfiger revenues were flat at $1.1 billion, which the company said reflects “an approximately 3 percent increase attributable to the transition in-house of previously licensed Tommy Hilfiger women’s product categories in Americas.”
- Calvin Klein revenues fell 7 percent to $913.3 million, with “an approximately 4 percent decrease attributable to the impact of wholesale shipment timing in the Americas” to the second half.
- Sales in Europe, the Middle East and Africa fell 6 percent to $986.3 million, driven by “the prolonged effects from the conflict in the Middle East.”
- Revenues in the Americas slipped 1 percent to $680.1 million with a slight increase in the direct-to-consumer business offset by wholesale declines.
- The Asia-Pacific region was up 3 percent to $343.7 million.
PVH reaffirmed its outlook for the full year, calling for revenues to be flat on a reported basis and down slightly in constant currencies. That forecast was cut back some in June given the impact of war in the Middle East.
