PVH Corp. (PVH) Earnings Call Transcript & Summary

Okay. Good morning, everyone. On to the next session, and I think it's going to be one of the most exciting sessions of the day. I'm thrilled to have with us today the senior executives of PVH, CEO, Stefan Larsson; CFO, Alexis Rollier; and the whole PVH team right in front also. Thank you very much for joining us today.

Many of you know, I love brands. Brands are exciting. And when you think about brands and you think about the brands and iconic brands that PVH owns, Tommy Hilfiger and Calvin Klein, there's a lot of opportunity. There's an opportunity in category. There's opportunity in geography, there's opportunity in channel. Many of you know the [ As ] are what I'm about for 2026. And when you think about 5 As, PVH encompasses them. It's about this year, AI, it's about assortment, it's about activation, it's about affordability, and it's about agility. So to tell us a little bit more about where PVH sits right now, given that if you know Stefan Larsson, in all the years I've known him, the key message that he has, systematic, repeatable growth. So Stefan, do you want to tell us about that tagline and how it applies to PVH?

Yes, it's less -- so thanks -- first of all, thank you for having Alexis and I here. And it's less of a tagline and much more of something I happen to grow a company and grow up in a company where that was the core philosophy. And I saw the strength of that because historically, fashion had been like loosely connecting the creative idea, the consumer-facing idea with the underlying business engine. But I'm such a believer in that in order to create long-term value from brands, you have to take a systematic, repeatable approach. So you can't just sit and say, I hope product is going to get better next season. You have to be very systematic and very disciplined in saying what part of product, which categories are you going to accelerate, which are the franchises that you put newness and innovation in. So that's very much shaped. It was shaped from my early days in my career, and it was also very much front and center when we saw each other the first time 10 years ago.

And what does this mean for the brand clarity?

Yes. So what it means for PVH, if you think about Calvin and Tommy, they are top 5 in every region we compete in. So there are 2 of a handful of globally beloved known liked brands. So if we take 2 steps back and say, where is the fashion and apparel moving? I believe what we are seeing over the past few years is you're either becoming one of the most beloved and desirable brands or you fall into the sea of generic part of the market. And Calvin and Tommy have the right to play to win with up here as 2 of the most desirable brands. So if you look at -- we do deep consumer research. And a few months ago, we did the last deep dive, the most recent deep dive. And we see that we have built over the past 5 years, real strength with the young consumer. So we are the strongest with the Gen Z and young millennial. And why that matters is that they are the ones, they are the next generation or they are this generation and the next generation of consumer, the most important consumers and within those consumer groups, we stand the strongest with the status shopper and the style enthusiast. And why those segments are the most important. Those segments with their value counterpart is roughly 40% of the total market. So it's big segments. Why are they important to Calvin and Tommy? It's because the consumer loves style. They love brands. They care about product. They care about the experience. So what we have done is in a systematic way, we started with the brands and say, Calvin and Tommy collided with culture back in the days because of a very clear DNA. And that DNA stays the same, and we are going back to that DNA and making it top. And then we set a very clear direction and say, here is Calvin Klein. You saw it in Love Story. And what does that look and feel like today and going forward. Tommy's world of classic American cool, Classic American style meets pop culture. What does that mean today? You saw it with Travis Kelce during the fall campaign. You saw it in the runway. So it means to us that very clear brand direction, very clear consumer focus. And then we build the product strength, the consumer engagement and invest in the marketplace. And then we shall talk about the underlying business engines. But from a consumer perspective, that's what -- it's a lot of heavy lifting, as you know, we have done in the past few years.

And I have a new partner here, Alexis, who's joined from being the global COO and CFO of Sephora. So Sephora global brand. We all know it. It's like a candy store for some. What learnings from your role at Sephora are a benefit to PVH?

Yes. Thank you, Dana. Good morning, everyone. It's a pleasure to be here so early in my journey. So as you said, I'm a month in the company. And already actually, a lot happened in the month. I had the opportunity to onboard and to meet all many people and start in Europe, go in the U.S. and visit a lot of stores already. But to answer your question, yes, I was prior to PVH, I was the Global CFO and COO of Sephora for many, many years. And I was part of the team that really scale Sephora globally. We made it really the largest and the leader player in beauty retail, as I'm sure you all know. But also importantly, we made it highly profitable for the shareholders. And how we did it is really being extremely disciplined in cost management, in gross margin management, making space in the P&L, reinvesting behind the brand and the growth and across all areas of the business from real estate to digital, to technology, to procurement to anything that was making the brand really efficient and in a very disciplined manner. And we made it a highly profitable and efficient beauty brand, as you all know. And then I got highly attracted by the PVH opportunity. First, to your point, the power of the 2 brands, Tommy and Calvin at a global scale, 2 very powerful brands, strong image, strong awareness, huge social engagement that we see on a daily basis continuing to grow. So I see a lot of potential in the 2 brands. And importantly, I see a huge opportunity for PVH to really connect the strategy to what has been, I would say, leading in the past decade at Sephora, which is really the financial discipline and the operational excellence to really make the plan of PVH, the strategy that is already in motion even stronger, better and reinvest behind the 2 brands and grow the business and importantly, grow the EBIT margin and the long-term shareholder value. So I'm super excited to be part of the team and with Stefan and the leadership team and to be supporting the future of PVH.

And I know it's a month, it's only...

It's only a month but I'm even more excited.

Any initial operational enhancements that you see benefiting the business?

Yes. I think a bit like what actually I experienced at Sephora, I think PVH is coming from a history of, I would say, a decentralized organization. It's a global business, 2 brands, multiple regions that step-by-step are working more and more together. So building global capabilities. I think Stefan and the team have done a super job in already building a lot of those capabilities. But as we know and there are more to come. And the more we are going to leverage that global footprint and this, I would say, global capabilities, the more it's going to make our -- all our business initiatives faster, cheaper, more efficient, our time to market to the consumer even more powerful. And that's a bit what I led at Sephora for many years, coming from a fragmented and decentralized organization into something that is more globally consistent and powerful to really go faster and delight the client better than anybody else.

Great. So Stefan, the global environment, how are you navigating the macro given your broad global reach that you have? And does it differ at all by brand?

It's a good question. The macro comes up to all of us. And we have seen -- we have been hit by some serious disruptions. But one of many areas where Alexis and I connect this and how we work with the team is we have to own it. So independently of macro, the same thing is true. Brand relevance will win, translated into product strength, translated into the full funnel engagement. And Alexis was mentioning that the full funnel, the social engagement that we have built for Calvin and Tommy, Calvin has now the biggest social engagement in the world on fashion. If you take the 5 biggest social platforms. And Tommy has the third biggest reach, and we have roughly 2x the engagement on that reach. So why that is important is even if we see like in North America and APAC, we see -- we don't see any big macro disruptions. And you can see that on our D2C growth, AUR expansion, et cetera. And then we activate that consumer all the way. But even in Europe, where we have been hit with the Middle East war, the consumer sentiment is tough out there. But we saw from Q1 to Q2 that we were able to -- we grew e-commerce year-over-year. We sequentially improved D2C, our store business Q1 to Q2. And so it's all about where the macro gets tough, we need to get even more aggressive in executing all the way. Because if you think about the Calvin and Tommy and some of you, I hope, have seen the fashion shows, the fall campaign, the Travis Kelce, you want that kind of -- or if it's Tate McRae in Calvin Klein or Sadie Sink or Jung Kook, you want -- we win when we make that experience true in every door and store. And that's where we are spending a lot of our time today.

Part of the activation.

Yes, 100%. 100% because even where we have tough macros, we see that in Calvin Klein, where we lean into denim as an example, we drive double-digit growth and we drive double-digit AUR expansion in denim. And when I'm out, which you know I'm out a lot of stores and I'm going to get out again on Monday, I'm heading to Europe again. But when I'm out in the Calvin stores, the biggest challenge now is we don't have enough inventory behind the best-selling styles. We don't -- so it's -- we have the demand because we have channeled up from the iconic DNA of Calvin Klein, which is very much rooted in underwear and denim and then all the way. So from a macro perspective, it's the same job we have to do. It's just even more important, and we see even more of a difference when the macro gets tough, we need -- where we execute all the way that we still drive growth.

Yes. And when I think about what you do by region, by category, and I love how you call it by category, hero and fashion because both Tommy and Calvin have hero and fashion products. Where is the opportunity? What do you see as hero and fashion reach?

Yes. So when we look at Calvin as an example, underwear, denim. So underwear and denim is roughly half of Calvin Klein. But if you take the jeans lifestyle concept around denim, then underwear and the jeans lifestyle becomes 80% of Calvin Klein. So it's -- there are very clear categories where the consumer -- and it's not just us saying this, it's the research with the consumer that says, we love Calvin Klein for underwear and denim. Why is that so important? We were with the Board last week in Miami, and we have a newly renovated store in Sawgrass Mills, the #1 outlet center in America. And it was so good because we had Sadie Sink and Tate McRae and Jung Kook in the windows we had super strong denim impact, super strong underwear impact. Why is that important? It's because it's what the consumer already loves with the brand, and it's just amplified. And then when they come in and they buy their underwear, they buy their denim, they say, "Oh, that's a really cool T-shirt, the outerwear. So that's how we build it. And Tommy is same. We have one of the best-looking stores in Sawgrass if you head down there, both Calvin opened 2 weeks ago. And 2 years ago, we opened, we renovated our big Tommy store. It's fantastic. And there, you see like the strength in sweaters, the strength in outerwear, the strength in shirt. And sweaters sounds like give me a break, give me -- make me excited about sweaters. But it's actually really exciting because it's -- we are building out franchises in sweaters that are true to Tommy that is lot of innovation in news like the cable knit sweater. It's super strong in both men's and women's. And it's year-over-year, the consumer sees, that's where I can get my best sweaters. That's where I can get -- overall, that's where I get classic American style that feels relevant today at a really good value. So the affordability, Tommy's product value is super strong, stronger than what we communicate. And that's one thing that Alexis of many -- because what I said to Alexis is, yes, you're new, but it's also when you're new, you have the most unbiased -- so you flagged like the product price is really good, the product value and we don't talk enough about that.

You also got another A in there, Amplify. I like that word amplify. Speaking of Amplify, what about by channel, wholesale and your own retail, e-commerce?

Yes. So D2C is where we have the fastest impact of the strategy that we execute. And you can see it in double-digit growth in consumer traffic to e-commerce. You see it in e-commerce growth across the regions, across the brands, AUR expansion. And then on the wholesale -- so D2C is led by e-commerce growth and new customer acquisition and better retention and better lifetime value of that consumer. And then on the wholesale side, we are getting really close to our best wholesale partners, closer than every time any other time. I was in Berlin 2 weeks ago for the Zalando branding and just speaking about how they use their 50 million, 60 million consumers that they have and how we can get the consumer knowledge and the data in jointly growing our brands together. So it's Zalando, it's Amazon, it's Tmall, but it's also Macy's here in the U.S. Tony, I got to know Tony also 10 years ago. When he came into Macy's, I knew that if he can do what he did at Bloomingdale's at the price of Macy's, wow. And that's what he's doing.

Right, exactly.