Good morning, everyone. And welcome to the PVH Corp Third Quarter 2018 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 used 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 November 29, 2018 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 rights to change its strategies, objectives, expectations and intentions, and its need to use significant cash flow to service its debt obligations. Therefore, the Company's future results of operations could differ materially from historical results or current expectations. PVH does not undertake any obligation to update publicly any forward-looking statement, including, without limitation, any estimate regarding revenue or earnings. Generally, the financial information and guidance provided is on a non-GAAP basis and identified under SEC rules. Reconciliations to GAAP amounts are included in PVH's third quarter 2018 earnings release, which can be found on www.pvh.com and in the Company's current report on Form 8-K furnished in the SEC in connection with the release. At this time, I am pleased to turn the conference over to Mr. Manny Chirico, Chairman and CEO of PVH. Please go ahead.

Thanks, Jim. Good morning, everyone and thank you, for joining me on the call. Mike Shaffer, our Chief Financial Officer and Dana Perlman, our Treasurer and Head of Investor Relations are also on the call. I’m pleased with our earnings performance in the third quarter, which exceeded our expectations, driven by the power of our diversified global business model. We continued to over deliver against our 2018 earnings plan and are raising our full year earnings outlook based on our third quarter outperformance and our confidence in the opportunities for the fourth quarter, despite the recent bankruptcies in the U.S. and the UK, and increasing geopolitical volatility around the world. In the quarter, consolidated revenues grew 7% and 9% on a constant currency basis, while our earnings per share of $3.21 for the quarter was $0.08 above the top end of our guidance, despite a $0.06 unplanned charge relating to Sears and the House of Fraser bankruptcy. This earnings beat was driven by the outperformance of our Tommy Hilfiger and Heritage brands businesses, partially offset by the underperformance of our Calvin Klein businesses, and I’ll get into the discussion about our three brands momentarily, but I think first let me touch on our regional performance. Our international businesses continue to experience momentum, driven by strong growth in Europe, where our performance has been outstanding. Our brands are very desirable, and we are gaining share with both new and existing consumers. In Asia, our business performed well as a whole. I do want to note that while our Chinese business performed well and was ahead of plan, we have experienced some softer trends in traffic relating to a softening economy and the related trade concerns between China and the U.S. Despite this backdrop, we continue to see strong results out of…

Thanks, Manny. The comments I'm about to make are based on non-GAAP results and are reconciled in our press release. Due to the 53rd week in 2017, comps to sell for 2018 and more appropriately compared on a one-week shifted basis. Comps store sales I mentioned for the third quarter are compared with the 13 weeks ended November 5, 2017 instead of the 13 weeks ended October 29, 2017. Our reported revenues for the third quarter were up 7% inclusive of a 2% negative impact from FX and in line with our guidance. Tommy Hilfiger revenues were very strong, up 11% inclusive of the 2% negative impact from FX and above our previous guidance. Tommy Hilfiger international revenues increased 16% inclusive of a 3% negative impact from FX. The Tommy international revenue increase was driven by strong performance in all regions and channels with comp store sales up 13%. Tommy Hilfiger North America revenues were up 3%, including 1% negative impact from FX with retail comp stores relatively flat. North America had significantly more full price selling in the current year quarter versus the prior year quarter, and yielded strong gross margins and operating margin expansion. Our Calvin Klein revenues were up 2% inclusive of 2% negative impact from FX in the quarter, and were below our previous guidance. Calvin Klein international revenues increased 3% inclusive of a negative 4% impact from FX. Our niche international comp store sales were up 1%. Calvin Klein North America revenues increased 1%, including a negative impact of FX of 1%. North America comp store was down 2%. As Manny discussed our Calvin Klein business was negatively impacted by our collection in jeans business. We have taken all appropriate action in the quarter and have lowered prices on slow-moving product creating a gross margin…

[Operator Instructions] And we'll take our first question from Erin Murphy with Piper Jaffray.

Manny, I wanted to start with you, just focusing on the Calvin Klein business. I mean, you've clearly invested a lot behind this brand from talent, marketing product, and with the setback you're seeing in denim, and kind of the halo areas of brand, what gives you the confidence that you have the fix under control? And then as we go into '19, what are some of those guideposts that we should be looking at whether it's pricing or product or even how you're thinking about evolving the marketing message?

I think I need to say upfront, and when you think about what's happening within the Calvin Klein business, I think first and foremost, we recognize we have a product issue, and we recognize that that product issue really centers from a material point of view on the jeans business. I can only say it so many times, but I have some metrics that I just would like to share with everyone is I really feel strongly that there is not a brand issue here in any way. When you think about the Calvin Klein brand, it is universally one of the most well known and understood brand. It has a global brand awareness of about 90%. That puts it at the top echelon of brands. It also has a very high relevance rate and intent to purchase around its consumer, which is just quite remarkable for the brand and the relevance is about 65% when we talk directly to our consumers, and that’s consistent across the U.S., rest of North America, and as you move to Europe. And as you get to Asia, obviously, the awareness goes down a little bit like with all global brands as that -- in those markets, particularly China grows more and more, that's why we feel it’s such a strong growth market for us. So, I think as you know, as I tried to say on the call, I think there's two areas that we really need to focus on, and I think if you know us as a management team, we are very aggressive when we see a problem to really go after and address it. So, on jeans side, for the last 2.5 months, we've been working very hard on the product as we look at 2019 adjusting and we’re not…

And I appreciate the candour, thank you. And then just a follow up, Manny, on China. You mentioned you still outperformed your expectations in the market but you are starting to see traffic flow a little bit. Is that in the mainland, is that in the tourist markets? And then when did you start to see that flow down? Thank you so much.

It seems so coincided with the trade tensions as you would expect. Clearly, as I've travel throughout Asia but in particular in China, there is real concerns about what's going on there. I mean, I know everybody quantitatively is thinking about tariffs. But I consistently been talking about that’s issue and that’s managed as we try to have as flexible sourcing base as possible. And if we have time, meaning that some lead time with some of the tariff concerns we'll be much more effective in managing that. But I guess secondarily what I'm concerned about is Calvin Klein and Tommy Hilfiger are two great American brands and if there is tensions in different parts of the world about America, it's position in the world, I think in and of itself, it does create some port. We haven’t seen that kind of a backlash anywhere, but what we have seen is in China is just the consumer has slowed down from the accelerated pace we saw in the first two quarters of 2018. So we’re still comping positively, we’ll still move but the traffic levels in the store are not what they were in spring season and it does give us some pause as we go forward and we’re managing that business a little tighter than we have in the past.

Moving now, we’ll take our next question from Bob Drbul from Guggenheim Securities.

I have a Calvin jeans questions for you. I guess when you take a step back 90 days from the last quarter and just walk us through. Is the inventory -- so you got rid of some of the inventory coming out of the second quarter that was order inventory. Can you walk us through when you think about the supply demand equation for the denim business, where you think we are in terms of the purging of some of this product that isn’t working? And when it turns -- so you talked about changing the buys into the spring. When you walk us through the ability to really impact the product or get it more equilibrium in terms of where the product is. Can you just walk us through the steps that you still need to take? And I guess the second question is just related is. Is the creative sort of the design organization with some of the changes that you see necessary on the denim business? Are they signed up for these changes that you need to see happening?

So, I guess let me take in pieces. On the inventory position and as we’ve gone forward, I think as good stock gets delivered in August, I guess the reaction we saw on the floor, the sell throughs weren’t as strong as we had anticipated. And given that reaction and we feel that there was price resistance on some of -- we’re taking price up on some of our core denim and some of our key categories 20% to 25%, and we felt we've built product attributes that we want that the reaction from the consumer either because of the fashion component and design or just the price positioning, we're just not getting the weekly sell through we anticipated. The initial reads in early August were fairly good, but that was just really the start of the season as the delivery start of the come through, we basically came to conclusion we were too fashion forward and our price positioning was too high. And given that is we’ve been very aggressive about moving through inventory and also providing more of that, not just taking POS markdowns. We’re actually either permanently -- we've taken markdowns on price on the floor or we've provide for those markdowns for the balance of the 2018 fiscal year. So I guess we could have -- over a number of quarters and what we’ve tried to do is get the pain behind us on what’s actually in the pipeline and being deliberate on the floor and the warehouse on the boat soon to be delivered in for us November and December. So we’ve tried to address that. By the end of fiscal '18, by the end of January, our inventories will be in the right position and priced appropriately on the floor that the jeans they…

And Manny, as you get through all the denim product that is off in mist. Is this disposition through like online with Amazon or your outlet business or off-price? Can you just talk us through how you manage it from the brand perspective going forward now?

Bob, this is all happening in channel. This is -- so we're clear. This is not like we got a pile of inventory, we have got millions of dollars of inventory and there is a flow to this business. And we’re adjusting that flow as it goes forward. And we do have, obviously -- we didn’t wake up to this problem today, we’ve been tracking and we've recognizing and dealing with it. So I’m confident as we get through 2018 that this all go through. And it’s going to be captured in the seasonal promotions that go on in the channels of distribution where the goods are at department stores and our own retail stores. This is not we got a swag of inventory we got to burn or anything like that. This is current inventories but it’s just not getting the sell-throughs that are there. And when you said of being promoting at lower rates, so we’re going have to promote a little bit harder but it will be part of the overall presentation that’s going on at retail during this highly promotional time of the year. So, I don’t think it has any brand damaging issue and I think we’ve tried to be as conservative as we can to build it all into the guidance.

And we’ll take our next question from Matthew Boss with JP Morgan.

So Manny, on the Calvin business, I guess what’s your confidence in the 70 basis points CK margin expansion forecast for the fourth quarter? And then as we exit this year, anything at all that changes your view into this brand is a mid to high-single-digit top-line grower next year and beyond?

I think on the 70 basis point improvement, I guess that’s implied in our annual guidance. I think, obviously, there’s two components to that. I said the first piece of that is on the gross margin side. I think there we’re looking for something between 10 and 20 basis point improvement in the Calvin Klein business gross margins. I think given the type of reserves and markdown reserves and allowance reserves we built up in our third quarter, I think we are very confident. More importantly, given the trend of business right now that we're seeing through November, we're outperforming our sales plan and we’re outperforming our margin plans in the businesses as we go forward. So that gives us a lot of confidence as we go forward. There is still a big Christmas season to go and everybody knows this is extra week in December. So we don’t want to get ahead of skies, but it feels good now. I think we got a brand, a product that that’s problematic positioned on the floor at the right retail selling price that the consumer is really reacting to it. So I think we’re getting momentum and velocity on the brand and I think that gives us confidence. On the SG&A side, we don’t miss SG&A. We know what the numbers are, it's the way we have our marketing plan. It’s the way we feel about the business and how we’re moving forward. So given the investments and where we are, we are highly confident about the 70 basis points.

And then just a follow-up for the total company, I guess, Manny, what should comfort today in your mid single digit top line and 13 to 15 bottom line algorithm, maybe as we look to next year?

I’m not going to give out all the guidance, but I would say nothing has fundamentally changed about our algorithm. I can't factor in especially the unknown and there is two big unknowns for us, is current and a related, to great extent all that’s going on with trade, I don’t have a crystal ball, I can’t factor that into where we are. Hopefully, that settles down and there is a solution. And what’s going on with currencies, which I think as a direct result of a lot of what’s going on with the trade tension as the U.S. dollar over the last four or five months has continued to strengthen, which just mathematically puts pressure on such a big piece of our business as we try to -- when we translate that forward. We've been able to, in 2018, even with some of the issues that we've had to deal with, we've been able to make up for currency hits that probably total somewhere about the 35% range this year against our initial guidance back in March and we've been able to cover all of that and continue to raise our guidance for the year. So there are levers to be pulled with some of the stuff. But the algorithm for PVH overall is impact and we still have great confidence as we go forward. And I talked about the two external issues that has the potential to pressure that for 2019.

Moving on, we will take our next question from Michael Binetti from Credit Suisse.

Thanks for all the help during the transparency, Manny, very, very helpful, I know you had a tough quarter there for Calvin. I just want to follow up on that quickly. Is the FX and the bankruptcies that we've seen recently and then some of jeans overhang issues. You've walked us through how those extend into this spring, you've made some changes a lot more confident reversing that by fall. Is there anything that gets us to a point where we’re saying 13% to 15% next year is going to be lower than that in the currency and anything that we should think about today related to those things that we're going to enter the year with perhaps?

I think you need to be cognizant of currencies. You need to cognizant of what’s going on in tariffs. I don’t think the bankruptcies that we experienced this year is -- the bankruptcies that we experienced this year really shouldn’t impact business at all. The Sears business is relatively small. I’m not -- again not a crystal ball. But if Sears survives in some form it’s going to be much smaller. The House of Frazer situation seems to be a real restructuring and they seems to be coming out of it, better capitalized as they move forward. So I don’t think that will be a negative impact as well. So, those are the factors outside of everything that’s going on. And when we get to the first quarter of next year, the beginning, we’ll give you the appropriate guidance. But we’ll also try to be as transparent as we go through this as things develop in the market to keep you informed about how this might impact us in those key areas as we go forward.

I guess just on the currency, as you guys – there has been some changes and I know in the currencies that are a little bit tougher to hedge that make the currency mile that we run a little bit harder to think about lately. So as we think about you guys have such a big input, if currency stay where at today. How should we walk through the transactional effects into next year? I know that’s operated traditionally quite a lag, maybe anywhere from 12 months to 18 months even, as you look that...

I think transaction next year will be relatively minimum I mean, again, because we’re hedged. And I think we understand where that is. And if we are -- if it’s -- it will probably be a small headwind if I had to guess right now but a lot depends on what happens as we go forward. We’re hedged out as far as 12 months on certain purchases, but it builds over the year, as you know. It’s really the translational that’s the wild card, because obviously that is something we don’t hedge and I don’t think most companies hedged And particularly, in the first half of the year, our biggest currencies, it’s not the small currency you’ve talked about, it’s a big currencies, it’s the Euro, Pounds, the Canadian Dollar, The RMB, the China currencies, The Brazilian Real. If you look at where currencies were when we initially gave guidance back in March of this year for the current year, the Euro, as an example, was $1.24. Today, the Euro is $1.13. So, that is going to be an issue if there is not movement in that as we go forward. I don't think I'm telling you anything that everyone doesn't know. And there's not much that I think you can do in the short-term to manage against that. We manage our expenses but there's only so much you can do because you have to manage the business in the currency that it's being supported in. So, again, just to summarize it, I don't think that transactional issues, because we're hedged out, is a real issue for us but I think the concern might be more on the translation side.

Okay. Thank you very much.

And I think -- I guess I would just add, because this always comes up, for a U.S. company that's U.S. dollar-denominated, 50%-plus of our sales is coming out of the international markets with the currencies I discussed and over 60%, 65% of our profitability is coming out of those markets. And that's why currencies present a bigger issue relative to, say, some of our competitors in this market here who have a much smaller geographic diversification than we do.

Yes, sir. Moving on, we'll take our next question from Chethan Mallela from Barclays

It sounds like there's a big distinction between the performance of the Calvin Klein Jeans and Collection businesses and just the balance of that brand. So, can you maybe just talk about the magnitude of the differential that you saw on the top and bottom line between Jeans and Collection versus the balance of Calvin in the third quarter? And just how you're thinking about that relative performance into the fourth quarter?

So, I guess I'm not going to get into profitability by product category but let me just try to put the Calvin business, the Jeans business in size perspective so you get a sense. And also, last night on Cramer, I did the math in my head and I was wrong when I said that Jeans represented 10% of our business globally. It represents about 15% to 16% of our business globally. But for PVH, from an owned and operated, when you distinguish between half of our business, more or less, is licensed and half of our business is directly operated by us, so it represents 15% to 16% of our overall Calvin Klein brand business, retail sales globally, but for the businesses that we operate directly that we report sales on, it represents about just over 30% of our business, to give you a sense. And it has a bigger financial impact, given that, on our own P&L. So, that's a bit of a background. So, what I would say to you is, look, we're seeing -- all you have to do is just go to Macy's or go to Dillard's or some of the key department stores and see the Calvin Klein presentation at retail and you'll see, on the women's side of the floor, it's been spectacular. The results for a brand that's as big as it is at Macy's, in particular, we continue to see -- and G3 will talk about it in their conference calls as they go forward -- but we continue to see very strong growth out of the Calvin Klein business and our partner, G3, just does an outstanding job. The men's tailored business continues to be very strong. Our Calvin Klein dress furnishings business continues to be very strong. Our sportswear business is performing on the men's side the way we look at. Our footwear business continues to be a good business for us. And, obviously, the crown jewel of our portfolio is our men's underwear and women's intimates business and that business is just off the charts and you can't help but walk in the store and just recognize that. So, to give you a perspective, and my point being is I know this Jeans issue is something we clearly have to deal with and it's a key part of the brand, but I think, at time, it does overextend its importance to the overall brand as we move forward. So, I think it's important to share that.

And just one quick modeling follow-up. I know that some of this is still in flux but should we be thinking about the fiscal '18 tax rate, where we're looking to land at the end of this year, as a reasonable assumption to use on a go-forward basis?

Look, guidance is still coming but the model did imply that and that's where we are at this point. We're still waiting. Regulations are being firmed up. There's so many moving pieces. But I think that's a safe assumption for now.

Moving on, we'll take our next question from Tiffany Kanaga from Deutsche Bank.

Hi. Thanks so much for taking our questions. I think we've touched on this tangentially but when you discussed 200 basis points Calvin Klein operating margin improvement ahead, would you outline what's also baked into those plans in terms of retailer bankruptcies, as well as FX, tariffs, and global macro risks? And, additionally, would you break down the opportunity between North America and International? Thanks.

Tiffany, I'll do this. I'm not counting on any bankruptcies as we go forward, obviously. It'll be what it'll be. There's always something going on and I don't think that really should be meaningful unless there's some major issue out there that I'm not aware of. So, I don't think bankruptcies are an issue. I think, geographically, and we've said it, International will grow faster than the North America business, only because the North America business, on a relative size level, is so much bigger and the product categories here in North America are much more developed. We always are talking about the European opportunity for Calvin Klein. And what I continue to say is, today, the Calvin Klein brand for us is doing just under $1 billion in sales in Europe. The Tommy business is more than twice as big as the Calvin business within Europe and we think there's the opportunity to be as big in Calvin as we are in Tommy long-term. Developing our men's and women's sportswear business, developing more of a performance business, our tailored clothing, our footwear and accessory opportunity that exists for us. It's the only region in the world where Tommy is larger than Calvin. So, it gives us a lot of confidence. Plus, we have the management team, the expertise, and the model in place with our operating platform in Europe to really take advantage of that and have the credibility with our key retail partners there to have two of the premier brands in the world to really use as leverage as we go forward. So, we have a tremendous amount of confidence that we can deliver against that. And just, not to go back too far in history, but when we took over that European business five years ago, it was $500 million and it was losing money. And today it's $1 billion, making double-digit operating margins. So, that gives us big confidence. And the continued growth within Asia, just as that market continues to grow, driven by China and the related greater China markets as we go forward, there's just significant growth and white space opportunities for the brand. And just like Europe, the product category offerings are much more limited overseas in Asia than they are as developed here in the United States. So, I think that's where we are. And then keep in mind that the operating margins internationally for Calvin and Tommy are higher than the operating margins of our North American business. So, I think that's what gives us confidence as we move forward.

All right. Thanks so much.

Thank you. Operator, we're going to take one more question. It's already after 10:00 a.m.

Certainly. We'll take our final question from Kate McShane from Citi.

Hi. Thanks for taking my question. Just one small question with the tourism softness in the U.S. that you had mentioned. Is that across the board in tourism or was it just specifically with the Chinese tourists?

For us, I guess there's two big categories that we see. It's what you touched on, which is China, but it's also Brazil. Given what's gone on there in this hemisphere, particularly this time of year, that's always a strong consumer for us, particularly for our two brands that have great market position in Brazil, both Tommy and Calvin. I think we outsize performance with that target consumer. So, it's really that South American consumer and it's the China piece that we've seen slow down. The European tourism we haven't seen really slow down at all in the United States. But I think a number of people have talked about it on their calls that that international piece is not as strong as it was in the first half of the year.

Okay. Thank you for that. And then I just wanted to ask a quick question. Tariffs, I know, are a big unknown. I just wondered if you could maybe quickly walk us through how much you're thinking you can mitigate, in terms of pushing back on your suppliers and finding efficiencies in supply chain versus what would be your view on pricing if tariffs were to be enacted here?

Kate, let me put it into some context first. If you look at imports for apparel and accessories from China into the United States, the last statistic I saw -- it's a bit of a moving target -- is about 40% of imports for the U.S. market come from China. We are, as a company, we are below 20% of our production for North America. For U.S., it's about 17% or 18% and we're constantly adjusting that. If you were to look at us three years ago, we would have been over 40%. We have been strategically moving, because of cost pressures -- because we didn't like the way that market was developing for the U.S. market, we've used our China sourcing base for China and also for the European market and that's been a really strong strategic move for us, particularly in the environment we're in. But, given our size, 17%, 18% of our production, which represents about 8% or 9% of our cost of goods sold globally, is still coming out of China and that number is about $75 million of tariff impact to our cost of product if it comes through at 25%. So, it's not insignificant. I think now we get into a couple of things. If it happens and the tariff is put on, if it happens and it happens that the administration makes the decision we're going to raise all tariffs, we're going to do 25%, and we're all going to do it on January 1st, we've got a problem in the short-term. There's no time to react. You can't even change tickets to adjust it on the floor to move your retail selling price if you so desired to do that. The purchase orders are already written with all of the retailers and…

Thank you.

Thank you. And with that, I think we're going to close the call. I want to wish everybody a healthy and happy holiday season. Happy Hanukkah, Merry Christmas, everyone, and a healthy and happy New Year to you and your families and we look forward to speaking with you in our fourth quarter press release in March. Have a great day. Thank you.

And, again, that will conclude today's conference. We do thank you for your participation and you may now disconnect.