PVH Corp. (PVH) Earnings Call Transcript & Summary

Good morning, and welcome to this next session of the Goldman Sachs Global Consumer and Retail Conference. My name is Brook Roach. I cover the apparel, softlines and brands, sector here at Goldman, and I'm thrilled to introduce our next session with PVH Corp. Here joining me today is Stefan Larsson, CEO; Alexis Rollier, CFO; Melissa Stone, EVP of Global FP&A, and we're very thrilled to have you here. Welcome.

Thank you.

Thank you.

Thank you.

Stefan, we'll turn it to you.

Yes. Thank you. So we are in the business of building brands, and we are the stewards of 2 iconic -- 2 of the most iconic globally beloved brands, Calvin Klein and Tommy Hilfiger. And what better way to start than with 230 seconds views of how we started this fall with the fall campaign because I'm going to come to it later because it's more than a campaign. It's the connection between the brand direction to the DNA that the consumer already loved. But made current focus on very clear product categories and very strong talent and then you can shop that from social all the way out. So -- but I feel that's probably the best way to start.

Excellent. Let's play the reel. [Presentation]

All right. Well, with that, thank you for showing us those clips. Stefan, you spent the last several years building the foundations of the PVH strategy through product marketing, marketplace execution and simplification of the operating structure. As you sit here today, what do you view as the most important proof points that indicate to you that the brand is entering a period of sustainable growth and margin expansion ahead?

What I'm the most proud of because we have done a lot of heavy lifting over the past few years. What I'm really proud of is how clear we are now with each brand's direction and how it connects to what the consumers always love to Calvin for as an example, underwear, denim and the connection -- what -- where you see that strongest in both Calvin and Tommy, it's the traffic increase, the consumer traffic increase to e-commerce. So if you start, I'm like, why is -- so Calvin Klein in over the past few years has become -- we have built up to the most followed and engaged brand in fashion of all our competitors in social media, all platforms. And Tommy is the third most engaged and biggest reach on social media. Why that matters and what makes us excited today is that social media engagement has built real strength with a young customer. So the Gen Z, the young millennial. And then we see the traffic to e-commerce going up significantly. So in Q2 that we just reported, we were up double-digit in traffic to e-commerce for Calvin and up high single digit for Tommy. And then you see that translate to mid-single-digit growth in e-commerce and then you see it translating to where we don't have any macro disruptions, North America and APAC, we have mid-single-digit growth in -- we have growth in D2C overall. And so the most exciting part is like how we line up the different building blocks to drive sustainable, profitable growth and how you can actually see that now when you go on TikTok or Instagram or our e-commerce or our best partners e-commerce.

That's really great. Alexis, we're thrilled that you can join us here today. For those who don't know you yet, what brought you to PVH? What areas of opportunity excite you the most? And are there any initial thoughts that you can share following your first few days of the organization?

Thank you, Brooke, and good morning to you all. It's a pleasure to be here so soon in my journey. So I'm definitely new to the company, day #14 in the company, and I'm the new CFO. My prior role as Global CEO and CFO of Sephora. I've been with Sephora for many, many years. And what attracted me to the company is mainly 2 things. One is really the strength and the power of the 2 brands of Calvin and Tommy have always been working for very strong brands. And I feel -- the potential of those 2 brands is just amazing. And second, and importantly, for me, of course, is the big opportunity that I see is PVH. The opportunity I see is actually connect the strategy, the PVH+ Plan. It is already in motion already existing with a strict and strong financial discipline that is already existing, but I'm sure we can strengthen and operational excellence. And those 2 areas, financial discipline and financial leadership and operational excellence are 2 areas have been leading for many years [indiscernible] with some success. Just maybe to say a couple of words on Sephora journey. So I'm not here to talk about Sephora, but we scale that business and that brand in a very significant manner, but importantly, we built up to make it more profitable. How did we do that? Multiple streams of [indiscernible], gross margin management, promotional control, cost optimization through multiple streams. So I see many of those actually areas with similarity to where PVH is today. And I feel actually my experience can definitely be helpful to the company to further strengthen the brands and build up profitability. So I'm super excited to be joining the team and the leadership and to be connecting with you in the near future.

Excellent. Let's unpack the regional execution of the PVH+ Plan. And perhaps we can start with EMEA, which has historically been a very large area of strength for PVH but it's been a little bit more uneven recently. Can you talk a little bit more about what you're seeing in the EMEA consumer today and the actions that you're taking to improve both DTC and wholesale performance in that market?

Yes. So Europe is very strong for us. I spent a lot of time in Europe. It's a big important business for us. We have seen the pressure as the market have seen with the Middle East conflict. We flagged that in Q1. Since then, we have seen that D2C, we have been able to improve D2C trends despite the ongoing conflict in Q2 improved versus Q1. e-commerce growth -- we're able to drive e-commerce growth across both brands in Europe. And having spent a lot of time, so I would say in the last 2 months, I've been in 5 markets, 7 airports. And airports are a great place to see the strength of Tommy and Calvin. When you're in big European airports because you sit there and take a coffee or you stand in line, the amount of consumers, the consumer love for Calvin and Tommy, the amount of products, sneakers, denim, outerwear, sweaters, hoodies. So Europe is a source of strength for us. And what I'm particularly excited about is that where we have the biggest influence on reaching the consumer and really driving the business, we see the e-commerce growth and the D2C improvements. And then we are working very closely with some of our all our biggest partners in Europe to get even closer to the consumer, even more data driven. So -- and when I meet with our partners, the strength of Calvin and Tommy and the importance for them is real and the strength with end consumer and then connecting the strategy we have, which is the key growth categories all the way out. So that's -- we have more work to do there. But it's a real strength for us. And there will be disruptions in different places of the world. But underlying all that, I feel really good about it.

Let's unpack that a little bit more. Your outlook for the region for this quarter -- or for this year has moderated as a result of macro. As you think about the region beyond 2026, how are you thinking about the path to get back to sustainable growth and the growth targets that you've outlined under the PVH+ Plan?

Yes. So it's very much where Alexis and I connected as well is his experience from this journey as well. So where are we right now? So we have spent a lot of time on the heavy lifting as we talked about when we started the fireside chat on getting the brand very clearly directed on the DNA made current built product capabilities. Last year, we centralized the global product capability in Calvin Klein and we have all the benefits from that coming out right now. Each brand has 4 to 5 categories that stand super strong with the consumer. Each brand has driven a lot of strength, as we said, with the Gen Z and young millennial. And then you connect -- so you connect the strengthening of consumer focus with the 4, 5 growth categories by brand, you drive really impactful full funnel marketing, as you can see that, again, it's the best line -- it's the best way we have lined up the different drivers. And then we invest into the shopping experience, social, e-commerce and our top doors and top stores. So when you see that, it will drive -- it's the foundation to drive revenue growth. And when we do that, where we do that already now in Q2, as an example, Denim is up 10%. AUR in denim is up 10%. Underwear is up mid-single digits. AUR is up as well in underwear. In Tommy, we see sweaters, shirts, polos, up significantly as well and AUR up. And when we look at the D2C growth, we see AUR coming up, promotions coming down. So it's really where the growth will come from is putting these building blocks in place that we have done over the last few years and then adding that operational discipline that Alexis was talking about and just consistently execute on it. I was speaking with our Global President for Calvin Klein last night, we caught up ahead of the week. And I said I was going to see all of you guys. And I said, what do you believe is the most important to share with investors and he took some time and say, I believe it's -- we have the building blocks lined up that we need to -- what we have learned over the journey is we have to double down on those green shoots. We have to really make sure that the denim strength goes all the way out. So when you are in an average door or a store in Germany, the U.S. or China, that we have doubled the denim exposure that we have all the iconic denim, all the new fits, all the right inventory, all the right marketing, and when we do, it's the biggest challenge when I'm out in Europe as we talked about. The biggest challenge in denim is just having enough denim and enough impact because the consumer loves it.

That's really great to hear. Let's switch to North America. In your DTC channel, you've been making investments in the shopping experience in stores and online. Can you unpack the key drivers here? And what does that mean for your digital and store growth business ahead?

Yes. So when you engage with our brands, you -- and when the consumer engaged, they start in social. So you see the focus we have for the North American consumer on social, socially relevant product and brand storytelling. Then you go into our e-commerce, our partners e-commerce. And what you see different now versus just 6 months ago is the connection to really strong category focus. And then on top of that, you see that within each category, you see the innovation and newness into our big franchises. And that's what the North America consumer response really went to. And we see the biggest and most positive leading indicators in that traffic growth from social to e-commerce and e-commerce and how the consumer responds to where we have put those pieces together the best, it works the best. What you will see in North America more is how we invest with our best partners like Macy's in new shop-in-shops you will see how we renovate our outlet stores, factory stores. We have a full price stores in New York in Calvin Klein with SOHO. So you'll see how we how we bring the best of the brand to the marketplace, it's what you feel when you're in a Tommy campaign or Calvin campaign, we want to bottle that up and get that all the way into every door and every store. And where we do that, because we do that in increasingly bigger parts of the assortment, we already drive growth with higher pricing power.

That's great to hear. One question that we're asking every company at our conference today is on the health of the consumer. What are your expectations for the environment in the second half of '26 relative to your recent results? Do you expect things to be same, better or worse? And for 2027, do you expect the health of the consumer to be better, the same or worse than '26?

Yes. So we see the consumer -- we plan as if the consumer, the way they are today, they will continue for the rest of the year. So we don't plan for improvements. We don't plan it to get worse. We plan for the consumer. We have seen in the first half. We are locked in to win more with that consumer. For '27, I'm optimistic in terms of the consumer continues to lead in fashion. So what I see even in the markets where we have macro disruptions, I see that when you have strong brands, you deliver really strong on your product promise. You deliver great value. We are in the premium space for the many people. We're in the masspirational space. And when you deliver a really strong brand experience in the door and the store, it really works and the consumer -- it really resonates with the consumer. And you see that being -- I was having dinner last night with a big wholesale partner in Europe, and we just left the dinner with the conclusion of being a big beloved brand that you drive relevance in is going to be really good for the next 5 years, 10 years, because you have so much consumer love and scale to tap into. And then -- yes, you just have to follow the consumer. It's -- so speaking with this partner last night, we had dinner and talk through the business and how we can improve it. It's just our best wholesalers have a lot of consumer data. So getting closer to their data, connecting it with our data, and they see how we perform, what the consumer wants more of how we are relative to the competition. And then we have the strength to really lean in to cut through moments where we combine all those parts, the product, the marketing, the experience. So I'm optimistic medium to long term on the consumer given that you as a brand or as a company in this space, you realize that the consumer is in charge and the consumer keeps moving.

Really great.

Brooke, I would just add, totally agree with what Stefan said but in terms of our guidance and our outlook for the year, we did embed some flexibility to strategically support a more promotional holiday environment in Q4, should that become necessary.

That's really great. Maybe we can shift to that just to make sure we completely clear that up. One question that we're asking every company at our conference today is on pricing and I guess the question that we would ask you is, do you expect your prices or AUR to be higher, lower or the same in the second half of '26 versus the first half?

I mean, AUR, we are pleased with -- look, coming out of Q2 and Q1 and Q2, that where we drive growth, we drive it with AUR expansions. We expect the same AUR expansion in the back half.

Excellent. And on that full-price selling and promotionality opportunity, we've heard a lot of comments from other retailers about a promotional marketplace. What are your views on the promotional backdrop today? And how are you balancing price increases with promotional intensity? What does this mean for your merchandise margin ex tariffs?

Yes. We have seen -- so if we take North America as an example, and we take the tariff effect out, we were able to drive higher gross margin compared to non-tariffs. So gross margin is up despite the tariff impact.

Yes, gross margin for the company as a whole in Q2. So in Q2, we recognized tariff refunds. But even if you strip that benefit out, gross margin as a whole for the company was up overall. And then in the Americas, even with a higher year-over-year tariff cost, we were able to drive gross margins up. And we're really seeing the strength of AURs and our D2C business driving that strength.